County Budget and Pension Reform

By Terry Nagel

San Mateo County's budget deficit, which could reach $150 million for the 2011-12 budget, is the most pressing problem facing county government today. As a county supervisor, my top priority will be balancing the budget by living within our means. I am the only candidate for county supervisor who is opposed to balancing the county's budget by using money from our reserves or increasing the county's sales tax. Because employee compensation is by far the biggest line item in the county's budget, I firmly believe that savings in this area must be part of the solution.

For the past five years, I have been working to address the issue of employee compensation in our county, which is escalating faster than local revenues. We all know the current system is unsustainable. If we don't get a handle on it, cities will cut vital services, and the public will respond by placing draconian measures on the ballot. Union leaders know I am willing to work with them but I am not a pushover. I have consistently called for more transparency and open discussion among city, county and union leaders on this issue.

As Vice Chair and Chair of the San Mateo County Council of Cities (composed of all council members in the county), I brought union and city leaders together at two forums to discuss this issue, and I appointed a Compensation Task Force which issued a report listing best practices by a wide variety of cities that was shared with all council members in our county. A city managers' group working in tandem with this task force has made significant progress in documenting the gap in revenue growth vs. employee compensation costs in our local cities and county, and in raising awareness of the need to recalibrate benefits for new workers. Employees in my own city, Burlingame, have deferred pay increases and downsized benefits. For example, our police officers and administrators have agreed to defined contributions for new employees' retirement health accounts.

It is important to understand that, by law, the county must honor previously negotiated contracts, and the majority of county employees are not benefiting unduly from those contracts. I was a longtime union member myself in the San Francisco Newspaper Guild, and I appreciate the important role that unions play in protecting worker rights. But given the losses of retirement investments and the dramatic increases in mandated employer contributions to retirement benefits, we must ask employees to increase their contributions to both retirement accounts and health care coverage. We must also curb inappropriate disability retirements, which are taking a huge bite out of local government budgets and contribute to escalating overtime costs. All employees, including managers and public safety personnel, must be part of the solution if we are to significantly impact future costs.

While I have been working on the issue of employee compensation for five years, the issue of pension reform is really in its infancy. There are no proven measures that are "right" or "wrong." We know local governments cannot sustain current employee compensation obligations. We also know that many public employee retirees rely solely on their pension for retirement income because they do not receive Social Security benefits. I believe we must look at all options and would consider moving to some form of a hybrid pension that includes Social Security and other individual investment options, ending pension "spiking" payouts, capping the annual amounts of pensions and raising the retirement age at which employees are eligible for pensions. Retiring at age 50 or 55 may have made sense in 1930, when life expectancy in the U.S. was 58 for men and 62 for women. But by 2001, the average U.S. life expectancy was 74 for men and 80 for women.

Neither the public nor the employees could have foreseen the situation we face, but both parties must work together to address it, as we cannot ask the public to shoulder all the costs.

Why the County's Budget Matters to You

Why should you care who is elected supervisor? One big reason is that the way in which the county supervisors decide to balance the county budget could have a big impact on your pocketbook. I do not favor using our dwindling county reserves or increasing the county sales tax to balance the budget. Instead, I believe we must live within our means and adopt "priority budgeting" to build a budget that preserves essential services and addresses key priorities. At the same time, we need to jump-start our local economy to attract more companies and more jobs.

Last year's preliminary county budget had a deficit of $70 million that the supervisors balanced by dipping into reserves. Next year's budget deficit could be as much as $150 million due to the cost of the new jail and the state's underfunding of programs that it is requiring counties to assume. Our county reserves are dwindling, and I do not favor using them to fund the county's budget next year.

Last year the supervisors nearly approved a proposal to increase the countywide sales tax to help balance the budget. (The measure failed by a 3-2 vote.) This year they might approve it. (It would have to be approved by voters.) In voting against the sales tax last year, Supervisor Carole Groom said she didn't think it was a good idea because the county hadn't done a good enough job of looking for cuts in other areas. I agree. We must do more to prioritize programs and services, attract new revenue and make cuts to the budget before asking voters to help with a sales tax.

Budget figures bear that out. In a January 2011 survey, reporter Mike Rosenberg of the San Mateo County Times found that the cost of county employee benefits rose 150 percent from FY 2001 to FY 2010. During that period, all other spending rose 53 percent. In comparison, inflation was 23 percent. In a February 2011 survey conducted by the city managers of the county, most cities showed at least a modest decrease in the total number of full-time employees (FTEs) during the past 10 years. For example, Burlingame now has 9 percent fewer FTEs and 12.5 percent fewer full-time managers. In comparison, the county increased its total number of FTEs by 13 percent (from 5,160 to 5,839) and its total number of managers by 24 percent (from 457 to 568). A recent Grand Jury report found that San Mateo County has a higher proportion of managers than any other county in the Bay Area.

The supervisors have rejected the county manager's proposal for priority budgeting in planning this year's budget + that is, funding programs based on need and priority, rather than funding the same things we always fund. Instead, the supervisors opted to do across-the-board cuts, which means the county will be doing business as usual, only less of it. I am concerned because the cuts are most likely to take place among the last hired and lowest paid employees + the ones who typically serve the public.

I believe we must adopt a disciplined, long-term view to managing our tax dollars that includes funding programs based on need and priority. The current fiscal crisis offers an opportunity to change the way our county operates. We must require accountability for programs and services to ensure they are performing as promised and merit the funding they are receiving.

Here are a few things we can do to reduce the county's deficit:

• Reduce employee costs. I have been working for the past five years to address the issue of employee compensation, which is escalating faster than local revenues. We all know the current system is unsustainable. If we don't get a handle on it, cities will cut vital services, and the public will respond by placing draconian measures on the ballot. As Chair and Vice Chair of the San Mateo County Council of Cities (composed of all council members in the county), I brought union and city leaders together at two forums to discuss this issue, and I appointed a Compensation Task Force which issued a report listing best practices by a wide variety of cities. A city managers' group working in tandem with this task force has made significant progress.
• Reduce the number of management positions. San Mateo County has more managers per employees than any other county in the Bay Area. Our county's ratio is 1 manager for every 5.5 employees, compared to Santa Clara County, where the ratio is 1 to 9.
• Institute priority budgeting that determines funding based on need and priority that includes metrics and requires accountability.
• Improve billing at the county hospital. Millions of dollars are left "on the table" because we do not bill promptly and chase down delinquent patients and insurers.
• Consolidate purchasing and maintenance contracts. By using the same vendors and service providers, we can cut costs.
• Share services with local cities. In some cases, like San Carlos' contract with the Sheriff's Department, we can reduce costs by operating with fewer managers. In other cases, the county can save money by sharing services, such as dispatch, IT and recordkeeping. We should not wait until the situation reaches a crisis level before implementing these cost savings.
• Eliminate dedicated vehicles for county employees and reimburse them for mileage instead. A recent Grand Jury report estimated that this change would save $1.7 million per year.
• Close the Burlingame Long-Term Care facility, which costs $8 million to $10 million a year, and transfer residents to less-costly facilities.
• Eliminate the practice of allowing managers to cash in half of their accrued administrative leave (5 hours every pay period).

There is no dedicated body that actively invites businesses to come to our county. I believe we should form an Economic Development Task Force to actively seek out new businesses, keep current businesses happy and help businesses expand. We need to cut burdensome regulations, streamline permit processes and create incentives that lure businesses to our county. Members of this task force could include business and government leaders, along with representatives from local Chambers of Commerce, the San Mateo County Economic Development Association, The Edge (an effort by the San Mateo Area Chamber of Commerce to incubate entrepreneurs) and venture capitalists.

The current economic climate presents a unique opportunity to revisit the way the county allocates funding and balance our budget responsibly, instead of dipping into reserves or raising the sales tax. We need to streamline county government and adopt financial and program goals with metrics that ensure accountability. And we need to improve our local economy by attracting more businesses and more jobs.