Response to the 2010-2011 Santa Clara County Civil Grand Jury Report, "Rehiring*

R1

If the County or the City/Town of Campbell, Cupertino, Gilroy, Los Altos, Los Altos Hills, Los Gatos, Monte Sereno, Morgan Hill, Milpitas, Mountain View, Palo Alto, San Jose, Santa Clara, 1 Saratoga, Sunnyvale desire to end the practice of rehiring pensioners, they should make that official by means of a policy decision. <b>RESPONSE:</b> The City agrees with this finding. As the data in Table 1 of the Grand Jury's report shows, the City has a high percentage of rehired pensioners relative to its number of full time employee total (5.7%) and relative to other jurisdictions in Santa Clara County. Since reporting this data to the Grand Jury, the City has decreased this percentage to 4%. The City is actively recruiting to fill forty-five positions and will continue to decrease the temporary hiring of retirees during this fiscal year. Benefit and pension reform measures that the City has recently implemented are believed to be primary factors motivating recent retirements and position vacancies. It is important to recognize that the City had a relatively high number of "baby boomers" in its workforce prior to the Great Recession. In addition, over the past four years, the City has implemented benefit changes causing an increase in the number of anticipated retirements. For example, the City implemented an employee contribution to health care premiums of 10% for non-safety employee groups and higher employee contributions to the CalPERS employee share of retirement. As a result, numerous City employees retired before the effective dates of the benefit changes. In addition, the City implemented a second tier retirement plan for its new non- safety employees. These benefit and pension changes were not similarly instituted in the majority of other public agencies in Santa Clara County which may account for the higher number of retirements that the City of Palo Alto experienced in comparison to the other cities. With these recent benefit and pension changes, the City experienced a significant loss of workers with considerable expertise and institutional knowledge. While the City did evaluate the need for succession planning several years ago, the recession significantly impacted this effort and the City was forced to reduce positions instead of facilitating training plans. The loss of key personnel at all levels of the organization prompted the City to rehire employees such as: wastewater treatment supervisors and workers, a Deputy Fire Chief, Police Dispatchers and Evidence Technicians, Planning and Public Works managers, and administrative staff such as the Managers of Accounting, Real Estate, and Human Resources. By rehiring such personnel the City fills critical needs at lower costs than fully benefitted employees, and provides the flexibility to reorganize to gain efficiencies, train new workers, and maintain services. The City is in a critical transition period where there are key vacancies, which has led to the need to temporarily hire and/or rehire retirees for operational needs. Once the City has filled its key vacancies and gained the operational efficiencies it seeks, it will consider a policy statement in this area.

R3

The fifteen towns and cities—Campbell, Cupertino...Palo Alto...Sunnyvale—and the County should continue to pursue a higher retirement age with its public sector unions and associations. The fifteen towns and cities-Campbell, Cupertino, Gilroy, Los Altos, Los Altos Hills, Los Gatos, Monte Sereno, Morgan Hill, Milpitas, Mountain View, Palo Alto, San Jose, Santa Clara, Saratoga, Sunnyvale-and the County should continue to pursue a higher retirement age with its public sector unions and associations. RESPONSE The City of Palo Alto concurs with Recommendation 3. The City of Palo Alto is the first city in Santa Clara County to implement a second tier retirement plan for new non-safety employees which is 2% at 60 (versus 2.7 percent at 55). The City is currently in contract negotiations with all of its public safety employees, and is actively pursuing a similar second tier for these groups by proposing plans that would increase the retirement age to 55 from 50. These negotiations have not concluded, but the City is working towards implementing a two tier plan for public safety as well. It is important to note that during employee contract negotiations, local jurisdictions have had to react to employee compensation proposals from labor unions when the State and other jurisdictions raise salary and benefit levels for employees. This is a reality that occurs, for example, when there is competition for specific employee skills and is an issue to be considered in the public compensation market. At the time the City adopted retirement plans with lower retirement ages, there was no intent on the City's part to trigger the hiring of retirees. As the Grand Jury says, this consequence was "inadvertent." 3