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HomeMy WebLinkAboutBudget Advisory Commission - 01/27/2009 APPROVED MINUTES BUDGET ADVISORY COMMISSION MEETING TUESDAY,JANUARY 27, 2009 7:00 PM, CITY CENTER 8080 Mitchell Road, Eden Prairie, MN Heritage Room COMMISSION MEMBERS: Don Uram (Chair), Richard King (Vice Chair), Annette Agner, Eapen Chacko, Jon Muilenburg, Richard Proops, Gwen Schultz CITY STAFF: Sue Kotchevar(Finance Manager), Tammy Wilson (Finance Supervisor), Karen Kurt(Human Resource Manager), Scott Neal (City Manager), Rob Reynolds (Police Chief), George Esbensen (Fire Chief), Eugene Dietz (Public Works Director), Janet Jeremiah (Community Development Director), Jay Lotthammer (Parks and Recreation Director), Angie Perschnick (Recording Secretary) I. ROLL CALL/CALL THE MEETING TO ORDER Vice-Chair King called the meeting to order at 7:01 PM. Chair Uram was unable to attend the meeting. II. MINUTES A. BAC MEETING HELD THURSDAY, DECEMBER 4, 2008 Chacko moved and Muilenburg seconded to approve the minutes from the December 4 meeting. The vote was 4-0-2 with abstentions from Proops and Schultz, who were unable to attend the December 4 meeting. III. HUMAN CAPITAL EXPENSES: COMPENSATION AND BENEFITS Karen Kurt described the compensation and benefits processes, plans, and decisions for the City of Eden Prairie. She receives input and direction from Scott Neal and City Directors regarding compensation and benefits plans. In 2003, consultants were hired to complete a compensation redesign project, and the City's pay strategy was formalized at that time. Kurt noted that she recognizes that 2010 and 2011 are not typical "business as usual" years. The City's compensation strategy includes broad job classifications so that employees can be asked to perform a wide variety of tasks without changing pay grades. Eden Prairie is one of the better paying police departments, but they also have different pay structures than most competing cities. Unionized police Eden Prairie Budget Advisory Commission January 27, 2009 Page 2 departments typically receive more pay for specific assignments (those involving canine assistance or schools, etc.) and for longevity . Organization size and values also impact pay. Internal comparisons are weighted more heavily by the City than external market data due to the Minnesota pay equity law, but both are used to determine pay ranges. A formal job evaluation system is used in Eden Prairie, and values are assigned to each job. External market data is gathered from benchmark cities and sometimes private sector survey data (for engineering, IT jobs, and some others). Compensation trends are considered on both a national and regional level. The City of Eden Prairie's staff has chosen to position pay slightly above average relative to the market. This helps maintain majority non-union status,recruit from other suburbs, and reinforce above average performance expectations. The City must also stay in compliance with pay equity laws, and that requires that they put more weight on internal comparisons rather than external market data. Muilenburg asked about the possibility of slowing the rate of pay for a group to follow the external market, and Kurt explained that this approach could cause the City to fall out of compliance with pay equity laws. These laws try to remove perceived historical discrimination for women in female-dominated jobs. In practice, it means that they need to pay Administrative Assistants similarly to Maintenance Workers. Pay values are assigned with the job evaluation system, and an external consultant was hired to set up the system that is currently used. The Minnesota Department of Management and Budget requires that the City report to them every 3 years, and pay changes that could result in non-compliance with pay equity need to be explained. Kurt responded that it is better for the City to maintain a consistent compensation strategy. King asked if it was possible for the City to re-evaluate jobs and overhaul the structure and still remain in compliance with pay equity laws. Kurt responded that the City could make small tweaks to the structure and remain in compliance. Kurt explained that the City has some male-dominated and some female- dominated job classes, but there are also a number of balanced classes. She has a statistical analysis program that shows how the City's pay compares to the standard needed to meet compliance with pay equity laws. Muilenburg asked if part of the goal of pay equity was to bring public sector employees in line relative to private sector employees, and Kurt and Dietz clarified that the intent of this law was related to gender issues in pay. The bill was applied to the public sector only. Proops commented that the compensation objectives are great, but the problem is in the nuts and bolts and how jobs are evaluated. A lot of judgment is involved in how to value jobs appropriately. Kurt noted that Governor Pawlenty suggested removing mandates, the City of Eden Prairie submitted feedback to the League of Minnesota Cities suggesting this may be one way to remove administrative burdens in different parts of the Eden Prairie Budget Advisory Commission January 27, 2009 Page 3 government. The process of tracking and evaluating compliance with pay equity laws is time-consuming. Schultz asked if the City is overpaying administrative or other jobs relative to the private sector. Kurt stated that the City is ahead of the private sector for these jobs, but it has tightened over the past few years too. Administrative Assistant is the job where she notices the difference in pay rates the most. As they identify a need, they evaluate jobs relative to the private sector, but generally the City compares pay rates more often with the public sector. Proops was concerned about the statement that pay rates in Eden Prairie are slightly above the market so recruiting from other suburbs can take place. Muilenburg agreed that it sounds like pay rates become a battle of which suburb can or will pay more. Proops suggested saying the City wants to recruit the most qualified people for the jobs rather than mentioning recruiting from other suburbs. Kurt clarified that suburbs are not typically recruiting directly from others for most positions, so this is not an everyday occurrence. King asked if the market positioning references salary and benefits or just salary. Kurt clarified that it refers only to salary. King asked if there were heightened concerns regarding unionizing at this time. Reynolds said that a discussion emerges in the Police Department about every 5-7 years, and it has come up again recently. As they have each time in the past, the Police Department employees decided not to unionize. Schultz asked why the Eden Prairie Police Department is not unionized. Reynolds said he thinks it is because the employees are compensated well enough and have positive relationships with management to the point where they feel the value of unionizing would not be worth the cost of the union dues. Neal agreed that great Police Department management and very competitive pay have helped. Also, Neal noted that some employees self-select to come to Eden Prairie's Police Department because they may prefer a non-union environment. For the city of Eden Prairie, the target compensation rate identified in the pay range structure is considered to be the market rate for the position. Employees are not likely to reach the maximum of the range. They can be paid above target for higher levels of performance and experience. Some positions, such as Building Inspector, have step programs. In these programs, employees progress from the minimum to the maximum pay rates with experience in the position. All of the cities that Eden Prairie compares itself to for compensation practices actually pay within a very close range of each other for most positions. The City does an analysis for jobs that are good benchmarks (have similar positions in other cities) every few years to ensure pay is competitive with other cities. Because Eden Prairie is not unionized, the City drives compensation and benefits strategy and plans. The City has more control and does not have to collectively bargain with most employees. Another component of the City's compensation program is fiscal responsibility. They want to get the most recruitment and retention value for the dollars spent Eden Prairie Budget Advisory Commission January 27, 2009 Page 4 (not spending the least amount and not overspending). In a step plan, the target is the market competitive rate. Employees get steps each year until they hit the target rate. Proops asked about a hypothetical IT position with a market rate of $60,000, and he wanted to know where the City would hire that person in at in terms of pay. There is flexibility to bring the person in at a lower rate and increase pay. The offer needs to be enough to attract the person away from their previous employer with an opportunity to reach target. They are likely to bring the person in at a rate below the target/market rate and increase it over time. For step and performance plans, pay can go above the target rate to hire the person, but it very rarely does. Union police employees cannot be paid over the target rate (the target equals the maximum pay rate in this case). For the step plan, they look at the typical base wage increase, and the step is beyond that amount with a goal of moving the person toward the market competitive rate. The performance pay plan used at the City is more similar to merit pay plans in the private sector. They budget dollars to move employees to target after a few years of employment. They use a bell curve, so when they give larger increases for higher performers, they also decrease increases for lower performers by the same overall amounts to balance the budgeted increase amounts. King stated that this presentation made the compensation information very clear. Benefits account for 20% of the overall cost of compensation and benefits for the City of Eden Prairie. Insurance benefits account for 91% of the total cost of benefits provided to City employees. The benefits plan year goes from June 1 — May 31 each year. Between 2006 and 2007, the renewal rate from Medica increased by 29%. In response, the City decided to gather other bids and ended up switching to Health Partners. Since that time, a high plan option was eliminated to save costs, and employees now have to pay up for more coverage over the base plan. Chacko asked if the City could have paid less in 2008-2009 due to the changes they made to their benefits plan the previous year if they had been able to gather bids again rather than being locked into a 3 year contract with Health Partners. Kurt responded that there is usually a lag before benefit plan changes make an impact on employee behavior and a lag time before insurance companies believe that the plan changes you made will make a difference in costs. For these reasons, it is likely that the costs would have been similar if other insurers were able to bid for the City's business for this year. Health Partners is working with the City to manage benefit cost increases since they really want to keep the business. Muilenburg asked how much the employee contribution has increased in recent years. Kurt said she did not prepare a slide to show that historical information, so she is not sure about the exact amounts. The City pays 66% of the benefits costs, and the employees pay 34% for the base plan. That trend has been in place over many years, and employees can buy up to receive a better health plan. A question was asked about how the City's rates compare with rates of private employers. Eden Prairie Budget Advisory Commission January 27, 2009 Page 5 Kurt responded that retirees can stay on the health plan until they reach the age where they can receive Medicare. Eden Prairie is probably fairly market competitive. For employees who need family coverage, about half of employees choose to take the City's plan, and about half choose to go with their spouse's plan. Schultz asked if the City could receive a better rate by bidding with other cities. Kurt responded that they have compared rates with the group of cities that bid together through LOGIS, and that group does not receive better rates than the City of Eden Prairie can alone. The state also has a benefits consortium,but Eden Prairie can receive better rates bidding on their own. One possible explanation is that the plan utilization could be better in Eden Prairie; plans with higher deductibles have impacted utilization for City employees. Another possible explanation is that the overall average age of employees may be higher in the state's consortium than in Eden Prairie's group. Proops asked if the City's HR department can distribute the benefits overview page internally so employees will see the value of their benefits. Scott Neal stated that the employees are very aware of all of the benefits provided to them by the City since there has been a lot of effort to communicate benefits information to them. They are aware of the PERA contributions the City makes for their retirement plan as well. Muilenburg asked if anyone can opt out of PERA. The answer is that it is a defined benefit plan that is required and highly valued by employees, but the City Manager is the only employee who is allowed to opt out of that plan. The PTO (Paid Time Off) plan that the City has considered implementing includes floating holidays, holidays, sick and personal leave, and LTD (Long- Term Disability). They have examined PTO further this year. The sick leave currently provided to employees is their STD (Short-Term Disability) program, so employees need to be able to rely on accrued sick leave to some degree. If the City moves to a PTO program, sick leave (which ends up including severance benefits) would be paid out. Currently 1040 hours can be accrued to use for STD if needed. Employees can cash out a portion of their unused sick leave when they terminate employment. Some employees are very highly vested in the current vacation and sick leave system, so there has been resistance to the proposed PTO plan. The PTO plan would include fewer days overall, and PTO would also include the deferred compensation match. As used in the City, a deferred compensation match is like a 401(k) match in the private sector. Proops asked about the cost of the deferred compensation plan, and Kurt responded that it would be approximately $200,000. Muilenburg noted that, if employees save their sick leave hours until retirement, they are paid at their highest pay rate for those hours instead of at the rate they were paid when the hours were accumulated. This costs the City extra money for longer term employees. Kurt noted that Minnesota state law requires employees to be paid out at 100% for personal (vacation) leave days not used. Employees with 0-5 years of service would receive 18 days of PTO, and the maximum for employees with higher levels of service is 28 days. Some employees Eden Prairie Budget Advisory Commission January 27, 2009 Page 6 grandfathered under a personal leave schedule eliminated in 2004 could possibly earn more. The deferred compensation match would be 1% of base pay (and higher for the employees who were under the wellness incentive previously). The City would contribute a dollar-for-dollar match like a 401(k) plan up to 1% of pay. The deferred compensation plan would travel with the employee if they leave the job just as a 401(k) does. Schultz asked what the impact is on employees for the proposed transition to PTO. Kurt responded that the value to employees is similar to what they receive under the current plan. The current sick leave would be put into a retirement medical savings account for them. There was a major education effort this past fall for employees regarding the possible transition to PTO, and King asked how the employees reacted. Kurt said most of the employees were okay with the proposed change to PTO, but the Police Department is not in favor of it. King asked if this PTO issue could have an impact on unionization, and Kurt and Reynolds confirmed that it was used as a tool for the most recent discussion within the Police Department about the possibility of unionizing. King noted that PTO is simpler to explain than the previous leave plans, and he is happy to see that they have thought it through. Kurt agreed she is glad the BAC suggested the idea, and PTO is easier to explain in the recruitment process. Agner asked about headcount trends in the recent past. Kurt responded that for the past six years, the number of employees in the City has remained fairly flat. King asked about positions that are planned to be eliminated.. Neal took some positions out of his budget, including eliminating 3 FTEs. The City Council asked them to eliminate an additional $250,000 from the budget for 2009, and they are not sure how they will end up meeting that goal (through layoffs or in other ways). A portion of sick leave is paid to employees as severance upon terminaton of employment. If layoffs occur in the future, insurance continuation is likely to be provided in exchange for signing an employee separation agreement. King noted and Kurt agreed that under the PTO plan, they are likely to end up incurring incremental costs for money paid to employees who are laid off. IV. CHAIR AND ADMINISTRATIVE ITEMS Proops described the recommendations he proposed in an email that was distributed for the BAC and Scott Neal's review. In the memo,he recommended that the 2010 budget match the total budget for 2007. This would mean reducing the 2009 budget($42.8 million)by $3.5 million in 2010 to reach a budget of $39.3 million in 2010. Proops' first suggestion for reducing the current budget is to close the Senior Center. It costs approximately $250,000 per year to operate the Senior Center, and $60,000 of maintenance projects are scheduled in the CIP for the Senior Eden Prairie Budget Advisory Commission January 27, 2009 Page 7 Center in the near future. Proops recommends moving Senior Center activities to multi-purpose rooms currently available in the Community Center. In addition, he recommends that the publications announcing events at the Senior Center and the Community Center be combined to further reduce expenses. Ideas he proposes for disposing of the land and building currently housing the Senior Center include adding the land to the park, selling the building to a business, and selling the land to a builder. A second recommendation Proops made for reducing the budget is to gather more bids for legal services. He anticipates a reduction of$250,000 per year could be achieved if other legal firms bid on the City's business. A third recommendation from Proops for reducing the budget is to change the schedule for building assessments from once per year to once every other year. This possible change is expected to save $25,000 per year. A fourth recommendation Proops proposed for reducing the budget would be to reduce the CIP fund levy from $650,000 in 2009 to $450,000 in 2010. That would save $200,000. Current reductions that the City Manager has announced include $550,000 for the combination of cuts in the following areas: fuel ($100,000), the IT budget ($100,000), facilities maintenance ($100,000), and staffing ($250,000). Finally, Proops recommended freezing wages for City employees for 2010 and 2011 with a provision for reviewing 2011 wages during June 2010. The total potential reductions identified by Proops total $1.275 million, or 36% of the target he chose of spending at the level of the 2007 budget. King suggested that the BAC needs to discuss each issue in Proops' memo with the relevant department leaders before making recommendations. King asked if other group members would like to table these items or discuss them. Muilenburg said it is premature to take any action on this since we do not have direction from the City Council currently. He is not comfortable making recommendations on these items at this time. Schultz stated that it is good for this memo to go to the BAC and Scott Neal,but she noted it is from just one BAC member and not a recommendation from the BAC as a whole. Chacko noted that it is great someone has taken the time to look at the numbers at this level of detail; however,he cannot begin to imagine all of the issues involved in closing the Senior Center. Agner said she finds the Senior Center issue interesting. King stated that the possibility of closing the Senior Center was discussed a lot last year, and he noted that there is a strong constituency that will light up regarding this issue. For that reason, a full discussion about the idea is good before any recommendations are officially made. Proops said he thinks that we cannot give people a choice about keeping the Senior Center open, but we can Eden Prairie Budget Advisory Commission January 27, 2009 Page 8 make some accommodations to figure out how to meet needs at the Community Center instead. Scott Neal noted that this time we are talking about the possibility of moving the space from the Senior Center to the Community Center rather than just getting rid of the Senior Center. It was also noted that it probably makes sense to combine scheduling and education and providing all of the information in the Parks and Recreation brochure only and not in separate publications from the Senior Center. Schultz thanked Proops for taking the time to prepare the memo. King said the BAC can take each of these items separately as ideas to discuss with the relevant departments, and they can talk about them at that time. Kotchevar noted that the next BAC meeting is February 24. At that time, the Fire and Police Departments will present information to the BAC. Also, the group will spend some time on the planning session results from the City Council and the employee survey results. King noted that on an annual basis, a recap from the City Council planning and direction meeting would be helpful. V. ADJOURNMENT The meeting ended at approximately 8:52 PM. Schultz moved and Chacko seconded the motion to adjourn.