Three national financial firms hired to scrutinize competing health care proposals put on the bargaining table by the City of San Antonio and the San Antonio Police Officers Association appeared before City Council Wednesday and strongly affirmed the City’s financial practices and projections, praising its coveted AAA credit rating, and warning that union proposals would drive up wage and benefits costs by $76.8 million over the next three years.
The financial reports delivered to Mayor Ivy Taylor and City Council Wednesday represented an across-the-board affirmation of the fiscal management of City Manager Sheryl Sculley and her staff, who have long warned that rising union health care and pension costs cannot be sustained without putting other essential city services at risk. Union officials were in the audience, and afterwards Mike Helle, the president of the San Antonio Police Officers Association, rejected the third-party presentations and said the union would soon release its own independent financial analysis.
Both sides appear ready to return to the bargaining table in February.
The City’s proposed wage and benefits plan would cost an additional $28.5 million over the life of a proposed three-year contract, and keep public safety costs at 66% of the General Fund, according to the outside review. The union proposal would cost $48.3 million more than the City plan and would elevate public safety spending to 69% of the General Fund. That assumes the firefighters, who have yet to come to the bargaining table, would receive the same wage and benefits package as police.
“The City’s analysis is sound, and we concur with the City Council’s adopted approach at looking at public safety costs in the context of the city’s General Fund. Each one of those percentage points above that established 66% target would equate to more than $10.5 million each fiscal year,” said Michael Nadol, managing partner with Public Financial Management (PMF), a Philadelphia-based financial and investment firm that specializes in state and local government work. “Certainly in (the) private industry most of us contribute to our health care costs, and that’s increasingly true in the public sector. Across Texas, the other major cities all require police and firefighters to contribute.”
Nadol warned Council not to jeopardize San Antonio’s credit rating, the only U.S. city of more than one million people that holds the highest-possible Triple A rating from all three major rating agencies. Council heard how that rating has allowed city staff to repeatedly refinance public debt at favorable interest rates in recent years, driving down the costs of capital improvements at the Henry B. Gonzalez Convention Center and the San Antonio International Airport by tens of millions of dollars.
“Not every city we work with is able to attain a Triple A rating,” Nadol said. “A Triple A rating is hard to achieve, and once lost, it is hard to get back.”
Irving, TX-based actuaries Gabriel Roeder Smith & Company (GRS) reviewed a proposed legislative change to the Fire and Police Pension Fund that would increase cost-of-living benefits for retirees and give the pension board the power now held by City Council to decide when to increase benefits, while also reducing the City’s annual contribution to the pension fund.
Ryan Falls, a GRS actuary, said the $2.5 billion pension fund is 92% funded, unusually sound for a public pension fund, but the proposed changes would prevent the City from fully funding its $230 million in liabilities in seven years, as planned, and extend its annual $38 million contributions to reduce the unfunded liability to 13 years, costing the City an additional $172 million.
“To have a fully funded pension fund within the next 10 years is an enviable position, especially in the state of Texas,” Falls said. Noting that achieving that goal would free up $38 million annually that could be applied to other needs, he added, “You can have conversations now that some of our clients will have to wait 20 years or more to have because you are so close to being fully funded.”
Falls also advised the City to adopt a written funding policy with a “systematic set of procedures used to determine the level of the city’s contributions and document the City’s approach towards benefit modifications.”
A written policy, Falls said, would assure ratings agencies of the City’s long-term policies and practices.
“Really what this City needs is a written funding policy, a road map,” Falls said. “The bonding agencies are not exactly sure where you are going with pension funding. There are a lot of questions out there.”
Jorge Rodriguez, managing director and head of public finance for Coastal Securities of Houston, which has worked extensively with the City for 20 years in managing its credit rating, warned City Council that Moody’s already has assigned a “Negative Outlook” to San Antonio, meaning its credit rating could be downgraded unless it controls public safety spending.
He said San Antonio’s top credit rating was remarkable given the City’s “depressed socioeconomic profile,” and represented recognition of the City’s diversified economy, conservative fiscal management, and a commitment to long-term budgeting and capital spending planning at City Hall.
“For the past 20 years, the City has operated under a self-imposed financial constraint of maintaining and not increasing the ad valorem tax rate,” Rodriguez added. “A decade ago it was 57 cents per $100 of property value. Today it’s 56 cents per $100 value.”
Rodriguez said Moody’s recognized the City’s track record, but has developed “serious concerns” that the City might not be able to control costs going forward.
Click here to access the three third party reports.
The presentations went on for several hours. Afterwards, questions from individual Council members suggested the strong affirmations of City fiscal practices and projections will not end divisions among elected officials. At least four Council members appear ready to support the pension fund changes. As was made evident earlier in the day when the Governance Committee met, five Council members want to vote on withdrawing the City’s lawsuit against the unions over the legality of the contract’s 10-year evergreen clause. The Council is likely to vote Feb. 11 whether to support or oppose the proposed pension fund changes.
“That was very helpful information and I’m sure it will take us awhile to digest it,” said Mayor Ivy Taylor after the briefings. Later, she added, “We heard good news today, that we are ahead of the curve compared to other cities. The invitation continues to be open for negotiating dates. Hopefully, we can get the ball rolling, turn the page and we can all move on with our lives.”
“It’s no secret that I generally support the proposed legislation,” said Councilmember Ray Lopez (D6), who sits on the pension fund board.
“This is something we should take pride in as a city,” said Councilmember Ron Nirenberg (D8) after the briefings. He was the first in the room to express hope that the third-party reviews would settle the matter and result in renewed talks and any doubts about the credibility of city staff. “I think there is high expectations for today, there is hope this will serve as a breakthrough.”
Addressing the proposed pension changes, Nirenberg said he favored paying down the unfunded liabilities as quickly as possible.
“I am wary of messing with success,” he said. “If we do adopt a road map, I would want to see us become fully funded as early as possible. Hopefully, today provides all of us here with some ground to stand on together.”
Councilmember Cris Medina (D7), who authored the memo seeking to withdraw the lawsuit and was not happy Mayor Taylor tabled the issue Wednesday, asked if the City and police union jointly paid for the independent reviews. When told by Sculley that the City paid, Medina asked, “Does the information qualify as third-party independent review?”
Mayor Taylor said union officials have not been responsive to her invitation to participate in the selection process of independent analysts and actuaries, while Helle said after the meeting that the mayor misrepresented their conversations.
“Certainly it was our desire to have reports and data that was respected by both sides,” Mayor Taylor said. “We asked the union to participate, but did not receive input.” PFM, she said, has “credibility with the union.”
Councilmember Mike Gallagher (D10) asked Sculley a single question after the third-party presentations: “What would the loss of (San Antonio’s) Triple A credit rating mean?”
“It would mean higher interest rates,” Sculley replied. “With a Triple A rating we are able to achieve the lowest possible interest rates on debt. … It’s similar to your home mortgage. If you have a high interest rate you are going to have a higher monthly payment with more money going to the interest payment rather than the actual debt.”
She reminded council members that each one had a wish list of essential projects in their district that they want funded. Suffering a downgrade in the City’s credit rating, Sculley said, would leave less money for individual district improvements.
Sculley also said staff is trying to find money to undertake several street projects to make the city safer for pedestrians after several fatalities in 2014.
Councilmember Joe Krier (D9) praised the reputations of the three firms, saying, “The question has been: Has the city been making the right assumptions in calculating the costs of police and fire health care? What I am hearing is that the City has been making the correct assumptions on how to calculate changes in the union contract.”
Krier broke through the numbers by recalling his days as a bachelor several decades ago, noting that when a young woman he was dating told him she had “serious problems” with him, he knew things were about to end badly. That, he said, meant Council should listen closely to Moody’s warning.
“I am delighted that we have a pension plan that is well run and well-funded,” Krier said. “When I look at the comments by the rating agencies in regard to our Triple A rating, I see the words ‘strong management’ repeatedly, ‘conservative management’ repeatedly.”
Councilmember Rey Saldaña (D4) was the last to pose a question and he pressed PFM’s Nadol to assure Council that the work of the firms was truly independent and sufficient to put the disagreements over competing financial assumptions to rest.
“Are we there? Do we have to wait for the next set of assumptions?” Saldaña asked.
“I would be hard pressed to see how the wage costing analysis would come out any different if another third-party was hired,” Nadol replied.
“I think there should be an opportunity for rebuttal by the other side, and the place to do that is at the negotiating table,” Saldaña responded.
Minutes later, the meeting adjourned and he police union’s Helle held an impromptu press conference in the hallway, disputing the reliability of the reports and promising to present his own third-party assessment of the police union’s proposals when the two sides meet at the bargaining table in February.
*Featured/top image: City Council Chambers. Photo by Scott Ball.
Related Stories:
Read all the stories on the City and police union negotiations in the Rivard report archive.
Mayor Tables Union Lawsuit Discussion
Divided Council to Discuss City-Police Union Standoff
Mayor Taylor Blocks Council Move on Unions
Interview: Mayor Taylor on the Police Union, Negotiations, and Her Political Future
Mayor Taylor to Police Union: Let’s Cool it for the Holidays
$14.2 Million Cut From City Budget to Pay for Expired Police, Fire Contracts
All of you that have been trashing the City Council and City Manager Sheryl Sculley should be ashamed of yourselves.
Oh it’s not over yet , that’s just only one independent review!
I’m curious as to who paid the independent review?
Mr Rivard will never answer this question
What is the question, Paul?
Can’t argue with the financial analysis, they must get the PS spending under control.
Just like Chris Christie’s or Rick Perry’s “independent” assessments were accurate. The conversations no doubt went: “so how much do you want us to say it’ll cost?” “Oh, around $70 million.” “No problem. Sign here and we got a deal, heh, heh, heh!” The city is not to be trusted under any circumstances.
One of the reviews: Public Financial Management Group has NEVER sided with the police in any review Not once and have published White Papers against funding of additional jails.
One of the reviewers, Coastal Securities has a long term releationship with City Manager Sculley and the city. It would be like hiring your BFF. This is not an objective review.
Mr Rivard you are so biased in your reporting facts for the city manager. Of course the findings were representative of the city. All 3 of them have a longstanding relationship with the manager. Actually they were like a cheer squad for the manager. There was nothing unbiased in their reports. Kind of like your reporting. Also don’t you find it interesting the insurance actuary was never identified and none of those numbers were revealed.
Robert,
The study that was not talked about was the one that examined healthcare. l would ask why was it not presented? What was presented did not in anyway indicate that the city is in any financial dire straights. The larger discussion has to do with the question as to whether the city will choose to continue to invest in public safety or spend its money elsewhere in the city. Mrs. Sculley has made it clear that she is perfectly happy with police and fire in their current state. Her negotiating team continues to miss an opportunity. Police are asking to keep their healthcare benefits. Why hasn’t their team made the offer to continue benefits and take any cost over runs from wages in any given year of the contract? Problem solved. Perhaps that is too easy. Perhaps it doesn’t fit the current city narrative. As a member of the police negotiating team I look forward to continuing the dialogue with Mr. Walsh and the other city staff.
Bryan and Greg
The unions can continue to try and make this about the City Manager, but from the beginning the collective bargaining to reach a new contract has been about a responsible effort to manage runaway health care costs and get union members to pay health care premiums and other cost all the rest of us pay in this economy. If it were personal, why not run attack campaigns against former Mayor Julián Castro and all the members of City Council who signed on to the City’s position earlier last year? Why not disparage them all, and demand they all be run out of town along with the city manager?
Keeping public safety costs at a fixed percentage of the General Fund is sound fiscal policy. Everything else, all the name calling, all the false suppositions that some of us do not value law enforcement contributions and sacrifices, etc. serves as a distraction from the fundamental financial issues that must be addressed. Trying to disparage the reputation of the three nationally recognized financial services firms is really a stretch. These companies have reputations built over decades. The police union will have no more luck convincing the public these firms are somehow subject to manipulation than they have had insisting the city manager be fired.
I sign my work and invite the pro-union commentators to join Bryan Griffin and do the same.
Robert Rivard
Robert,
I for one have never begrudged Mrs. Sculley for doing her due diligence in regards to managing the city or for how much money she makes for doing it. I have questioned her actions in how she has directed negotiations from the first meeting to where we find ourselves today, but that is a discussion for a later time. I would again point out that the main point of contention in this negotiation is whether as a membership we police wish to take our compensation in healthcare, pay or combination of both. The city’s position is that police should pay for healthcare and they are offering less than average pay increases. I believe my membership is upset because every economic forecast indicates that San Antonio is on the move and growing. Nothing in Wednesday’s presentations disputes that. Why shouldn’t all of the many boats in the City’s floatilla rise in the rolling incoming tide?
Bryan
One option there is to give ground on health care and pension costs and tie future wage increases to General Fund growth with a minimum increase to protect the unions and a ceiling to protect the City. Most of us would welcome secure, reasonable wage growth for all of you in return for elimination of special benefits in the form of non-work related legal fees and non-related tuition reimbursements, etc. Also, sooner than later, pensions have to be tiered for future hires. Pensions have given way to alternative plans in most parts of the economy.
–RR
Robert,
Thank you for the opportunity to address these ideas. I would say in regards to healthcare we walked across the abyss and engaged the city in discussion about premiums and plan change. It is unfortunate that the city has not agreed with our proposals. In regards to pension reform, as you are aware we have no authority to discuss those matters at our table and that must be taken up from the pension board side of the house.
As for tiered employment there is a large huddle that stands in the way of that concept. That hurdle has to do with the question “How do I as a committee member tell the new tier, “Sorry man I voted away you ability to have what I have. I know we arrest the same bad guys but hey man, I got mine.”. As a veteran of the streets I personally will vote against that option every time. As you can see principals make these negotiations difficult for both sides. I do agree however on the idea that our benefits should be tied to growth but not that of the General Fund. You’ll recall that the general fund balance is set by the manager and does not reflect the true growth of the city. We have attempted to insure that our proposals have stayed below the 4 % growth projection that Maria Villagomez stated the city used in their growth projections. On the matter of group legal. The money contributed to that fund is part of the total compensation we has officers get for working for the city. Simply put, it matters not that decades ago we decided to use it for a service versus pay. It still represents a dollar value of compensation. On the question of education reimbursement I feel confident that issue will be settled in a satisfactory manner. Everyone agrees that an educated employee is a well rounded employee. The challenge for the City in coming meetings; if they continue to hold on to their current positions, is to articulate why they believe officers should give back compensation that they have negotiated in past contracts. Their answere can not be “because we say so.” There are a lot of smart people on the City’s side. I know they can do better in communicating.
Apologies to the readers and my high school english teacher for the errors contained in my last post. I have been plauged with an internet outage here at my residence and the print on my phone gets smaller by the day. Your beg your pardon.
Thank you Robert. I think its absurd that the SAPD can’t recognize how pumped up their benefits package is. At least tell me “hey it’s a great deal, I don’t want to lose it” but this attitude that SAPD deserves to continue this benefits deal is beyond me. I hope the city doesn’t give in and I hope the people of San Antonio continue to do their homework when it comes to this issue.
Jennifer, thank you for entering the discussion. We have done exactly what you spoke of with the city negotiators. As a member of the bargaining team I believe that all of the deals presented have tried to keep SAPD COMPETITIVE in the market when it comes to hiring. Our goal through out the negotiations is to maintain benefits that attract viable applicants to our city. There. Is a national shortage of qualified people willing to go into the career of law enforcement. I’m sure as a concerned citizen of San Antonio you would like to see the highest quality of individual become an officer on our department. But, if the city sees fit to spend its money in other areas of the budget, so be it but it will affect police service and as long as that is understood; we on the department will have to work with what we get. Currently, there is a large number of unfilled police officer positions. These positions require a minimum of 12 months to fill. Recruiting was able to qualify less than a third of the number needed due to things like criminal records , drug use, bad finances and driving records. There is no question that things will be changing when it comes to police services in San Antonio, we at SAPOA are merely trying to hold the line and attract the best and the brightness. Again thanks for becoming engaging in the conversation.