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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.

Police and fire unions point out that their employees already pay nine percent into their pensions, which is more than in some nearby cities. In Santa Rosa, for instance, the city has paid that nine percent contribution on behalf of the employees. In the recent negotiations there, employees agreed to start paying their nine percent - in exchange for an eight percent raise.

Although Brown said that the City is negotiating with all unions, it only contacted the Petaluma firefighters union recently.

Before that, said Union President Ken Dick, the City hadn't been in touch with them since July, when the last round of negotiations ended without producing a contract.

He said the city has yet to approach his union about pension reform.

Brown explained that this was because the city's human resources department is very short-staffed and has not had the time to negotiate with all the unions at once.

The City's goal is to complete new contracts with its unions by the end of 2012, Brown said. That was also the city's goal in 2011, though no contracts were achieved by that point.

At the same time, the City must balance a $1.2 million budget shortfall for the coming fiscal year. Doing so will either require cutting jobs, getting short-term wage concessions from the unions, or a combination of both.

Brown said that the city intends to "make a real solid effort" to work with unions this time around.

"Generally our employees get where we are with our current (financial) situation," said Brown. "We understand that from the proposals we see from them."

Gilman added that despite previous communication problems on contract negotiations, the communications he had with the City in the most recent round of negotiations had given him hope a deal might be reached soon.

(Contact Jamie Hansen at jamie.hansen@argus courier.com.)