By Jason KUROSU
The Glendale City Council unanimously approved unblending healthcare rates for current and former city employees, a change that the city says will help avoid damaging effects to Glendale’s budget, but has former employees upset at a decision they say will greatly increase their medical costs.
The city’s long practice of blended healthcare costs created implied subsidies, whereby money from active employees’ premiums was used to subsidize the premiums of retirees. According to city officials, this practice has created an unfunded Other Postemployment Benefits (OPEB) liability that has grown from $100 million in 2009 to $229 million at present.
The unblending will come into effect beginning in 2017. Blended rates will continue until Jun. 1, 2016, followed by six months of subsidies paid to retirees. Those with total household incomes exceeding $100,000 per year will receive subsidies of up to $200 per month and those with incomes less than $100,000 will receive $300 per month.
The OPEB liability impact became more pronounced with recent requirements from the Governmental Accounting Standards Board, which sets accounting principles generally followed by state and municipal entities such as the city of Glendale.
The recent GASB 75 requirement states the city must book the unfunded OPEB liability on its balance sheets starting in fiscal year 2017-18. GASB statements are not law, but city officials say that not following GASB pronouncements can impair cities’ abilities to secure grant money to fund capital projects and provide services.
Glendale receives $50 million in grants per year, according to a city report.
City Manager Scott Ochoa said the city would have to utilize 20.2% of the city’s payroll in order to fund the liability, which would figure to around $25 million per year.
A number of retired, former city employees spoke in objection to the unblending during the council’s Oct. 6 meeting, with the main point of contention being whether the city had pledged to maintain blended rates in perpetuity or whether keeping the rates blended was merely a matter of practice.
City officials held that because keeping blended rates was never committed in writing, that it was unfair to expect the practice to continue.
“The blending was never included in any kind of MOU or resolution and it was never offered or guaranteed as a lifetime benefit in a way that is binding upon the city,” Ochoa said.
Jack Hoffman, former Personnel & Employee Relations director for Glendale, said that though maintaining blended rates wasn’t written in a contract or MOU, keeping the blended rates was “a vested right in the eyes of all the employees.”
Hoffman also said time should be taken to explore other alternatives.
Mayor Ara Najarian took exception to claims that the city council was knowingly ignoring promises that were made to maintain blended rates.
“It has been said time and time again that these benefits were promised to the employees. The labor negotiator, the city manager, and the assistant city manager can’t promise anything. Those labor agreements come before the city council on a sheet of paper and we vote on what we see on it, not to have it come back later and say ‘oh, no, what we gave you, city council, wasn’t everything we promised the employees,’” Najarian said.
Other objections from retirees included concerns as to whether their doctors would be covered in the health plans offered by the city, while others were angry that they had not received notice of the unblending until August.
Mark Distaso, retired police captain and vice president of the Acton-Agua Dulce School District, said that the unblending would cost retirees like himself anywhere from $6,000 to $12,000 extra in healthcare costs.
Distaso said his school district dealt with OPEB liability issues and addressed the issue by pooling resources with other entities.
“Apparently there has been a change in culture at the City of Glendale that has led to this decision,” Distaso said in an email. “This is not the first time that the City, or any local government entity for that matter, has faced fiscal issues. We have always been able to resolve them without placing an undue burden on any given employee group – to include retirees. Based on the city manager’s comments, it is clear that without a bargaining ability the retirees are the weak link to resolving their issue – an issue that is somewhat artificially created since GASB does not require that financial liabilities be funded – only that they are recorded. The lack of desire of the City to examine other options sends a clear message to past and current employees about their value.”
Councilmembers were unified in saying that funding the liability was a top priority.
“We’re on a path with the blended rates that is unsustainable,” Najarian said. “We’ve been through the numbers. There’s no other place we can cut in this budget. There’s no other way we can get this money.”
Councilmember Laura Friedman said that it was a complex issue that the council was weighing, with several unknowns, including whether or not healthcare costs would increase as astronomically as retirees fear.
“Even if we wait a year, you’re still not going to have all those answers unless you try all those plans and let us know,” Friedman said. “I’ve heard a lot of people asking for time because they’re really nervous about going into the unknown, but I also can’t sit here and let the city incur a $200 million liability if there really are options out there that work for people.”
Councilmembers also felt that the 14-month period of blended rates and subsidies provided an adequate period of time for retirees to find plans that fit their situations.
Councilmember Vartan Gharpetian said he felt the city was being “more than fair” with its 14-month period of blended rates and subsidies, allowing retirees “to adjust and hopefully find a plan that works with your needs.”
Councilmember Zareh Sinanyan said that not to address the liability issue would be akin to kicking the can down the road.
“Why should we do anything about it? Let’s let the next council inherit the problem, but I think that would be irresponsible,” said Sinanyan who also felt the 14-month grace period provided time “to help the employees without breaking the bank, without breaching our fiduciary duties to the entire population of the city of Glendale.”
Councilmember Paula Devine added that “unblending will provide the greatest positive impact to our long-term municipal sustainability.”
“I am responsible as an elected official to ensure the fiscal sustainability of this city,” said Devine, who said that many other cities facing OPEB liability issues were in danger of going bankrupt.
“I think I owe it to the residents of this community to make sure that does not happen in our city, not while I’m sitting here.”