Santa Monica police officers on Ocean Avenue question a man who was possibly under the influence of alcohol. (photo by Kevin Herrera)

CITY HALL — In February, amid discussions of raising city fees on everything from adult recreation leagues to municipal swimming pool admission, Councilmember Bobby Shriver called out what he felt was the “800-pound gorilla in the room.”

“When 75 percent of your costs are compensation, the 800-pound gorilla isn’t the senior center,” Shriver said at the Feb. 8 City Council meeting. “It’s the 86 percent benefit compensation on our friends in the police department. It’s not a zero-sum game, it’s a choice game.”

The comment came after Finance Director Carol Swindel presented a series of slides with alarming statistics showing a huge increase in the costs of benefits as a percentage of salary for municipal employees, specifically police officers and firefighters.

By the end of fiscal year 2016, City Hall could expect to spend almost 88 percent of a given officer’s salary on benefits, which are primarily composed of health care and pension costs.

As of the May budget sessions, however, that number dropped over 10 percent, with little explanation as to why.

That frustrated Officer Matthew Rice, the chairman of the Santa Monica Police Officer’s Association.

“We’ve become the villains,” Rice said.

As of May 24, when the proposed budget was presented to council members, benefits as a percentage of salary dropped from 87.6 percent to 77.3 percent.

The change was one of calculation, Swindel said, and largely had to do with a more positive projection from the California Public Employee Retirement System, or CalPERS, than had been available in December when the February presentation was being put together.

In February, CalPERS was still reeling from the dramatic losses experienced in the 2009 fiscal year. The pension system’s investment portfolio took a $69 billion hit, or 24 percent of its fund.

There’s a two-year lag for factoring investment returns of a given fiscal year into rates for public agencies like Santa Monica, so City Hall is now seeing the impact of the 2009 losses, wrote Clark McKinley, a CalPERS spokesperson, in an e-mail.

“The 2008-09 fiscal year was the worst in the nearly 80-year CalPERS history, with a market value loss of 24 percent,” McKinley wrote. “So there’s a lag in making up that loss with employer contributions, spread out over more than one year, to keep the city’s employee/retiree pool adequately funded.”

The investments had to be made up with rate increases, and on top of that, the executive board considered dropping the expected rate of return from 7.75 percent to 7.5 percent.

If that doesn’t sound like much, Swindel said, think again.

“It’s a quarter percent, but because it’s such a big driver of their overall pool of assets available to pay for retirement benefits, it would have had a significant impact on rates,” Swindel said.

If the rate decrease had gone forward, it would have equated to an extra 3 to 5 percent on top of costs for police department benefits.

In a surprise move, the CalPERS board did not approve the recommendation of its chief actuary to lower the projected rate of return, but that decision was made in March, long after the five-year projections Swindel presented were created.

“We’re in a dynamic environment, and information always continues to come to light,” Swindel said. “When we put the proposed budget together, we did it based on the best information we had available at the time. That’s different than what we had in December.”

And, although the increases aren’t as dramatic as they were expected to be, costs are still expected to jump $15.7 million, or 57 percent, by 2015-16.

Health care costs, also a major factor in the cost of benefits, are expected to go up $7.8 million, or 46 percent, in the same period. A benefit consultant employed by City Hall estimated that health care costs would rise by 12 percent each year at a minimum.

It only held at a 5 percent increase this year because City Hall switched providers.

At the rate at which these figures are rising, compensation figures are expected to grow over the next five years and one and a half to two times that of revenue, Swindel said.

“We’re in discussions with the [employee unions] now to make sure compensation costs are sustainable in the long-run,” she said.

So are those police figures still the 800-pound gorilla in the room?

In Shriver’s opinion — yes.

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