Reed Responds to Grand Jury Report on Employee Costs

Statement from San Jose Mayor Chuck Reed Regarding the Civil Grand Jury Report ‘Cities Must Rein in Unsustainable Employee Costs’
 
San Jose, Calif. The 2009-2010 Santa Clara County Civil Grand Jury today released a 33-page report titled Cities Must Rein in Unsustainable Employee Costs that says, “Employee costs are escalating in the cities of Santa Clara County, revenues are not keeping pace with these increases and cities are cutting services.” The Grand Jury looked at rising wages, health insurance, pensions, and vacation, holiday, and sick leave and made recommendations to control costs.
 
The report is online here: CitiesMustReinInUnsustainableEmployeeCosts.pdf.
 
Mayor Chuck Reed released the following statement in response to the Grand Jury report:

I want to thank the Civil Grand Jury for thoroughly exploring how rising employee costs have negatively impacted the ability of San Jose and the other cities in our region to provide services. The Grand Jury is correct. The current system is unsustainable.
 
Over the past nine years, employee costs in San Jose have risen 64 percent while the city’s revenues have only gone up 18 percent. As a result, we have had to cut services to our residents and businesses year after year.
 
These out-of-control costs are why we can’t keep all of our libraries, community centers, and swimming pools open. These rising costs are why we can’t fill potholes, trim trees, or maintain sidewalks or landscaping to the level our citizens expect.
 
San Jose is facing a $118 million deficit in the year ahead and will have to close libraries and community centers and lay off hundreds of employees – including police officers and firefighters – unless we get concessions from our employee unions. Those concessions need to be ongoing, not just for a year or two, or else we will be facing the same difficult decisions next year.
 
I urge all San Jose residents make your voice heard as the City Council votes on this year’s budget. E-mail me at [email protected] and get involved.

31 Comments

  1. > The Grand Jury is correct. The current system is unsustainable.

    The Grand Jury recognizes that the current system is unsustainable.

    Mayor Reed recognizes that the current system is unsustainable.

    The Moderate and Respected Doofinator recognizes that the current system is unsustainable.

    Can we agree that the current system is unsustainable?

    What lunkheads out there are laboring under the delusion that the current system IS SUSTAINABLE?

  2. Jody Meacham, spokesman for the South Bay AFL-CIO Labor Council, claims in the Mercury News article the Grand Jury report is “…full of errors in methodology that lead to poorly informed conclusions.”

    Here is your chance Mr. Meacham, please show us the errors.  I am skeptical because just a few weeks back you said the budget presented by the unions was “…a turnkey budget proposal that balances the budget.”  Ms. Figone found the proposal only addressed $14 million of the $118 million defict.

    • Steve0, you ask a couple of excellent questions. Here are answers.

      On the Grand Jury report, the top half-dozen methodological errors are:
      —The report makes judgments about long-term budget sustainability based on the current recession conditions and assumes there will never be a recovery.
      —It neglects any review of the massive record of financial and service-quality fiascos associated with contracting out city services.
      —It ignores the extent to which pension costs are the result of a recession-induced stock market decline.
      —It expects salaries to grow in relationship to the Consumer Price Index (CPI). In real life, both private- and public-sector salaries grow faster than the CPI.
      —It compares private- and public-sector compensation without considering the differences between those sectors in employee skill levels, experience on the job or timing in the economic cycle. Compared to the private sector, most city jobs either subject employees to much higher risk, e.g. police and fire, or require more education and qualifications (state and municipal workers are twice as likely to hold college degrees as private-sector workers). Private-sector compensation grows faster in an economic upturn and drops faster in a downturn.
      —It provides no information about the number of staff on a city’s payroll, thereby concealing the efficiency of cities like San Jose with a small staff for a city its size. The per capita cost to San Jose residents of city employees is much less than most other cities in the county. For example, the cost per capita for police in San Jose is $284. That’s lower than in Campbell, Milpitas, Mountain View, Santa Clara and county leader Palo Alto, where police costs are $471 per person. For non-public safety employees, the cost difference is even more stark – $60 per capita in San Jose compared to $341 in Palo Alto, again tops in the county.

      On the “$118 million budget deficit:”
      There is a shortfall in the budget being prepared for the fiscal year beginning July 1, but it’s not $118 million. It’s not even close to that. The City Manager has already identified approximately $56 million in budget solutions, which means the real shortfall is $62 million.

      To cover that amount, several city unions along with community leaders, Working Partnerships USA and the Community Budget Working Group developed an alternative proposal including employee concessions among other budget ideas. Just like the City Manager’s version of the budget – which is under near-constant revision – the community budget changes as we get her newest numbers. The key truth is that massive service cuts proposed by the Mayor are not the only solution to the City’s budget crisis nor is his tactic of pitting factions of the community against each other.

      Nevertheless, you will not hear the Mayor or his supporters back off the phrase “$118 million budget deficit” and talk in realistic terms. Their strategy is to paint as dire a picture as possible and blame employees for the budget disaster.

      • Jody,

        Half-truths are better than no truth, I suppose.  Addressing your points:

        1. The report makes judgments about long-term budget sustainability based on the current recession conditions and assumes there will never be a recovery.

        San Jose has had a deficit for eight years last I heard.  Have we been in a recession that whole time?

        2. It neglects any review of the massive record of financial and service-quality fiascos associated with contracting out city services.

        Any fiascos are the exception, not the norm.  And contracts are much more easily terminated and replaced than union employees.

        3. It ignores the extent to which pension costs are the result of a recession-induced stock market decline.

        We the taxpayers should not be responsible for making up pension shortfalls due to the stock market.  No one reimburses me when my 401k drops.  That’s simply ridiculous. 

        4. It expects salaries to grow in relationship to the Consumer Price Index (CPI). In real life, both private- and public-sector salaries grow faster than the CPI.

        The CPI is the most reasonable measure.  The private sector can do whatever it wants because it is profit-driven.  The public sector needs to be held to a reasonable standard.

        5. It compares private- and public-sector compensation without considering the differences between those sectors in employee skill levels…

        This may be the only fair point you have.  Apples-to-apples comparisons are necessary when determining accurate salaries.  I do have to point out that the high ratio of college degrees seems unnecessary, though.

        6. It provides no information about the number of staff on a city’s payroll, thereby concealing the efficiency of cities like San Jose…

        So?  We still have a deficit.  If other cities manage their payroll even worse it doesn’t make San Jose a success.

        7. Rant about deficit not really being $118M…

        The fact that the City Manager has come up with $56M does not change the amount of the deficit.  That’s still $56M that’s coming from somewhere else.

      • Mr. Meacham,

        Thank you for the response. 

        You mention the efficiency of SJPD by stating the cost per capita for police in San Jose is $284.  This information is also prominently displayed on your website, mybudgetidea dot com.  What is missing is any discussion on how we measure the efficiency of a police department and the actual services delivered to residents.  If we only look only at cost, laying off a few hundred members of SJPD would make your measure of efficiency look even better.  If we go by traditional measures such as officers per capita, San Jose falls short. 

        The same goes for Parks and Recreation mentioned on your website.  There is no measure of actual services delivered to residents when comparing San Jose to other cities. My experience tells me San Jose falls short in actual services delivered compared with cities like Palo Alto.

        The fatal flaw in your argument is low costs cannot be equated with efficiency until we have some way to objectively measure the actual services delivered to San Jose residents.

  3. I applaud Reed on his response to the Report. True – escalating costs must be curbed. Let’s do so fairly, evenly and judiciously.  All employee wages should be capped at t $100,000. It is absolutely ludicrous that the City Manager should be compensated at more than three times what the Mayor makes (less than $100,000 annually). If we implement this action, the difference in savings from what all managers within City’s employ earn, the City’s budget deficit will be instantly eliminated by this action! And lo and behold, problem solved!!

  4. Manny, I’m sorry I blamed city workers. I now blame the city “leaders” for paying city employees too much. It’s THEIR fault that we overcompensate city workers.

    There. Is that more to your liking?

    • John, your comment seemed a bit sarcastic.  However, you know what, it IS more to my liking.  If you believe that your elected official is mismanaging city funds then we SHOULD blame them and vote them out.  Thanks for clarifying this point.

      • You’re right. I was being sarcastic. But seriously, the real point is that when people point out that our budget problems are largely a result of skyrocketing employee costs they aren’t necessarily “blaming” or “scapegoating” the employees. They are simply pointing out a fact. We can argue about whose fault it is that public employee salary and pension costs are breaking the City’s budget, but disingenuous labor advocates won’t even engage in the discussion. Instead they play the victim card. That’s when I lose patience with public employee unions. Selfish, selfish, selfish.
        So it’s very important for voters to examine the endorsements of their candidates for city council. If they continue to vote for candidates who are backed by public employee unions then we can expect the city’s budget to remain on life support for years to come.

  5. The Grand Jury should ask why personnel records are being leaked to the press.

    Sheriff Department records are leaked in the De Anza case and Reed has knowledge of it.

  6. How did city government’s ” Fiscal mismanagement ” occur which will seriously harm many city employees and their families and while residents will not get services their high taxes paid for ?

    Who is responsible under Council and City Manager form of city government for managing city government and gets big bucks and big pensions to do fiscal management ?

    “Under the council–manager form of government for municipalities, the elected governing body (commonly called a city council, city commission, or board of selectmen) is responsible for the legislative function of the municipality such as establishing policy, passing local ordinances, voting appropriations, and developing an overall vision.”

    ” The legislative body, which is voted into office by public elections, appoints a professional manager to oversee the administrative operations, implement its policies, and advise it.”

    “The city manager position in this form of municipal government is similar to that of corporate chief executive officer (CEO), providing professional management to the board of directors.”

    “The concept of the council–manager form of government was a product of a confluence of the prevailing modes of thought during the late 1800s and early 1900s.[5]  Probably the foremost influence was the Progressive Movement; following along the thought lines of the movement, the municipal reformers of that time wanted to rid municipalities of the pervasive “Machine” form of government and the abuses of the Spoils system. The thought was to have a politically impartial administrator or manager to carry out the administrative function.

    Another influence was the “Scientific Management” movement, often associated with Frederick Winslow Taylor. The focus of this movement was to run organizations in an objective, scientific fashion to maximize efficiency, among other things.

    A third influence behind the council-manager idea was that of the organizational structure of the for-profit corporation, with its board of directors, which hires a professional CEO to run its operations.[5]”

    http://en.wikipedia.org/wiki/Council–manager_government

    Who is responsible for budget mess ?

    Who were people who benefited from ” Fiscal mismanagement ” ?

  7. Just read the grand jury report and find it timely and interesting.  It matches some of what I find in a lit review on public sector non-wage compensation.

    The total compensation is the key.  Wages are just a part of the total cost, and the defined-benefit pension system is a huge part as well.

    Pretty much everyone in the country outside of the unionized public sector shifted to a defined contribution system (put 5% into a 401k and we’ll match that).

    Report also keyed in on binding arbitration as a problem, which I didn’t agree with, but now I see better how this works.  All the local cities were kind of in a MAD scenario (Mutually Assured Destruction) where if one city raised wages, all cities had to match in that employment category.  Private Sector wages were never compared, only comparable agencies, so together everyone ran up the salaries and now everyone pretty much every city has grim financials reflecting unsustainable commitments.

    Final comment (trying to learn brevity) is the two-tier retirement system approach.  That pisses me off as I’m likely to be the future worker who will have to work along side the people who will have a stellar retirement and as I do more and more of the work and these existing employees retire in place by moving to supervisory positions while the rack up the last few years to max retirement, I’ll be bitter and resentful.  Is this the model for how the baby boomers want to screw following generations – get there’s and let everyone else suffer after?  For a generation rallied by Kennedy’s call for action, I see a lot of selfish, self-serving behavior when it comes to shared sacrifice.

    • Well said.
      Why does that city have to deal with unions in the first place?
      If it must, then maybe it should be on a yearly basis wherein salaries/benefits increase or decrease based on generated revenue.
      Has binding arbitration ever benefitted the taxpayer?
      Can’t most of the city/county jobs be outsourced?
      What is the city’s operating budget?
      Why can’t I stop asking questions that I know I will never get a straight answer:)

  8. “Over the past nine years, employee costs in San Jose have risen 64 percent while the city’s revenues have only gone up 18 percent. As a result, we have had to cut services to our residents and businesses year after year.”

    Shouldn’t that be “…we *chose* to cut services instead of addressing this clear and obvious salary issue directly”?  And it’s surely a “we,” since the current mayor was sitting on the dais as a councilmember for pretty much all of those years…stop playing the blame game and start working together. That “10% reduction is the only way/blamelabor” line is old, old, old.

    • > That “10% reduction is the only way/blamelabor” line is old, old, old.

      What is really OLD, OLD, OLD is the Karl Marx / Saul Alinsky / Barack Obama class warfare paradigm.

      The labor unions need to be told (they will never accept it on their own) that their employment with the city is at the pleasure of the citizens, and under terms and conditions that acceptable to the citizens.

      If the labor unions don’t like ten percent pay cuts, and don’t like being “scapegoats” for the budget mess, too bad.

      The overwhelming majority of citizens work hard and honestly for the privilege of keeping their jobs until tomorrow.  And then when tomorrow comes, they do it all over again.

      Working in the service of the citizens of San Jose is a privilege, it is not an entitlement.  The insolence of the public employee unions is intolerable, ESPECIALLY in an environment where the average citizen has far less job security and far fewer benefits than public employees.

      The working citizens or San Jose have had to make their sacrifices in the Obama economy.  San Jose’s public employees need to be TOLD (not asked) to make corresponding sacrifices.

  9. Fiscal mismanagement.

    Agree or disagree with the Grand Jury, you might. But the facts remain:

    “city leaders did not adequately forecast and plan, nor allocate enough money to pay for these long-term obligations…….the cities, flush with revenue.”

    Employees are scapegoats.

    • Manny,

      Unions abused their political might to place pawns in many city leadership positions and bullied the rest to get their way.  So technically, this means the city leadership was complicit in making the current system unsustainable.  But so what?  The only way to make the system sustainable is still to reduce the benefits provided to employees.  This isn’t scapegoating, it’s attacking the root of the problem.

      • There ain’t much more material the unions can pull out of their you know what anymore. Sounds like they are having trouble handling the truth. I wonder how these folks would fair in the private sector? Some might be headed that way.

    • Meanwhile on the county front:

      From the San Francisco Examiner 5/28/10

      County loses housing records to computer glitch
      Housing officials in Santa Clara County say a computer glitch caused them to lose backup copies of information that will cost about $600,000 to replace.

      The board of the Housing Authority voted Tuesday to spend the money to restore backup records on tenants and owners of federally subsidized rental units.
      About 1.6 million images – about 12 percent of the records – vanished in January because of computer hardware and software failures.

      Officials say the 2008 and 2009 records included copies of Social Security cards and driver’s licenses but the information wasn’t released – it just vanished. The backup database will be re-created by referring to the original records.

      Another incompetent act the taxpayer will pay for!

      • > Officials say the 2008 and 2009 records included copies of Social Security cards and driver’s licenses but the information wasn’t released – it just vanished.

        “Software failures”?

        “copies of Social Security cards and driver’s licenses”?

        “just vanished”?

        Sounds like the Russian hackers were clever enough not to leave any traces.

        Or, maybe this was just another “disgruntled employee” inside job.

      • More fiscal mismanagement. Now ask yourself, how much has the City of San Jose wasted in scuttled software programs.  Ones paid for but never used.

  10. City Employee Rebuttals to set record straight

    To blame employees for city’s compensation problem is wrong and unfair since like Council and public the non management employees did not know

    1) City employee labor unions relied on city compensation experts and city’s outside experts to do proper compensation comparisons and explain any budget problems which did not happen until now which is too late

    2) If employee compensation comparisons are wrong doesn’t city’s management and well paid outside experts have most responsibility for what Civil Grand Jury says

    ” government employers’ overall total compensation costs were 51.4% higher than private-sector employers’ costs; the costs were 42.6% higher for wages and salaries and 72.8% higher for benefits.”

    ” Wages and salaries climb, even as the economy struggles. Pension and health care benefits have risen substantially since 2000. Vacation, holiday and sick leave policies are overly generous and exceed those of private industry. The overall costs to cities are not sustainable.

    2) Why didn’t city government any time in last 9 years,  not Civil Grand Jury, show the compensation comparisons charts and private industry comparisons so Council and public could understand about problems in any year from 2000 to mid 2009.

    The Grand Jury learned from interviews that most cities set their compensation packages by surveying the wages paid to public employees in a handful of like cities in the general area, rather than wages for the employment market at large.

    In union negotiations, cities will often negotiate to a place on the comparable wage index rather than negotiating what they think are reasonable salaries by job classification. If the wages in a salary range increase due to negotiations, all negotiated salaries increase.”

    “Limiting comparisons to other cities in the same geographic area results in “a follow the
    leader” or “keeping up with the Jones” mentality in the cities, rather than real market based
    compensation.”

    City waited until late in 2009 when city employees faced massive layoffs and public large service reductions to gave city employees ” 10% or layoffs ultimatum” ? 

    3) “Each city delegates the authority to negotiate labor contracts on behalf of the city to the
    city manager or the city manager’s designee. ” relations director, or administrative services

    ” Other key members of the city negotiating team may include the city attorney or an outside labor attorney, the department head or a high-level manager of the applicable work group, the finance director, and occasionally an outside consultant.”

    The negotiating team members do not belong to unions, and they do not operate under a financial incentive. But as employees of the city, their compensation is proportional with union employees; when salaries and benefits increase for union members, they are generally awarded similar increases.

    In some cities, members of negotiating teams have worked for the cities for a number of years, and many have come “up through the ranks” and have strong connections to the union employees. Some of the city managers told the Grand Jury that this can be problematic, as these negotiators may
    experience peer pressure and concede to the unions. “

    City management benefited from higher employee compensation since they got “as employees of the city, their compensation is proportional with union employees; when salaries and benefits increase for union members, they are generally awarded similar increases. “

    4) Most city employees and community do not believe city management because of past misleading budget numbers that blame city employees, hide spending problems or spend taxes on stadiums, bailouts or give taxes away rather than pay for city employees to provide services

    “My way or highway” ultimatums don’t encourage any employees to work to solve budget problems, well known waste of city taxes or misleading budget presentations to get everyone to work together just makes it worst to solve problems “

    5) It is also unfair to try to blame current and past Mayors and Councils politicians who set policy or public when they are very heavily depend on well paid city government professional management and experts for compensation comparison, labor contract negotiations, and responsible to make fiscal recommendation to Council and public

    Come on. Look at current and past Council’s nice, well meaning, ok at least most,  politicians –  lack knowledge to understand – 1 1/2 foot thick budget books

    Many Mayor’s and Councils had “deer in highlights” looks following staff budget presentations and got lost in budget book during Council budget sessions

    Council questions show they don’t understand basic budget and employees compensation issues

    If you ask Council person budget questions you get – Dah, I will have to get back to you –  meaning – I have no idea what you are asking or does my staff We will have to ask city budget staff

    It is not in Council politician’s job description to fully understand city budget only set policy based on city’s professional management budget recommendations  

    4) Council very heavily depends on our well paid city government management and staff expertise and detailed recommendations that Civil Grand Jury says is city’s problem

    We will again repeat many past city financial mistakes, if we don’t learn from problems and determine who is responsible or shares responsibility for budget crisis

    City government management and experts needs to do way better job telling Council and public about any future city budget and compensation problems in advance so people can take action before crisis, layoffs and service reduction are here

    • “When we open a quarrel between the past and present we will lose our future” is a great quote I heard from Leon Panetta (I think it was originally from either Neville Chamberlain or Winston Churchill.)

      The quote and context are important.  They had a war on, and they were losing.  Arguing about who did what back in Munich and playing the blame game was only going to help the enemy complete the attempt to conquer them.

      In the case of SJ, the enemy is inertia and incrementalism, where to do nothing means losing the future as the long slow decline of municiple services increases dramatically as nothing is done except “kicking the can down the road” to pass the core problems onto future generations.

      I believe in our community and the people in it.  We have a lot going for us.  The city has helped in its own ways to support our healthy and diverse communities.  If they don’t change their practices, however, they will become obstacles.

      Are union jobs more important than the health of the community?  If the YMCA or some other non-profit can run a park or pool way cheaper than the city, why not spin it off?  Isn’t the service to the citizens the goal? Outcomes are probably more important than process, but SJ has always prided itself on big-leagued political sports at city hall and likes to kill things with process and the death of a thousand compromises has killed past efforts at reform.  What going to be the excuse for not fixing things this time?

      • Blair, well put. Service to the citizens is the proper role of government: by the people and for the people.

        It seems that many politicians forget this in their incessant quest for more campaign $$$.

  11. Civil Grand Jury said city management did not comparing city employee total compensation to government and private jobs so now Employee
    Benefit Research Institute (EBRI) stated that government employers’ overall total compensation costs were 51.4% higher than private-sector employers’ costs; the costs were 42.6% higher for
    wages and salaries and 72.8% higher for benefits.

    City management not only mismanaged the most important part of city finances by not controlling employee compensation costs to comparable market rates but had gross conflict of interest since city managers directly benefited when their compensation was also raised at same time above market rates

    Read LABOR NEGOTIATIONS page 15 16 and 16 – http://www.sccsuperiorcourt.org/jury/GJreports/2010/CitiesMustReinInUnsustainableEmployeeCosts.pdf

    City passed above market city employee and manager cost to residents and businesses as higher business and resident taxes and fees while continuously cutting city services

    We got screwed twice by our city government while city laughed all the way to the bank and excessive early retirements

  12. > County loses housing records to computer glitch
    Housing officials in Santa Clara County say a computer glitch caused them to lose backup copies of information that will cost about $600,000 to replace.

    Hmmmm.  Maybe we ought to step back and reconsider whether it is prudent to put the government in charge of funding elections campaigns, controlling gushing oil wells, or operating a national healthcare system.

  13. Interesting Reading, Recommendations and San Mateo County City responses

    Sounds like more politicians and city government’s   “kicking the can down the road” to pass the core ( city budget ) problems onto future generations. ” rather than do job they were elected and well paid to do

    Civil Grand Jury : Reversing the Upward Trajectory of Employee Costs in the Cities of San Mateo County

    http://www.sanmateocourt.org/grandjury/2008/Employee_compensation.pdf