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HomeMy WebLinkAbout03-20-2018 Item 14 Labor Relations Objectives Meeting Date: 3/20/2018 FROM: Monica Irons, Director of Human Resources Prepared By: Nickole Sutter, Human Resources Analyst II SUBJECT: REVIEW AND APPROVAL OF LABOR RELATIONS OBJECTIVES RECOMMENDATION Review and approve draft updated Labor Relations Objectives (LRO) that will guide labor negotiations with employee groups. DISCUSSION Background During the 2011 Financial Plan process, Council publicly identified a financial objective that was critical to the adoption of the 2011-13 Financial Plan. This financial objective, reducing employee compensation in the General Fund by $2.6 million, resulted in LRO of reducing total compensation by 6.8% and achieving significant progress in long-term systemic pension cost containment and reductions. Sharing the LRO with employee groups and with the community was helpful in focusing the negotiations that followed. Agreements reached with every employee group reduced total compensation by 6.8% or more and a lower second tier retirement benefit was implemented. The City has a responsi bility and commitment to negotiate in good faith with its employee representatives. LRO are overarching principles or policy direction that broadly define a desired outcome, but do not prescribe how it will be achieved. Thus, as is the case with other general policy direction, it is appropriate to discuss this aspect of the labor relations process in open session. However, to abide by the laws that govern bargaining in good faith, the focus of the open session discussion should be on establishing City-wide policy objectives, not plans, proposals, or concepts specific to bargaining units or terms and conditions of employment. Sharing LRO may help all employee groups by providing a common understanding between all the parties involved in labor negotiations by allowing them to look at how specific proposals fit with the overall Council objectives. Achieving LRO may require time, trade-offs or incentives to achieve a negotiated agreement. The specific authority that the City’s bargaining representatives ne ed to develop and exchange proposals with an employee group is provided by Council as negotiating parameters in closed session. To do otherwise could put the City at risk for an unfair labor practice charge. On July 1, 2014 Council adopted a Fiscal Responsibility Philosophy (Attachment A). This philosophy defines fiscal responsibility and establishes several tenants or considerations in attempting to maintain it. Among these is a commitment to openness and transparency that includes, to the extent legally possible, transparency in the labor relations process. This objective combined with the benefits described above, lead to the adoption of LRO (Attachment Packet Page 187 14 B) by Council in September 2014. The LRO adopted in 2014 have guided ten successor agreements with six employee groups. In anticipation of labor negotiations with four employee groups in spring/summer 2018 and the significant increase in CalPERS retirement costs projected for the City, reviewing and updating the LRO is timely. Developing LRO In drafting the 2014 LRO for Council consideration, staff kept with the same balanced themes other agencies were using: 1) cost containment, 2) cost sharing, and, 3) recruitment and retention strategies that include competitive compensation. The 2014 LRO work in concert with other City policies such as Financial Management policies, the Compensation Philosophy (Attachment C), and the City’s Fiscal Responsibility Philosophy. Themes within these policies include the City’s commitment to make current expenditures with current revenues, allocate resources in alignment with community needs and priorities, and address long-term liabilities including pension obligations to maintain and enhance fiscal responsibility. Further these policies reiterate the City’s commitment to providing competitive compensation as part of an overall strategy of attracting and retaining well qualified employees who exemplify the City’s organizational values, while avoiding any sort of formula that ties Council’s hands with respect to determining “competitive compensation”. The Compensation Philosophy provides five considerations in determining competitive compensation: i) financial sustainability, ii) community acceptability, iii) the relevant labor market, iv) internal relationships, and v) other relevant factors. The objectives are not listed in a manner that is meant to suggest weight or emphasis. Weight or emphasis may be provided by staff to Council in the form of negotiating parameters during each negotiation. Recommended Updates to the LRO In considering updates to the LRO, staff reached out to other cities and counties with LRO, reviewed the LRO with labor relations counsel, Liebert Cassidy Whitmore, and considered the effectiveness of the LRO during the applicable labor negotiations and the challenges facing the City in the next several years. Through the review process, the 2014 LRO (1 - 4) remain very relevant overall. However, staff is recommending two additional LRO (5 and 6 below in italics) be considered. With that in mind, staff recommends adding the following additions to the LRO: 1. Maintain fiscal responsibility by ensuring that fair and responsible employee compensation expenditures are supported by on-going revenues. 2. Continue to make progress in the area of long-term systemic pension cost containment and reduction, including reversing the unfunded pension liability trend and other actions consistent with State law. 3. Continue to effectively manage escalating health benefit costs through balanced cost sharing and other means while maintaining comprehensive health care coverage for all eligible employees. 4. As necessary to attract and retain well qualified employees at all levels of the organization, provide competitive compensation as articulated in the City’s Compensation Philosophy, including relevant local, statewide or national labor markets. Packet Page 188 14 5. Employee labor agreements will be negotiated in good faith, in a timely manner that avoids retroactivity provisions unless there is a compelling need. 6. Contract provisions shall take into consideration the City’s ability to effectively and efficiently implement and administer them using the City’s financial and human resources systems to ensure accuracy and compliance with federal, state, and local laws. The proposed additions document the City’s historical approach to negotiations and anticipate the implementation of an Enterprise Resource Planning (ERP) system fiscal year 2018 -19. The ERP should significantly streamline the way the City does business including providing many improvements in the area of personnel and payroll processing. The objectives encourage the parties to work together efficiently and effectively and to discuss implementation to ensure provisions can be accurately provided. Today, certain provisions cannot be automated within the City’s payroll system, thus errors in calculations occur from time to time, causing rework and frustration. Further, avoiding retroactivity avoids unanticipated financial impacts on prior periods and serves to motivate the parties to work efficiently and effectively to reach agreement. Steady Progress Towards LRO Since adopting the LRO in 2014, the City has made steady progress on each of the four 2014 LRO. Labor relations cost estimates have been further refined through Human Resources and Finance staff working closely and utilizing budget software. Labor costs are estimated and considered in the context of on-going impacts to the City’s long-term fiscal forecast. Pension cost containment and reduction has continued in keeping with the LRO. The chart below outlines the percent of employees the City has by retirement formula (tier) with Tier 3 being the lowest benefit and Tier 1 being the highest benefit. CalPERS Retirement Tier % of City Employees Tier 1 56% Tier 2 11% Tier 3 33% Currently, 44% of the City’s workforce receive lower Tier 2 or 3 benefits. This number has increased by 12% in the last two years due to attrition that allows new employees to receive lower benefits. These lower benefit tiers are not expected to result in unfunded liabilities. All City employees pay the full member contribution to CalPERS that varies between 6.25% and 9% depending on the retirement plan and tier. Employees represented by the San Luis Obispo Police Officers Association (SLOPOA) pay an additional 3% towards the Employer contribution to CalPERS. The City does not participate in Social Security and thus employees are not required to also make the 6.2% contribution to Social Security. The City has also taken action to address the City’s unfunded liability. One-time payments in the amount of $2.75 million have been made and a key component of the City’s proposed Fiscal Health Response Plan (FHRP) is setting aside money to fund a Trust for the exclusive purpose of paying down the unfunded liability. The FHRP will be presented to Council on April 17, 2018, however, Council approved formation of the Trust on February 20, 2018 with an initial deposit Packet Page 189 14 of $4.2 million. The City contracts with CalPERS for medical plans and while premiums have increased steadily over the past five years, they have not been as significant as other health plans due in part to CalPERS purchasing power. Over the past five years, CalPERS medical plans have averaged an increase of 9.2% for the most popular HMO plan and 2.9% for the most popular PPO plan for family coverage. The City negotiates a contribution towards the cost of health insurance with all employee groups that is typically modified annually by half of the average percent increase in CalPERS medical plan costs. The 2018 monthly City contribution to family medical coverage varies by bargaining unit from $1,442 to $1,499. The chart below summarizes the 2018 monthly family coverage out of pocket expenses for employees and the percentage of insurance paid by the City for the most popular HMO and PPO plans. Percent of Health Insurance Paid by the City & 2018 Monthly Family Coverage Employee Out of Pocket Expense Most Popular City Plan % Insurance Paid with City Monthly Out of Pocket Expense HMO Plan - United HealthCare 83% $ 296 PPO Plan - PERS Choice 74% $ 510 Since 2014, employees that elect family coverage have picked up an additional 11% of the total cost for HMO plans and an additional 1% for PPO Plans in keeping with the objective of cost sharing. A new, lower cost, medical plan was also introduced by CalPERS, providing more options for employees. The City continues to monitor the competitiveness of its compensation pursuant to the Compensation Philosophy. A comprehensive Benchmark Compensation Study was conducted in 2014 and guided specific adjustments to compensation during following negotiations while taking into account recruitment and retention challenges and fiscal responsibility. Classifications with low turnover and strong applicant pools, may lag the market median, while classifications with demonstrated hiring challenges and higher turnover, were likely to receive equity adjustments to bring them close to market median. ENVIRONMENTAL IMPACT The Fiscal Responsibility Philosophy is not a project as defined under the California Environmental Quality Act and therefore not subject to CEQA. FISCAL IMPACT There are no fiscal impacts associated with adopting Labor Relations Objectives. Fiscal impacts will be identified as Council provides direction through negotiating parameters to staff in closed session and will also be identified when proposed MOAs are presented to Council. Packet Page 190 14 ALTERNATIVES 1. Council may choose to modify the LRO either at the meeting or through direction to staff. If Council chooses to direct staff, staff requests specific direction regarding the desired outcome. 2. Council may choose not to adopt the updated LRO and instead direct staff to continue using the 2014 LRO or to forego LRO completely and simply provide negotiating parameters to staff in closed session. Attachments: a - Fiscal Responsibility Philosophy b - Labor Relations Objectives (Legislative Draft) c - Compensation Philosophy Packet Page 191 14 RESOLUTION NO. 10546 (2014 Series) A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO ADOPTING ITS FISCAL RESPONSIBILITY PHILOSOPHY WHEREAS, the City of San Luis Obispo strives to provide excellent service to the community at all times, and believes fiscal responsibility is a means for promoting community health and well - being; and WHEREAS, the City has a robust financial planning process with a strong foundation of citizen input and sound fiscal policies to ensure a balanced budget; and WHEREAS, the City has used its fiscal health contingency plan as a means to proactively reduce the negative impacts of economic downturns; and WHEREAS, the City regularly examines its cost and revenue drivers and presents updated fiscal forecasts to Council; and WHEREAS, the City recognizes that personnel costs represent a significant portion of the City's total expenditures and, as such, adopted a Compensation Philosophy and continues to monitor, report, and propose means to effectively manage those costs; and WHEREAS, the City will strive to achieve fiscal, economic and environmental accountability and sustainability, as well as maintain a quality of life residents find desirable for current and future generations; and WHEREAS, ultimate accountability for the fiscal health of the community rests with the elected City Council. NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo that the City's fiscal responsibility philosophy is adopted as follows: SECTION 1. The City is committed to fiscal responsibility through good economic times as well as economic downturns. SECTION 2. Definition: Fiscal responsibility is the balanced approach to providing the infrastructure, maintenance, and services that preserve and enhance the quality of life in our community, as identified and prioritized through community input. SECTION 3. In achieving and maintaining fiscal responsibility, the City commits to the following: A. Informed Decision - making. The City will identify and consider immediate and long -term economic, social, and environmental impacts of all decisions considered by the Council. B. Shared responsibility. The City recognizes a shared responsibility between the employee and employer to appropriately fund employee benefits, including pension benefits. Ensuring an appropriate balance is a valuable tool in attracting and retaining R 10546 Packet Page 192 14 Resolution No. 10546 (2014 Series) Page 2 well qualified employees that deliver services to the community, while maintaining a long -term, sustainable, and balanced budget. C. Increased Transparency. The City will conduct all business, including labor negotiations and other employee compensation matters, with transparency pursuant to all applicable laws and regulations. The City will continue to develop tools, such as key measures and dashboards that make information readily available to community members in a timely and useful manner. D. Aligned Investments. The City shall allocate resources in alignment with community needs and priorities for maintaining and /or adding capital projects, assets, or services. E. Diversified and Aligned Revenue Sources. The City will pursue diversified revenue sources that are aligned with expenditures and community priorities. F. Long -Term Unfunded Liabilities. The City will identify all long -term liabilities, including unfunded pension obligations and strive to achieve a higher funded portion of pension obligations; and shall manage all liabilities to maintain and enhance fiscal responsibility. G. Continued Efficiency and Effectiveness. The City will explore and implement operational efficiencies including alternative service delivery, best management practices, and cost containment measures while preserving effectiveness. Upon motion of Council Member Smith, seconded by Council Member Ashbaugh, and on the following roll call vote: AYES: Council Members Ashbaugh and Smith, Vice Mayor Christianson And Mayor Marx NOES: Council Member Carpenter ABSENT: None the foregoing resolution was adopted this 1 st day of July 2014. lud 4_ Mayor J2"rx' T: pWony J. ejit, CM ity Clerk APPR VED AS T RM: J hristine Dietrick City Attorney Packet Page 193 14 Labor Relations Objectives Adopted by Council September 23, 2014 Revised by Council March 20, 2018 1. Maintain fiscal responsibility by ensuring that fair and responsible employee compensation expenditures are supported by on-going revenues. (Theme – Fiscal Responsibility) 2. Continue to make progress in the area of long-term systemic pension cost containment and reduction, including reversing the unfunded pension liability trend and other actions consistent with State law. (Theme – Cost Containment/Reduction) 3. Continue to effectively manage escalating health benefit costs through balanced cost sharing and other means while maintaining comprehensive health care coverage for all eligible employees. (Theme – Cost Containment) 4. As necessary to attract and retain well qualified employees at all levels of the organization, provide competitive compensation as articulated in the City’s Compensation Philosophy, including relevant local, statewide or national labor markets. (Theme – Recruitment and Retention) 5. Employee labor agreements will be negotiated in good faith, in a timely manner that avoids retroactivity provisions unless there is a compelling need. (Theme – Cost Containment) 6. Contract provisions shall take into consideration the City’s ability to effec tively and efficiently implement and administer them using the City’s financial and human resources systems to ensure accuracy and compliance with federal, state, and local laws. (Theme – Best Practices and Compliance) Packet Page 194 14 RESOLUTION NO . 10248 (2011 Series ) A RESOLUTION OF THE CITY OF SAN LUIS OBISPO MODIFYING IT S COMPENSATION PHILOSOPHY SUPERSEDING PREVIOU S RESOLUTIONS IN CONFLIC T WHEREAS,the City of San Luis Obispo strives to provide excellent service to th e community at all times, and supports this standard by promoting organizational values includin g customer service, productivity, accountability, innovation, initiative, stewardship, and ethics ; an d WHEREAS,to achieve our service standards, the City must attract and retain wel l qualified employees who exemplify our organizational values ; an d WHEREAS,fostering an environment attractive to such employees depends upon man y factors, including a competitive compensation program . NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Lui s Obispo that the City's compensation philosophy is adopted as follows : SECTION 1 .The City is committed to providing competitive compensation as part o f an overall strategy of attracting and retaining well qualified employees who exemplify ou r organizational values . SECTION 2 . The City will consider total compensation, including but not limited to , salary, health, retirement, and time off benefits . SECTION 3 .In evaluating competitive compensation, the City considers : A.Financial sustainability including the City's financial condition as reflecte d throughout the financial forecast, competing service priorities, maintenance needs, capita l improvement and other asset requirements, fund reserve levels, and revenue projections prior t o implementing changes in compensation . B.Community acceptability since taxpayers and ratepayers ultimately fund al l employee compensation . C.The "relevant labor market"that may vary depending upon classification and i s primarily defined by the geographic region (local, state-wide, or national) and key market s (municipal, other government agencies, private sector) where labor talent is found, recruite d from, and/or lost. When the relevant labor market is defined as "local"; local private sector compensation data wil l be considered along with local public sector compensation (municipal and other governmen t agencies . When the relevant labor market is statewide or national, the City will conside r compensation date for public sector agencies (municipal and other government) with severa l R 10248Packet Page 195 14 Resolution No . 10248 (2011 Series ) Page 2 comparable demographic data points including but not limited to population, median home price , median household income, median age, median education level, services provided, an d unemployment rate . Quality of life should also be considered when selecting comparable municipal and other government agencies . D."Internal relationships"referring to the relative value of classifications to on e another as determined by the City . Classifications performing comparable duties, wit h comparable responsibilities, requiring a similar level of skill, knowledge, ability, and judgment , will be valued similarly in the City's compensation structures . E.Other relevant factors may include unforeseen economic changes, natura l disasters, states of emergency, changes in City services, and changes in regulatory or lega l requirements . SECTION 4 .At least every five years, the City will evaluate its compensation structure , programs, and policies to assess market competitiveness, effectiveness, and compliance with Stat e Law . Adjustments to the compensation structure may be made as a result of this periodi c evaluation and will be done through the collective bargaining process, if applicable, or othe r appropriate Council-management processes . Upon motion of Council Member Carter, seconded by Council Member Carpenter, and o n the following vote : AYES : Council Members Carpenter, Carter and Smith, and Mayor Mar x NOES : Vice Mayor Ashbaug h ABSENT : Non e The foregoing resolution was adopted on March 15, 2011 . ATTEST : Elaina Cano City Clerk APPROVED AS TO FORM : Packet Page 196 14 3/21/2018 1 Labor Relations Objectives March 20, 2018 What are Labor Relations Objectives? Labor Relations Database Labor Relations Objectives Guide Negotiations SLOCEA Unrepresented Group Fire Police Management Police Staff Presentation - Item #14 3/21/2018 2 Labor Relations Objectives (LRO) 1. Fiscal Responsibility • Employee compensation supported by ongoing revenues 2. Pension Cost Containment • Progress in pension cost containment • Reversing unfunded pension liability trend Labor Relations Objectives Cont. 3. Health Cost-Sharing • Manage escalating health costs through balanced cost sharing 4. Recruitment & Retention • Provide competitive compensation as stated in Compensation Philosophy Staff Presentation - Item #14 3/21/2018 3 Progress of LRO The City continues to model ongoing labor costs in our financial forecast to ensure financial sustainability Negotiated a second retirement tier, and a third tier was state mandated Negotiated cost-sharing with all employee groups Periodic review of the market to ensure “competitiveness” Proposed Additions to LRO 5. Coming to Agreement • Negotiate in Good Faith • Limited Retroactivity 6. Best Practices & Compliance • Effectively and Efficiently Implement Finance and Human Resources System Staff Presentation - Item #14 3/21/2018 4 Recommendation Review and approve draft updated Labor Relations Objectives (LRO) that will guide labor negotiations with employee groups. Labor Relations Objectives 1. Maintain fiscal responsibility by ensuring that fair and responsible employee compensation expenditures are supported by on-going revenues.(Theme – Fiscal Responsibility) 2. Continue to make progress in the area of long-term systemic pension cost containment and reduction, including reversing the unfunded pension liability trend and other actions consistent with State law. (Theme – Cost Containment/Reduction) 3. Continue to effectively manage escalating health benefit costs through balanced cost sharing and other means while maintaining comprehensive health care coverage for all eligible employees.(Theme – Cost Containment) 4. As necessary to attract and retain well qualified employees at all levels of the organization, provide competitive compensation as articulated in the City’s Compensation Philosophy, including relevant local, statewide or national labor markets. (Theme – Recruitment and Retention) 5. Employee labor agreements will be negotiated in good faith, in a timely manner that avoids retroactivity provisions unless there is a compelling need. (Theme – Cost Containment) 6. Contract provisions shall take into consideration the City’s ability to effectively and efficiently implement and administer them using the City’s financial and human resources systems to ensure accuracy and compliance with federal, state, and local laws. (Theme – Best Practices and Compliance) Staff Presentation - Item #14