The rising costs of employee retirement benefits will force Burbank to spend $10.7-million more next fiscal year, bringing the total to $33.5 million, according to city records.
The higher contribution to the California Public Employees’ Retirement System — of which nearly all city employees don’t pay a share — comes at a time when city officials are also projecting an $8.3-million budget gap that will have to be closed before July 1.
“Due to the economy, there comes a certain point where we have to reevaluate how this city pays its pensions,” City Manager Mike Flad said.
Prior to 1984, all city employees paid a portion of their retirement contributions to CalPERS — typically around 8%. That started to change in the 1990s, as employee unions started negotiating the payments out of their contracts, leaving the city to pick up the full tab. Only members of the International Brotherhood of Electrical Workers — 8% of the city workforce — now pay a portion of their retirement costs.
Labor costs take up 80% of the city budget, Flad said, so a major increase in pension obligations “is a significant financial impact that has to be dealt with.”
A protracted hiring freeze for most vacant positions may not be enough this time, which means layoffs could enter the fray.
Blaming a budget deficit on the rising cost of pensions, however, is pure scapegoating, said CalPERS spokesman Edward Fong.
Merit bonuses — in addition to holiday overtime, second and third shifts for late-night schedules and specialized assignments — can also add to the CalPERS obligation. Last fiscal year alone, the city handed out $1 million in bonuses to employees, adding to their retirement compensation in the long term.
The Burbank Leader filed a lawsuit against City Hall last month for refusing to divulge detailed bonus pay information per employee. Without that information, it’s impossible to know how the bonuses impact the CalPERS burden per employee.
Still, Burbank is among a dwindling pool of cities that cover the entire share of the employee’s retirement contribution, Fong said.
“They are in a significant minority,” he said. “Over the past year or two, it has been seen to be a mini-trend that public agencies have been changing policies due to very challenging economic circumstances.”
If all Burbank employee groups were forced to cover their full contribution, it could save the city $8.1 million, .although that would have to be negotiated with each union.
Neighboring Glendale already requires employees to contribute between 8.5% and 11% of every paycheck to the state system.
Other cost-cutting tools could include a mix. Employees could be asked to pay 1% — a savings of nearly $1 million — salaries could get cut, or other one-time dollars could be tapped to pay down the city’s unfunded liability.
One-time funds were already used during the last budget session to fund one animal control officer, a kennel attendant, park patrol, two police cadet positions and a probation officer.
“We only have so many Band-Aids we can use before we have to make serious long-term solutions for the budget,” Flad said. “And that’s how we’ve tried to address the budget — short-term fixes to maintain services levels and keep employees while working for the future.”
Financial Services Director Cindy. Giraldo has suggested a two-tiered system, in which new employees get less benefits and agree to older retirement ages, but the impact of those savings wouldn’t be felt right away.
Any pension changes would have to be negotiated with the respective employee associations and most are aware of the growing concerns over rising costs.
Burbank Police Officers Assn. president Mark Armendariz agreed that everyone is aware that the city and state are having trouble controlling pension costs.
But he warned that any change to Burbank’s “industry standard” retirement benefits system “might affect our ability to attract the most qualified candidates to the department.”
Although reevaluating the benefits package is not currently on the negotiating table, Armendariz said the union will make an effort to find a workable agreement with the city if it reaches that point.
Burbank Firefighters Local 778 could not be reached and an official for the Burbank City Employees Assn. declined to comment on the issue.