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1toW" of MEETING DATE: 12/9/2013 ITEM NO: zos cp�os COUNCIL AGENDA REPORT DATE: December 5, 2013 TO: MAYOR AND TOWN COUNCIL FROM: GREG LARSON, TOWN MANAGER SUBJECT: COMPENSATION AND BENEFITS UPDATES FOR UNREPRESENTED EMPLOYEES AND CONDITIONAL AUTHORITY TO PROCEED WITH A LABOR AGREEMENT WITH THE TOWN EMPLOYEES' ASSOCIATION RECOMMENDATION: 1) Approve compensation and benefits updates for unrepresented employees consistent with the labor agreement adopted between the Town of Los Gatos and the Association of Federal, State, County and Municipal Employees ( AFSCME). 2) Approve an Appreciation Bonus of $250 for Hourly Unbenefitted Employees, payable as a one -time bonus in December 2013. 3) Authorize the Town Manager to negotiate a labor agreement with the Town Employees' Association (TEA) materially consistent with the terms and conditions of the agreement reached with AFSCME and authorize the Town Manager to execute the Memoranda of Agreement between the Town of Los Gatos and TEA, if ratified by TEA. BACKGROUND: On December 2, a labor agreement with AFSCME was approved by the Town Council. The staff report discussing the AFSCME labor agreement stated that a report was being prepared for the December 9, 2013 Town Council meeting to consider terms comparable to the AFSCME agreement for unrepresented Confidential and Management employees. Unrepresented employees do not collectively bargain and serve as At -Will employees. Unrepresented employees are those who are Confidential hourly, salaried Management, Council Appointees or temporary /unbeneffited. The staff report also stated that negotiations with the Town Employees' Association (TEA) were underway but had not yet concluded. PREPARED BY: Rumi Portillo, Hum , R y u i r Reviewed by: Assistant Town Manager Town Attorney Finance C:AUsers \rportilloADesktopATC Unrep and TEA Report for Dec 9 2013.doe PAGE 2 MAYOR AND TOWN COUNCIL SUBJECT: COMPENSATION AND BENEFITS UPDATES FOR UNREPRESENTED EMPLOYEES AND CONDITIONAL AUTHORITY TO PROCEED WITH A LABOR AGREEMENT WITH THE TOWN EMPLOYEES' ASSOCIATION December 5, 2013 This is the follow -up to the December 2 staff report for the purpose of addressing the unrepresented Confidential and Management employees, as well as TEA. DISCUSSION: The December 2 staff report provided the following context for the labor agreement reached between the Town and AFSCME: Wages During the Economic Downturn As a result of difficult economic conditions experienced nationally and regionally, the Town faced budgetary challenges during the last six fiscal years and addressed those challenges by eliminating positions, freezing salaries, implementing unpaid furloughs and reducing benefit - related costs. Specific impacts to the non -sworn employee groups include: • For non -sworn non- management employees, wages have been frozen for five of the past six years. • For management employees, salaries have been frozen for six straight years. • In the last six -year period, nons -worn employees contributed a cumulative -8.2% in wage reductions from unpaid furloughs. (Management waived a budgeted pay increase as an offset in the first year of furloughs.) Year -End Fund Balance for FY 2012/13 An unpaid furlough had been imposed for FY 2013/14 to balance a projected budget gap. However, after the current year's budget was adopted, the prior year's budget (FY 2012/13) was reconciled and a positive year -end fund balance was identified. The positive year -end fund balance resulted from revenues exceeding projected expenditures. The identified balance is sufficient to absorb the reversal of the unpaid furlough and a one -time bonus, with remaining funds to address other Town priorities. Projections and Future Planning A trend of increasing revenues is projected to continue and it is anticipated that the current year's budget may be adjusted at the mid -year budget review to reflect that certain revenues are exceeding earlier estimates, largely due to the economic recovery. The Town continues to be cautious and fiscally conservative, including projections for increased CalPERS pension contributions and increased health benefit costs. However, the five -year forecast also reflects an improving economic environment with balanced budgets. PAGE MAYOR AND TOWN COUNCIL SUBJECT: COMPENSATION AND BENEFITS UPDATES FOR UNREPRESENTED EMPLOYEES AND CONDITIONAL AUTHORITY TO PROCEED WITH A LABOR AGREEMENT WITH THE TOWN EMPLOYEES' ASSOCIATION December 5, 2013 Multi -Year AFSCME Agreement After careful consideration of the economic conditions, the Town completed several months of negotiations with AFSCME and reached a multi -year agreement. The labor agreement, as approved on December 2, include the following economic items: • Rescission of the current FY 2013/14 Unpaid furlough program; • One -time paid holiday for the closure already implemented for Veterans Day; • One -time Appreciation Bonus of 1.5% to be paid in December 2013, in recognition of the wage freezes, unpaid furloughs and benefits concessions; • General wage adjustments of 2% in FY 2014/2015 and 2% in FY 2015/16. The AFSCME package also included the following benefit concessions: Further cost- sharing of dependent medical premiums effective January 2015. The cost of dependent care coverage will be shared 90% by the Town and 10% by the employee. For Medicare- eligible retirees, the Town's contribution will be reduced to align to the CalPERS' Medicare - Supplemented rates for Kaiser North. Application to Unrepresented Employees The unrepresented employees are similarly situated to AFSCME, in that they participated in six years of wage freezes, unpaid furloughs and benefits concessions. Thus, for purposes of interna'. equity and consistent benefits administration, it is recommended that the same economic terms be applied for unrepresented Confidential and Management employees. The applicable terms include the rescission of the unpaid furlough program for FY 2013/14, one- time paid leave for the 2013 Veterans' Day closure, one -time 1.5% Appreciation Bonus payable in December 2013, and 2% wage adjustments for FY 2014/15 and FY 2015/16. Additionally, it is recommended that the benefits concessions for dependent care and the Medicare- supplemented rate alignment also be applied for unrepresented Confidential and Management employees. Unbenefitted HourlyEm Employees Supplemental staff who work in an hourly capacity with fewer than 20 hours a week are also in the unrepresented group and serve in an At -Will and unbenefitted capacity. Hourly rates for the unbenefitted employees are generally benchmarked to the full -time counterpart positions and as such, the hourly rates have also been frozen for five of the past six years. In recognition of this, a modest one -time Appreciation Bonus is included as a pay action to be implemented for those who are regularly assigned to work. PAGE 4 MAYOR AND TOWN COUNCIL SUBJECT: COMPENSATION AND BENEFITS UPDATES FOR UNREPRESENTED EMPLOYEES AND CONDITIONAL AUTHORITY TO PROCEED WITH A LABOR AGREEMENT WITH THE TOWN EMPLOYEES' ASSOCIATION December 5, 2013 Status of TEA The Town's negotiators and TEA representatives met and conferred in good faith in 2012 but did not reach agreement on a successor MOU. For that reason the MOU has remained expired since June 30, 2012. Negotiations resumed in August 2013 and labor discussions have been ongoing since that time. A final proposal by the Town is currently under vote with the TEA membership. The terms included in the package proposal resulted from good faith negotiations between the Town and TEA and are specific and relevant to the TEA bargaining group and the economic parameters are materially consistent with the package approved for AFSCME. Although the vote by the TEA membership is not yet complete, the conditional authorization for an agreement with TEA will allow staff to proceed with immediate implementation of the agreement in an expedited manner, if ratified by the TEA membership. If the final proposal by the Town is not ratified by the TEA membership, the terms and conditions of employment remain status quo until further action is taken by the parties. Status quo includes continuation of the FY 2013 /14 furlough program. Status quo would also mean that any incentives or concessions in the proposal will not be implemented, pending further Council direction. CONCLUSION: For consistency in the administration of benefits and for reasons of internal equity, it is recommended that the applicable terms contained in the AFSCME labor agreement be implemented for the unrepresented Confidential and Management employees, to include the rescission of the unpaid furlough program for FY 2013/14, one -time paid leave for the 2013 Veterans' Day closure, 1.5% bonus payable in December 2013, 2% wage adjustments for FY 2014/15 and FY 2015/16. Additionally, it is recommended that the benefits concessions for dependent care and the Medicare - supplemented rate alignment also be applied to the unrepresented Confidential and Management employees. Further, if the TEA membership ratifies an agreement that is materially consistent with the package described in this staff report, it is recommended that the Town Manager be authorized to negotiate and execute the Memoranda of Understanding with TEA. PAGE 5 MAYOR AND TOWN COUNCIL SUBJECT: COMPENSATION AND BENEFITS UPDATES FOR UNREPRESENTED EMPLOYEES AND CONDITIONAL AUTHORITY TO PROCEED WITH A LABOR AGREEMENT WITH THE TOWN EMPLOYEES' ASSOCIATION December 5, 2013 FISCAL IMPACT: One -time Costs The following are the total one -time costs for the Unpaid Furlough and 1.5% Bonus for all non - sworn employee groups, including the AFSCME costs as previously authorized and additionally assuming that TEA ratifies the agreement. As shown on the charts, the furlough rescission is offset by personal leave hours used by employees to cover the year -end holiday closure. The combined cost of the furlough rescission and the one -time bonus of approximately $180K for all non -sworn employees will be absorbed from the prior year -end fund balance. Unpaid Furlough Hours Offset by Leave Usage for 2013 Holiday Closure AFSCME TEA Confidential Mgmtl TOTAL number of positions SS S7 12 24 108 Rescind Furlou€ Offset by Leave Appreciation Bonus AFSCME TEA Confidential Mgmt TOTAL base One -Time Bonus of $250 for Unbenefitted Hourly Employees The cost of a one -time bonus for unbenefitted hourly employees is approximately $5,000. General Wage Increases for FY 2014/15 and FY 2015/16 Based on the non -sworn salaries and CaIPERS rates assumed in the 5 -year forecast, the cost of a 2% increase in FY 2014/15, including salary and CalPERS costs, is approximately $230K, resulting in a total non -sworn payroll of $11.9M. The increase in FY 2015/16 is an additional $260K, resulting in a total payroll of $12.5M resulting in a total non -sworn payroll of $12.5M.