Yesterday, we looked at the way Oakland’s General Fund is distributed by type of expenditure. More than three-quarters of those expenses are personnel-related. To fully understand the budget, it’s probably a good idea to look a little closer at how those costs break down.
Personnel issues are, in short, complicated. What follows will attempt to present a thorough overview of the way City employees are compensated, although, in the interest of space some things will naturally be left out.
First, who works for the City? Basically, you have public safety employees (police and firefighters) and civilian employees (everyone else). You also have permanent full-time, permanent part-time, and temporary part-time workers. Permanent full and part time employees receive all the benefits listed below, while temporary part-time receive no benefits of any sort. And again, for reference, here’s how the 2008-09 expenditures from the City’s General Fund were distributed:
So, the first (and largest) aspect of personnel costs is payroll. Employee wages are determined by the City’s Salary Schedule (PDF). Almost all city jobs offer a range of salaries, and for most of them this is determined by salary steps. When you start a job, you begin at salary step one. After a year of service, you move on to step two. After another year of service, you move on to step three. And so on. There are a total of five salary steps. So if your job title is, say, “Auto Equipment Mechanic,” and you got hired last March, you spent all last year making $27.28/hour. But now that’s you’ve clocked a year of satisfactory service, you’ve moved on to step two, and you’re now bringing in $28.73/hour. If you get promoted, you start back at step one for your new job.
The City’s contract with each employee union outlines annual salary increases to accommodate cost of living increases. Between 2002 and 2007, the cost of living adjustments (COLA) for civilian employees totaled 24% (PDF). This is 10.1% more than inflation. Civilian employees and firefighters are currently working under contracts that expired last July, meaning there are no built-in salary increases for last year or this year, or basically, until a new contract is signed. The police contract is in effect through June of 2010, and mandated a 4% COLA last year, and another 4% this year.
COLAs are applied to each salary step, not individual salaries. So, if you had started a job as say, “Human Resources Technician” in October 2003, you would have been in step one and earning $3486/month for most of the year. Then, in July, when the COLA went into effect, you were still in step one, but earning $3521/month. Then, in October, you moved up to step two, and earned $3706/month. So basically, even without a COLA, you’re still getting an annual raise unless you’ve been in your job for more than five years.
At last week’s budget town hall, City Administrator Dan Lindheim said the City is requesting a 10% give-back from civilian employees, but declined to offer any details about the nature of the give-back, other than to say it would only save $7 million in the General Fund, which would be consistent with a simple salary reduction. He did not say anything about working with public safety employees on give-backs, but it’s entirely possible those negotiations are going on as well. The City can’t force the Police Department to not take a COLA this year, because of their contract, but they could certainly agree to do so voluntarily to help balance the budget, as the Contra Costa fire fighters have recently done.
The next chunk of personnel costs comes in the form of employee benefits. By far the biggest cost here is health care, and rising health care costs are a large factor in the City’s ever-rising employee costs. This is one of the most frustrating aspects of compensation because the astronomical rate at which medical insurance costs are increasing is outside of the City’s control.
For civilian employees, benefit costs last year came out to about $27.2 million from the General Fund. It breaks down like this:
Benefits for police and fire are not identical, but pretty similar to the above.
City of Oakland employees do not currently pay any contribution to their medical insurance plans. The five-year financial forecast (PDF) released in December estimates that the General Fund could save $2.3 million with a 10% employee contribution to health plans, and $4.4 million if they picked up 20%.
Okay, this is the part that people get the most riled up about, and I think the part that’s the least understood. Here’s how it works. If you are employed in the private sector, 6.2% of your paycheck (assuming you’re not making over $106,800) gets taken away for Social Security. Your employer also pays 6.2% of your compensation. Then, when you retire, you get a monthly check in an amount based on what you paid in over your career.
If you work for the government (this applies to most, although not all, government jobs), you’re not paying that. Instead, you pay into a pension system. If you work for the City of Oakland, or for pretty much any City or County in California, you’ll be getting that pension through the California Public Employees Retirement System (CalPERS). You have to work for five years before you qualify for a pension.
CalPERS offers a number of different retirement plans. Civilian employees with the City of Oakland receive the 2.7% at 55 (PDF) plan. Basically, your annual retirement benefits will be a percentage of whatever your final salary was, and the percentage is determined by how long you worked for the City. So if you retire at the age of 55 after having worked for the City for 5 years, you will be getting 13.5% of your final pay as your retirement benefit. If you retire at 55 after having worked for the City for 20 years, you get 54% of your final pay. There are other factors that come into play when calculating your exact benefit, and depending on what options you take it will probably in practice be less than that, but that’s the general idea. Police and firefighters get a different benefit formula, one specifically for public safety employees, 3% at 50 (PDF).
Once you retire, your pension is no longer the City’s responsibility – it all comes out of CalPERS. While you’re working, your retirement is being funded in two ways. First, there’s the employee share. This is your money and it goes into your account and if for some reason you leave your job with the City, you can get it back and roll it into your IRA or whatever, but of course doing so ends your membership with CalPERS, so no pension. The employee share for civilian employees is 8% of pay, and for public safety it’s 9% of pay. Civilian employees pay 3% out of their paycheck into this, and the City pays the remaining 5% of the employee share. Firefighters pay the entire 9% of the employee share out of their paycheck. The City pays the entire employee share for police.
Then there’s the employer share. Employer contributions are not tied to individual salaries or any individual’s retirement account. They just go to CalPERS where they are invested and used to pay ongoing benefit costs for the system. CalPERS tells the City what percentage of total payroll they have to contribute, and this amount can change throughout the course of the year based on the system’s needs. In July of 2008, the employer rate for civilian employees was 19.553%, and for public safety employees it was 27.088%. These rates are expected to increase every year for the forseeable future, for a variety of reasons, but largely due to losses in CalPERS’s investment portfolio.
In addition to their 9% employee share, firefighters also pay 4% of the employer share, for a total of 13% retirement contributions out of their paycheck. Civilian employees pay none of the employer share, so their total contribution is 3%. Police make no contributions to retirement costs.
If you work for the City for 10 years as a civilian employee and retire, you also receive medical insurance for life as part of your retirement benefit.
And I think that’s pretty much everything. Hopefully this will give people a clearer picture of how City employees are compensated.