Palo Alto City Council

City of Palo Alto

Palo Alto, CA 94301
Cc: James Keene, City Manager

Subject: Twenty-Year Projected Cost of Labor Under Current Conditions

For The Palo Alto City Government
Date 06.20.10

The following table, from the City of Palo Alto bi-annual budget, provides a clear, and
concise, view of the costs of labor for the City Government:

AVERAGE SALARY & BENEFITS PER EMPLOYEE - BY UNIT

CATEGORY MGMT IAFF FCA PAPOA SEIU TOTAL BENEFITS

FTE 242 109 4 83 617 1,055

% OF City 23% 10% 0% 8% 59% 100%
SALARY $113,002 $104,878 $138,200 $104,013 $72,662 $92,818,075
Overtime* $0 $16,001 $0 $17,296 $3,914 $5,593,457 6.0%
VMC * ? $0 ? $0 ? ?
IN-LIEU HOLIDAY $0 $5,443 $0 $5,398 $3,771 $3,367,235 3.6%
MGMT LEAVE $4,346 $0 $5,316 $0 $0 $1,074,569 1.2%
PERS EMPLOYER $19,281 $25,106 $33,082 $24,899 $12,398 $17,255,005 18.6%
PERS EMPLOYEE $6,780 $4,495 $12,438 $9,361 $4,360 $5,648,717 6.1%
MEDICAL $11,762 $11,762 $11,762 $11,762 $11,762 $12,410,086 13.4%
DENTAL/VISION $1,676 $1,676 $1,676 $1,676 $1,676 $1,768,348 1.9%
WORKER'S COMP $1,934 $7,053 $0 $9,238 $1,931 $3,195,207 3.4%
LIFE/LTD/SUI/EAP $718 $718 $718 $718 $718 $757,562 0.8%
NON-SAL. BENEFITS $4,260 $1,255 $4,255 $1,255 $1,383 $2,143,313 2.3%
TOTAL SAL./ BENEFITS $163,759 $178,387 $207,447 $185,616 $114,575 $146,031,574 57.3%

Bargaining Units:
MGMT - Management
IAFF -- Firefighters
FCA -- Firefighter Management
SIEU--Hourly Employees
PAPO--Police
City of Palo Alto Compensation Model

While there seems to be no published compensation model for the City of Palo Alto, it’s
clear from reading the City’s published budget that the following basic model is in use:

• Salaries are linked to other government agencies, not similar jobs in the private
sector.
• Salaries increase yearly, without concern for the intrinsic value of the job.
• Salaries increase based on the number of years the employment.
• There are no caps to salaries.
• Salaries tend to double every 12-15 years, depending on various factors.
• Salaries and Productivity are not linked.
• Pensions are linked to the high year’s salary.
• Employees are not expected to contribute very much to their “benefits’ package.
• Benefits are not capped, as a percentage of salaries.
• Post-retirement benefits are managed by CalPERS using money management for
the bulk of post-retirement funding. PA employees have not been expected to
contribute very much for these lavish post-retirement pensions.
• Pensions for employees making over 100,000 per year will payout $2M-$4M
over a 30-year retirement.
• Post-retirement health care is also provided by the City.
20-Year Salary and Benefit Cost Projections

Using 10-year averages for each of the bargaining units, provided by City of Palo Alto
Human Resources, the table below projects the costs of salary and benefits forward
twenty years:

AVERAGE SALARY & BENEFITS PER EMPLOYEE - BY UNIT

20-Year Projected Salaries/Benefits for

Palo Alto Government By Bargaining Units

CATEGORY MGMT IAFF FCA PAPOA SEIU TOTAL

FTE 242 109 4 83 617 1,055

TOTAL
SAL/
BENEFITS $163,759 $178,387 $207,447 $185,616 $114,575 $146,031,574
Yearly
Increase 3.2% 3.8% 3.5% 4.4% 3.6% 3.8%
Year
2011 $168,999 $185,166 $214,708 $193,783 $118,700 $151,580,774
2012 $174,407 $192,202 $222,222 $202,310 $122,973 $157,340,843
2013 $179,988 $199,506 $230,000 $211,211 $127,400 $163,319,795
2014 $185,748 $207,087 $238,050 $220,504 $131,986 $169,525,947
2015 $191,692 $214,956 $246,382 $230,207 $136,738 $175,967,933
2016 $197,826 $223,125 $255,005 $240,336 $141,660 $182,654,715
2017 $204,156 $231,603 $263,931 $250,911 $146,760 $189,595,594
2018 $210,689 $240,404 $273,168 $261,951 $152,044 $196,800,227
2019 $217,431 $249,540 $282,729 $273,476 $157,517 $204,278,635
2020 $224,389 $259,022 $292,624 $285,509 $163,188 $212,041,223
2021 $231,570 $268,865 $302,866 $298,072 $169,062 $220,098,790
2022 $238,980 $279,082 $313,467 $311,187 $175,149 $228,462,544
2023 $246,627 $289,687 $324,438 $324,879 $181,454 $237,144,121
2024 $254,519 $300,695 $335,793 $339,174 $187,986 $246,155,597
2025 $262,664 $312,121 $347,546 $354,098 $194,754 $255,509,510
2026 $271,069 $323,982 $359,710 $369,678 $201,765 $265,218,871
2027 $279,744 $336,293 $372,300 $385,944 $209,029 $275,297,188
2028 $288,695 $349,072 $385,331 $402,925 $216,554 $285,758,482
2029 $297,934 $362,337 $398,817 $420,654 $224,350 $296,617,304
2030 $307,467 $376,106 $412,776 $439,163 $232,426 $307,888,761
2031 $317,306 $390,398 $427,223 $458,486 $240,793 $319,588,534
2032 $327,460 $405,233 $442,176 $478,659 $249,462 $331,732,899

PA.HR: 10-Year Salary Increases

Notes:

This projection assumes:

• No additional, or reduced, headcount.

• No significant increases, or decreases, in yearly salary increases.
• No increases, or decreases, in base salaries.
• No significant increases in costs of health care (in-service, or post-retirement).
• No additional benefits being added, or reduced, to/from the current “package”.
• No significant increase in CalPERS contributions.

The following is a graph that might help to visualize the growth of the salaries and
benefit costs of the Palo Alto employees over the next twenty years:

20-Year Growth Of Palo Alto Government

Salaries & Benefits--By Bargaining Unit

$500,000
$400,000
Salary And
Benefits

$300,000
$200,000 MGMT
$100,000 IAFF
Bargain-

$0 FCA
ing
2011

PAPOA
2015
2019
2023

SEIU
2027

SEIU
2031
MGMT

Projected Timeline
20-Year Salary Projections

The following table projects just the salaries of the main bargaining units, without benefit
costs, over the next twenty years:

AVERAGE SALARY & BENEFITS PER EMPLOYEE - BY UNIT

20-Year Projected Cost-of-Labor for Palo Alto Government

CATEGORY MGMT IAFF FCA PAPOA SEIU TOTAL

FTE 242 109 4 83 617 1,055

AVERAGE
SALARIES $113,002 $104,878 $138,200 $104,013 $72,662 $92,818,075
Yearly
Increase 3.2% 3.8% 3.5% 4.4% 3.6% 3.8%
Year
2011 $116,618 $108,863 $143,037 $108,590 $75,278 $96,345,162
2012 $120,350 $113,000 $148,043 $113,368 $77,988 $100,006,278
2013 $124,201 $117,294 $153,225 $118,356 $80,795 $103,806,517
2014 $128,175 $121,751 $158,588 $123,563 $83,704 $107,751,164
2015 $132,277 $126,378 $164,138 $129,000 $86,717 $111,845,708
2016 $136,510 $131,180 $169,883 $134,676 $89,839 $116,095,845
2017 $140,878 $136,165 $175,829 $140,602 $93,073 $120,507,487
2018 $145,386 $141,339 $181,983 $146,788 $96,424 $125,086,772
2019 $150,039 $146,710 $188,352 $153,247 $99,895 $129,840,069
2020 $154,840 $152,285 $194,945 $159,990 $103,492 $134,773,992
2021 $159,795 $158,072 $201,768 $167,029 $107,217 $139,895,404
2022 $164,908 $164,079 $208,830 $174,379 $111,077 $145,211,429
2023 $170,185 $170,314 $216,139 $182,051 $115,076 $150,729,463
2024 $175,631 $176,786 $223,704 $190,062 $119,219 $156,457,183
2025 $181,251 $183,504 $231,533 $198,424 $123,510 $162,402,556
2026 $187,052 $190,477 $239,637 $207,155 $127,957 $168,573,853
2027 $193,037 $197,715 $248,024 $216,270 $132,563 $174,979,659
2028 $199,214 $205,228 $256,705 $225,786 $137,336 $181,628,886
2029 $205,589 $213,027 $265,690 $235,720 $142,280 $188,530,784
2030 $212,168 $221,122 $274,989 $246,092 $147,402 $195,694,954
2031 $218,957 $229,524 $284,613 $256,920 $152,708 $203,131,362
2032 $225,964 $238,246 $294,575 $268,225 $158,206 $210,850,354

Conclusions

The City of Palo Alto’s presumed compensation model for its staff seems to be uncapped,
doubling every so often, with pensions linked to the high year’s salary. The data in the
tables presented in this short paper was derived from the 2010-11 bi-annual budget, and
ten-year average pay increases for each bargaining unit, which was provided by the Palo
Alto Human Resources Department.
The many newspaper articles that now can be found in just about every newspaper
around the country use terms like “unsustainable”, but do not seem to provide hard
details about what “unsustainable” really means. Given that the pension problem is
linked to the uncapped, and rapidly escalating salaries of government officials, and staff,
this issue of “unsustainability” becomes a two-pronged problem—government salaries
and government pensions.

Many local governments do not seem to be fully aware of the problem, at least not in
terms of providing this sort of twenty-thirty year projections of salaries and benefit costs
so that taxpayers, business owners and residents would understand just how high the
costs of local/state/federal government have become, and how even more expensive these
costs will become in the coming years.

Solutions are numerous, but doubtless will require outsourcing as much of local
government as possible to the private sector, rescinding these guarantees of lavish
pensions (which become in the $4M-$10M as these salary bases grow ever larger.

If our elected officials can not understand these issues and take the appropriate actions,
the voters will have to take matters in their own hands.

On-the-NET:

City of Palo Alto Budget Data:

http://www.cityofpaloalto.org/depts/mgr/community_budget_forum.asp

Pension Tsunami WEB-site:

www.pensiontsunami.com