By Ann K. Williams
Lookout Staff

April 13, 2011 -- The city will be negotiating with its employees soon, and while the law allows their talks to be private, it's no secret that employee benefits are likely to be a sticking point.

That's because – as is the case throughout the state and across the nation – employee health and pension costs are outstripping city revenues by millions.

In February, City Manager Rod Gould warned the City Council of budgetary “clouds on the horizon” including “significant and continuing increases in two of our primarily benefits for employees,” health care and pension costs.

Gould urged the council to continue the city's “multi-faceted strategies” to reduce costs “until we've steered through the aftermath of this devastating recession,” strategies which, as spelled out in the city's presentation, included “employee negotiations to ensure sustainable compensation costs.”

In the next five years, benefit costs are likely to increase by more than $18 million, or by approximately 67 per cent, the city's Director of Finance Carol Swindell said at the February meeting. Pension costs are particularly vexing, Swindell said.

Thanks to the recent recession, CalPERS, the insurer for the city's employee pensions, has seen a double-digit drop in its investment earnings, while it had counted on gains, Swindell said.

That corresponds to a nearly 20 per cent increase in CalPERS rates in 2011-12, while the city's revenues are expected to grow only 4.4 per cent, according to Swindell's figures. And the city expects health care costs to go up approximately 10 per cent during the same year.

In two weeks, Donna C. Peter, director of human resources and designated negotiator with employee associations and unions, will meet with the council in closed session to discuss strategy.

After that, she'll sit down to hammer out next fiscal year's contracts with the city's workers and, if past years are any indication, she should have them ready for the council's vote some time in July, Peter told the Lookout Tuesday.

Other than management, all of the people who work for the city are represented by bargaining groups, including the police and firefighters' unions, the Coalition of Santa Monica City Employees and the Municipal Employees Association.

And while their contracts have all come up for negotiation at the same time, their terms are expected to be quite different.

For instance, the city's “Miscellaneous Employees” paid for a portion of their health benefits last year, a gesture that earned Gould's thanks when he addressed the city council in February.

Next year – fiscal year 2011-12 – their health care costs are expected to amount about 14.4 percent of their salary, and their pension costs are expected to amount to 19.2 per cent, according to figures presented at the February meeting. Their total benefits, including health, pension and other benefits, are expected to amount to 43.5 per cent of their salaries.

This means that for every $10,000 in salary a miscellaneous employee makes next year, current estimates indicate that the employee will receive $4,350 worth of benefits.

But the figures are higher for city firefighters and police, whose contracts contain more generous benefits packages.

Firefighters' benefits will amount to 54.4 per cent of their salaries according to city estimates for fiscal year 2011-12, with 35.2 per cent going to pension, 9.3 per cent to health, and 9.9 to other benefits. Or, for every $10,000 in salary a firefighter makes, he will receive $5,440 in benefits.

Police officers fare the best of all. The city estimates that next year they'll receive benefits amounting to 73.4 per cent of their salaries. That's 47.9 per cent for pension, 15.6 per cent for health and 9.9 per cent for other benefits.

That means for every $10,000 in salary a police officer makes, he'll receive $7,340 in benefits, if the estimates hold.

And these figures are expected to keep going up over the next five years.

By fiscal year 2015-16, miscellaneous employees' benefits are estimated to rise to 50.2 per cent of their salaries, firefighters' to 67.9 per cent and police officers' to 87.6 per cent.

Over the same five years, health insurance and CalPERS costs are expected to increase, in some years in the double digits, while revenue growth is not expected to keep up, with city estimates hovering around three to four percent a year.

Many cities in California are negotiating all of their employees bargaining groups contracts at the same time in response to “economic instability,” Peter said, though she said Santa Monica is doing this “for consistency.”

As is the case with council conferences with the city's legal staff, talks with its human resources negotiator can be conducted behind closed doors under the Brown act, City Attorney Marsha Moutrie told the Lookout Monday.

In either case, if the city were forced to discuss its strategies in a public forum, opposing interests – whether attorneys for those in legal conflict with the city, or unions trying to get the best deal for their members – would gain an unfair advantage.

And the public could wind up paying the bill, whether in legal judgments that might have gone the other way, or in employee payments that might have been lower.