Alameda: City Council approves contracts with police, firefighters

April 30--ALAMEDA -- Police and firefighters will begin paying into a trust to help fund the city's bill for retiree medical benefits under contracts that the City Council approved Wednesday.

The contributions are aimed at helping offset the city's liability in meeting the rising cost of the benefits, estimated at $91 million and growing for current and retired employees.

"Action must be taken now or this problem will begin getting away from us," City Manager John Russo told a packed council chambers at City Hall during the special session, when the council voted 3-2 to extend the contracts for first responders.

The move, which came after a five-hour meeting and dozens of public speakers, is projected to save the city about $47 million out of the estimated $188 million it will cost to pay retiree benefits over the next 30 years.

The contracts also call for the city to deposit $5 million into the trust in January, then contribute $250,000 annually for 10 years beginning in 2016.

"This will not fix the problem overnight, but it's a first step in the right direction," said Alan Kuboyama, president of the Alameda Police Officers Association.

Jeff DelBono, an Alameda firefighter and leader of Local 689 of the International Association of Fire Fighters, said the council would send a bad message if it sent bargainers back to the table. "We are partners (with the city)," DelBono said.

First responders will receive annual raises of between 2 percent and 5 percent, except in 2019, under the terms of the approved contracts.

Councilman Tony Daysog, who voted no, said he wanted more information about possible additional ways to fund the trust before approving the deal.

"We should take time to improve it even more," said Daysog, who noted that any projected savings was mostly a reduction in expenditures and suggested revisiting the issue in four weeks.

Mayor Trish Spencer also rejected extending the contracts, which were set to expire in June 2017 and will now continue through December 2021. Spencer said she wanted to review the terms as part of the city budget and its possible shortfalls.

Among those who urged the council to hold off on approving the contracts were City Treasurer Kevin Kennedy and City Auditor Kevin Kearney, who said having employees pay into the trust through their salary could impact how their pensions are calculated, which in turn could cause financial problems for the city.

The contributions from police and firefighters into the trust will be based on their date of hire. Those hired before June 2011, whose spouses are eligible to receive retiree medical benefits, will contribute 4 percent of their salary. Those hired after June 2011, whose spouses are not eligible, will contribute 2 percent, as well as pay an additional 2 percent into a supplemental retirement plan that will include a health care savings plan.

Even with the contributions, however, the trust will be empty by 2035 as the city draws on it to pay retirement benefits, according to Bartel & Associates, an actuarial firm contracted by the city to review the numbers.

Establishing the trust follows Russo appointing a task force in 2012 to study the city's pension obligations, as well as how it might pay for retiree medical benefits.

Among the recommendations of the task force, which included city officials, public safety employees and community members, was having employees pay into an account for their future health care coverage and working with the city's unions to bring down the liability.

In the wake of the task force, the city put $300,000 into a trust in 2014 as a first step toward paying for retiree medical coverage.

"Is it prudent for a city to allow a debt to keep growing, when we have an opportunity to begin ending it now?" Councilwoman Marilyn Ezzy Ashcraft asked Wednesday.

Councilman Frank Matarrese, who with Ashcraft supported extending the contracts, noted that employees were contributing to funding the trust. "That is a valuable concession, I think, that we have gotten," Matarrese said.

Currently, a city employee who retires at age 50 with five years of service receives $122 per month toward medical insurance. Public safety employees have different thresholds for eligibility based on their dates of hire and retirement. But police officers and firefighters who meet certain requirements can receive up to full lifetime medical and dental coverage for themselves and their spouses.

Since 2004, the Governmental Accounting Standards Board, which sets standards for financial reporting by local and state governments, has required cities to plan for the cost of providing medical coverage to current employees, as well as for the liability in paying future benefits for current and retired employees.

Providing health care coverage for retired first responders makes up the biggest chunk of the ongoing liability bill for Alameda, put at $2.6 million for fiscal year 2013-14 alone. The cost to provide benefits for other retired city employees for the same period is $188,000, according to city officials.

If the city has set aside enough money to pay all earned benefits, then the liability is considered fully funded. If not, there is an "Unfunded Actuarial Accrued Liability," which in Alameda's case was put at $91.2 million during the most recent estimate in January 2013.

The city also identifies how much money should be set aside annually to meet its liability obligations. For fiscal year 2013-14, the figure was $8.5 million, but the city only contributed $2.7 million.

Reach Peter Hegarty at 510-748-1654 or follow him on Twitter.com/Peter_Hegarty.

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