LA Cannot Afford Budget Busting Labor Agreements

LA WATCHDOG-Los Angeles’ cupboard is bare as it is projecting a three year cumulative deficit of $425 million.  But that is not stopping the campaign funding leadership of the Coalition of LA City Unions from using its political and financial clout to strong arm the City Council into approving a budget busting, multiyear labor agreement that will further aggravate our cash strapped City’s financial woes.

The Coalition represents a significant portion of the City’s civilian employees and has been negotiating with the City since before the expiration of its contracts on June 30.  Unfortunately, we are not privy to these secret negotiations that are overseen by the Executive Employee Relations Committee (“EERC”).  This secretive body that meets behind closed doors consists of the Mayor and four members of the City Council, all of whom have blatant conflict of interests since they have benefitted from cash contributions to their campaigns from our public sector unions. 

The City’s plan to eliminate its Structural Deficit over the next four years assumes no raises or cost of living adjustments for all City employees over the next four years, a 10% contribution by civilian employees to the cost of their Cadillac healthcare plans, and the lowering the annual step increases in wages for selected employees from 5.5% for five years to 2.5% over 15 years.  

The Coalition, led by the SEIU and AFSCME, has rejected these terms.  But in this world of backroom negotiations, we are not privy to the Coalition’s demands. 

It has responded by staging a downtown rally in late October, declaring that “LA is not Wall Street’s ATM” and urging Mayor Garcetti and the City Council to “stand up for LA’s working families and neighborhoods, stop corporate giveaways, and recover taxpayer revenue from big banks and corporations to restore the vital city services that Angelenos need.” 

However, many of the Coalition’s recommendations are not practical nor do they provide any immediate cash to fund the desired increases in compensation and benefits. 

For example, the Coalition calls for the modification of Proposition 13 where commercial properties would be assessed at their fair market value.  This would result in $200 million in additional revenue for the City.   

Besides the political reality that modifying Prop 13 would be very difficult and time consuming, this proposal is a job killer as real estate taxes for businesses would increase by almost 50%, or $650 million, when the allocations for LAUSD and the County are included. 

The Coalition is also calling for the City to renegotiate “interest rate swap” transactions with two money center banks that it claims is costing the City $5 million a year. Yet this deal will save the City more than $40 million over the life of the swaps while protecting the City from a spike in interest rates.  Furthermore, City Attorney Mike Feuer warned that any claims that City might have for damages are “very weak, if not frivolous.”  

The Coalition is also focusing on the investment management fees of $143 million paid by the City’s three pension funds (LACERS, Fire and Police, and DWP) for managing almost $40 billion of assets.  But these fees seem reasonable given the rates of return and the size of the portfolios and would mostly likely be confirmed by an independent benchmarking survey.  

Despite the all the rhetoric and hot air, the City’s civilian workers are doing just fine.  

Over the last seven years, they have enjoyed a 25% increase in compensation to levels that exceed comparable jobs in the private sector.  Selected employees have also benefitted from the annual step up where salaries were increased 5.5% a year for five years. There were also cost of living adjustments. 

The employees have a pension plan that is the envy of the private sector workers where the true cost is masked because the City relies on an overly optimistic investment rate assumption.  The Coalition has fought pension reform, unlike the Police and Firefighters where newly hired workers are put into a new tier having lesser benefits. 

Civilian workers enjoy a Cadillac healthcare plan with very low deductibles and copays which costs employees next to nothing.  This compares to the private sector where employee contributions average 29% of the premiums. 

The civilian workers also receive a month of vacation after 15 years; 12 sick days a year and another five days at 75% pay; and 13 paid holidays.

Finally, there is job security as the City is reluctant to lay off workers.  It is also almost impossible to dismiss an underperforming City worker.

As the City proceeds with the contract negotiations, it must resist political pressure from the Coalition and its allies on the City Council* to increase salaries and benefits that will further inflate the budget deficit.  

At the same time, the City must also focus on benchmarking the efficiency of its operations, comparing its compensation arrangements to the private sector, amending its restrictive work rules (including third party contracting to repair our streets and sidewalks and maintain our parks), and reforming its pension plans for new and existing employees in an attempt to reduce the City’s unfunded pension liability of more than $15 billion that will dumped on the next generation of Angelenos. 

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Finally, in the interest of transparency, any union contract must not be approved until the media and the voting public have had at least ten days to review and analyze the contract and have had ample opportunity to comment at City Hall. 

If the City fails to maintain an open and transparent process, the voters will more than likely reject any tax increase, whether it is to repair our streets and sidewalks or to increase our sales tax once again to fund County wide transportation projects.  

* One of the scariest aspects of the whole situation is that the City Council has failed to review and analyze the Coalition’s proposals.  Rather, the City Council unanimously approved two motions sponsored by Paul Koretz (a member of the EERC) regarding Prop 13 and the interest rate swaps without considering the adverse impact on the business community and the City’s reputation in the financial community. 


(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee, The Ratepayer Advocate for the Greater Wilshire Neighborhood Council, and a Neighborhood Council Budget Advocate. Humphreville is the publisher of the Recycler Classifieds -- He can be reached at:  [email protected].) 




Vol 12 Issue 94

Pub: Nov 21, 2014