The City Could Use a Few Stacks of These
So, Lafayette’s expenditures in the City Manager’s proposed budget are up 3% this year and revenue is down 2%, due to the economic climate. Oh, yeah, and while the County has decided to start forcing cities to pay for things they previously didn’t, the State is planning on taking a ”loan” from Lafayette worth about half a million dollars. It’s supposed to be paid back, with interest, in 3 years, but we (and all the other cities in California will see.) Please find the phone numbers of your public officials in an earlier post to protest this action.
Also, the Council will be deferring $380K in roads funding until next year. Mostly, this is because this year actually saw a windfall of roads funds and, supposedly, the City Engineer can’t handle more, though that is news to me. Let’s keep an eye on that cash, though.
The deficit will eat up 11% of city reserves, if the City Manager’s proposed budget were to pass. It won’t, as it is always submitted to be modified by the Council. Still, if this goes on, we can expect that, at some point, police services and our already underfunded road repair program will be cut. Police are a huge and growing portion of our costs, but we can, if we are optimistic, expect this to be partially alleviated by having someone other than the Sheriff’s department contract for police. In fact, part of the deficit is from a one-time outlay to be able to fund a police transition.
So, what can be done to close this gap? Well, the Council, with Mayor Tatzin and Councilmember Mike Anderson in the lead, did push off some less urgent expenditures to later years and did some trimming around the edges to reduce the deficit by a good bit. Also, Parks and Recs unexpectedly reported that they have not seen revenue drop as expected. Tatzin and Anderson would have cut more, but couldn’t get the rest of the Council on board. Anduri was very hesitant to make many cuts, Andersson seemed contemplative, but generally uncommitted to many of the possible cuts and Federighi served as a kind of swing vote. All five, though, did go at this problem in a thinking manner, with open minds. I was impressed to see Anduri, at one point, withdraw a reservation after debate with other Councilmembers. Overall, they did a good job of trying to work on this problem, except for one thing…
There wasn’t much discussion about the elephant in the room, though: the City Payroll. In fact, a document detailing budget-cutting measures suggested for consideration by the Lafayette Finance Review Committee was conspicuously missing a suggestion to reduce payroll costs. I think that much of the debate on this was precluded by the presence of a labor contract, but more on that later.
Since incorporation four decades ago, the size of the payroll has increased by 6 or 7 times, while population has grown by less than one-sixth. Meanwhile, we have seen recent increases in compensation average about 6.5%. The 401(k) package the city uses demands, essentially, that the city kicks in an amount equal to about 15% of salary.
So, in today’s economic times, what size raise are we looking at? Well, how does 7% sound?! I have dealt with many city employees, as a business owner, as a private citizen, on behalf of the Lafayette Taxpayers Association, as a city commissioner and as a City Council candidate. By and large, we have a high level of customer service and great city staff. Still, 7% is a lot at any time, but especially during lean years. The methodology used for determining raises is unfair to our citizens, unsustainable and operates in a vacuum.
First, we saw a total of $17K added to the budget this year as a “salary range” increase. This is based upon an average of our 8 or so peer cities, which sets a basic salary range. First of all, this data is, by necessity, a bit outdated. If it were based on current salaries, I would guess that the number would be lower. Furthermore, it does not take into account that many other municipalities are laying people off. I doubt cities are retaining everyone and giving 7% raises. Structurally, this is an improper method of determining salaries. This is how you decide what to offer to a new hire. Raises are best based on cost-of-living and merit increases.
The big increase, however, is the $135K in merit increases. This is unfair, as, while revenue decreases, it drives costs up unsustainably, putting roads and police funding in danger. When expenditures are up and revenue is down, and the future of our revenue and expenditures could be even worse, this is a dangerous move. It puts endangers the budget and increases the chances that drastic pay or benefits cuts or layoffs would be required of our staff.
It also fails to take into account market forces. For one, the labor market is currently a buyer’s market, not a seller’s market and this raise is completely out-of-line with basic principles of market economics and budget management. Furthermore, our economy is experiencing deflation – a decrease in the cost of living – which warrants smaller raises.
Lafayette’s businesses are cutting staff in line with revenue decreases. The City of Lafayette is not just failing to do this, but moving dangerously in the opposite direction. I work in health care. We’re doing absolutely gangbusters. Our revenue is very much so in line with the city and our financial position, based on revenue, profit margins and growth is, well… amazing. Still, my raise this year was 2.89%. Seems cheap, huh? No, it’s just realistic. There is some economic uncertainty for the future, so we can’t be too sanguine with raises. 2.89% also goes pretty far when prices are dropping and, well, quite frankly, I’m happy to have a secure job.
So, how could this happen? For one, our Council has allowed this to happen. Two, we would have to open up contract negotiations to change this. This is the last year of a 3-year contract. I understand the obligation to honor the contract, but we need to be ready to change the methodology by which we determine pay increases. Let me outline 3 methodologies. The first is the current one, the next is more in line with the private sector and the third is a unique way to do a public sector contract that would protect its residents.
CURRENT METHODOLOGY: Basically, City Manager Falk rates all of city staff on a scale of 0 to 3. Each point is worth a 2.5% salary increase. I don’t think anyone has gotten below a 2 recently and the great majority get 3 points, equal to a 7.5% increase in pay.
REVENUE-BASED: We could establish a range for payroll. Take what we currently have and modify it by between 0% and 6% each year. The amount of the raise would be equal to the change in revenue, but never outside of the 0% to 6% raise. The City Manager would determine how to distribute that. He could terminate employees to make that budget work, he could give some employees much higher raises, like 12%, in order to retain talent, so long as the overall payroll increase stays within range. The City Council would be authorized to institute pay cuts or lay off employees only if doing so would be necessary to maintain city services and a reserve equal to 50% of the budget (the current standard, which Lafayette comfortably exceeds.)
A NEW PARADIGM: Lafayette was established with the understanding that it’s mission was to take care of the 3 Ps: Public Work, Planning and Public Safety. We are under-policed and 15% of our residents live on failed roads. One way to determine raises that is fair to Lafayette’s residents is to tie them to these two expenditures. That is, set a starting level of General Funds contributions to roads and police, say $1.25M and $5M respectively. That’s quite a bit higher than right now, but I’m being optimistic; this would work with lower initial funding levels, say $1M and $4.5M. The increase to payroll may never exceed the lower of the increase to either of these two costs. Any decrease in the level of funding to either of them would have to be accompanied to a payroll decrease. The City Manager would still choose how to distribute pay raises however he feels fit. The biggest weaknesses are that it could, in the future, restrict the Council’s ability to retain talented staff. Also, it would create a disincentive to staff to keep costs down. Still, an attentive Council could make it work, especially since the contracts have traditionally been only 3 years in length.
Well, that’s my two cents on the matter. If you want to do something, e-mail the Council at email@example.com and don’t forget to call your public officials to complain about the State’s money grab.