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HomeMy WebLinkAboutStaff Report 5.B 06/06/2011z.85a . DATE: TO: FROM: June 6, 20 Honorable Mayor and Members of the City Council John C. Brown, City Manager SUBJECT: Resolution Maintaining the Cityof Petaluma Living Wage Rate at $12.46 Per Hour With Employer Contribution Toward Medical Benefits and $13.99 Per Hour Without Employer Contribution - Toward Medical Benefits, RECOMMENDATION Lt is recommended 'the_City Council adopt the attached Resolution .,Maintaining the City of `Petaluma Living Wage Rate at $12.46 Per Hour With an Employer Contribution Toward Medical Benefits and $13.99 Per Hour Without an Employer Contribution Toward - Medical Benefits, for the 2011-12 Fiscal Year. UACKGROUND This item was scheduled for consideration at your May 16, 2011 meeting. In the process of answering questions posed prior to the meeting by Councilinembers and the Public, it appeared that costs identified in the:report may have been overstated. Some ofthe questions asked at that time are related to ,the recommended action, others are not.. I felt it appropriate to obtain answers to those,questions, and to assure cost estimates-are accurate, before the Council takes action. Upon further evaluation, it was determiriedthat cost.estimates were in overstated. This will be discussed in the Financial Impact section' of this report. The answers to other I. questions appear in the Discussion section of the report: The Living Ordinance was approved and adopted. effective December 20, 2006. The Ordinance ,estabhshed.:an inito ,toward medical benefits, and $13 pp+yer contribution of at ial wa e of $11.70 per hour with an era to lea, st $1.50 p erliour per empl y ee per hour without contribution toward benefits. Petaluma Municipal Code Chapter 8.36 (the Living Wage Ordinance), at Section 836.060(D) provides that the initial rate: "be increased annually "on July 1, in accordance with any increase dueAo a cost of living adjustment for City employees, equalto the average cost of'living adjustment (excluding equity pay increases), for all City non- safety, non - management employees as of the date of the most'recent adjustment of the pay of non - safety, non - management employees, but : Agenda Review: City Attorney Finance Director City Manager no more than the most recent December to December Consumer Price Index for San Francisco- Oakland -San Jose (CPI -U), published by the Bureau of Labor Statistics ". The Ordinance also provides that the City Council may review the impact of the cost of living adjustment.(COLA) on an annual basis to assess anypotential adverse.impact and may modify or suspend adoption of a COLA otherwise allowed by this subsection: Pursuant to the Living Wage Ordinance, any adjustment would be effective on July 1. Last year, based on the December to December'increase in the Consumer Price Index for the San Francisco- Oakland- :San.Jos,e (CPT -U) area between-2008 and 2009 the City Council adopted Resolution 2010- 057 "which,increased the' Living Wage rate by b percent effective July 1, 2010. Staff recommended that Council forego the increase in recognition of the furlough program which unposed the equivalent of a 3.1 percent salary reduction on.full -time City employees. The Council voted against impacting hourly wage earners at this level of compensation, and chose instead to increase the Living Wage e, a h by-the,, pp ' cable CPI. Currently; Petaluma's Living Wage is $12.46 per hour with an employer contribution toward medical benefits of $1.50, and $13.99 per hour without the employer contribution toward .medical benefits.. Under the Ordinance, any annual adjustment applies only,to the base wage. An inflator does not apply to the $1:50 contribution. to medical'benefits ;. That amount -'remains constant regardless of changes in the cost of medical coverage. If an employer chooses to pay the higher hourly wage, however, the entire wage is subjedfb CPI adjustment. DISCUSSION: The December 2009 to December'2010 change in the CPI -U for the San Francisco- Oakland -San Jose area is a 1.5 percent increase. I.f the Council approvesthis COLA, the Living Wage will increase to $12.65 per, hour with an.,emplo,.yer contribution toward medical benefits and '$14.20 per hourVithout that contribution. This increase is not recommended 'for the potential adverse impact it will have on City finances. While the Ordinance provides the Council may conduct an annual review of the Living Wage to assess any potential adverse' mpact and may modify or suspend.;a COLA based, on that review, the Ordinance neither defines . "adverse impact ", nor dictates how a:reviewmust:be conducted or what factors should be ;taken into consideration. It` reason orhreasons the Council be eves h to be pertinent, That intent also appears to be present any, Section 8;36.050 (H), which governs waivers, and 'indicates in part: "The City Council may also waive the requirements of this chapter if 'a majority of its members determines that an emergency exists which requires a waiver." The Ordinance does not define an emergency. For the last three years, City budgets have been repeatedly reduced to balance expenses with declining revenues. General fund expenditures have, dropped. from a high °of over $48,000,000 in 2007 -08 to a 2010 -11 level ofapproximately $32:.5 - million. During thattime, 59 positions, one, sixth of the once - existing City workforce,' have been vacated through a combination of lay -offs, a Ir i , i P eliminations, and frozen vacancies, This. does not count °part -time ,po'sitions that were eliminated during the same period. Except for employees subject to the Living Wage and the pos arked to, those positions, no new COLA adjustments have been granted to City employees during that time. AFSCME- represented employees have deferred COLA adjustments granted to them that "would have been effective on July 1; 2009 -and January 1, 2010. In addition, 'n December 2009, all City employees', except for Living Wage positions and those benchmarked'rto them, received a 3.1 percent salary reduction associated, with a furlough program. During this same time, the City's General Fund reserves were exhausted. This leaves the City exposed in rime of disaste y p r; ":creates,cash.flow shortages and,.; has resulted in the down - grading of a City bond rating. After :three years of continuing redutions, this .condition might be better characterized as chronic than emergent, but is no,.less serious. Earlier this year the Council reviewed'a:Five -Year financial forecast for the current and next four fiscal years. The forecast projects continued deficitbetween revenues and expenses.if corrections are not made. Council recently directed staff to reduce expenditures by $4,000,000 in 2011 -12 to bring revenues, and;expenditures into line through the forecast period, and to begin to restore. reserves. The Council reviewed a menu of options including eliminating salary step advancements, continuing to defer COLA'Is- due AFSCME - represented employees, and eliminating annual pay-outs for Administrative Leave accruals., A -11 these actions are intended to curt, ail expenses through cost.avoidance. Other actions which the "Council also considered, all of which are subject to discussion with bargaining groups, are salary reductions, increased employee responsibility for the cost of.health care premiums, and additional lay -offs. Although, increasing the living wage has a small. impact on the City's overall finances, it is an expense the Council can choose to avoid, unlike health premiums and retirement b6iefit rates that are set outside the Council's jurisdiction, Avoi'd'ing added costs reduces the effort that must be made to balance revenues larid expenses. If viewed in isolation the cost of increasing the Living Wage does'not appear to have a significant detrimental impact on.the City's finances. When viewed as part of a',cumulative total :of cost ,increases which threaten the City's ability to live within its means, however, any negative impact is arguably detrimental. Therefore, to avoid cost to the General Fund at; a time when further reductions are sought, it is recomftieride'd chat the Living Wage be maintained at its current level' of $.12.46 per hour with employer contribution of!at least $1.50 per hour per' employee toward medical benefits and $1 2011phrou h 630,24 30 2 plover contribution toward medical:benefts, for theperiod'from July' g 012. This decision currently affects a total of 44 part time City .employees. Fourteen of these occupy Living Wage positions, the balance'are benchmarked against, the,Jiving wage positions. Together,, these positions represent a combined 201'9 payroll of'$'35 ° 7,424. This would increase to $362,785 if the 1.5 percent COLA is applied. ;Since the Living Wage Ordinance was enacted, the City has eliminated approximately twenty positions; 'and utilizes outside ,contracto "rs for. the services formerly provided by those employees.. This includes a contract for janitorial services with Universal Building Services and a contract for Planning Services with the M- Group. Of these two contracts, M` -Group salaries and benefits are on a par with those paid to former city employees and exceed living wage minimums. Universal is responsible for paying the Living Wage °to its employees. They do not provide the $1.50 for health benefits, but rather, pay the higher'hourly wage. The mostrecentpayroll submitted by Universal, covering the period between May 1 and 'May 15; 201.1 identifies eight part -time employees working hours during the period which, from. review of earlier submitted have not re viewed a ears worth of a olls but assumin the two -week e , 1 k 69 for the period. We p ayrolls, appears to belt ical These em g to y p yr ; g period is typical, annualized payroll would be:$'68,039'. A 1.5 percent COLA would increase that amount approximately $1,060. In the process of reviewing he payroll ri question, my office found that Universal had not increased the `living wage in July consistent with the Council's action. Universal employees have been paid $1.3.20 per hour, rather than $13:99 per Council's action last year. Universat has been asked to- provide retroactive wage adjustmentlo all affected employees. Although it's agreement with the City requires; that Universal pay the Petaluma living wage, it is unclear whether Universal was�notified by the, City of the 2010 increase. Nor was the error caught or brought to Universal's attention, with any of the payrolls the company submitted over the past year. Although the Living Wage Ordinance does not require the City to monitor ongoing performance — contractors. are required. to .acknowledge and certify that they will pay the Living Wage- this oversight underscores the lack of City resources, available to' conduct monitoring if it was required.regularly. FINANCIAL. IMPACTS There is no cost associated with the recommended action. 'Increasing the living wage by 1.5 percent, however, will result in'an.estimated increased.cost to the City in FY 2011 -12 of $5,361. The General Fund's share of this cost,is $;4,623. In the report that was provided to you for the May 16, 2011 meeting these costs were identified as $8`,998;, and -$6,782 respectively. Costs as stated in the May 2011 report were incorrect, calculated, using an inflator for retirement Y p Y °, us contributions that is present whether or riot the Living Wage is -increased by a COLA. That error has been corrected. A'T'TACHMENTS 1. Resolution o� N Resolution No. 2011- N.C.S. Of the City of Petaluma, Ca°ldomia MAINTAINING THE, CITY' OF PETALUMA..LIVING WAGE RATE AT $12.46 PER HOUR WITH AN EMPLOYER CON`T'RIBUTION TOWARD MEDICAL BENEFITS AND -$13':99 PER DOUR WITHOUT AN EMPLOYER CONTRIBUTION TOWARD MEDICAL BENEFITS, FOR THE 2011 =12 FISCAL YEAR WHEREAS, the City Council of the City of Petaluma' established a Living Wage Required for Specified City - Funded Contracts and City Employees, by adopting Ordinance No. 2256 N.C.S. effective December 20, 2006; ( "the Living Wage Ordinance "); and, WHEREAS,.the Living Wage Ordinance is codified at Chapter 8.36 of the City of Petaluma Municipal Code; arid, WHEREAS, Municipal Code Section 8.36.060.D provides that the Living Wage rate shall be increased annually:,on July 1, in accordance with any increase due to a cost of living adjustment for City employees, but no morethan the most recent December to December ConsumerwPr ce Index for.San Francisco- Oakland -San Jose (CPI -U); and, W'HE'REAS, Section 8.36.0 further provides that the City Council may review the impact' of the cost of living adjustment ("COLA"), on an annual basis to assess any potential adverse impact and may modify or suspend adoption of a COLA otherwise allowed, by the subsection; and WHEREAS, the initial Living, Wage rate in_ 2006 was $11.70 per hour with an employer contribution of at least $1.50 per 'hour per employee toward medical` benefits and $13.20 per'hour°without said contribution; and, WHEREAS, the current Living, Wage pursuant to Chapter 8.36 is $12.46 per hour if a contribution of at least $ 1.5`0 per hour per employee is paid by the employer toward the cost of medical benefits; and $13.99 per hour without said contribution toward medical benefits; and, S WHEREAS, the December to December Consumer Price Index for San Francisco- Oakland -San Jose (CPI =U) indicates an overall incr_ease'of 1.5 percent in Bay Area consumer prices from December 2009 to December 2010 and WHEREAS, after three- years�of budget reductions ,the City continues to.struggle to bring expenses in line with' revenues, and the City "CounciH as directed staff to reduce expenditures by $4,000,000 in 2011 -12 to balance revenues and expenditures through 2014/15 and to begin to re- establish reserves; and WHEREAS, the City Council has directed staff to attempt to implement budget reduction strategies 'that include actions intended to curtail expenses through cost avoidance, and cost avoidance will reduce the wage concessions that may be needed from City Employees, and /or lay -offs that may otherwise required, to balance "revenues. and expenses; and WHEREAS, increasing the Living'Wage for 2011.12 "will add to the currently projected imbalance between revenues and expenses. NOW, THEREFORE, BE IT RESOLVED that- the City Council finds that increasin the Living Wage' established pursuant to Petaluma ' g i g a Municipal Code Chapter 8.36 'by any amount for 201.1 would have an adverse impact on the City. BE IT F I.TRTHER RESOLVED that pursuant to Petaluma Municipal Code Section 8.36.060.D the-City Council .declines to adopt a COLA adjustment to the Living Wage and maintains the., Living Wage 2011 at the, current level of $12.46 per "hour with an employer contribution toward - medical benefits of at least $4:50 per hour per employee; and,$13.99 per hour`withou't said contribution. 10