DWP pay package could burden the utility’s retirement system, report says

A five-year package of raises being offered to employees of the Los Angeles Department of Water and Power could put a major burden on the utility’s retirement system, according to a report prepared by the city’s top budget official.

The agreement, which contains five consecutive increases for DWP employees, could cause the utility’s yearly pension contribution to increase by more than 150% by 2014, according to the confidential report, a copy of which was obtained by The Times.

The DWP sets aside 30 cents for its pension expenses for every dollar it spends on salaries, City Administrative Officer Miguel Santana wrote in his report. By the end of the contract, that figure could reach 70 cents -- creating a “significant liability” for the agency, he wrote.

Santana said other factors, such as recent losses in the stock market, are also contributing to the DWP’s pension woes. And despite his warning, Santana recommended approval of the new labor pact, which offers a 3.25% bonus this year followed by four consecutive increases ranging from 2% to 4%, depending on inflation.

The proposal comes up for a vote today at the board of Water and Power Commissioners, a panel appointed by Mayor Antonio Villaraigosa. DWP officials refused to address the figures in the report, referring questions to Santana.

But a representative of International Brotherhood of Electrical Workers Local 18, which represents 8,648 employees at the utility, voiced skepticism about its dire pension projections.

Union spokesman Bob Cherry said his union concluded that the first-year increase of 3.25% would save $330 million over five years because it would come in the form of a bonus -- and therefore won’t add to the base salary of the workforce. Cherry pointed out that Santana urged the council to OK the contract.

Last week, Santana issued a separate warning about spiraling pension costs for workers in other city departments. In that report, he warned that taxpayers would need to quadruple the amount they provide for pension benefits by 2013, the year Villaraigosa leaves office.

Even without the pay pact, ratepayers must cover the investment losses of the DWP’s retirement portfolio, which were 15.5% last year.

Santana said his report was based on figures provided by the DWP. The Oct. 28 report was provided to council members during a closed-door meeting on labor negotiations. After receiving the report, council members gave tentative approval to the package.

Since that vote, Santana has publicly defended the proposed agreement, saying it is less generous than the previous pact with IBEW Local 18, which delivered a raise of 5.9% in 2008. “It’s a step in the right direction,” he said.

The DWP contributes $250 million a year to its pension fund, the report states. Four consecutive raises of 2% could cause the DWP’s pension contribution to reach $632 million per year by the end of the contract, Santana said. Four consecutive increases of 4% could mean the DWP pays $683 million annually by the end of the contract.

david.zahniser@latimes.com