As cities across California grapple with rising employee retirement costs that are consuming an ever larger percentage of the funds for basic services like parks maintenance, public safety and street repair, Petaluma is on the verge of taking a step toward reducing those costs in the long term.
The change could come before the City Council for approval as soon as July 2, and is likely to include a "two-tier" system, where newly hired employees would be offered a less generous retirement package than existing employees.
Paul Gilman, spokesman for the Petaluma Peace Officers Association, and City Manager John Brown announced Wednesday that the POA had tentatively agreed to a new contract and that will include a tiered retirement system. "I'm glad it's done. I think it's fair for everyone involved," he said.
Ken Dick, spokesman for the Firefighters' Local 1415 union, could not be reached for comment, but based on comments from city staff and councilmembers indicating a strong desire for tiered pensions, it appears likely that other unions will follow suit.
Brown confirmed that the city is currently bargaining with all 10 employee units and could be bringing "a couple" finished contracts before the council at its July 2 meeting if paperwork is completed in time.
But the agreements, arrived at after years of the city bargaining with unions for concessions, include changes similar to two-tier systems that other cities have recently adopted. Currently, Petaluma firefighters and police officers' pensions allow them to retire at age 50, taking 3 percent of their final year's pay for each year they worked. In other words, a firefighter who joined the department at age 20 could retire at 50 earning 90 percent of his final year's salary as a pension.
All other city employees can currently retire at age 55, taking 2 percent of their final year's pay for each year worked.
If approved by the City Council, the new tier will push back the age at which police officers can retire to 55.
While the two-tier system is an initial step in tackling the growing pension problem many cities are facing, pension expert Joe Nation — a former state Assemblyman and current Stanford University public policy professor — said that two-tier systems will not provide economic relief to cities for 15 to 20 years, when a significant number of new employees are in the system.
"Two-tier systems are great long-term solutions, but they don't solve anything in the short term because the attrition rate (of employees) is fairly slow," Nation said.
Petaluma's anticipated new contracts come at a time when pensions are taking up an unprecedented percentage of the city's general fund budget. In the upcoming fiscal year, Petaluma will pay almost $6.2 million to cover its annual pension obligations, not counting health care benefits.
In the 2003-2004 fiscal year, Petaluma spent only 5.8 percent of its general fund budget paying for pension costs. In the coming fiscal year the city is expecting to use 14.2 percent of the general fund for pension costs, and by the 2015-2016 fiscal year, 16 percent.
Those costs, combined with diminished tax revenues resulting from the recession, have caused the city to struggle to fund basic services like fixing broken street lights and repairing roads.