The Ramifications of keeping the Status Quo (Part II)
While government pension systems across the nation have strained to cope with escalating pension obligations, California is in worse shape than most because of a large increase in pension benefits made over a decade ago, raising benefits as much as 50 percent for some state and local government employees. This was compounded with inadequate contributions to defined-benefit plans based upon Unrealistic Actuarial Assumptions. (1)
The Pew Center, in its latest annual update of state unfunded liabilities for fiscal year 2012, found that the state-run retirement systems had a $915 billion shortfall, a major increase from $757 billion in 2010 and $452 billion in 2008. This was based on a overly generous 7.5% investment return, attributed to weak investment returns and the states’ failure to fund their annual required contributions. (2) Unrealistic asset return assumptions obscure significant risk faced by public pension funds that encourages riskier investment strategies. 85 percent of state-run retirement systems are expected to go bankrupt in the next three decades, when asset returns are revised to a more realistic level well below 7.5%. This is why CalPERS will be increasing all employers’ contributions by 50-% over the next six to ten years. A “risk-free” calculation using a lower and more reasonable discount rate, would result in a $4.1 trillion unfunded liability. (2)
The lack of “transparency, accountability, shared prosperity and competition” with state and local government workers is what has allowed them to fleece taxpayers and drive up costs for decades. Presently, city employee salaries, overtime, pay perks, pensions and benefits are not in line with their economic worth. (3) State and local governments face the prospect of future long-term deficits in the foreseeable future. They need the flexibility to make changes in lowering its costs. This doesn’t mean cuts to current retirees or current employees’ prior years’ service credits already earned, but it should mean the ability for state and local governments to change the way service credit and benefits are earned going forward. (4)
In Los Angeles, just like in Glendale, Public employee pension’s costs have been a major issue in recent years, consuming a growing portions of that the city’s budget. The city’s ability to eliminate the deficit and continue to provide services to the community and benefits to its employees could be seriously hampered without a hike in the retirement age and a reduction of benefits back to its pre-2001 existing levels. (5) The City of Glendale on May 2013 had 118 retirees each paid over $100,000, with 64 retirees making more in retirement than 90% of their final “base salary”, and this was after pension adjustments for inclusion of their spouse as their beneficiary after their passing.
Most of the public pension “reform” proposals that have been put forth in California and elsewhere, have not gone far enough. It has only addressed recent hires. The entire defined-benefit system is broken. Tinkering with and preserving the existing defined-benefit pension system would only maintain the moral hazard of policymakers and labor unions to push for pension and benefit increases, in the short term that will not materialize until long after they are out of office. Those in the private sector should not be forced to pay for ever-richer benefits for public employees while seeing their own retirement funds erode during difficult economic times. (1)
Based on a chart analysis, prepared by Frank Gallo of the Glendale Coalition for Better Government – In 2012 Glendale’s population was 193,000, Burbank’s 104,000, Rancho Cucamonga’s 170,000 and Long Beach’s 430,000. According to their Comprehensive Audited Financial Report (CAFR), the percentages spent on public safety, by city were as follows: Burbank 33%, Long Beach 34%, and Rancho Cucamonga was just under 36%, representing an average of 34% of expenditures that went into public safety. Glendale’s safety costs was 47% or 13% higher than the average of the other three cities budget percentages spent on public safety. (6)
Glendale paid $67 million in safety salaries as follows: Police ($37.7 million) and Fire ($29.3 million) for FYE 2012. Total cost for Police and Fire, including employer’s cost and overhead, was police ($72.2 million) and Fire ($61.9 million), totaling $134.1 million per the CAFR’s FYE 2012. (7)
Over the past 35 years, the number of fires in the United States has fallen by more than 40% while the number of career firefighters has increased by more than 40%. The decline of demand has created a problem for firefighters. Taxpayers are unlikely to support budget increases for fire departments if they see firemen lolling about the firehouse. So, cities needed to create highly visible jobs for fire personnel to keep them busy with other downtime pursuits. (8)
The typical job of a fireman, at the start of their shift, is to check their trucks, equipment, gear, breathing apparatus and anything else that they may wear or use. Periodically they’ll check fire hydrants, and perform various on-site fire prevention tasks, i.e. building, environmental and weed abatement inspections – conducting fire, life, & safety Emergency Preparedness, on-going training, etc…
Some of GFD’s downtime pursuits include, public outreach, public education, community awareness, attending union meetings and activities, exercise and fitness programs, all on official City time. GFD’s slogan, “Community First” was to improve its image in the community by providing residents with Fire Station open houses, Fire Apparatus Demonstrations, Special Community Events, Public Education, teaching fire safety in schools (1st grade and higher), Recruitment Fairs and other downtime pursuits to fill the void.
John Cermak, of the Alhambra Fire Department, discussed “consolidation, merger, or shared services between Alhambra and neighboring communities (Monterey Park, San Gabriel, San Marino, South Pasadena, and Glendale)” ongoing since the 1980’s.. The problem was that the five neighboring cities each had financial constraints causing reduced management staffing with the same legal, organizational, and operational concerns. For the EMS, a full consolidation under one fire district would have reduced duplication and inefficiencies among the six cities. However, the concern was the reduction of management staff to the fire service, that would have inhibit the ability of fire service executives to adequately staff and prepare for opportunities and threats to the fire service. (9)
Some cities and counties want to dismiss their firefighter paramedics and replace them with private paramedics because their firefighters union has secured salaries for their medics that make their services more costly than those of private paramedics. While larger cities and counties can afford to restructure their firefighter departments in order to keep their firefighter medics, some smaller local governments, starved of cash by the recession, are taking a second look at hiring private paramedics. (10)
The Federal Emergency Medical Services Acts of 1973 and 1976 aided municipalities to become dominant providers of EMS. During the 1980s, as federal funds dried up and cities experienced fiscal stress, many communities turned again to the private sector to play a significant EMS role.
By 1994, of the 200 U.S. cities of 100,000 or more population, 56 (28%) currently use private paramedics to treat and transport. Another 44 (22%) use a mixed public-private system, and the remaining 100 (50%) use an all government (fire department) or hospital-based system. By switching to a high performance model, most of the 144 cities in the latter two groups could achieve significant cost savings and improved EMS performance. Note- at the time this report was written in November 1995, titled “PRIVATIZING EMERGENCY MEDICAL SERVICE: HOW CITIES CAN CUT COSTS AND SAVE LIVES”, The City of Glendale, Calif. was listed with a population of 180,038, and classified using only private paramedics service. (11)
The GFD, on about 2001 convinced the City Council that it could bring in several millions in billing revenue if the EMS was transferred back to their authority. The Council did just that, even though the EMS had successfully been outsourced to a private provider over the past decade, and had an exemplary record, that cost the city less than $500,000 annually, with no future pension obligations. Since the GFD took over the EMS service, the GFD overtime and additional pay escalated from $1.9 million in 2000 to over $7.2 in 2012. In 2012, the taxpayers paid 166 firefighters over $100,000 in salaries, that included $7.2 million in overtime and other additional pay.
So, this begs the question, why is the CofG paying firefighters over $100,000 to perform paramedic work when paramedics earn substantially less than 50% of the cost of firefighters? Since almost 90% of all 911 calls are for EMS, why is the city regularly sending a fire engine with four fire fighters/paramedics and an ambulance with two BLS technicians, a total of six personnel on each 911 call? Whether the paramedic provider is a fire department or a private ambulance firm, high levels of performance can only be assured if there is a clear specification of the desired objectives (i.e., in terms of response time, productivity, and cost and/or subsidy level) and a means of holding the provider contractually accountable. (11)
The national median annual wage for emergency medical technicians (EMTs) and paramedics was $31,020 in May 2012. The lowest 10 percent earned less than $20,180, while the top 10 percent earned more than $53,550. (12) In Glendale, CA. the median paramedic wage was $43,266, with a low of $34,062, and a high of $54,855.(13)
In most suburban areas, Paramedics are not members of the fire department and are dispatched by the county. In New York City they use Medics, who are not firefighters, who are sent out on non-life threatening calls. It costs $3,500 every time a fire truck pulls out of a fire station in Washington, DC. One firefighter who is a paramedic said, the EMS is better off as a third service. He said that there are many firefighters who prefer not to do EMS work. Ultimately patient care may suffer when people feel forced into a job they do not want to do.
So, how should firefighters be scheduled and deployed to ensure safety, effectiveness and efficiency in fire department operations? Should they respond with full-size apparatus “an expensive and likely inappropriate use of equipment? If the city has inadequate communication and deployment system, it may result in a poor record of response to non-fire emergencies. One deployment concept that appears to be gaining significant traction as an option for the fire service to meet both a decrease in budget and an increase in the demand for organizational efficiency is the transition from full-size fire apparatus to smaller rapid-response vehicles (RRVs). A new trend that departments embrace, are new approaches to the deployment of their EMS resources though peak demand staffing, changes to apparatus and a reduction in overall staff. Most importantly, is the need to demonstrate patient outcome data in accordance with the new changes. (14)
The evolution of fire Advance Life Support (ALS) deployment to smaller vehicles, and the primary benefit to the ALS model is so department can ensure a better utilization of its resources while maintaining a cost-effective response configuration. If a LACFD squad arrives, the paramedic can determine if ALS care is required and then either accompany a contracted ambulance transport provider or return to service for another response. In 2010, a report by the International City Managers Association (ICMA) made the following statement about the role of the fire service in EMS: The “right resource, right place and right time” paradigm has become the key concept for the deployment of fire EMS first-response resources. The transition to a smaller vehicle is not only about cost savings or reduction in the required staff. A critical component is the integration of communications and the development of a coordinated response plan. The single most important factor in making a quick-response program work is a progressive communications center utilizing a clinically sophisticated call processing method. (14)
The impetus for change may be initiated by an organization hired to streamline operations and reduce costs versus through a collaborative improvement process within the department, i.e. Instead of deploying a four-person staffed $400,000 full-size apparatus, the department purchased a $31,000 Toyota FJ Cruiser and staffed it with a single fire paramedic to handle calls such as minor traffic accidents, community service requests and lower-priority medical emergencies. In order to make adjustments to deployment, vehicles or response locations, a department must consolidate its data sources and establish operationally and clinically effective measurement criterion. Finally, one of the most important elements of a successful fire/ALS response model is collaboration.
Embracing new forms of service delivery has been a challenge for some departments and many more are being forced to recognize the reality of dwindling budgets. The modern fire service is expected to be adaptable to changing its business practices as we move toward a change in the nation’s healthcare delivery system, based on accountability and clinical outcome, the department that can adapt to the new normal will be the most successful in setting its own path. (14)
The City of Philadelphia is considering a new deployment model for paramedics and emergency medical technicians, by replacing one of its two paramedics on city ambulances with an EMT. The plan would increase the number of staffed ambulances available for dispatch, that would augment the service by hiring more fire service EMTs, pair them with paramedics, that would spread more ambulances evenly throughout the city so they are not concentrated in certain areas at certain times of the day, This is an effort to spread the paramedics more thinly throughout the city rather than hire needed number of paramedics. Note- the paramedics are not firefighter paramedics. (15)
It’s apparent that trying to keep the Status Quo is no longer a viable option. The CofG needs to develop a plan on how to deliver more cost-effective, high-quality services at substantially lower costs. It’s preposterous that Glendale’s safety costs was 47% or 13% higher than the average of the other three cities budget percentages spent on public safety. I’ve presented a number of cost saving options, based on the preceding, that should behoove the City Council to consider alternatives vs. keeping the status quo of sending an engine and one BLT ambulance to every 911 EMS call. In addition, the city needs to address the cost of the GFD and the GPD that is no longer sustainable. Other considerations are as follows:
1. Modify the retirement formula back to its pre-2001 levels for all current employees, i.e. from 3% back to 2.5% for sworn safety officers, and from 2.5% back to 2% for miscellaneous employees. This would only affect future service credit going forward, leaving intact all prior years’ service credits earned to date.
2. Offer a Hybrid Retirement Plan for new hires that puts retirements in the control of workers, with a “Defined Contribution Plan, that they own outright, that can be left to heirs, and allows them to benefit from market returns, as well as provides them with the stability of a fixed monthly Social Security income.
3. Caps on all pensions, the lesser of, not to exceed 90% of their base pay for “Safety employees or 75% for miscellaneous employees, with the caveat, that no pension shall exceed $125,000 at the time of retirement for all employees.
4. Substantially reduce or eliminate overtime for non-management employees, even if it requires outsourcing, while permanently eliminating overtime for management employees, and the 11% bonus for GFFA administrative sworn employees.
5. No employee shall earn a pay perk for that month unless they are performing duties relevant to that perk. Also, no more pay perks for education not relevant to their employment.
6. The City should seriously consider putting all miscellaneous employees on a 36 hour week, four day a week that would trim salary and wages by 10%, as other cities have done.
7. Stop offering early retirement bonuses, where employees in critical positions are needed, that accepts the early retirement, then are asked to come back to fill the void, aka double dipping by being rehired as an annuitant. This is a ruse. If the city needs to layoff, then it should decide which positions are no longer critical or relevant and can be permanently eliminated.
8. Revive both the City Controller and City Attorney’s positions, as an elected position, which are both held accountable to the residents, not to the City Council or the City Manager. The City is in dire need of a City Controller, with an independent voice with clout, who reviews all city staff reports under the direction of the City Manager, and acts as a go between, summarizing, and presenting his/her own independent findings to the City Council with recommendations of the pros and cons, prior to any vote being taken. It’s apparent that the city council members, based on their questions and comments made at council meetings, prior to taking a vote, that they are clueless, not fully understanding the ramification of their vote. Why not when they get documents to review just a few days prior to the council meeting. The City Controller would also audit City departments and all City Contracts for waste, fraud, and inefficiency and ensure that the bid process is maintained.
9. If employees unions are unwilling to renegotiate, then the City Council should have no qualms to explore other alternatives that will reduce the city’s Safety costs for police and firefighters. We shouldn’t need to wait until we keep losing essential services or be on the verge of bankruptcy to take action. This may include:
a. Consolidate the Police & Fire department, into a “Public Safety Department”. Barry Allen noted this in last week’s Vanguard, per Wilson’s four typical models of consolidation that included (1) Full Consolidation where public safety officers are cross-trained with consolidated management and command: (2) Partial Consolidation, limited to select positions in the organization hierarchy; (3) Function Consolidation, limited to middle and upper management; (4) Nominal Consolidation, limited to share facilities and/or training, dispatch resources.
b. Explore consolidation, merger, or shared services with neighboring communities.
c. Contract out services with the County of Los Angeles for both police and fire. This could be on a full or partial basis. The City would still continue to contract with CalPERS for its existing miscellaneous and management (non-sworn) employees, as well as continue managing its current existing “Safety” employees’ pension and benefit fund for police and firefighters who are already vested and wish to remain with CalPERS, no cash out or transfer to LACERA, even though there would be no further contributions to CalPERS based on future earnings. However, the City would still be obligated, on the hook for all prior unfunded contributions to CalPERS on behalf for their former safety employees’.
The County has a reciprocal agreement with CalPERS. This relationship, known as reciprocity, was established by statute to encourage career public service and to protect retirement benefits earned by employees under two or more systems. Under reciprocity, the employees years of service earned under the reciprocal system will count toward meeting LACERA’s service credit requirements for vesting and retirement. (16)
For all former safety officers picked up and hired by the County, CalPERS and the Board of Retirement of LACERA could enter into a reciprocity agreement to terminate CaIPERS’ liability related to these safety members and for LACERA to assume liability, and to transfer employee and employer contributions with interests from the City’s safety plan with CalPERS to LACERA, for safety members transferred and employed by the County. However, any agreement does not apply to safety members who have retired on or before the effective date of the agreement or Safety members who were not employed by the County. They would continue to remain under the City’s safety plan with CaIPERS.
If the City Council is unwilling to take action to reduce, salaries, pensions and benefits back to their economic worth, then the citizens may need to take action, by gathering signature to put it on the ballot to address these critical issues that the CC refuses to address. So, it’s really up the City Council and the unions to renegotiate their MOU contract to reduce costs, overtime and salary perks, that is fair to the residents and businesses and keeps essential services intact.
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