Ccwatch70.doc.  8-10.

 

NEBRASKA TAXPAYERS FOR FREEDOM WORKSHEET:

CITY OF OMAHA PUBLIC UNION CONTRACTS: “RETURN TO SENDER”

 

PERSONNEL COSTS.  The only current employment growth is in the public sector.  Fifteen years ago, there were about 18.5 million public employees.  In 2009, there were over 20 million, a number still growing.  Public sector employee pay and benefits create a tax explosion that is ravaging our local economy.  A study by the American Legislative Exchange Committee found that average pay and benefits for such employees exceeded that for comparable workers in the private sector by 20%-60%.  The largest expense in the Omaha General Fund operating budget pays for salaries and fringe benefits for active employees and fringe benefits for retirees.   In 1994, personnel costs for salaries and benefits represent- ted 52.1% of that budget.  In 2009, the appropriated amount reached 65.9% for 2,825 active employees, fewer than in 1994.  Average salary and benefits for each active 2009 employee reached $79,078.  Sworn police and firefighter average pay and benefits stood at about $95,000 in 2009.  Both these amounts top those for over 110 million private sector workers.  Union negotiators deliver knockout punches to Omaha elected and administrative amateur contract negotiators.  Mayor Suttle should have given earlier public notice of these long contracts, so that both city council and public could read, analyze, and comment on them.  His reluctance violates government transparency. 


PENSIONS.  The Omaha police and fire pension system has an unfunded liability of about $550 million,[1] yet police will pay only 1% more in 2011 into their pensions.  The police union under the new contract would see a 14.5% of payroll benefit reduction to match the city contribution of 13.5% more to the pension plan[2], however this match statistically would equal the city dollar payment only in 2027.[3]  The city pension contribution now reaches 33% of police payroll, compared to 16% from employees!  The city charter requires that both contributions stand substantially equal (Sec. 6.09).  This contract surprisingly reads that the city contribution cannot count as pension contributions in any litigation before the CIR, a big risk to the city if wanting to change the contract.  Concise and necessary questions posed by city council members to the administration regarding the proposed contributions only met with referrals to Milliman, Inc.  The city finance dept. fails its duties by not reliably answering these queries.  Police pensions still base on hourly regular pay and overtime, so spiking has not disappeared in calculating pensions.[4]  Police still can work as much overtime as they wish under the proposal but cannot count vacation, sick, or comp time.  Only pensions for new officers base on regular pay only.  Similarly, the dept. could not answer if police could retire with pensions exceeding their highest base pay.[5]  The new contract specifically uses the highest last 3 yrs. of employee last 5 yrs. worked, so if the employee maximizes overtime during these 3 yrs., he spikes his pension.[6]  Under current police contract, employees with less than 20 yrs. service can retire at 20 yrs. with pensions of 50% of salary, at 25 yrs. at 70% of salary, and at 30 yrs. with 75% of salary.  The proposed new contract changes only retirement after 25 yrs of service, at 65% of salary, barely a savings.[7]  Officers must work at least 30 years.  Proposed contract changes still would permit a police officer to retire with a benefit in excess of 100% of base pay at age 45, if he worked overtime at a consistent level during his career.[8]  With career overtime averaging under this new contract, 34 officers could retire at 100% of salary.  One police officer who retired in 2009 at age 45 had earned $67,572 in regular pay but now gleans $84,405 annual pension, plus cost of living increases.  The 2008 Census notes that Douglas County median household income is $52,222.   Pension spiking has permitted many retirees to earn pensions higher than their regular pay while employed.  The DROP program allows the city to retain experienced officers for longer periods.  However, they can continue to earn their regular wages plus benefit from banking interest on their pensions for this period.  Under DROP, the city would retain highest-paid police officers on current payroll instead of hiring lower-paid employees.  The General Fund would suffer by paying out pension contribution rates on these higher salaries.  Workers in the private sector rarely can afford to retire before 62-65. The new contract proposes a minimum age of retirement at only 50.  

 

NTF SOLUTIONS.  Change in the current fire and police union pension systems must come via contract negotiations.  Private sector pensions are much lower than those for Omaha police and fire unions.  Shift the pension systems to defined contribution retirement plans, like 401(k)s.  Set minimum age of retirement at 55 for all police, 50 for firefighters, for full pension eligibility.  Employees would contribute to the pension funds for additional years and withdraw payments for fewer years.  Residents and younger police officers would benefit from having more experienced fellow police officers on the streets, available to oversee and train younger officers and recruits.  Require new city employees to work 30 years before qualifying for retirement benefits.   Base pensions on regular pay, not counting overtime, comp time payouts, or holiday pay.  Taxpayers should not pay more $$ to fund spiking, because we are already paying regularly for it for the next 30-40 years.  Tighten disability eligibility.  Require that money earned for work performed by current employees retired for disability reasons from the city offset city disability payments.  In 2006, disability payments from the civilian pension system reached $1,112,836, $5,760,896 from the police and fire pension systems.  Non-service connected disability retirement with pension because of injury or illness should equal less than 75% of pay.  The Lincoln Fire Dept. never uses overtime in its pension calculations.  Lincoln, NE. firefighters must work until age 50; only until age 45 in Omaha.  Lincoln firefighters retire at 64% of base pay; Omaha firefighters retire with 75% of base pay plus overtime.  NTF endorses contracts for new and current employees that compute pensions at 50% of base pay during the last 5 years of employment, with no stair step implementation.  Therefore, contributions by new employees also would drop.  A number of retirees still work for the city.  Make them either collect their pensions with the health care benefits or remain on the city payroll without pension and benefits.  The city could lower salary expenses by promoting younger people from within employee ranks instead of retaining those who have retired.  Then, new employees could work up the promotional ladder at much lower pay.  The city charter mandates that the city pay 22% for every 15% paid into pension funds by fire and police union personnel.  Under the proposed new contract originated by Mayor Suttle, the city must put $35.5 million, 33.67% of total contributions, annually into the pension funds, using property tax monies.  Police union employees continue to receive generous benefits, and the union reduces its dollar amount slowly over the years, paying no more than a $13.5 million share. Under the proposed police union contract, the police pension fund would become actuarially balanced within a lengthy 40 yr. span.[9]  The city will continue to pay over twice what public unions pay into the pension funds.  Cities comparable to Omaha pay 13-15% of contributions to pension funds; Omaha would pay 33.67%!   The unions must pay in more.  Pensions and supplements must reflect the consumer price index rate of inflation for an urban Midwest area.  Unanswered is if the city will conduct a cost/benefit analysis on the revised pension systems.  Mayor Suttle contends that delaying a council vote on a new police contract will cost taxpayers over $1 million.  However, passage of the contract will require $13.5 million yearly to fill the pension gap, funds coming from a higher sales or property tax or a new garbage fee.  State senators have refused to allow Omaha to levy a higher sales tax.  Residents confidently would vote down a garbage fee.  A higher property tax would cost Omaha residents millions.

 

POLICE CONTRACT. The CIR examined 11 city labor agreements in its array of comparable cities and found that 5 had 1 yr. contracts, 1 a 2 yr. contract, and 5 had 3 yr. contracts.  None had 4 yr. contracts as in Omaha. A 4-yr. contract is too lengthy, as no one can predict economic conditions accurately for that length of time, and the length of this contract will cost an additional $32 million.  Milliman declared that there exists only a 50% chance that the stock market would rise 8% each year, as estimated by this contract. [10] The Mayor offers 10.28% wage hikes to officers, much more than in private industry.  Although officers would receive no pay raises across the board in 2010, implementation of the 2010 pay scale will cost taxpayers $1.2 million more.  Officers would receive guaranteed salaries and benefits locked in for 3 yrs. despite economic fluctuations.  There is no city ordinance mandating granting comparable salaries; only the Comm. of Industrial Relations can grant such.  The promotion pay step change will cost $51,298.[11]  Pay increases occur because of promotion and longevity.  The new contract allows unlimited accumulated sick leave, more than that normally given other government employees.  Though the CIR decreased the sick leave hours earned annually from 143 to 108 hours, the city agreed to 124 hours.  The l-time credit of 200 hours to the sick leave bank remains in the contract.[12] The sick leave bank permits police to cash out after 20 yrs. accumulation for up to 10 months pay.  No unlimited accumulation of sick leave and less of it. No payment for accumulated sick leave or vacation time.  Employees could use vacation days to cover furlough days.  No holidays for employee birthdays or on 9-11.  No overtime counted for holidays worked.  No longevity pay, which includes all employees over 5 yrs. in service.  Officers can earn up to $2,550 annually for those employed over 25 yrs., as longevity pay.  Most officers earn bonus pay. No bonus pay for special duties, which pays up to 3% of base pay.   No cashing out hours in the special time-off bank.  Those who accumulate 1,000 hours+ of sick leave and use only 40 hrs. or less in a year receive 52 more hours of vacation time.  The old contract specified up to 21 days of vacation annually; the new contract allows for 24.6 days yearly.  The CIR ordered a reduction in annual leave, but city negotiators neglected to apply this ruling retroactively. [13] No specialty or premium pay.  No cashing out of comp time at any time. The city will pay huge amounts more in benefits for the next 5 yrs., because many officers will cash out.  End automatic pay escalators in labor contracts. End union hardship hours used as leave time.  Less leave with pay for union representatives participating in union functions.  The Administration refused to provide all agreement terms that differed from rulings favorable to the city in the recent CIR ruling, so it is difficult to assess the financial impact of these costs above those of future wage hikes.  The Deferred Retirement Option Plan proposed by Mayor Suttle would entice veteran officers who are eligible to retire to remain on the force.  Mayor Fahey examined but declined this option, because it would adversely impact the General Fund budget too much.  Under DROP, officers would collect regular paychecks and allow their pensions to accrue in a special fund.  Suttle admitted that this program would cause more expense to the General Fund than hiring new recruits.  Our alternative is simply raise the retirement age to 55 to retain experienced officers.  An actuary employed by the city states that DROP would not adversely or positively affect the pension fund, but in San Francisco, a $350 million sum in DROP benefits contributed to $2.3 billion in unfunded retirement benefits.  The entire contract depends on economic variables that supposedly would not fluctuate for 40 yrs. 

 

Positive contract clauses order time off instead of payment for work done on several holidays and overtime.[14]  Savings: $669,480.[15]  Requiring new and current employees to take special time off instead of payment will save the city over $817,700 in 3 categories.  Also, eliminating 2 holidays will save the city $380,159.[16]  The contract raised the major medical services deductible from $100 to $300.[17] 

 

HEALTH INSURANCE.  Insurance costs for employees have risen by 21%.  Health insurance costs projected to rise again, by 10% in 2010, at $13,726 per employee, should give the city incentive to force employees to pay at least 30% of health care premiums on all health care plans, as do many other government employees.  Or, make police and firefighters pay an increasing percentage of their premiums, to match other city employees.  Health insurance costs in the Police Div. rose by 18%.  The budgeted amount of $44 million for 2009 for about 3,600 active and retired employees was 17% higher than in 2008.  Actual dollars paid out for the first 9 months of that year for claims and administrative fees were precisely 17% higher.  What a coincidence!  The average amount spent per enrolled employee and retiree per year in 2009 was $12,232, $4,000-$5,000 higher than national average.  The rate of increase yearly is about 14% since 1997 (Omaha World-Herald), much higher than the inflation rate. However, the CIR somewhat increased employee premiums, saving the city $205,567.[18]  Expenditures for retiree health insurance rose 43% in 2009 from the previous year. Offer health care coverage for retirees only over age 55.  Ask the Milliman Co. to give a presentation to the City Council about saving taxpayer dollars on employee health insurance.  Raise co-insurance limits of $500 per individual.[19]  No deductible exceptions.  No $500 “gift” by the city per calendar year before deductible and co-pay apply.  Raise deductibles to $400 per individual instead of $300 and raise maximum cost to employee for covered health care services per year up from $500 per individual and up from $1,000 per family.  No mail order prescriptions; keep prescription drug coverage local.  Raise the co-pay for prescriptions from $5 to $10 for generic prescriptions and from $15 to $25 for brand name drugs.  Make employees pay a higher rate for prescriptions, up from $3 per RX in the police division, after employee has paid $500 after the deductible. Raise the deductible amount for prescription cards for employees and families from $60 per year.   Police employees should pay more than 25% of a family dental health care plan and a set amount for individual coverage, as the city still pays 90% of minor dental services like exams and cleaning and 90% for major work like crowns and dentures for police employees.  City taxpayers should pay less than 97% of the cost of a term life insurance policy for each employee.[20]  Delete chiropractic services and lasik eye surgery from covered services.  No exceptions for mammogram screenings.

 

THE REAL VILLAIN.  Many of the inflationary clauses in both police and fire contracts result from rulings made by the unelected bureaucrats on the Commission of Industrial Relations.  The CIR ruling mandated a full-time, taxpayer-paid union official,[21] something unheard of in the private sector.  It also increased the maximum accumulation of sick leave hours from 3,200 to unlimited.[22]  The CIR order forcing a change in court pay will cost the city $82,950.[23]  It mandated a change in call-in pay, costing the city $33,260.[24]  The CIR forced the city to provide a $533 annual uniform voucher to all police employees, though the police union waived payment for 2009 and 2010 to save $825,084 taxpayer dollars. [25] It forced the city to offer an employer-paid vision insurance plan, costing $50,879,[26] and dictated health insurance premiums, 10% for individuals and 15% for family coverage, well below private sector percentages and many other government subdivisions.  The CIR mandated change in pay for college degrees, costing $194,172, and the cost for creating a tuition reimbursement plan is not calculated.[27]  Though there are no increases in base pay for 2 yrs., the CIR mandated that promotions through the ranks must win specific pay hikes, costing $1.2 million.[28]  The City of Omaha and other local taxing authorities must band together to lobby state senators to either rein in the CIR and force it to alter the way that it justifies rulings or eliminate it altogether.  The CIR in 2009, in selecting cities for comparability in police pay, chose 4 cities offered by the union and 3 cities offered by both the City of Omaha and union but none offered by the city only.  When the CIR considers proximity in setting comparable wages and conditions of employment for municipal employees, it must consider including local or private sector employees.  Determination of prevalent wages and conditions should base on the labor market of the employer, where it looks and competes for employees and the price it pays in the marketplace, usually in the same locality or state.  The CIR must include when determining comparable wage rates and employment conditions the value of zero when a member in the comparable array does not provide a specific wage rate or condition of employment, like incentive pay for college degrees.  It should have authority to reduce wages at the beginning of the contract year, as it orders increases at the beginning of such year.  The legislature should amend the law to require a change in wage rates and conditions of employment effective for an entire contract year.  Unions have the CIR as a formidable ally.  Unless Omaha, other cities, counties, and other public sector entities convince the Legislature to amend or supplant territorial comparability, this egregious situation will continue.  Our city lobbyist must gather legislative support to either eliminate the CIR and let unions strike or force the CIR to use state- located comparisons with like professionals and jobs with comparable mental and physical requirements.  Otherwise, considering the entitlement mentality of specific public sector personnel, there will exist no city administrative ability to adjust escalating spending on union contracts.    

 

CHARTER CHANGES.  See our NTF issue paper on suggested city charter changes to control the budget and allow the city council to have more authority to help negotiate labor contracts that reflect pay and benefits current in the private sector.  In the Omaha Metro area, most businesses offer only 8 holidays per year to employees.  Workers pay about $1,082 for individuals and $2,181 for families, as health care deductibles.  Insurance premiums average $1,092 for one person, $3,900 per year for a family.[29]

 

CONCLUSION.  We urge the city council to send the police union contract back to the Mayor, marked “Return to Sender,” for complete renegotiation.  The Mayor and council must hire a law firm specializing in labor negotiations, so that taxpayers will have a top negotiating team supporting taxpayer interests.  4-yr. contracts with public employee unions are too long; cities cannot tell how the economic climate within that time frame will affect budgets.  Thus, large pay hikes at the end of the 5-yr. police union contract may become unsustainable.  The state legislature will not approve a local sales tax hike, residents will vote down a proposed garbage tax, so Omahans will face another property tax hike this year to fund this proposed police contract.  Demand the mayor inform taxpayers how much our property taxes will rise to fund this contract.  At the March 2 public hearing, only city employees spoke in favor of the police contract; members of the taxpaying public unanimously spoke against it.  Calls and emails to council members lopsidedly oppose the contract.  Contact your city council member immediately, using the contact information below, as the vote is on Aug. 17.  Urge him/her to shorten the contract term from 4 to 3 yrs., greatly increase the percentage of contributions by officers, calculate pensions on base pay only, raise the retirement age to a minimum 55, and adopt other of our suggestions above. 

 

Research, documentation, and analysis for this worksheet done by NE Taxpayers for Freedom   3-10.  C 

 

 

 

OMAHA CITY COUNCIL                              EMAIL ADDRESSES                   

District 1: Pete Festersen        444-5527                          pfestersen@ci.omaha.ne.us

District 2: Ben Gray               444-5524             bgray@ci.omaha.ne.us                  

District 3: Chris Jerram          444-5525             cjerram@ci.omaha.ne.us                 

District 4: Garry Gernandt     444-5522               ggernandt@ci.omaha.ne.us

District 5: Jean Stothert         444-5528                          jstothert@ci.omaha.ne.us                  

District 6: Franklin Thompson 444-5523             fthompson@ci.omaha.ne.us                 

District 7: Vacant                    

Address mail to: Councilman __________________________

                          Rm. LC-l

Omaha Civic Center

1819 Farnam Street                                                             

                          Omaha, NE. 68l83-0100                                                              

FAX: 444-5263

Agenda and Meeting Information: 444-5520    City Council meets at 2 PM every Tuesday in the Legislative Chambers.

 

 

 



[1] Police Contract Summary, 7-15-10, p. 4.

[2] Police Contract Summary, 7-15-10, p.16.

[3] Ibid., p. 13.

[4] Interoffice Memorandum, 1-29-10, p. 15.

[5] Interoffice Memorandum, 1-29-10, p. 18.

[6] Interoffice Memorandum, 1-29-10, p. 16.

[7] Ibid, p. 5.

[8] Milliman memo to Tom Marfisi, City Labor Relations Director, 1-29-10, p.3.

[9] Milliman memo to Tom Marfisi, p.3.

[10] Ibid., p. 28.

[11] Summary Contract Provisions, p. 34.

[12] Interoffice Memorandum, 1-29-10, p. 1.

[13] Interoffice Memorandum 1-29-10, p. 2.

[14] Summary Contract Provisions, p. 25.

[15] Ibid., pp. 32-33.

[16] Interoffice Memorandum, 1-29-10, p. 3.

[17] Interoffice Memorandum, 1-29-10, p. 10.

[18] Interoffice Memorandum, 1-29-10, p. 11.

[19] Police contract, p. 67P.

[20] Police contract, p. 71P.

[21] Interoffice Memorandum, 1-29-10, p. 2.

[22] Interoffice Memorandum, 1-29-10, p. 1.

[23] Interoffice Memorandum, 1-29-10, p. 3. 

[24] Interoffice Memorandum, 1-29-10, p. 5.

[25] Interoffice Memorandum, 1-29-10, p. 6.

[26] Interoffice Memorandum, 1-29-10, pp. 7,9.

[27] Interoffice Memorandum, 1-29-10, p. 21.

[28] Interoffice Memorandum, 1-29-10, p. 22.

[29] Human Resource Association of the Midlands, 2009.