December 6, 2007

ValleyViewpoints

Chronic city budget shortfall

Editor,
I attended a meeting at city hall on Thursday, Nov. 29 made up of business and community members. The city was asking for our input on the subject of the persistent city budget shortfall. The budget shortfall is projected to be $24.8 million for the 2008-2009 period and $41.8 million for 2009-2010. To me, the major problem is the high personnel costs that the city experiences, particularly retirement pay and benefits. Personnel expenses make up 66 percent of the budget.

I would like to compare the city’s retirement plan to that of IBM’s. IBM rates its retirement plan as equal to or better that other industrial plans. Retirement can start at age 55. IBM’s retirement pay is calculated at about 1.1 percent per year of service. So after 30 years of service the retiree will get 33 percent of their last salary. There is no COLA, (cost of living adjustment) so retirement pay dollars will remain fixed over the retiree’s life span.

IBM does subsidize medical costs, but in a fixed number of dollars. Any increases in medical costs are borne by the retiree. As a retired IBM engineer, my own experience has been to go from no co-pay to steady increments so that now my co-pay is $20 at Kaiser. My monthly premium for Kaiser membership and dental has gone from nothing to $223. This monthly charge comes out of my fixed retirement dollars so that now I get fewer dollars per month. IBM has now changed from a defined pension plan to a 401K arrangement.

The city’s retirement is about three times more generous. Retirement can start at age 50. Retirement pay is calculated at 3 percent times the number of years served times the last salary. A person with 30 years of service can retire at 90 percent of their salary. This encourages skilled people to leave early--why work for 10 percent more? There is a COLA of 3 percent per year. All dental and medical expenses are paid for the retiree’s family for life. There seems to be no co-pay requirements. To fund this health plan will require an estimated additional $57 million per year. The employees contribute 6.06 percent of their pay; the city 17.12 percent, to partially pay for this deficit. The city is still on a defined pension plan.

Certainly IBM’s work force must be highly skilled in research, development, market planning and marketing. The city basically does none of these things. City pay is comparable to industrial pay. City jobs tend to be for life; industrial jobs not so. So why the generous retirement package for the city? The city’s negotiators seem to have done a bad job. There are about 7,000 city employees. There is talk about a two-tier system with new employees getting reduced benefits, but the existing 7,000 are locked in place.

The city’s retirement package is the main budget problem. The airlines declared bankruptcy to renegotiate retirement packages. The city also needs to renegotiate its retirement plans. It can’t afford the existing plan.
Please don’t ask those of us with more modest retirement packages to pay more taxes to support somebody else’s very generous retirement plan.

Bob Boydston
Almaden Valley

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