Blogging Bayport Alameda

August 12, 2013

Fire Chief Michael D’Orazi: Alameda’s OPEB history

Filed under: Alameda, Guest blogging — Lauren Do @ 6:00 am

On July 23, 2013, Alameda City Manager John Russo presented a report to the City Council on “Other Post-Employment Benefits” or “OPEB”. OPEB are retiree medical benefits, and you can read the City Manager’s report on the City’s website. OPEB has become one of the hottest new acronyms in the accounting lexicon; all very scintillating and scandalous.

First let me say that I agree with the City Manager’s analysis of the issue and that the solution will have to be a multi-faceted, collaborative approach between the City and its labor groups. I also believe that we must acknowledge the structural changes that have already been negotiated with the public safety bargaining units. Together they’ve achieved some critical steps to contain future costs. Changing the vesting period and limiting the benefit to only the employee will help to reduce future liability by more than 60%. These savings will take time to show up in the actuarial analysis and, of course, cannot account for the escalating costs of health insurance. I strongly agree that we need to examine any reasonable proposal to help reduce the current liability and that all parties must take responsibility for achieving this goal.

Having said this, I thought it might prove beneficial to give a historical perspective of how and why this benefit came into existence. I believe I am the only person still employed by the City of Alameda who had an active role in these discussions. Hopefully, I can shed some light on the process and how we arrived at where we are today.

In 1988 the Police and Fire Pension Committee, made up of representatives from the fire and police management and labor groups, asked the City for recognition to discuss changes to the 1082 pension system. The 1082 pension system was a local Alameda ordinance funded by the City and employees to provide retirement benefits for sworn police officers and firefighters. One of the areas for discussion was the possible transfer of the small local pension system to the much larger CalPERS system. Initially, the Committee met strong resistance from the City Council, and it took nearly two years before the parties actually began these discussions. Once the meetings began, the Mayor and City Manager sat in on many sessions.

One of the first actions agreed to was that an actuarial valuation be undertaken to determine, among other things, the feasibility of transferring the 1082 pension to CalPERS. John Bartel, who still works with the City on these issues, was hired to perform the valuation. When the analysis was completed, everyone was surprised to find that a transfer of the pension system would not only reduce the City’s contribution level significantly and all but eliminate administrative oversight, but that there would also be $3.2 million left in the 1082 pension fund. Needless to say, these facts put the transfer on the fast track, and on May 31, 1990, an agreement was reached between the City and the Police and Fire Pension Committee to transfer to the CalPERS system.

Because there were funds remaining in the pension trust, an additional agreement was reached to fund retiree medical benefits as part of the contract. This was done in recognition of the fact that many police officers and firefighters had a higher morbidity and mortality rate due to the stressors of their profession. After minimal discussion on the topic, the City representatives also agreed to include dental coverage as part of the package and it was included in the final agreement. The monies left in the fund were to be used to fund these retiree health benefits, and this language was also included in the final agreement. You can read the entire agreement on the City website. It can be found in Appendix A of the current Memorandum of Understanding with the City and Firefighters Local 689, the Police Officers Association, Fire Management, and Police Management.

When this agreement was reached in 1990, the cost of Kaiser two-party health premium was $205 per month. Compare that to today’s cost of $1337 per month, and you can see why the cost of the benefit has become a very important issue. Remember the $3.2 million left in the 1082 pension fund in 1990? Well that should have been used as seed money to help pay for the benefits, but it was never properly accounted for, and no one has ever been able to explain exactly how those funds were spent. Had they been properly invested, it would have saved the City many years before the general fund was used to pay for this benefit. The City would not be dealing with the mounting OPEB debt staring us in the face today if they had coupled the use of savings responsibly and developed a wise business plan that projected future liability and budgeted for these expenses judiciously through the ensuing years. I’m sure if our current City Auditor and City Treasurer were on the job in 1990, this would have been handled differently.

The bottom line is that everyone, including the City, signed off on the deal, and there needs to be accountability. It would be wrong for the City to attempt to downplay its culpability and contractual obligation, just as it would be for labor groups to insist that there is no need to reassess this situation, which they have already proven they are prepared to do. I think the leadership at all levels has shown tremendous willingness to accept these facts and look toward the future. I sat on the Pension/OPEB task force last summer. This was a very diverse group from all corners of the community. We discussed many ideas and concepts with candor and respect. The task force findings and recommendations were presented to the City Manager and City Council as the first step in what will be a challenging process. Reasonable, professional, factual dialogue between the parties must be the next step.

Fire Chief Michael D’Orazi was appointed as Alameda’s top Fire official in late 2011.  In addition to performing fire management type duties apparently he is a really good basketball player as well.

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9 Comments

  1. I’m not trying to deflect the discussion but aside from the basic principles involved in the pension debate but we are finally beginning to have honest discussion in the national media about the cost of health care. I recently heard of a medical tourist who went not to India, but Belgium for a hip replacement which cost $13,000 including plane fare while it costs a minimum $60,000 in US. I believe that $60,000 is real cost paid by insurance companies which is even less than inflated “retail”. On the one hand we have to be realistic about having enough money to pay benefits like full medical for life including family, but we also need massive reform of the entire business end of medicine which in turn is a huge part of the economy. Socialism? Obama’s Affordable Health Care Act doesn’t even come close. In the US we have become accustomed to expecting far too many expensive procedures just for our state of mind, the need to know definitively what exactly our medical condition is and often even after the MRI the picture isn’t any clearer.

    Comment by MI — August 12, 2013 @ 9:14 am

  2. there is a simple and very easy solution , all public Employees should pay for their own health insurance like 90% of American don .
    The only solution is to put a measure on the ballot and pass it .
    No more Whining

    Comment by Karl Bretzenzky — August 12, 2013 @ 9:42 am

  3. I’m with Karl. It doesn’t matter if everyone in the city signed off on these contracts. Lets get real. Alot of Alamedans must pay their own health insurance 100% and don’t get the advantage of low group rates.

    Comment by Marie — August 12, 2013 @ 10:13 am

  4. “need to examine any reasonable proposal”. Since you are all Democrats, & Obamacare is on the horizon, how about all you fire & police drop your current coverage & sign up under Covered California? It’s probably cheaper, and you cannot be turned down, right?
    BTW, your description of today’s cost of Kaiser is $1337/month for 2 persons is misleading. You don’t know what “expensive” is! Kaiser premiums, for those of us who pay out of pocket, are determined by Zip Code & type of policy. I just went to “Bonta’s” Town Hall on Covered California at Laney College. I was asking a representative there if there was any way I could lower my $1100/month One-party Kaiser premium under the ACA. I thought my premiums were bad, until a woman in a wheelchair rolled up and said her premiums, for one person, are $1600/month. And we are the taxpayers you want to pay for YOUR health insurance? You are so out-of-touch with the Real World, D’Orazi. [but then Dragons always are…]

    Comment by vigi — August 12, 2013 @ 10:32 am

  5. http://finance.yahoo.com/news/10-of-the-most-dangerous-jobs-in-the-u-s–191643548.html

    Many jobs are more dangerous than firefighting, and they don’t pay six figures with pension and health care for life. The Alameda Fire Department is scamming all of us.

    Comment by not_a_developer — August 12, 2013 @ 3:06 pm

  6. Public safety contracts a litmus test on budget
    (Originally posted on The Alamedan November 28, 2012)

    The first sign of whether the City is serious about bringing its budget under control will occur when City Manager John Russo presents his proposed contracts with the public safety unions to City Council for approval, as he has promised to do shortly.

    One thing is certain: Although reducing staffing levels or pay scales might result in significant savings, it ain’t gonna happen.

    The federal grant does not require the City to maintain the same salary schedule, but anyone who bets that the new contract will contain pay cuts probably also believes Rob Bonta will never run for higher office. The data published by the City shows that 85 fire department employees earned $150,000 or more in salary and benefits in 2011. Of this number, 22 topped $200,000. This is the kind of compensation worth fighting for.

    And fight for it the firefighters’ union surely will. Expect to hear that Alameda firefighters make less than their compatriots in – pick a city – and that they haven’t had a raise since 2007. Preserving the current pay scale is necessary for the City to attract the best. And, besides, it’s only fair. Anyone who disagrees will be demonized as deluded and disrespectful.

    Consider the example of City Treasurer Kevin Kennedy, who has been arguing for years that the public safety payroll must be reduced to keep the City solvent. For his troubles, Kennedy has been accused by the firefighters’ union president of “trying to turn this into a political football game” and slammed by the Mayor for – in an ironic choice of words –“screaming fire in a theatre.” Good thing for him that he was running for reelection as Treasurer unopposed; if he’d stood for Council, he might have had to battle for fifth place.

    http://alamedamgr.wordpress.com/previous-articles/public-safety-contracts-a-litmus-test-on-budget/

    Comment by interesting times — August 12, 2013 @ 3:06 pm

  7. existing contracts would cost a lot less if the cost of health care was less. Legislating reductions in health care costs is not a short term solution for Alameda or any city but it would be nice if to some extent while people vent their animus at public employees they also took a longer view and put some blame where most of it belongs. That’s right, on the 1%. Public employees should make concessions, but you folks who “whine” that their compensation should be set according to the low bar set by 90% of Americans who are getting shafted are missing the big picture. It’s a race to the bottom.

    Comment by M.I. — August 12, 2013 @ 5:35 pm

  8. So what you are saying, MI, is that we in the 99% should just reserve our ire for the 1%? It doesn’t work that way.We look around to see what is breaking the Alameda budget. It’s not the 1% it is the safety employees.
    You are setting up a “straw man” here, I think.

    Comment by Marie — August 12, 2013 @ 5:41 pm

  9. I think MI has a point worth considering for a few moments. I’m too lazy write it all out, but think in terms of stagnated real wages, reduced benefits, and retirement plan conversions for the privately-employed middle class. Couple that with the lowest corporate and high-income-bracket tax rates, resulting in the most unequal distribution of wealth in a long, long time (MI’s 1%). I’m just wondering whether enough wealth remains in our financially-emaciated middle class to support all the services we’d like to be accustomed to from our little city, and provide the wages and benefits our public employees have gotten used to.

    Comment by Tom Schweich — August 14, 2013 @ 4:52 pm


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