Contract battle brewing

Firefighters want to retire at 50 with 90 percent salary, city
says no – so far
By Lori Stuenkel

Gilroy – The city and its firefighters, who are seeking to retire at age 50 with 90 percent of their salary paid after working at least 34 years, may become embroiled in one of the biggest budget fights in years if current contract negotiations reach impasse.

Firefighters say they simply want their retirement benefits to match those of police officers, who for several years have enjoyed a package that gives them three percent of their last year’s pay for every year they work – up to 30 years.

But at least one official, City Administrator Jay Baksa, has dubbed the benefit package – commonly referred to as “3 at 50” – an “unsustainable” burden on city finances.

Since Gilroy instituted the 3-at-50 program, the city’s payouts for public-safety retirement benefits has spiked from $895,615 in 2001 to $3.2 million for the upcoming fiscal year, according to figures provided by the city.

The vast majority of the increases went to cover the police department’s retirement payments, Baksa said. The city is now reviewing figures from the California Public Employee Retirement System (CalPERS) so city officials can predict how hard city coffers will get hit if Gilroy’s 34 firefighters also get the 3-at-50 package. They currently receive the same benefits as most city employees, which max out at 60 percent of salary based on a 2-percent formulation.

Currently, the city pays $2.86 million in retirement for all full-time employees – a $600,000 increase from last year. Under the current benefits structure, that figure will jump to $5.3 million within three years, according to city projections.

Jim Buessing, a member of the firefighters’ negotiating team, made the case for matching benefits with those of police.

“Benefit packages are generally equal between the two of them because the costs (to the city) are shared,” Buessing said.

The firefighters union first broached the 3-at-50 plan during negotiations in fall 2003, but settled on a contract without it because the city was dealing with a recession-saddled budget. While the situation today is slightly better, money continues to get siphoned from city coffers to fund the state’s shortfall, and the city had planned on a “zero-increase” budget.

State administrators with CalPERS initiated the 3-at-50 program specifically for public-safety employees. The typical CalPERS arrangement has a third of program contributions paid by the employee and a third by the municipality, with the final third expected to come from CalPERS’s investment earnings. The system is structured so that cities have to make up any shortfalls when investment returns lag.

That was far from anyone’s mind during the economic boom of the late 1990s, when the 3-at-50 program began.

At that time, investment returns often reached as high as 18 percent, according to Baksa. The returns were so good that some cities, known as “superfunded,” did not have to pay any money into the retirement pot on behalf of their employees.

It was in that climate that the city negotiated the 3-at-50 program with police.

“Their benefits increased by 50 percent,” Baksa said. “And then the perfect storm hit.”

The bubble burst, businesses fled the state, and Sacramento began tithing local governments as the economy spiraled downward.

“Three at 50 is unsustainable based on what we know now,” Baksa said. “The city cannot continue the escalation of all benefit costs. There has to be some reining in of benefits.”

Baksa did not entirely rule out an increase in retirement benefits for firefighters, but said “there has to be movement in some other areas,” such as health care costs, worker’s compensation, and disability – all of which also have increased in recent years.

The city and Firefighters Local 2805 have been at loggerheads over the retirement issue since the beginning of negotiations in September, according to Buessing. The two sides will resume talks Wednesday, armed with calculations from CalPERS on how much the union’s request to participate in the program will cost the city.

The numbers came in a few days before Christmas, Buessing said.

“We should have had them when we began negotiations,” he said. “As a major issue, it was futile to sit there and negotiate without all the facts. It will have a dramatic effect on negotiations because it gives us the true cost of the benefit items we were looking for.”

He declined to say what the cost to the city would be.

In the event the union and city fail to reach agreement, city charter calls for binding arbitration.

The city lost out the last time negotiations reached that point in the late 1998, when a private arbitrator helped settle a two-year debate over staffing fire engines with four firefighters instead of three. Local 2805 won approval for the additional firefighter and the department grew by nine employees to cover the additional staffing.

Despite being faced with a potentially explosive public policy and budgetary battle, negotiations have so far “been a courteous process,” said Human Resources Director LeeAnn McPhillips, who has sat in on the talks. “We’ve worked hard to keep the lines of communication open.”

She said that it was “not unusual” for union negotiations to continue beyond their deadline.

In that event, the existing union contract that expired Dec. 31 remains in force until a new contract is signed, according to McPhillips.

Buessing said the two sides always try to have a new contract finished before the old one expires.

“Nobody looks forward to going to impasse, because then both sides failed,” he said. “And the way we look at it, we’re not here to fail, we’re here to do something that’s going to benefit both sides.”

By LORI STUENKEL and Serdar Tumgoren Staff Writers

Spike in city’s payments to CalPERS

The city’s CalPERS payments for public-safety employees have spiked since the 3-at-50 retirement package kicked in for police in 2002.

The following are figures for each year. The last year is a projection.

*Total budget for Percent city contributed

Fiscal year Public safety payroll to CalPERS City CalPERS contribution

– 1999-00 $5,636,597 20.206 $1.14 million

– 2000-01 $6,430,766 13.744 $883,844

– 2001-02 $7,003,564 12.788 $895,615

– 2002-03 $8,188,581 26.88 $2.2 million

– 2003-04   $9,191,317 29.40 $2.7 million

– 2004-05   $9,952,403 32.7 $3.25 million


*Includes salaries and benefits for all sworn members of police and fire departments.

Source: Based on figures provided by the City of Gilroy

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