Where does all our money go?

PaulineZ brings up a good question in the comments:

Per the Chronicle 6/28, Edgerly will collect a pension of more than $150,000 a year. How can that be in a city as “poor” as Oakland

Okay, sometimes I wonder if people really don’t get why Oakland doesn’t have any money. I’m not saying that to be snotty or judgmental, it’s just that the problem is so self-evident to me. But I shouldn’t assume that it is for everyone, since it isn’t like this gets spelled out clear as day in the newspaper. Anyway, for those who don’t know, I’m going to tell you.

The reason that service in this city gets cut even as revenues rise is because of the costs of city employees. That includes general compensation, benefits, and pensions. City employees get annual cost of living increases, negotiated into our agreements with the union. The cost of providing medical coverage has risen astronomically over recent years. The private sector, in many cases, has dealt with this by significantly increasing employee contributions and cutting coverage. We have not. Our existing pensions obligations are staggering.

Roughly 75% of the General Purpose Fund costs go to personnel. We’re talking about pre-negotiated salary increases of as much as 4-5% annually, increased retirement plan premiums due to increased pension benefits, and medical costs rising 16-18% annually.

And that’s why we have no money. Some people would say that such a situation is unfair to the taxpayers – City employees, in most positions anyway, are generally paid better than they would be for the equivalent job or for their skill set in the private sector. (The reverse is true for many of the highest paid positions.) Their compensation in terms of benefits and retirement is certainly significantly higher than could be expected in the private sector, and the costs of providing it rises far faster than inflation or revenue even in boom times. And the people of Oakland suffer for this in the form of reduced service delivery for their money. Others would argue that the City should lead by example, and that poor compensation in the private sector does not make it okay to compensate civil servants equally poorly, and that we have a moral obligation to provide our workforce with nothing less than what is required to live and raise a family here, whether that’s a market wage or not. Both arguments have merit. I’m not taking a position on either side here, just pointing out that people want to know where the money goes, and that’s where it goes.

24 thoughts on “Where does all our money go?

  1. Max Allstadt

    I will say that the city employees that I deal with regularly are very intelligent people. Let’s not forget that paying them competitive wages probably keeps the level of accepted applicants relatively high.

    That said, I’m dealing mainly with the planning and buildings folks. I’m pretty sure none of them have well connected aunties.

  2. V Smoothe Post author

    Max –

    I don’t know that planners are a good illustration of what I’m talking about here. One major difference between staff there and the rest of the City is that CEDA is self-funding, which means that staff, especially staff in public contact positions, have to be at least reasonably competent or their jobs won’t exist anymore. Another difference is that when you’re talking about planners, you’re talking about people with specialized education and training, and we’re competing for talent mostly with other government agencies, which have similar compensation schemes.

    In any case, (and please understand that I’m about to make a very broad generalization), it’s been my experience that many of the most intelligent, hardworking, and competent people in City Hall are the people whose salaries are the smallest in comparison to what their worth in the private sector would likely be. (Of course, pension benefits help make up for that.) But the overall compensation packages we’re talking about for many lower skilled positions are not simply competitive, they’re ridiculously generous compared to market wages – like, double or triple. Again, I’m not saying that’s necessarily wrong. But that’s where the money goes.

  3. z.oakland

    I have nothing but anger over the whole Edgerly mess, but I do want to point out that exactly zero dollars of her pension will come out of future Oakland budgets. Ditto for the pensions of all the retired Oakland police officers and firefighters who retire under the current system. Oakland subscribes to CalPERS, paying in a percentage of the employee’s salary every year. CalPERS manages the money, invests it, and then pays it out of the CalPERS fund. The pension money does not come out of the city fund. I don’t know what Edgerly’s contract is like, but look at the firefighters: Thirteen percent of their salary is immediately withheld from their check and sent to CalPERS. So when you see that a firefighter is making 100K, immediately take it down to 87K and go from there. In essence the firefighters are funding their own pension. If most people could put 13 percent of their salary into a fund that is managed as well as CalPERS is, they could have a rich pension too. Yes, the city contributes to CalPERS on behalf of the members, pre-paying the pension slightly. But at least in the case of the firefighters, the members pay far, far more than the city does.
    Basically, it’s a misconception to think that the pensions are a drag on future city budgets. The pensions are already bought and paid for. It’s a classic social security type, shared-benefit/risk system. Edgerly paid in a percentage of her salary when she was making quite a little, at the beginning of her career, and is being paid back a percentage of her city manager salary, in 2008 dollars. Depending on how long she lives, she may even get more out of the system than she put in. Don’t worry–the system makes its money back with the firefighters, who tend to live less than ten years after their retirement.
    I have no love for Edgerly, but you have to take solace that unless the city does some ridiculous buyout or loses some kind of discrimination lawsuit to her–a good possibility!–that we can wipe our hands of her, financially at least.

  4. Joanna/OnTheGoJo

    I think you have to look at the overall bennies – health insurance, days off per year, Pension (biggest, imho), etc along with the actual money paid to emps. Some have car allowances, overtime pay, and even bonuses.

    For those of us in the small business, self-employed sector, we don’t get those things and when the economy struggles, so do we. Even in corporate America, when a business struggles it lays people off, reduces salaries, or cuts bonus plans.

    If I sell my store I am going to City Hall to put in an application. I could use some really good health insurance and the opportunity to build up a pension. Working for the City would definately be more secure than the average corp job. (imho)

  5. V Smoothe Post author

    Our unfunded existing pension bond liabilities are a huge, terrifying drag on future City budgets. They are nowhere close to paid for.

  6. Joanna/OnTheGoJo

    Z -

    I don’t think anyone here was talking about Edgerly in regards to the pensions.

    But in regards to salaries, I do think City emps are paid – on average – higher than in the corp world. Mostly because the cost of living is what it is. If I made $75K as a Finance Administrator in my last job, I would expect to make that or more working for the City. In terms of dollars hitting my pocket it would be less, but I’d have some really great health insurance and be forced to have put money away for my pension. Even if I made less, it would still be more in reality because of the benefits and the quality of those benefits.

  7. Terry

    The voting citizens of Oakland are partly to blame for such a large part of the budget going to personnel. Several years ago there was city proposition that mandated paying a “living wage” to certain personnel, such as jaintors, etc. Unfortunately, it passed. The ads showed a family trying to raise 3 kids on one of these salaries. These were never meant to be permanent career positions, but rather entry level jobs. The idea is that you start out being a janitor at night and go to school during the day so you can advance to a better paying job. That is the American Way.

    Unfortunately, the voters thought otherwise and now we have a lot of high priced janitors in the city.

  8. len raphael

    i have to look at the budget footnotes to confirm, but the city budget analysts explained to me that fire and police pensions and retirement medical/dental costs are funded and reflected in the budget numbers; and that the pension costs of non security employees are “accrued” in the budget. This accrual only means that the expense is reflected in the deficit number announced, but it could well be that it’s entirely unfunded as v says.

    as of last year when i asked budget people, the medical/dental retirement benefits for non security personnel i was told are neither accrued nor funded, and that amount could be anywhere from 30 mill to 300mill for the total obligation. (has the city finance dept released a number yet?)

    all of these obligation estimates and accruals depend on guestimates about how well the stock market does and how fast medical costs rise.

    somewhere i saw a comparison of number of staff per resident and salary comparison to other similar size california cities. can’t find it now, but my impression was that the total number of employees in oakland govt was way high.

  9. Steve

    What about redevelopment areas? If you look at a map of Oakland (http://www.business2oakland.com/main/redevelopment.htm#Section_1), the entire western half of the city is in one of our redevelopment areas. Beginning on the day a redevelopment area (RA) is created, all future increases in property tax revenue (TIF) travel through a funnel to the redevelopment agency… NOT the city general fund. And although the city and state have enacted “pass-through” legislation over the years to make sure schools, police and even the general fund get a portion of the TIF, the vast majority of the TIF still goes to the RA.

    And TIF money has strings attached: it must be spent to promote economic development, such as basic infrastructure and subsidies to developers for projects within the redevelopment areas. TIF CANNOT BE USED TO FUND MANY OF THE SERVICES PAID FOR THROUGH THE GENERAL FUND (although it can and is used to pay for that portion of staff salaries directly related to new redevelopment area projects). Luckily in Oakland, the City Council doubles as the RA, so that the council and RA don’t go in two totally different directions. Nonetheless, RA’s for decades have been known to be HUGE drags on city general fund revenue… and Oakland has a higher percentage of its land in RA’s than many/most/all other large cities in the country.

    Here’s the breakdown of TIF revenue and expenditures in Oakland (http://209.232.103.193/budgetoffice/FY06-07%20ORA%20Midcycle%20Budget%20Summary.pdf). Gross TIF is about $82 million, which is roughly 1/6th of the Oakland’s total revenue.

  10. oakie

    RE: Overpaying for city jobs – is it a good thing

    You know, the law of unintended consequences may apply here. If you have plum jobs and a chronic shortage of normal private enterprise jobs at market wages (which I believe is largely self inflicted by the choices we’ve made for this city), this may have resulted in the nepotism and den of thieves operating at city hall. Note, for example, Miss E’s nephew, now with multiple felony charges for carrying a gun and apparently in direct association with the head honcho of one of the most violent gangs in Oakland, who is apparently still employed by the city. Can you think of a less deserving person to get an job that has above market wages? My guess is that this is EXACTLY what you would get. Is that a good thing?

  11. FactCheck

    KTVU, once again, first did the work, calculating her pension and broke the story last week.

  12. Dustin

    wow, somebody protest too much. what “story” exactly did KTVU “break”? that edgerly is getting a pension? or that the city’s medical costs rise 18% per year as v states? my god, its no wonder people are abandoning the msm and turning to blogs like this for their news.

  13. Allan

    The problem isn’t the amount each employee collects, because at any level of salaries all the income would be spent. The problem lies in how much each employee produces. The city needs to be organized to get more done with the current budget.

  14. len raphael

    one factor is the pay scale, but the bigger issue is the gross
    overstaffing at city hall. sometime go visit city hall and the
    adjacent buildings at frank ogawa plaza during business hours. with
    the exception of some people at the building and zoning dept, most
    city employees move around at slow mo. amazing number seem to have the
    time to chat or seem to take very long breaks.

    so if you strongly believe in paying city employees better than most
    residents get, and giving them the pensions and benefits we all deserve but will never get, that’s ok. but lay off about 1/3 of total staff and
    make the rest work like the rest of us have to.

    -len raphael, temescal

    -len

  15. Chris Kidd

    So we lay off 1/3 of city staff and get the same level of production as … right now? I feel like that’d be unpopular considering that people are unhappy with the service they’re getting right now. How about instead we develop some sort of incentive system or get a firmer switch to go along with the carrot? I don’t think the employee unions would like that very much, but I think they might like it better than losing a third of their members.

  16. len raphael

    for reasons i’ve never figured out, but former oakland employees (who left for private industry or academia) have described to me, the existance of a prervasive bad work culture of oakland muni employees that is much worse than the universal complaint of citizens about govt employees in say Berkeley or SF. it takes different forms, and it’s not restricted to any one racial or job group. heck, i showed some of the public statements of council members to an ex muni worker and he laughed to tell me that even council members learn a version of the same oakland do nothing bureaurcratese that city workers use when telling you why you’re street can’t be fixed fo the next ten years, or why you have to file things in quadruplicate of a certain size.

    call it a sense of entitlement or maybe arrogance, almost as if we the residents are blessed to have them as our employees. it’s amazing to see in action at so many city offices. when you meet someone there without that attitude, and there are many, you want to shake their hands or get them a box of candy.

  17. Robert

    Take your choice – cut the wage and benefit package by a third to be competitive with private industry, or lay off a third. The benefit package for civil service is excellent because, at one time, wages in the public sector were below what you could earn in the private sector. Then wages caught up, but benefits are still better than the private sector. And you know, I wouldn’t have a problem with that if there was any indication that the public secotr was able to turn its high pay/benefits package inot hiring better workers, but I really don’t see it.

    len – you see bad work cultures in industry too. And in spite of a lot of effort to improve the attitude in companies, the only real solution I have seen is to gut the workforce and start over. (It is usually some form of a takeover.)

    Having said all that, my experience with the planning/permitting departments has been excellent. The people there seem to know their jobs, and are very helpful.

  18. len raphael

    history did contribute to the poor work ethic culture in the muni workforce. yes, pre dot com era, typical muni compensation packages were lower than private industry and workers adjusted mostly by working slowly and taking long frequent breaks. i don’t remember the sequence, but i think wages were increased to where most workers other than the most highly skilled positions were paid monetary wages comparable to private industry. next retirement benefits were improved to where they were much better than private industry at the same time as private industry eliminated many retirement benefits.

    the work slow and frequent break syndrome has continued in part because the overstaffing masks it, and in part because most residents evaluate city service efficiency by cops, fire, and street cleaning performance.

  19. Chris

    The reason that municipal/government wages and benefits have “caught up” with private sector wages is not because there have been huge increases in the public sector. Rather, wages in the private sector have remained flat – or private sector jobs have been outsourced overseas.
    Wealth is being shifted out of the pockets of working people and into the pockets of the rich (who are getting richer). The only reason muni workers have been able to protect/maintain at least a semblance of their standard of living is because they are more heavily organized than private sector workers.
    To think that cutting municipal workers’ wages/benefits would solve the problem only promotes this hideous race to the bottom.

  20. Hayden

    As a white collar state employee, I’ve had the pleasure of working with some of Oakland’s best and worst staff. On the whole, the experience is similar to, and sometimes slightly better than, working with the private sector.

    Most of the professional staff classifications I work with (i.e., scientists, geologists, engineers, and computer programmers) are paid somewhat less than the private sector even now. In the past, this was the tradeoff for the stability of a public sector job. However, at least with the State, that stability has declined as layoff notices have been distributed to a greater number of employees during recent years of tough budgets.

    And other folks at the City–the folks where I get my parking permit, the public works employees who regularly come to pick up the trash dumped at the end of my block, the police dispatchers I call when people are firing guns in the street–seem to respond promptly to requests for service.

    While there is some “dead wood,” the professional staff I work with tend to be in public service because they believe in what they do. Many are accomplished in their area of work. Some are there in part because they don’t have to make the ethical compromises one can be required to make in the private sector, others because public sector jobs can be more predictable or flexible in their hours–important for those who have families, or similar commitments.

    I could make quite a bit more if I shifted to the private sector, but for me, the tradeoff is worthwhile. I don’t understand the idea that the private sector’s failures–such as moving the burden of retirement risk from employers to employees–should be adopted overall. Rather, the trend should be reversed: retirement risk should continue to be assumed by employers, or we should identify a more communitarian approach (for example, with health insurance) that doesn’t leave people one bad accident away from bankruptcy or poverty.

    Oakland may be spending a large percentage of its general fund budget on personnel, and perhaps that is a place to look for cost savings. At the same time, I recognize that other factors, such as Prop 13 and its limits on both percentage of assessed value and reassessment timing, have significantly limited the amount of revenue any California city can get. This is only to say that there’s a big puzzle out there, and personnel costs are one of any number of pieces.

  21. len raphael

    h, as a techie and as a state worker who interacts with similar level techies in oakland muni govt, i would’n be surprised that you had a relatively favorable experience. most residents of oakland never see or hear from that level of staff. also, as a state techie, don’t you outrank the city techie, so you have hecka more clout than average jill or joe oakland resident?

    doubt if the city even releases salary statistics in sufficient detail to figure it out, but my guess is majority of city employees are clerks and blue collar people, not techies. and we’re talking about massive featherbedding at the staff and supervisors for those departments.

    -len raphael
    temescal

  22. Hayden

    len, this is a good point. I am usually working with city planners, civil engineers, and the like, and most of those folks seem to run around as though there aren’t enough hours in the day (although I have heard of the occasional permit application going lost on someone’s desk for awhile, and I think there are plenty of developers who find CEDA’s project review and approval process byzantine and incredibly time-consuming). I’m not so much on the ground with the laborer-level public works guys or that kind of thing, and I don’t have a good sense of whether there are enough/too many/etc. of those folks working for the city. Certainly, the city has its work cut out for it cleaning up abandoned cars, dumped trash, and the like (based on everyday driving around in West and East Oakland).

  23. Ralph

    public employees seem to be an easy target b/c of a perceived lack of commitment and quality to the job. it should however be noted that there are good and bad employees in the private sector as well. GE regularly cleaned/s its rank of the low performers.

    and on the 75% of the budget spent on salary, it may seem high but with i think the exception of airlines, that pctage is on par with the private sector

  24. Robert

    You are correct that any company has a share of low performers. But as you noted, companies regularly weed them out. Unfortunately the city does not do that effectively, with only the very worst performers being forced to leave.

    I am also skeptical of the number of 75% of the budget “going to personnel” in V’s terms. The city actually used the phrase “personnel-related” which can include other things such as computers and telephone charges which are somewhat proportional to the number of personnel. Are these types of charges included in the 75% number? There is no way to tell from the budget documents. If we use the numbers we do have, the city has a $1 billion budget with about 4400 FTEs. Using the 75% number this works out to be about $170,000 per FTE. If benefits are a generous 50% of the base salary, you are looking at an average salary of over $100,000. Even if you exclude the debt service, you are still looking at about $100,000. This seems really high for an average salary, so either the 75% number is exaggerated, or we really are paying city employees an awful lot compared to industry.

    Finally, there is the issue of only having 5% or 6% of the budget being discretionary. A huge chunk of the General Fund goes to “mandated activities”. These mandated activities are only vaguely defined, and at least some appear to overlap with activities funded by the “restricted” funds. And while that may be correct, you can’t tell from the budget documents. How many of these activities are truly mandated at the present funding levels by state/federal law, charter, or voter initiative, and what is “mandated” by ordinance? An ordinance that can be changed by the council. You just can’t tell, and I don’t know why we should be taking the administrations word for it. As a simple example, the charter mandates a city attorney and an assistant. So are the other 77 staff in the city attorney’s office counted in the mandated or discretionary moneys? You just can’t tell. From the descriptions of the discretionary activities, I think that they are counting all of the city attorney office costs as mandated, but you can’t really tell. And how many staff John Russo needs to get his job done is ultimately a decision that council needs to make, and it shouldn’t be lumped into mandated activities that we pretend we have no ability to control spending on.