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Photograph by Curtis Cartier
SC'S FINEST AND MOST EXPENSIVE: As with firefighting, the dangerous nature of police work has been cited as justification for generous retirement benefits. Those benefits are now coming under scrutiny.

Pension Tension

Santa Cruz spends 40 percent more than surrounding cities on public safety retirement

By Curtis Cartier

SANTA CRUZ Police Chief Howard Skerry has worn SCPD blue for 29 years. So when he turns in his gun and badge in September to retire, he'll take home a pension of about $170,000 per year for the rest of his life. It's the same deal every cop and firefighter in Santa Cruz gets: stay on the job until at least age 50, then retire with 3 percent of your salary for every year spent on the force. An officer with 20 years on the force would make 60 percent, one with 25 years would make 75 percent, and so on.

The "3 percent at 50" retirement deal, as it's known, has been par for the course among California's public safety officers and firefighters since the prosperous 1990s. Today, Watsonville offers the plan, along with Monterey, Capitola, Scotts Valley, Alameda County, Santa Cruz County and about 320 other public agencies in the state. But with cities and counties statewide facing empty coffers and slashed services, local governments are left with little choice but to roll back the generous packages they once used to lure the best.

In Santa Cruz, those efforts are made that much more pressing by the fact that the city contributes about 40 percent more than each of the aforementioned neighbors (in one case, nearly twice as much) in order to offer the 3 percent at 50 plan. And with the city spending $6.1 million on police and firefighter retirement plans last year out of a $73.9 million budget, that translates into an extra $1.8 million or so that Santa Cruz pays for the same thing other cities get—a sum that would fit snugly into the $2 million budget hole city leaders are currently scrambling to plug.

City Manager Dick Wilson (also soon to retire, but at the "miscellaneous employee" rate of 2 percent of his salary for each of his 28 years) says the model is "completely unsustainable."

"For cities especially, public safety is a substantial cost even in the best of times," says Wilson. "The pension and retirement costs are a huge part of that. The only real way to cut them down is for the employees to contribute more."

Cops in Rockers

The reason for the sky-high rates the city pays for its retirement plans is a bit of a mystery to many city officials, including Wilson and Mayor Mike Rotkin. But according to Finance Director Jack Dilles, the explanation lies mostly in the fact that Santa Cruz has more retired cops and firefighters than it has working ones.

Like the overwhelming majority of public employees in California, Santa Cruz city workers use the CalPERS pension and retirement program. Under the massive 1.6 million-member system, both employer (e.g. the city of Santa Cruz) and employee (e.g. Chief Skerry) contribute a certain percentage of the employee's salary into the program over the course of the person's career; when that employee retires, he or she stops being paid by the city or other public employer and starts being paid by the CalPERS system. CalPERS, in turn, analyzes what an agency's retirees are costing the system and bills each employer accordingly.

In Santa Cruz, the rates that employees pay into the program have been mostly stable at 9 percent, though the firefighters agreed temporarily to bump their contribution rates to 11 percent last year, saving the city $123,432.

The rates that employers pay into the CalPERS system, however, are determined by a complex cost matrix, not the least important factor of which is how many retired employees there are versus how many are still working. Santa Cruz has 104 retired police officers versus 88 who are still working and 65 retired firefighters versus 52 still working. The effect is not unlike the dynamic that's crippling the nation's social security system, with a working few bearing the burden of an aging many. And because of this and other factors, the city pays 36 percent of each police officer's salary to CalPERS and 39 percent of each firefighter's. Meanwhile, Scotts Valley, Watsonville, Monterey and Capitola each pay about 26 percent.

John Bartel, an actuarial consultant hired by the city to analyze the employer contribution rates that Santa Cruz can expect in the future, says Dilles is correct in blaming a big part of the city's high contribution rates on its large number of retirees. He also offers a simple reason as to why there are so many of them.

"It's a byproduct of a mature city," he says. "Santa Cruz has been around a long time and city boundaries haven't grown, so a byproduct of that is that if you had 90 police officers 30 years ago you probably still have 90 today. This problem likely wouldn't happen in a city that is expanding."

Expanding the city being the last thing on lawmakers' minds, a majority of analysts seem to come back to Wilson's blunt assessment that employees will simply have to give up the 3 percent at 50 deal or cough up more of their paychecks.

"It's eventually going to come down to that," warns Wilson. "It's unfortunate, but necessary."

Two-Tier: Fears And Cheers

Much of last week, city leaders huddled with union reps, accountants and lawyers at City Hall in an effort to cut costs and keep the current $2 million deficit from growing to $3.7 million. On the table: more furloughs, deferred raises, cut hours—everything except pension and retirement reform. "That," Rotkin says, "will come later."

When it does, there's no doubt it will be dominated by whether to include what's known as a "two-tier system" for all employees, public safety and otherwise. Under this plan, current workers would keep the retirement plans they've been promised, but new employees would begin to get skimpier offers. It would mean savings, but it would take decades to realize them, and members from labor groups like SEIU Local 521 and Association of Firefighters Local 1716 say it would devastate morale by creating two classes of employees.

"A two-tier system is a divide-and-conquer strategy where you'd have two groups doing the same job, one getting lower benefits," says Rob Oatey, president of the local firefighters union. (Full disclosure: Oatey is married to Santa Cruz Weekly graphic designer Jenny Oatey.) "We believe there are better and more immediate steps to take."

Wilson, nevertheless, argues in a letter to the City Council that "it would be unconscionable to leave the current (retirement) plans in place" and that advancing a two-tier system is imperative.

Rotkin also supports a two-tier system, though he goes one step further, saying the minimum retirement age for all employees should also be delayed by five years. It's currently age 50 for public safety workers and 55 for all other employees.

Both options have the potential to lower the city's employer contribution rates. Yet not all the city's workers have the abnormally high rates that its public safety employees do. The city's 934 nonpublic safety employees—its maintenance workers, record clerks, IT specialists, attorneys, city manager, etc.—cost about the same as every other surrounding city's miscellaneous workers do. The city pays 12.8 percent of each employee's salary into the CalPERS fund; the employees themselves contribute 7 percent. The result is a rate of 2 percent of salary for every year of service, compared with cops' and firefighters' 3 percent. Yet by the sheer number of employees they represent, city leaders are still looking for major concessions from them as well, to the tune of $1.3 million in cuts. SEIU members have been attending recent city meetings in full purple-shirt-clad force, asking that cuts be made "from the top" and not from the rank-and-file workers.

Whether any savings will come in the form of pension reform or not remains to be seen. And whether a left-leaning city like Santa Cruz has the political will to slaughter such a progressive sacred cow is certainly in doubt. But with a new forecast by Bartel himself saying that this year the city's employer contribution rates will climb from 36 percent for police and 39 percent for firefighters to nearly 44 percent and 48 percent, respectively, the penny-pinching city manager is now of the mind that reform is less of a choice than a necessity.

"Something has to be done," says Wilson. "Statewide reform is politically impossible. Local municipalities just have to do it themselves."

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