Breaking the bank

The city of Chico is in financial trouble because it spends more than it takes in, and Greg Jones wants everybody in town to know about it.

“It’s important to admit you have a problem before you can form a plan of action to solve it,” the city manager said.

This negative state of affairs has been going on for about four years. If allowed to continue unchecked for a couple more years, the operating reserve would be gone, and another five or six years without corrective action would erase the emergency reserve, Jones explained. Then the sky could fall.Root cause of the problem: The city pampers its 450 employees with costly pay and benefits goodies, which in turn limits the amount of money available for street repairs, parks maintenance—Bidwell Park especially—and development of creekside greenways, to name a few infrastructure needs.

In what amounted to a cry for help, Jones last fall put out a mass mailing to Chico residents at a cost of $7,000 to pinpoint the problem. In the glossy, four-page “citizen newsletter,” Jones said in part:

“The cost of doing business for the City has outpaced revenue for a number of years, requiring the use of reserves. … These cost increases are comprised of … retirement system cost increases, health benefit costs … pay increases, and other personnel related costs.

“These costs, if no changes are implemented, will continue to accelerate faster than revenues, causing continuing ongoing budget deficits and allowing no room for increasing levels of service which the community needs.”

Jennifer Hennessy, the city finance director and the source for most of the numbers in this article, supplied specifics by revealing that 80 percent of the city’s $46.9 million budget for 2006-07 went for people costs. That’s almost $37 million, and of that amount $26.5 million went to public safety, meaning police and fire. Overall, public safety accounts for 71 percent of the general-fund budget, with police taking 45 percent of the total.

Retirement benefits for city employees as a group have gone up 379 percent since 2000, and pay rates have largely kept pace.

Just how sweet the benefits package has become can be seen through health and life insurance policies enjoyed by all employees. Health coverage ranges from an HMO policy that’s free to the employee but costs the city $323 per month, to a “Cadillac” policy that covers 90 percent of anything needed for a family and costs the city $902 per month, compared with $170 for the employee. All city workers also enjoy a city-paid life-insurance policy—cost: 34 cents per $1,000—worth a dollar of coverage for every dollar earned. Thus an employee who earns, say, $75,000 carries a free $75,000 life-insurance policy.

On average, permanent city employees earn $68,022 annually.

“Government employees are extremely well paid … compared to private-sector workers in Chico and the county,” Hennessy said. Indeed, Chico has long been known as a minimum-wage town, and Butte County, whose median household income in 2003 was just $33,443, has long been a poor county.

Jones emphasized that people everywhere consider public safety and streets to be the most important factors defining how well their cities or towns are managed. Public safety measures up well in Chico, but the streets do not.

Indeed, the police and fire unions—plus other city unions and employees—dip so deeply into the money pot that there’s little left for road repair and maintenance.

The most outspoken critic of the pending budget shortfalls is City Councilman Larry Wahl. He more than anyone has warned that the council must face these realities and take action to reconcile spending and income imbalances before it is too late.

Dan Fulks, the city human resources director, holds the demanding job of negotiating contracts with the city’s several unions. He’s now hammering out a new multi-year contract with a three-person team representing the local chapter of the International Association of Firefighters. He said he couldn’t “sunshine” (reveal) details other than to say the firefighters got a raise in each of the past three years and want another raise this year.

In contrast, the Chico Unified School District, for example, must early on sunshine the demands of the teachers’ union, which nearly always creates a public furor. The city process instead reveals terms only after the fact, when the City Council has already OK’d the contract. Fulks acknowledged there might be more negative reaction if bargaining details were publicized.

City figures show that firefighters have enjoyed pay increases totaling 40.1 percent since 2000. As for retirement benefits, the big goody came down in 2001, when public-safety workers statewide won what has become known as the “3 percent at 50” plan. That means a firefighter or policeman can retire at age 50 with each year of service worth 3 percent of salary at the time of retirement.

If a public-safety worker started on the job at age 20, for example, he could retire at 50 with 90 percent of his highest salary, presumably the salary he made during the final work year. If that salary were $75,000 today, such a retirement would be worth $67,500. After age 50, each year is worth 3 percent of salary. In contrast, California public school teachers work until age 60 to get 2 percent.

The retirement benefits are carried with the California Public Employees Retirement System (CalPERS) in Sacramento, and the “3 percent at 50” plum proved to be the catalyst—along with a stock market swoon in spring 2000 that hurt investment returns and thus tax revenues—that prompted Gov. Arnold Schwarzenegger to declare a state of retirement system crisis and call for the Legislature to rein in pension costs. The governor knew that, once granted, a benefit, just like a bond, must be paid, even if it means a taxpayer bailout.

Although the Legislature balked and forced the governor to temporarily back off, he took a different tack last month by tossing this very hot potato to his newly created bipartisan Public Employee Post Employment Benefits Commission to study retirement reform and quickly make recommendations for action to the Legislature. The commission is also supposed to right away find a way to educate the public about the magnitude of the issue.

At the commission’s first meeting early this month, Marcia Fritz, a CPA and pension expert from Citrus Heights, outlined the scope of the problem over the next decade, when hundreds of thousands of state and local government workers will retire and begin collecting benefits. She said the pension “fiscal time bomb” represents the biggest issue facing the state.

Just how well the 69 firefighters at six Chico stations are doing is reflected in the fact that they enjoy benefits worth 53 percent of payroll. That means if a firefighter makes, say, $75,000 dollars a year, his benefit package—defined-benefit pension, health insurance, life insurance, etc.—is worth $39,750.

New firefighters start at a hefty $57,551, and the average salary is $81,630. With benefits, total compensation is $124,894. Fourteen of the 69 firefighters earn salaries in excess of $100,000.

There has never been a time in the American private sector when any occupation group enjoyed benefits as rich as those enjoyed by city employees. Today even 5 percent looks good, and in the past 30 years the number of workers covered by defined-benefit pension plans has decreased by half.

Indeed, Hewlett-Packard is the latest corporate giant to announce it will no longer offer defined-benefit pensions. Others, like United Airlines, enter bankruptcy and dump their under-funded pension obligations on the federal Pension Benefit Guarantee Corp., which then kills all secondary benefits like health and life insurance and pays some 60 to 70 cents on the dollar for the remaining pension, depending on how seriously under-funded it was at dumping time. This federal rescue agency, which is many billions of dollars in the red, may well soon be a candidate for a taxpayers’ bailout.

All city of Chico employees are required to contribute 9 percent of their salaries toward their pensions, but the firefighters pay only 2 percent because the city picks up the other 7 percent. The city then pays another 25 percent of the firefighter’s salary into his or her pension fund, for a total of 34 percent of salary. The city pays at least 25 percent of salaries toward the pensions of all its 450 employees. This is on top of their free life-insurance policies.

Bill Hack, president of the local firefighters’ union chapter, didn’t see any problem with asking for more money because he said any pay increase is tied to an increase in the general fund and the city’s being able to afford it. But the city manager’s point is that the city is balancing the budget by using its reserve.

The city has added three new firefighters this year.

Fulks will sit down with the Chico Police Officers Association when he wraps up a contract with the firefighters, and he said he doesn’t know what the 93 badge-carrying cops will want.

There are a couple of important things he knows for starters, however. First, the city picks up the entire 9 percent pension salary personal contribution for the police, and, second, the police benefits package is now worth 62 percent of payroll. That means if a policeman is earning $75,000, his benefits are worth another $46,500. The police have won a 37.4 percent increase in pay since 2000.

Starting salary for police officers is $49,795; the average pay is $70,777.

A different perspective on the matter of public-safety compensation can be seen in the fact that 64 of the 159 cops and firefighters earned more than $100,000, including overtime, in 2006. Hennessy said the city paid $2,435,479 for public-safety overtime last year, which was 5.5 percent of the city budget.

The police are unique in having a trust fund for health care that will carry on into retirement, not stop at retirement, as other city benefits do. Detective Terry Moore, the police union spokesman, said officers contribute $200 per month to the trust. The city matches that with another $200, and the total buys a health insurance policy that “partially offsets” costs for officers in retirement.

Just how many cops would it take to make Chico residents feel safe? It’s hard to say. Police spokesman Capt. Mike Maloney revealed that work has been done on the national level to partially quantify the question. He said a formula carried in the annual FBI Uniform Crime Report shows Chico, with 1.19 officers per 1,000 population, is a little below average for the three states of California, Oregon, and Washington.

The city manager, however, doesn’t feel comfortable with formula staffing and wants more officers so he can get into community policing with foot patrols.

Police Chief Bruce Hagerty said that last year his department fielded more than 26,000 emergency calls to 9-1-1, and in the great majority of cases a crime had already been committed or was in progress. In many cases there was already a victim.

“Our No. 1 goal is to prevent crime, and we can offer no statistics on how we are doing there because we obviously have no way to count crimes that didn’t happen,” the chief explained.

Hagerty added that police made 54,000 responses last year to calls, in addition to 9-1-1 calls, where the calling party wanted a police officer.

The department has just added two officers to the traffic division by redeploying two officers and is now starting the recruiting process for two replacement officers. All this is being paid for at present by state/federal grant money that will run out in a few years. At that time, Jones said, the city will pick up the positions on its regular payroll.

The 2006-07 budget calls for six new police positions, four of which have been filled. The other two will be filled when new grads emerge from the Butte College Police Academy in May, according to official sources.

The public often hears that police officers and firefighters need extra compensation because they “put their lives on the line every day.” While providing public safety certainly can be dangerous, records show that only one police officer and one firefighter have died in the line of duty in the history of Chico—the policeman in a downtown restaurant incident in 1938, and the fireman in a post-fire downtown roof collapse in 1970.

Fulks also bargains with the service Employees International Union (technical, clerical, trades, and craft workers), and its 300 workers do very well, averaging an annual salary of $47,867. The top for an SEIU member is $37 per hour with benefits worth 52 percent of payroll and yearly total compensation worth $118,686.46. Union members’ pay has gone up 37 percent since 2000.

The fourth and last union Fulks sits down with is the Chico Public Safety Association (dispatchers and community service officers). This small group has also done well in pay since 2000, with raises ranging from 30.8 percent to 40.8 percent, depending upon position. Average annual salary is now $47,607. The highest-paid member earns $29.03 per hour with benefits worth 56 percent of payroll and total compensation worth $94,196.54.

In addition to these recognized unions, the city also has three “unrepresented” employee groups: public-safety management (fire chief, police chief and captains), who have benefits worth 55 percent of payroll; confidential employees (certain clerical staff who have confidential-information access), who have benefits worth 47 percent of payroll; and management (city manager, department heads), who have benefits worth 39 percent of payroll and pay increases totaling 35.3 percent since 2000.

The police and fire chief each earns a salary of $165,939 and total compensation of $251,439.76.

Tracking of all groups shows their pay increased roughly 6 percent per year, except fire, which is closer to 7 percent. Union workers occupy lifetime positions.

The city manager personally negotiates terms with the unrepresented employees and makes compensation recommendations for them to the City Council. Since Jones makes recommendations on all groups—represented and unrepresented—and makes a pitch for his own pay, does he indirectly benefit from his own raise recommendations and thus have a conflict of interest?

City Councilman Larry Wahl didn’t answer yes or no but asked, “How would you deal with that?” He went on to say, “We negotiate our contract with the city manager, and the city manager is free to pay those people under him what he thinks they are worth, and he’s got to make more than his underlings.”

Official records show Jones started work on Jan. 1, 2006, at a yearly salary of $190,259 (it has since gone up to $200,533). Tom Lando, the previous city manager, who served from July 1, 1992, until Dec. 31, 2005, started at $84,000 per year and retired at $233,516. Thus his pay improved by almost $150,000 over 13.5 years, increasing $11,075 per year on average. Based on his age at retirement (55), he is making about $145,000 annually in retirement.

The city also paid for Lando to earn a Ph.D. in public administration through the University of Southern California, an expensive private university (tuition today is almost $34,000 per year), which further qualified him for teaching at Chico State University.

It remains to be seen what princely package Jones will develop in the future.

Roads are the starving waif of the city. Although that is the last thing Chico motorists want, they don’t have a powerful union to help change the situation. It’s one of those “everyone knows” kinds of things. Everyone knows that traffic is increasing in Chico all the time, with popular SUVs and heavy pickup trucks much in evidence. Heavy garbage trucks with an extra pair of wheels in back for bearing additional load pound the pavement, as do buses.

Chico State student and letter-to-the-editor writer Kristen Thengvall expressed the public’s general frustration when she wrote recently about the awful condition of North Cedar Street that she and other Chico State students must use as their main route to campus and downtown. “We pay the price as our vehicles need to be serviced more often due to the wear and tear of potholes and uneven road surfaces,” Thengvall wrote, also criticizing the lack of sidewalks and lighting. She wants the city to give the street higher priority and do something about it other than talk.

The city manager lamented: “I need six to eight million dollars a year to put the streets in proper shape, and I don’t have the money.” He added that the city tries to keep potholes repaired, but “it’s like chasing your tail to keep up. I want preventive maintenance. If I’ve got potholes, it means the preventative maintenance system is failing. My goal is no potholes.”

He pointed out that Chico streets were not built for high-use urban traffic. Further, if the present winter had brought a lot of heavy rain, the streets now in bad condition would be in terrible shape.

The city manager said it would take “a number of years” to fix the streets. He didn’t quantify a more specific timeline or specifically describe a program to do it.

Official records show that slightly over $4 million in general-fund money was allocated in 2006-07 to the General Services Department, which has responsibility for street maintenance, street cleaning and sweeping, parks operation and sewer-line maintenance.

Another $2 million in what’s identified as “gasoline tax transfer” money is available, according to official records, but only $1.2 million was transferred into general services for road improvement and maintenance. Note that’s improvement as well as maintenance. The other $0.8 million goes to pay working crew members. Gas tax money also hired a maintenance worker whose job is to abate the growing graffiti problem.

It’s clear that, as Jones said, the money for road repair falls far short of the $6 million to $8 million per year needed.

It’s a different story with big roads. Bond money from the Chico Consolidated Redevelopment Agency (RDA) paid for “the lion’s share"—almost $8 million—of the cost to do all the major renovation work last fall on Mangrove Avenue, Cohasset Road, the Manzanita corridor, Vallombrosa Avenue and the Skyway, said Bob Greenlaw, a senior engineer for capital projects. Gas tax money paid for about $1.2 million, which is the yearly allocation.

All the work done last fall on these heavily traveled arterial roads—as opposed to neighborhood streets, minor traffic feeder streets, and major feeder streets—cost $9 million, Greenlaw said.

Overall street conditions further suffer because Chico gradually and incrementally annexes more and more of the many county “islands” that have long existed within the city, and no annexation fee exists to help pay for the transition or to improve the bad roads that usually come with the deal.

The county never took care of the island roads, Wahl said, and when annexed they represent an added maintenance expense burden for “a long time.” Official records show the city has gained 18,151 residents through annexation from 1992 through 2006. Wahl explained that Chicoans are paying “for the sins of their fathers,” who never drew a line around the city in, say, 1910 to define the difference between its limits and the county’s.

Jones, who has been on the job only 15 months, takes an optimistic view of Chico’s financial problems and does not think the sky will fall. City leaders will work out one or more solutions, he said.

His first forward step was to project the city budget 10 years out to bring revenue and expenditures into long-range view for perspective. He thinks seeing liabilities stretched out will hopefully lead to a better and more pragmatic financial approach, whatever that might be.

Jones also spoke hopefully about building a stronger stream of sales tax revenue, the biggest single source of general-fund money for the city. He pointed to the Costco expansion and its potential to bring the city an additional $300,000 per year, but did not go on to other specifics. He also drew attention to the fact that Chico is a regional shopping hub that had in the past delivered well on retail sales tax and should be able to build more such tax revenue. Jones thus hoped the city could at least partially grow out of its money problems.

Since city employees represent more than 80 percent of the city budget, Jones was asked, why not hold the line on raises for this financially pampered group until income and outgo come into balance? “This financial correction should not all be on the backs of city employees,” Jones replied emphatically.

Why not, he was asked, since he had identified their pay and benefits as the root of the problem? He replied that the problem is “paternalism"—treating employees with the generosity a parent gives a child—and it’s not unique to Chico. He said some local governments give their workers even more than they ask for.

Mayor Andy Holcombe said he “didn’t buy into” the idea that lucrative total compensation packages are handed over by the Chico City Council or other local governments because it’s just OPM (other people’s money).

On the same question, Councilman Steve Bertagna replied that giving away OPM was not the case. He added that the council wants a certain high level of service and is willing to pay to get it.

Wahl, a small-businessman known for his outspoken views, said using OPM is part of the generosity problem with public employees. Another is that the city wants to ensure that its workers are paid as well as those in comparable towns elsewhere. He then stressed that employee compensation represents a huge problem the City Council must face.

“I have asked that the City Council have a discussion … about how we can rein in the costs of paying employees. It’s something we must do because we just have to get a handle on knowing, say, five, 10, 20 years down the road where we are going to be if we keep paying what we’re paying … when most of the people who are there now are retired, and we have a new crop [of employees] that is being compensated as well or maybe better than the folks now.”

The councilman said he hadn’t been able to win over a majority “because it will be a hard [discussion] to have, and it’s going to hurt.” He added, “The feeling is that it’s always been that way. Yeah, but—you know? It doesn’t mean it always has to be that way. You’d be out of business in the private sector in any kind of business … with employee overhead costs like that, but we accept it in government. It starts at 1600 Pennsylvania Avenue. [the White House] and works its way down.” He then suggested possible solutions to get costs down.

“One is letting people go, but I don’t foresee that happening. Another is increasing revenues. That means some kind of tax, but I certainly don’t support that notion. Another is to let the revenue grow without letting the salaries grow. We could also have a tiered approach where newer people don’t get the same level of benefits the current group is getting.

“Now, you know that [having tiers] would create major angst among the unions, and they would fight it,” Wahl said, but he insisted it be part of the discussion the council must have “before some point in time when it may be too late. I don’t know any other ways you can do this.” Wahl emphasized it would be better to plan for an outcome now rather than be forced to “an outcome we may not like.”

Asked what it would take to give street repair a higher priority, Wahl replied, “It would have to be a council discussion, and I asked for it at the State of the City meeting [last January]. We need to sit down and decide which are the worst [roads] and then make a start by taking maybe a half a million or a million dollars a year so we take a little whack at it year by year to do something.”

Wahl’s current plan of action involves writing a letter to the mayor asking that road repair be put on the agenda for the upcoming spring budget discussions, but “I don’t know that it will go anywhere.”

As for Jones, he appeared reluctant to speak in specifics about the future and possible solutions to city financial problems. That may be his way of saying that it’s up to the City Council to make such policy decisions.