City Manager's Office 17555 Peakavenue

R1

All ofthe cities in the County need to implement measures that will control employee costs. As astarting point, each city should determine the percentage of savings required from the total August 26, 2010 compensation package to reach budget stability, and provide choices of wa'gesand benefits in collective bargaining sessions for the unions to choose to achieve that percentage goal. Response: The recommendation has not been implemented but willbe implemented in the future. Inestablishing negotiating parameters, the Cityintends to set dollar savings targets which could calculate as apercent.

R2

Cities should not increase salaries and wages that are not supported by planned revenue increases. Cities should tie COLAincreases to clear indicators and retain the ability to adjust or withhold based on current economic data. Response: The recommendation has been implemented. Morgan Hillgives wage increases consistent with multi-year budget projections.

R3

Cities should negotiate step progressions from the current three and ahalf years to seven years. Employees should not receive COLAincreases while in step progression. of 14 August 26, 2010 Response: The recommendation has not vet been implemented but the Citvintends to imolement durina future labor neaotiations. The Cityof Morgan Hill'ssixstep progression isbased on afive year process, not the current three and ahalf years discussed in this recommendation. Aspart offuture negotiations, the Cityplans to discuss the issue of step increases with its employee associations. Thismay include narrowing salary ranges and tying step increases to performance.

R4

Cities should negotiate that employees assume some of these increased costs for their medical benefits. To contain medical costs cities should consider the following: A. Split monthly premiums between the city and the employee and increase the employee's share, if already cost splitting, and remove any employee caps. Response: The recommendation reauires further analvsis. The Cityagrees conceptually that employer paid medical expenses need to be reduced but the method in which to accomplish that objective willbe evaluated further prior to the City's next formal negotiation process with the City's three employee associations. Duringfuture negotiations with the employee associations in2013, the Citywill negotiate in good faith to reduce City-paid health care cost. The CityCouncilhas already taken action to amend the City's Sustainable Budget Principles on October 7, 2009 to add thefollowing statement indicating future policy direction: "Toreduce the rate of increase inlabor costs, the Citywillengage ingood-faith negotiations with bargaining units to make cost-saving change in retirement plans and to reduce the City-paid share of health benefits". B. Establish reasonable co-pays for doctors' visits, prescription drugs, and in-patient and out-patient hospital care. Response: The recommendation reauires further analvsis. The Cityagrees conceptually that employer paid medical expenses need to be reduced but the method in which to accomplish that objective willbe evaluated further prior to the Page3of 14 August 26, 2010 City's next formal negotiation process with the City's three employee associations. Duringfuture negotiations with the employee associations in2013, the Citywill negotiate in good faith to reduce City-paid health care cost. The City Councilhas already taken action to amend the City'sSustainable Budget Principles on October 7, 2009 to add the following statement indicating future policy direction: "Toreduce the rate of increase inlabor costs, the Citywillengage ingood-faith negotiations with bargaining units to make cost-saving change inretirement plans and to reduce the City-paid share of health benefits". C. Prohibit an employee from being covered by both city-provided medical benefits and asadependent of another City employee. Response: The recommendation willnot be implemented because it isnot warranted orreasonable. Thisrecommendation isnot relevant to the Cityof Morgan Hillsince it isalready prohibited through CalPERSPEHMCArules (CaIPERS,Health Benefits Program: PublicAgency Procedure Manual, -01) D. Introduce a new lower premium, high deductible medical plan. Response: The recommendation reauires further analvsis. The Cityagrees conceptually that employer paid medical expenses need to be reduced but the method in which to accomplish that objective willbe evaluated further prior to the City's next formal negotiation process with the City's three employee associations. Duringfuture negotiations with the employee associations in2013, the Citywill negotiate ingood faith to reduce City-paid health care cost. The City Councilhas already taken action to amend the City'sSustainable Budget Principles on October 7, 2009 to add the following statement indicating future policy direction: "Toreduce the rate of increase inlabor costs, the Citywillengage ingood-faith negotiations with bargaining units to make cost-saving change inretirement plans and to re-ducethe City-paid share of health benefits".

R6a

Cities should renegotiate with the bargaining units to 1)reduce vacation time; 2) reduce the number of holidays and/or personal days; 3) cap sick leave and eliminate the practice of converting accumulated sick leave to cashor adding into their years of service for inclusion in their retirement benefit. Response: The recommendation reauires further analvsis. As with allitems provided for in the City's Memorandum of Understanding (MOU) with employee associations, the City Page8of 14 August 26, 2010 willreview the various leave policies and negotiate ingood faith any warranted changes with the respective employee association(s) at that time. The Cityhas three recognized employee associations and the contracts expire inJune 2013.

R6b

Cities should negotiate to substitute paid days off for unpaid days instead of imposing furloughs. For example, reduce paid holidays to major holidays only, consistent with private industry; and convert minor holidays to unpaid. Therefore, the public isnot impacted by fewer services caused by furloughs, and the city savesthe employee costs. Resoonse: The recommendation willnot be imolemented because it isnot warranted or reasonable. The Cityof Morgan Hilldoes not currently impose, nor isit considering unpaid furloughs as a means to reduce expenses so this recommendation isnot relevant.

R7a

Cities should research competitive hiring practices and alter the approach to determine fair wages and benefits for each city by using public and private sector data. Response: The recommendation reauires further analvsis. Forthose classifications that have comparable counterparts in the private sector, total compensation data analysis would be a useful tool.

R7b

Cities should renegotiate salaries and wages using valid market comparisons and not only the current wage index. Cities should utilize more market-oriented compensation practices sothat salaries can adjust ascompetition for labor changes. Cities should reduce entry-level compensation for positions for which there are many qualified applicants. Response: The recommendation has been implemented. The City uses market comparisons asthe primary factor in negotiating wage agreements. Due to limited resources, many classifications in the City are below the comparable market average.

R9

Cities should analyze the functions performed by alljob classifications and make adjustments in the work force. Consolidate functions within the same group or asimilar group. Reassign appropriate work to lower paid job classifications. Eliminate unnecessary functions. Response: Thisrecommendation has been partially implemented and willcontinue to be implemented as priorities and obiectives of the Citychanae. The Cityiscontinually evaluating operations, but particularly during the past two fiscal year budget processes in which the Cityhas reduced staffing overall by 15%, the CityCouncilhas evaluated service levels with the first three principles of the City'sSustainable Budget Principles, which are 1.) CriticalServices should be maintained to the greatest extent possible; 2.) Resources should be allocated to the highest priority services; and 3.) No city services should be exempt from evaluation. of 14 August 26, 2010 Specifically, the Cityhas eliminated two department head level executive positions through consolidation and iscurrently evaluating whether to collapse three department head level executive positions into one, thus reducing the City's Executive Management Team from 11 to 7,or36%.

R11

Cities should consider holding well-publicized public hearings about the cities' goals of negotiations before negotiations begin, and again at the end of negotiations to report to citizens clearly what changes have been made in contracts. Response: The recommendation has not vet been implemented but the Citvintends to implement durina future neaotiations. The Cityof Morgan Hill,along with allcities, holds publicly noticed meetings allyear long. Meeting agendas and minutes are posted on the web and meetings are now webcast. Thespecifics o/any contract negotiated are posted on our website inadvance of anyfinal Councilaction. Thepublic has ample opportunities to weigh inon issues of concern at any given meeting. One of the many public discussions of a city's budget isaparticularly good time for residents to express any general concerns about labor costs. However, the Cityissupportive of additional public disclosure and issupportive of the recommendation.

R12a

City council members and mayors should become better informed about the fiscal realities in their cities, long-term costs and commitments, and be cognizant of potential issues in labor agreements. Response: The recommendation has been implemented. The Councilhas numerous meetings devoted to the budget and cost implications of labor negotiations.

R12b

City councils and mayors should direct city administrators to (re)negotiate collective bargaining agreements that reverse the escalation of employee costs through concessions, cost sharing, and asecond tier for new employees. Response: The recommendation has been implemented. The Cityand the three labor associations have renegotiated MOUs ineach of the last two fiscal years. InFY10, all labor groups "opened up" their MOUs with the Cityby renegotiating agreed-to and binding wage increases. InFY11, allgroups renegotiated their MOUs with the Cityby forgoing any FY11salary increases including agreed-to and binding wage increases as well as scheduled step increases.

R12c

City councils and mayors should meet with the bargaining units to clearly outline the cities' financial health and show how employee costs are impacting the budget Response: The recommendation willnot be implemented because it isnot warranted or isnot reasonable. The CityCouncilisthe policy-setting body and appoints the City Manager to administer the operations of the Cityand manage allpersonnel matters. It isnot appropriate for Councilto meet directly with bargaining units. of 14 August 26, 2010

R12d

City councils and mayors should inform citizens of their plans for controlling unsustainable employee costs and remove politics from the equation. Response: The recommendation hasbeen implemented. The City of Morgan Hill has done extensive outreach over the past two years to discuss fiscal issueswith the community, to get input and to share recommended budget correction strategies, including efforts to reduce labor costs. Please feel free to contact me at (408) 779-7271 if you seek additional information or have any questions regarding this response to the SCCCGJReport. Sincerely, ~ J.Edward Tewes City Manager cc: Mayor & Members of the City Council Page14of 14