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20190521 Late Correspondence+ Processing Time for ZON2003-00086 The process review procedure for this application was very unorthodox. This project should not have been active for the four years that it took to final decision . Significant periods of time went by when no activity took place. Additionally , the project was deemed incomplete on two separate occasions because of "signifi cant " project scope modifications. In this situation, and given the state mandates for project review (CEQA and the PSA), the applicant should have withdrawn Application ZON2003-00086 or it should have been closed and a new application should have been filed with the City when the applicant was ready to proceed . • Staff and Applicant Our review of the records did not uncover any evidence of malfeasance on behalf of the Ci t y , its officials , agents or staff. Staff oversights and errors appear to be unintentional. All reviewed correspondence verifies that City staff remained professional , courteous and respectful to all interested parties. 11 AGENDA ITEM : Pv\a\\c Com,"tm:K RECEIVED FROM : ~on ~ AND ADE pARTOf E RECOR 9 AT THE COUNCIL MEETING OF : SJ ~~/-IDa · OFFICE OF THE CITY GLE K AGENDA ITEM : (lu ?l \-C (o!M.">'+-i) FREQUENTLY ASKED QUESTIONS RECEIVED FROM : ABOUT THE SANITATION DISTRICTS' CONTRACT 1::-J~ot~t~~otn~p~f~t~~O:::.-:F::-::~~J-=-~~E~~==-R~D-:-:AT~T~H--E Shouldn't the employees be contributing to CaiPERS? COUNC IL MEETING OF : ?{t.l I '1 OFFICE OF THE CITY CLERK Yes, that's why employees always have and will continue to make their contribution . "Class ic" employees (hired prior to January 1, 2013 when the PEPRA law went into effect) DO contribute a fixed 7% to CaiPERS. Prior to 1982, this contribution had been post -tax directly out of the employees' paychecks. At Management's suggestion and in lieu of an 8.5% COLA in 1982 (there was very h igh inflation at this time), this "employee contribution " was converted to pre-tax "Employer Paid Member Contribution", or EPMC, so that the employees' paycheck reflected a 7% increase i n take home pay to make up for not receiving the full COLA for that year . At that time and ever since , Management had assured the employees that this was indeed their money and their personal contribution to CaiPERS . The employees' CaiPERS statements reflect this, the Districts' Salary Schedule reflects th is, as does every other related document in the nearly 4 decades since this initial swap occurred. The EPMC is the employees' retirement contribution, not the agency 's. "PEPRA" employees (those hired after January 1, 2013), pay an annually calculated rate to CaiPERS based on 50% of the normal cost of benefits, which is currently 5 .75%. As of July 1, 2017 , the Districts stopped paying the 7% EPMC for these employees and began deducting 5 .75% from their paychecks. This rate is expected to go up to 6.75% this coming fiscal year. From January 1, 2013 to July 1, 2017 , PEPRA employees paid the same 7% contribution to CaiPERS through the EPMC as did the classic employees. What has been the main contract dispute? The main issue of disagreement had been Management's "soft landing" proposal-which required employees to make progressively increasing contributions towards their pension (and thereby cutting the EPMC) AND lose cost of living allowances in the same amounts. This effectively made classic employees pay for their CaiPERS contribution a SECOND time; the first time being when the employees gave up the 8.5% CO LA in 1982. The EPMC is , in effect, vested compensation and the AFSCME u nits proposed that the 1982 deal be reversed in its entirety, i n what is known as a "full-swap ": the 7% EPMC would no longer be paid directly to CaiPERS by the Districts , but the 7% CaiPERS contribution would instead come right out of the emp loyees' paychecks, with 7% of the withheld 1982 COLA being returned to the employees as a salary increase . Financially, this would be equivalent to "status quo" and not significantly increase costs to the Districts. Wouldn't it only be a half percent that the employees would pay under the Management plan? No. That is a half percent for the first year, going up by a half percent each subsequent year, for a cumulative annual take-back of 2 .5% out of both the employees' salaries and pensions by the end of the proposed contract term. None of the affected employees believe that this would stop with the 2.5%, and that the entire 7% would eventually be taken. Employees in five bargaining units un i onized under the American Federation of State , County and Municipal Employees (AFSCME) in early 2017 specifical ly to protect their CaiPERS contribution and resist this thinly veiled pay/pension cut, with t wo other un its following suit at the end of 2018. When the effects of the so-called "soft landing" were calc ul ated out over the course of individual employees' future earnings, a cumulative loss of upwards of a hundred thousand dollars or more, per employee, were discovered. Won't the employees be getting a huge pay increase with these contracts? No. The affected employees will be getting their 3% COLA that was withheld in 2017, and their 3.5% COLA that was withheld in 2018, same as every other bargaining unit under contract. These COLAs will be made retroactive to when they SHOULD have been applied (July 1 in 2017 and 2018, respectively) to be consistent with the COLAs applied to all the other employee units at those times. These adjustments allow for employee salaries to keep pace with inflation. Some have incorrectly cited 22% as the amount of the increase over 5 years. This claim includes only one half of the swap-all employees in the affected units will receive a 7% salary adjustment; however, this adjustment is fully offset by a 7% deduction for direct contribution to CaiPERS from the salaries of classic employees and 5.75% (increasing to 6.75%) from PEPRA employees. Still, wouldn't the guaranteed 15% in COLAs over the contract term make up for the half percent deductions for soft-landing? No. The formula for calculating annual COLAs was instituted at the same time as the original swap in 1982, and was designed to protect the agency from high inflation rates. As currently proposed, an annual Consumer Price Index (CPI) greater than zero up to 3% would result in an annual COLA of 3%; hence the 15% over the five year contract. However, if the CPI is greater than 3%, the annual COLA would be 3% plus a fraction of the CPI over 3%. For example, in 2017, the annual CPI was 2.75%, which resulted in an annual COLA of 3%; however, in 2018, the annual CPI was 3.8%, resulting in an annual COLA of 3.5%. This formula was meant to balance out years of high and low inflation so that COLAs never got out of hand. The 3% minimum COLA was never meant to make up for the progressive soft- landing take-away that was previously proposed, only to make up for high inflation years when COLAs lagged behind CPl. Won't this full-swap proposal be a huge cost to the Districts? No. The cost of the AFSCME full-swap proposal when compared to the status quo of 2016 would be an annual increase of an estimated $200,000, an insignificant 0.03% of our total 2017-18 expenses of $674.5 million, or about 43 cents per household (i.e. "sewage unit") PER YEAR, less than the cost of a stamp. What this minimal increase in the AFSCME proposal has been compared to in the past was an estimated $4.6 million in savings from implementation of the soft-landing take-away, rather than status quo, which was not and is not an accurate comparison. But aren't there serious issues with the Districts' finances and its CaiPERS funding? No, on both counts. The latest 2018 Comprehensive Annual Financial Report (CAFR) for the Districts shows that income exceeded expenditures by $88 million in 2018 and by $135 the year before. In fact, this trend of revenue exceeding expenditures extends back for at least 15 of the last 16 fiscal years. In addition, long-term debt decreased by $30 million in 2018 and the agency's reserve fund was over $1.6 billion. As far as CaiPERS, the Districts are approximately 80% funded, with the percentage increasing gradually. Between 2016 and 2017, CaiPERS's estimate of payments necessary for the Districts to reduce its unfunded liability decreased by $25 million for the same 5-year period. Long-term projections are for pension costs at the Districts to eventually begin decreasing as the number of lower-cost PEPRA employees make up an ever-increasing percentage of Districts' employees. But won't the sewer rates in my City go up as a result of. these contracts? No. Prior to contract negotiations beginning in 2017, the Districts' Budget Group determined future financing needs and set Service Charges (the annual sewer fees paid by homeowners and other property owners in each of the Districts) to meet those needs . These fees were set to go up between $3-5 per year per household in the Joint Outfall System (the main sewer system in the metropolitan Los Angeles area) from 2017 through 2021, and are roughly at or below the rate of inflation . These rates were calculated based on the status quo at the time, which was similar in terms of financial effects to the AFSCME proposal of full-swap. The AFSCME proposal will not cause service charges to go up ; conversely, Management's previous proposal of soft-landing would not have resulted in service charges going down. Regardless, the rates charged by the Districts will continue to be the lowest of any comparable agency in the nation, and by a significant amount. How can I vote for this contract when my own city has so many financial issues, including pensions? The Districts' employees understand full well the challenges our member cities are experiencing, because we live in those cities. We are your voters and taxpayers, and what happens in our home cities affects us, too. But even though our member cities may be having their own financial issues, those issues do not directly affect the operations and finances of the Sanitation Districts . Solutions that may work in your/our cities would most likely not be appropriate to implement at the Districts. For example, effectively cutting wages through soft-landing would not address an actual pension issue at the Districts, would most certainly not have any effect on the finances of any of our member cities and , as mentioned previously, would not raise or lower the sewer rates for any of your constituents. All that would happen is that financial hardship would be inflicted upon the Districts' employees, the very ones who provide you and your cities with exemplary service at rates that are the lowest in the nation. Isn't the full-swap just a way to get around PEPRA? No, it is consistent with the intent of the PEPRA legislation . The PEPRA employees are now paying for a retirement plan that is much less desirable than the one contracted for by the classic employees (2% at age 62 vs. 2% at 55), and they will have an eventual cap on their annual retirement benefit, unlike the classics. As such, the retirement costs to this agency for the PEPRA employees are significantly lower than the classics, which was the aim of the PEPRA legislation . PEPRA was designed to limit the pension costs of public agencies moving into the future, not as a punitive wage reduction measure for new public employees. As such, payrate modifications to soften the effects of the legislation on newer employees are not prohibited under PEPRA, although this does not include contributions to other retirement vehicles, such as 401k's or 457 deferred compensation programs. Indeed, a number of our member cities, including Pasadena, Pica Rivera and Bellflower, did some form of the "swap " to maintain salaries for their employees following, or in anticipation of, the PEPRA legislation. Offering a full-swap to both classic and PEPRA employees restores the salary schedule to that which would have existed had the 1982 exchange not happened , and it avoids a two-tier salary schedule that would be unfairly disadvantageous to new employees who are the future of this agency. But didn't the newer PEPRA employees know what they were getting into with the new law? Actually, no. Despite Management knowing full well that this situation was coming, new hires from January 2013 up through early 2017 did not receive adequate or reasonably notification as they hired in. A typical offer letter to a PEPRA employee had the following vague language in respect to this issue, "Pursuant to current employee unit agreements, the Districts pay 100% of the employee's [retirement] contribution. At the expiration of the employee unit agreements the amount an employee will be required to contribute to the plan may vary." One such letter was issued well over 3-/i years after the PEPRA law went into effect and less than a year before Management intended to implement their salary deductions in 2017. There was no mention of the date on which this deduction was to begin, which Management knew as it was on their own schedule. There was no mention of the percentage of the contribution, of which Management surely had a very good idea. In fact, most PEPRAs were completely unaware of this impending salary deduction until10 days before the fact, when Management finally distributed a formal notice of its intentions. So, where are contract negotiations now? On March 27, 2019, after nearly two full years of negotiations and impasse, the Districts' Personnel Committee directed Management to return to the bargaining table with the three AFSCME represented units (Professional, Professional Supervisory and Supervisory). On April11, after two negotiation sessions, the parties reached tentative agreement on all contract terms, including the full-swap provision and retroactive COLAs that had been withheld in 2017 and 2018. All three employee bargaining units unanimously approved the proposed contracts on April 23 and the next day the Personnel Committee unanimously voted to refer the proposed contracts to the full Collective Committee for final ratification, tentatively scheduled for May 22. It is expected that after ratification, similar contract terms will be offered to three other AFSCME represented bargaining units (Technical Support, White Collar and Energy Recovery}, as their existing contracts expire on July 1 of this year, thus successfully concluding the current contract cycle.