City looking at pension reform

With money for basic operations like street repair at low levels and rising employee pension costs taking up a bigger share of sharply diminished tax revenues, city officials confirmed this week that they had started discussing with public employee unions the often thorny issue of pension reform.

"Pension discussions are ongoing," said City Manager John Brown on Tuesday.

According to Petaluma Police Detective Paul Gilman, president of the Peace Officers Association of Petaluma, "Pensions are something we've talked about quite a bit." He added that his union had made multiple offers to the City, including one earlier this week that is expected to be considered by the City Council in closed session on Monday.

Union benefits negotiations are confidential, and the offer was made in a closed-door discussion with the City's union representatives.

Like most California cities, Petaluma faces rising pension costs, worsened by the recession. In the next fiscal year, Petaluma will have to pay out $5.8 million to the Public Employees' Retirement System to meets is pension obligations, according to Finance Director Bill Mushallo. That's about 18 percent of the City's current general fund budget of just under $32 million.

Many cities throughout the state are looking nervously at their unfunded pension liability, or the shortfall between what a city owes for pensions and the amount it expects to have available to fund those payments. In 2002, Petaluma's total unfunded pension liability was $9 million. In 2007, it jumped to $26.3 million and, in 2009, the last year for which the city could provide information, it climbed to $37.3 million.

By beginning to address the issue, Petaluma is joining the ranks of other local government agencies like the County of Sonoma and the City of Santa Rosa, both of which have recently gained some concessions from their employee unions to reduce retirement costs.

While Brown wouldn't say specifically what the City was discussing with unions, he did say the city is interested in a "two-tier system," whereby current employees would keep their existing benefit package, but new employees would receive a less costly pension retirement package.

The two-tiered system is generally considered an easy concession to get from unions because it doesn't affect current employees. However, it tends not to help the city's finances much in the short term, since savings only come about many years in the future.

Reforms that other cities have adopted include anti-spiking provisions - which deter employees from hiking up their salary right before retirement to increase pension pay - and increasing the amount employees pay to fund their retirements.

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