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HomeMy WebLinkAboutMinutes - Minutes - City Council - Meeting Date: 5/6/2003 * PLEASE NOTE: Since the Glendale City Council does not take formal action at the Workshops, Workshop minutes are not approved by the City Council. MINUTES CITY OF GLENDALE CITY COUNCIL WORKSHOP May 6, 2003 1:30 p.m. PRESENT: Mayor Elaine M. Scruggs, Vice Mayor Thomas R. Eggleston, and Councilmembers Joyce V. Clark, Steven E. Frate, David M. Goulet, and Manuel D. Martinez ABSENT: Councilmember H. Phillip Lieberman ALSO PRESENT: Ed Beasley, City Manager; Pam Kavanaugh, Assistant City Manager; Rick Flaaen, City Attorney; and Pamela Hanna, City Clerk 1. TOTAL COMPENSATION RECOMMENDATIONS FOR FY 2003-04 CITY STAFF PRESENTING THIS ITEM: Mr. Art Lynch, Chief Financial Officer; La Verne Parker-Diggs, Human Resources Director and Ms. Lupe Sierra, Human Resources Manager On December 17, 2002, Human Resources staff met with the Mayor and City Council to present a total compensation strategy. Today's recommendations are consistent with this strategy and will allow the Council to review all recommendations for changes in total compensation being recommended for FY 2003-04. Human Resources has worked with the Employee Health Care Benefits Task Force on issues related to employee insurance issues. Recommendations include the following: 1. Employee Benefits: No change in costs for employees for dental, vision, Accidental Death and Dismemberment (AD&D) or life insurance. Medical insurance recommendations include the following: • No change in carrier (Blue Cross Blue Shield) or in plans offered (PPO and HMO). • No change in co-pays, deductibles, etc. except for prescriptions as shown below. • Blue Cross Blue Shield will provide prescription services. • Change in prescription costs from current costs of $10 (generic), $15 (brand name) and $25 (premium) to $7, $20 and $40 respectively. 1 • Increase in mail order program from one co-pay for 3 months supply to two co-pays.To fund the higher costs of the medical plan for next year, each employee will be required to pay $25 per month for their employee coverage. These payments will be pretax and employees who do not wish coverage will be allowed to opt out. • Retirees will also be required to pay $25 per month in addition to their current charges. • The plan year for insurance and flexible spending account program will be changed to July 1-June 30 for FY2003-04 and subsequent years. 2. Workers Compensation: Following a rebidding of third party administration for our self-funded plan, we are recommending that Matrix Absence Management, Inc. be awarded the contract as our new administrator. 3. Intangibles: Information on changes in education assistance (tuition reimbursement) and wellness programs will be provided. 4. Employee Pay: Recommend 4% merit increase for eligible employees (those below the maximum of their pay range). This is consistent with planned increases in Valley cities. During the Council Workshop on December 17, 2002, a total compensation strategy was discussed and the Mayor and Council were informed that all total compensation recommendations, including pay and benefits, would be presented together during the budget process in Spring 2003. The Employee Health Care Benefits Task Force met on March 21, 2003 to review the options for mitigating cost increases to the City's employee benefit program. Since that time, Human Resources staff has worked with the Chief Financial Officer to review the recommendations of the Employee Health Care Task Force and negotiate the best and final proposals of our medical insurance vendor finalists. The Segal Company has provided consulting service on our rebidding of medical, vision, Accidental Death and Dismemberment (AD&D) and life insurance. Funds for all employee benefits in the amount of $10,014,860 have been placed in the FY 2003-04 budget. Additional revenues from a $25 per month employee charge for medical coverage, as well as excess funds in the Employee Benefits Internal Service Fund will allow the funding of all increases in benefits costs for FY 2003-2004. There are no requirements for additional staff. The recommendation was to review and provide staff direction. Benefits/Workers Compensation Councilmember Martinez asked for an example of specialty pay and assignment pay. Mr. Ken Wallace, Human Resources Compensation Manager, identified bi-lingual pay and TOU pay as specialty pay. He noted assignment pay is given when an employee performs higher level duties on a temporary basis. 2 Councilmemer Frate asked for an explanation of stability pay. Wallace explained stability pay was initiated to maintain a stable employee base. It was discontinued years ago, only 70% of the present employees receive stability pay. In response to Councilmember Clark's question, Mr. Beasley explained bonus pay could be given, for example, to a group that successfully completed a special project while still maintaining their current duties. He said the model has not yet been adopted so, to date, bonus pay has been used sparingly. Councilmember Goulet pointed out the city will have several special projects in the future. He asked if bonus pay is considered an intangible benefit. Mr. Wallace stated intangible benefits are usually not associated with money paid to an employee. Mayor Scruggs asked if "broadbanding" done in the IS Department is categorized as a group bonus. Mr. Wallace explained broadbanding is a market based approach to pay that has a very limited number of very broad pay ranges. Mayor Scruggs noted bonuses were paid in 2001 to employees working on the arena project. Mr. Beasley said they hope to develop a better definition of the criteria for bonuses, noting, up to this point, bonuses were awarded at the City Manager's discretion. Mayor Scruggs asked how much money is set aside for bonuses and where in the budget is that money located. Dr. Parker-Diggs pointed out the model is still being finalized. She said they will go back to see what bonuses were provided in the past and what it cost to provide those bonuses. She said they will then use that information to project future costs and make a recommendation to Council. Mayor Scruggs asked if the proposed budget includes any funds for bonuses. Mr. Beasley responded no, stating, however, Council has the option to set funds aside if it so desires. Councilmember Clark asked where did the money for the bonuses on the Arena project come from. Mr. Beasley clarified there were not a lot of bonuses given out during the past fiscal year with regard to the Arena. He offered to provide information concerning the bonuses that have been given out over the past five years. Ms. Aguilar said they do not typically have a line item for bonus pay. She explained the department has to find funding within their budget, noting salary savings have been the primary funding source for bonuses in the past. In response to Mayor Scruggs' question, Ms. Aguilar explained salary savings will be achieved through the current hiring freeze. She agreed the hiring freeze could be lifted if a position is deemed critical to the city, which would, in effect, eliminate that portion of the salary savings. Councilmember Clark asked what positions, other than public safety positions, would be considered critical to the city. Ms. Aguilar explained a Position Review Committee, made up of the City Manager, Deputy City Managers, Finance Director, City Auditor, Public Safety Chiefs and the Budget Director, reviews each position as it comes forward for recruitment. She stated there are no documented or specific criteria for determining which positions are critical. 3 In response to Councilmember Goulet's question, Ms. Aguilar said a department would be precluded from offering bonuses if funding cannot be identified. She acknowledged that a transfer of funds from another area could be used to allow bonuses to be paid. Councilmember Martinez asked if the City Manager ultimately makes the decision as to whether a position will be filled. Ms. Kavanaugh explained a department fills out an application, which is then reviewed by the Position Review Committee. She said the committee then determines whether the position is critical by evaluating the impact of not filling the position would have on the department and/or public. She said the committee makes a recommendation to her as to whether a position should be filled, however, it is ultimately her decision. Councilmember Martinez asked where will the salary savings identified in the proposed budget go. Ms. Aguilar explained the City Manager has adopted a policy that prohibits the use of those funds without his prior approval. Mayor Scruggs explained the Council was previously told that the budget situation is so tight that revenues for next year are expected to exceed expenses by only $800,000. She said the $1.1 million in salary savings will allow the city to manage in spite of the limited budget. She stated, however, a position can be filled if it is deemed critical to the department. Mayor Scruggs asked if some of the 33 positions being held are expected to be filled after a specific period of time. Ms. Kavanaugh said some positions may be held until another alternative can be found, however, they do not have 33 specifically earmarked positions. Ms. Aguilar stated they are on target for meeting the savings projection for the current year. She explained $1.1 million is a very conservative number, noting it does not assume all 33 positions will be held for the entire year. Ms. Aguilar confirmed for Vice Mayor Eggleston that the positions are still in the budget and that the hiring freeze is a temporary measure. Ms. Sierra continued staffs presentation, providing a brief history of the employee benefit program. She explained the current health plan year runs from May 1 to April 30 of the following year. She said the city's Flexible Spending Account Program tracks with the health plan year and enables employees to set aside pre-tax dollars to pay for qualified out-of-pocket expenses. She said an Employee Benefit Internal Service Fund was established three years ago for purpose of retaining any premiums collected from employees and the city that were not used to pay administrative fees and claims. She explained the funds will be used in future years to stabilize rate increases. Ms. Sierra stated the Employee Health Care Task Force and Total Compensation Task Force both worked on the benefits renewal process. She explained the rebidding process is done every five years in compliance with the City's procurement rules. She said the process also helps gauge how well the city's programs are performing from a business perspective. She said they will be recommending the health plan year be changed to July 1 through June 30, noting current vendors are willing to extend the 4 current plan year with the same benefits and costs to enable the change. She explained a plan year that begins July 1 was found to be the most cost-effective and would coincide with the city's fiscal year. She said a July 1 start date would also enable the city to notify plan participants of changes and hold open enrollment during June. Ms. Sierra reviewed medical trends for 2003, noting the City of Glendale's healthcare program increased 11.5 percent as compared to a 14.4 percent increase nationwide for programs that offer prescription coverage. She noted prescription trends have increased 19.5 percent for retail drug stores and 18.9 percent for mail order drug programs. She said medical trends for other Arizona cities, including Mesa, Tempe, Tucson, Phoenix and Scottsdale, show rate increases that are considerably higher than those proposed by the City of Glendale. She said, unfortunately, rate increases are expected to continue through the next decade. She noted some cities are already charging employees for a portion of their premium. With regard to the medical plan, Ms. Sierra stated they recommend: 1) Blue Cross Blue Shield remain the city's vendor; 2) the current three-tier prescription cost benefit be changed to $7 (generic), $20 (brand name) and $40 (premium); 3) employees pay two co-pays for a three month's supply through the mail order program; 4) the city bring prescription services back into the Blue Cross Blue Shield program; 5) all employees/retirees contribute $25 per month toward their premium; and 6) no increase in dependent coverage costs. Councilmember Clark expressed her opinion an employee's contribution towards their premium should be proportional to their salary or, in the case of retirees, their fixed income. Ms. Sierra stated they will take Councilmember Clark's suggestion under advisement for next year. She noted the $25 per month cost equates to $12.50 per pay period and is taken on a pre-tax basis, therefore, most employees will not see the full $12.50 reduction. In response to Vice Mayor Eggleston's question, Ms. Sierra explained retirees are able to keep health benefits and participate in the same programs in which active employees participate. She said retirees pay their own premiums, minus the subsidy they get from their retirement program. She noted retirees under 65 years of age receive a break on dependent coverage. Councilmember Frate asked how they communicate with retirees. Ms. Sierra said retirees are sent all newsletters and notices sent to employees. She stated retirees are very good about communicating with the city. Councilmember Frate asked if a retiree served on the Benefits Committee. Ms. Sierra said, while they do not currently have a retiree on the Benefits Committee, several have attended their focus group meetings and a retiree has served on the Committee in the past. She explained Human Resources sets up a billing program for retirees based on the various programs they have elected to continue. She said they then subtract out the subsidy the state pays and bill the retiree for the difference on a monthly or quarterly basis. She stated all employees and retirees are free to withdraw from the city's health plan program. 5 Vice Mayor Eggleston asked about the state's subsidy. Ms. Sierra explained the state pays a subsidy on the retirees behalf based on their number of years of service. She noted the subsidy is capped at a maximum of 10 years of service. She said the subsidy totals approximately $150 per month, however, both the cost and the subsidy reduce somewhat once a retiree turns 65 and Medicare becomes primary. Councilmember Clark asked how many active and retired employees does the city currently have in the health care program. Ms. Sierra stated there are about 1,680 active employees and 270 retirees. Councilmember Martinez asked if the $25.00 employee contribution is part of the $1.5 million savings identified by the Committee. Ms. Sierra responded no. In response to Mayor Scruggs's question, Mr. Lynch explained the $1.5 million relates to the overall negotiations as compared to the budget amount. He said the budget amount for total health care costs totaled $14.2 million, however, the negotiated amount totaled $12 million. He said the General Fund component of the difference equals about $1.4 million. He stated administrative costs were also reduced from $1.9 million to $1.6 million. Mayor Scruggs pointed out some private companies pass along a percentage of the premium cost to retirees. She asked if the city passes along any percentage of the real cost to retirees. Ms. Sierra explained the city's program is comprised of an active employee group and a retired employee group. She said the claims of both groups are blended together to determine what level of premium needs to be charged in order to sustain the projected claims and administrative costs. Councilmember Clark asked how the plan's structure would change if people choose to opt out. Ms. Sierra said studies show that only two to three percent of participants opt out of a program when asked to make reasonable contributions towards their premiums. She said a two or three percent loss of participants would not significantly change the program's cost projections. Ms. Sierra continued her presentation reviewing recommendations on rebidding of life and vision insurance. She said they are recommending the city change to Sun Life Insurance as the vendor for its Life and Accidental Death and Dismemberment insurance. She said they are not recommending any change in employee cost or reduction in benefits. She noted the city pays 100 percent of all employee's basic Life and AD&D insurance, in an amount equal to their annual salary, rounded off to the nearest thousand, plus $1,000. She said the bid will result in a savings of $62,367 per year and the vendor has offered a three year rate guarantee. With regard to the Vision program, she said they recommend remaining with Vision Service Plan (VSP). She said they are not recommending any changes in employee cost or a reduction in benefits. She said the vendor has reduced their rates slightly, resulting in a savings of 6 $9,678 per year, and have offered a three year rate guarantee. She noted Vision is an optional benefit. Ms. Sierra stated the Committee is not recommending any changes to the city's Dental Plan. She explained last year the city decided to self-fund the PPO program through United Concordia, reporting the claims experience has been very favorable and the city, to date, has saved over $100,000. She said the Committee is also not recommending any changes in vendor or administrative fees with regard to the city's Flexible Spending Accounts. Ms. Sierra said, through directed negotiations by the City Manager, Chief Financial Officer and Human Resources, Blue Cross Blue Shield reduced their initial bid by 17.7 percent for a savings of $335,649. She said the new negotiated amount is 11.9 percent below fixed costs for the current plan year and year two administrative cost and fixed cost increases have been capped at 3.4 percent. Mayor Scruggs asked when the negotiations were concluded. Ms. Sierra answered April 21. Councilmember Frate asked, historically, what percentage have administrative and fixed costs increased yearly. Dr. Parker-Diggs said the vendor's original proposal included a 13 percent increase in administrative and fixed costs. Ms. Sierra said Blue Cross Blue Shield has traditionally increased their administrative fees 13 to 14 percent every year. Ms. Sierra said, despite the negotiated reduction in administrative and fixed costs, the impact of medical inflation on actual claims will result in an overall increase in medical insurance. She said the $563,000 collected through the $25 monthly employee contributions will cover the major portion of the anticipated increase in medical claims. She said the Employee Benefits Internal Service Fund could be used if claim costs are ultimately higher than anticipated. Councilmember Clark asked why the Employee Benefits Internal Service Fund was not used to help offset the $25 employee contribution. Ms. Sierra explained it is important to preserve the fund in case current trends continue and the budget becomes even tighter in future years. She said employees indicated at focus group meetings held throughout the year that they would be willing to invest some of their own funds to maintain the high quality program offered by the city. Councilmember Clark asked if the employees were aware of the Employee Benefits Internal Service Fund when the issue was discussed. Ms. Sierra responded yes. Councilmember Goulet asked if there is a cap on how much of the Employee Benefits Internal Service Fund can be taken. Ms. Sierra said there is no established limit on what can be withdrawn from the account at this time. Councilmember Goulet asked how the fund would be replenished. Ms. Sierra said it would be replenished in the 7 same manner it was initially funded, through unused premiums. She said that it took three years to save the 2 million. Vice Mayor Eggleston asked if the Employee Benefits Internal Service Fund is similar in theory to the Risk Management Fund. Ms. Sierra responded yes. With regard to Workers Compensation, Ms. Sierra said the Committee is recommending the city select Matrix Absence Management, Inc. as its third party administrator. She said the new administrator's projected average annual cost over five years totals $56,621, as compared to the annual cost for last year of$61,204. Intangibles Dr. Parker-Diggs said they are recommending several changes to the city's Employee Development Program, specifically with regard to the Tuition Reimbursement Program. She said, so as not to disrupt degree programs in which employees may already be enrolled, the recommended changes would not impact employees who have participated in the program since July 2001. She said they are recommending only full- time employees with at least one year of service be eligible for participation in the program and that only classes directly related to an employee's position be reimbursed. She said they are further recommending that tuition be reimbursed at the state school rate and that reimbursement be limited to $1,000 per employee, per fiscal year. She noted the cost of books, supplies and fees would not be eligible for reimbursement. In response to Councilmember Martinez's question, Dr. Parker-Diggs said employees would still be able to complete a degree program, however, employees would no longer be reimbursed for classes they take simply because of an interest in the subject matter unless the class is directly related to their position. Dr. Parker-Diggs said they are also recommending changes to the Wellness Program, including: 1) the use of occupational nurses to provide wellness services; 2) reductions in program costs; and 3) partnering with other agencies to present various programs. She said the changes will allow the city to continue to offer wellness related services, while reducing the cost to the city and avoiding negative impacts on employees. Councilmember Clark said she is troubled by the $2 million set aside in the Employee Benefits Internal Service Fund. She pointed out just under $1.5 million would still be left to cover unforeseen cost increases if the funds were used to offset the $25 employee contribution. Ms. Sierra agreed. Mayor Scruggs asked Councilmember Clark if she would make it a permanent use of the Fund or if the $25 per month contributions would be deferred only for this year. Councilmember Clark suggested trying it for one year to see if the fund is able to recoup the funds. Employee Compensation 8 Dr. Parker-Diggs said a review of other valley cities revealed none were giving cost of living adjustments, but that most were funding merit increases. She noted Arizona State Retirement System members face a 3.2 percent increase in their contribution. She said the Committee is recommending a four percent merit increase for eligible employees and that the increase be funded from funds budgeted for benefits increases that were saved through negotiations. She noted 32 percent of employees are at the top of their salary range and, therefore, would not be eligible for the merit increases. In response to Councilmember Goulet's question, Dr. Parker-Diggs offered to find out what percentage of employees would reach their maximum salary if given a four percent merit increase. Councilmember Goulet asked if it is a best practice policy to give a maximum increase to all employees across the board rather than merit increases that are truly reflective of an employee's performance. Dr. Parker-Diggs explained employees have to meet certain criteria on the performance system in order to receive an increase. Mr. Beasley stated the Mayor and Council decide on COLA and merit increases, however, the system does not allow for tiered increases based on performance. He said they will be looking at that aspect of the system in the future. Dr. Parker-Diggs noted they are in the process of developing a performance system that is based solely on performance. She said they are currently piloting the system in two departments. Councilmember Clark asked what is the total amount of the city's ASRS contribution. Mayor Scruggs stated the increase is slightly more than $2 million. Councilmember Clark pointed out that, in addition to merit increases, the city will cover a $2 million increase in ASRS contributions. Dr. Parker-Diggs agreed. In response to Councilmember Martinez's question, Dr. Parker-Diggs clarified that all employees who meet or exceed the standards will receive a four percent increase, but those that do not meet the standard will not receive any increase. Councilmember Frate asked if part-time employees are eligible for the merit increase. Dr. Parker-Diggs responded yes, explaining they would receive a pro-rated amount based on the number of hours they work. Councilmember Frate asked if a person who is less than four percent below their maximum salary would still receive the four percent increase. Dr. Parker-Diggs explained only those eligible would receive a four percent increase, acknowledging some employees would exceed their salary range and, therefore, would not be eligible for the full four percent. Mayor Scruggs asked if a part-time employee that works 20 hours a week would receive a two percent merit increase. Dr. Parker-Diggs offered to provide Council with more information concerning merit increases for part-time employees. Mayor Scruggs asked if the city's charter would have to be changed if a truly performance based system that allowed for tiered increases was put into place. Dr. Parker-Diggs corrected an earlier statement to clarify Human Resources policy, not the city's charter, provides 9 all eligible employees receive the same level of merit increase. Of course, funds must be budgeted. Mr. Lynch confirmed for Councilmember Clark that they are recommending the $1.4 million in health plan savings be applied toward the merit increase. Councilmember Clark asked where the city will get the $2 million the city is required to contribute to the retirement fund. Ms. Aguilar pointed out the budget includes an amount for retirement contribution increases. She said the funds will come from a combination of expenditure reductions and a number of the one time sources identified in the balancing plan. Mayor Scruggs said the merit increases will require $1.4 million in General Fund money, asking how much will be required to cover the merit increases for Enterprise Fund employees. Mr. Lynch responded $700,000. Councilmember Clark asked if $700,000 will cover the total amount of anticipated merit increases for employees in the Enterprise Fund. Ms. Aguilar explained the four percent increase for employees not in the General Fund will be covered through a combination of the rate structure currently in place, the fund balance and the potential savings from the renegotiated health benefits. Councilmember Clark asked what is the total cost for allocating the four percent merit increase to all employees in the Enterprise Fund. Mr. Lynch estimated the cost to be $355,708. In response to Mayor Scruggs' question, Ms. Aguilar said the model uses the current year's budget. She stated, therefore, next year's costs are not figured into what the Enterprise Fund groups will pay for General Fund services. Dr. Parker-Diggs offered to provide Mayor Scruggs with the percentage of employees that meet the standards and are eligible for the full merit increase. Mayor Scruggs asked how long does an employee have to be on the payroll to be eligible for a salary increase. Dr. Parker- Diggs stated an employee has to complete their six month probationary period to be eligible for a pay increase. Mayor Scruggs asked if $1.4 million will adequately fund the merit increases. Mr. Lynch stated the cost analysis projected for General Funds and Enterprise Funds will be covered by the total negotiated savings. Mayor Scruggs asked if non-union City of Phoenix employees will receive merit increases. She also asked what is the benchmark Phoenix has set to determine if there is sufficient General Fund growth by October 2003 to afford giving an additional three percent to each union. Mr. Wallace explained there would have to be three percent growth in General Fund revenues before the additional three percent would be given to each union. He said the two percent merit increase will first go to cover medical and dental costs and budget overruns. He stated any remaining funds, which they do not anticipate having, would be used for pay increases. He said Phoenix has not yet made a decision as to how it will allocate increases to the small percentage of non-union employees. 10 Mayor Scruggs noted five of the ten cities that are giving increases, give merit increases based on performance. Dr. Parker-Diggs explained some cites use the terms, performance and merit, interchangeably. Mr. Beasley commented that, because of current economic conditions, the COLA and Merit increases were not built in up-front. He said, while four percent merit increases are one option, the Council could choose to utilize the health plan savings in another way. He emphasized that Council does not have to make any decisions today. Vice Mayor Eggleston said, at this time, he does not believe four percent merit increases are a good idea, however, he would like to wait to make his final decision until the wrap-up session. Councilmember Frate said it is the Council's duty to see that funds are spent wisely, therefore, Council members should take time to digest the information they have received. Mayor Scruggs commented the city was presented with an $18,800,000 deficit, which it met through a number of creative measures. She explained that, of the $18,806,000, $3,440,000 in permanent base budget reductions have been made, leaving a $15,365,000 deficit. She said if the city does not receive any new revenue next year and does not add any new expenses, it will still come up $15,365,000 short. She pointed out a number of the measures taken to meet the deficit this year will not be available to the city again next year. She stated, while the city is unlikely to see a $15 million increase in revenue, it will surely see increases in expenses. She asked staff to demonstrate that the city will be able to pay all of its employees next year if merit increases are, in fact, given this year. She said she is also concerned that COPS Grants will no longer be available, requiring the city to fund the 15 officers it will need next year through the General Fund. Councilmember Clark asked to see other options with regard to merit increases, including one that would provide for an additional percentage increase if the city is able to cover the $15 million shortfall. She said a lot of paper shifting has occurred to compensate for the shortfall, stating that can only continue for so long before it begins to hurt the operation of the organization. She emphasized the need to look at the next few budget years to ensure fixes made now will be offset by other means in the future. Mayor Scruggs stated the city values its employees, noting the city added to both the merit and COLA in 2000 and 2001. She said they are simply trying to ensure they can continue to keep all employees on the payroll. She pointed out the four largest cities surveyed for pay increases had significant layoffs. Mayor Scruggs said Council has previously discussed whether there should be different percentage increases for employees at the lower end of the pay ranges. 11 Councilmember Goulet said he values staffs expertise. He said the city has to be pragmatic in its approach to the budget while still maintaining a certain level of service. Mayor Scruggs reported, at this point in time, State Shared Revenues are not part of either Governor Napalitano's or the Legislature's proposed budgets. She explained 40 percent of all of the city's revenue comes from State Shared Revenues. She said the anticipated $15 million deficit would increase significantly if the state decided to take a larger share of the State Shared Revenue to balance its budget. She noted one expense item on next year's budget is for a Special Census Survey. She said smaller cities are supporting a special census in 2005, the results of which would redistribute money available for State Shared Revenues. She stated an increase in State Shared Revenue to other, faster growing cities would come at Glendale's expense, noting early projections anticipate a $5 million per year loss in revenue to the city. The meeting recessed from 4:15 p.m. to 6:45 p.m. during which time Council held an executive session. 2. SOLID WASTE ASSESSMENT, RATE ANALYSES & BUDGET CITY STAFF PRESENTING THIS ITEM: Ken Reedy, Deputy City Manager, Sherry Schurhammer, Field Operations Deputy Director, and Pilar Aguilar, Acting Budget Director; This is a request for City Council to review and provide direction on the comprehensive financial and operational assessment of the city's solid waste services. The evaluation includes defining services, assessing the effectiveness and efficiency of those services, and identifying operational challenges. As part of the solid waste assessment, a cost of services analysis was completed. The financial analysis shows that expenditures exceed revenues for the residential collection program, which includes the loose trash service; the commercial collection program; the recycling services program, which primarily serves the residential collection program; the landfill disposal program; and the woodwaste program. Rate analyses and recommendations will be presented for the following scenarios: • Current service levels. • Current service levels with the exception of the woodwaste grinding operation, which is shown as eliminated for this scenario. • Current service levels with the exception of loose trash collection. Two alternative service levels for loose trash collection are shown for this scenario: every-other-month collection and quarterly collection. • Current service levels with the exception of the woodwaste grinding operation, which is shown as eliminated for this scenario, and a graduated rate increase to avoid a severe impact to residential customers in the first year. The rates to be covered will be the landfill tipping fee, the residential sanitation monthly 12 fee, the commercial sanitation rate, and the woodwaste tipping fee. A discussion of other scenarios, such as modifications to the commercial sanitation collection program and the landfill disposal and recycling programs, will be recommended for further study by an outside consultant. At the April 2, 2002, workshop, the intent to undertake a comprehensive assessment of the city's solid waste operations was announced. • No public meetings have been held to date. • Specific rate recommendations for various solid waste services will be presented to the Council. The recommendation was to provide staff direction on solid waste rate and/or service adjustments. Ms. Schurhammer began by explaining the City's integrated solid waste management system. Collections divisions deliver refuse and recyclables to the landfill, and the disposal divisions process the refuse and recyclables. Therefore, changes to the operations and finances in any division will impact the operations and finances of other divisions. She also reviewed solid waste and disposal services the city provides. Ms. Schurhammer discussed the last presentation to City Council about solid waste programs. This occurred at the April 2, 2002, workshop. The drawdown of the Sanitation and Landfill Fund balances were discussed at this workshop. While an immediate rate adjustment was not necessary for 02-03, the changing economic situation called for an evaluation of the city's solid waste services. As a result of that discussion, staff prepared a comprehensive solid waste assessment, made up of two main components, an operations assessment and a cost of service analysis. She said the major finding of the report was that the cost of current services exceeds revenue. She explained the cost per household for sanitation services is $17.49 per month (based on the FY02-03 budget), however, households are only charged $13.50 per month. With regard to landfill tipping fees, she said the city charges $19.98, but the actual cost per ton is $20.92. She said cost increases over the past few years can be attributed to a growth in service demand, higher fuel and equipment costs and increased competition. The growth in service demand is most evident in the loose trash program. Loose trash tonnage collected has almost doubled since FY97-98, whereas the number of households has grown only 17%. In addition to the significant increase in fuel costs, the diesel engines that power the garbage trucks are now required to meet more stringent EPA air emission requirements, resulting in an anticipated $10,000-$15,000 increase in the cost of trucks. She stated national waste management firms operating in the west valley are capturing west valley tonnage that the city used to bring into the landfill. Also, the commercial collection program was unable to grow its service area and customer base because of legislative action that limits the City's ability to do so. Ms. Schurhammer said the financial assumptions presented at the 1999 and 2001 workshops have played a big role in the revenue and expenditure gap now being seen in solid waste service operations. She explained the city assumed Peoria would partner with Glendale on the MRF, providing a 60 cent per household per month offset to the 13 residential rate. She said they also assumed that the city's commercial collection program would grow its business by expanding its service area beyond the City of Glendale, providing a 50 cent per household per month offset to the residential rate. She said they further assumed that long term contract customers at the landfill would continue to utilize the city's services. She stated each of the aforementioned assumptions failed to materialize and the gap between revenue and expenditures has compounded since curbside recycling was implemented in 2000. Despite these setbacks, there have been opportunities that have been of some benefit to the city. She said the loss of the City of Peoria as a landfill contract customer has extended the landfill's life in the south area by four years. She said it has also given the city an extended timeframe to ensure funding for the closure/post-closure costs for the south area. Additionally, she said Peoria's decision not to participate in the MRF has given Glendale the opportunity to work with other west valley cities in implementing recycling programs. She said they have also been able to secure the City of Avondale as a landfill customer. Ms. Schurhammer said the solid waste assessment also resulted in a number of opportunities to improve operational efficiencies. She explained route sizes were increased for both the residential and commercial collection programs, resulting in reduced overtime and temporary employee expenses. She said the use of rearloader trucks rather than open brush trucks in the loose trash collection program have also resulted in a 60 percent production improvement. She stated they are also in the process of implementing automation and info-system improvements for the Commercial program and reduced landfill expenditures by about $466,000 since FY01-02. Ms. Schurhammer reviewed major cost components of the landfill disposal programs. She said, based on this year's budget, the cost recovery tip fee is $20.92 per ton, however the city is only charging itself $19.98 per ton. She said the solid waste assessment also allowed them to identify the major cost components of the residential collection program. She noted that the loose trash program is expected to exceed its FY02-03 budget by about $250,000 in order to provide the expected monthly service level. Mayor Scruggs asked why collection costs decreased in 2000 and 2001. Ms. Aguilar explained that revenue sources (leases) and payments for capital acquisition are reflected in the net cost figures. Ms. Schurhammer said the solid waste analysis identified an expenditure/revenue gap of$3.99 per household, per month, based on the FY02-03 budget. Ms. Schurhammer then moved into the rate discussion part of the presentation. She said the common assumptions used when making the rate projections to be shown include : 1) a two to three percent rate of inflation from year to year; 2) capital costs are an average of the prior five year expenditures inflated for future years; and 3) shop fees reflect the current blended rate, not a tiered rate structure. She noted rate adjustments were last made two years ago (July 2001) for the Residential program and three years ago (September 2000) for the commercial program. She said the gate rate at the landfill was last adjusted in July 1995 and Woodwaste and the Internal Tip Fee were last adjusted in July 1997. Ms. Schurhammer discussed what would happen to the Landfill Fund balance if the city 14 continued with current service levels and made no rate adjustments. She said the current fund balance totals $18.4 million, however, by 2015, the balance would be at about $9.4 million. She pointed out that the estimated closure/post-closure costs of the south area total approximately $13.1 million. Consequently, the city would not have adequate funds to close the south portion of the landfill. In response to Councilmember Clark's question, Ms. Schurhammer explained that they expect to begin excavation of the north area in 2008/2009 and anticipate capital expenditures will begin to level out in 2011/2012. She said, as a result of the leveling out of capital expenditures, the Landfill Fund balance will begin to increase slightly, but not reach the $13.1 million needed for closure/post-closure of the south area. Ms. Schurhammer explained the city has an $18 million fund balance because, prior to acceptance of the new Landfill Development Plan, closure/post-closure costs were estimated at $17 million per the FY 00-01 CAFR. She said the new Landfill Development Plan was approved through the regulatory permit process in 2002 and, as a result, the closure/post-closure costs were revised to $13.1 million. The reason for the decline in closure/post-closure costs is the excavation of a deeper hole for the north area, which reduces the cost of importing soil for the closure of the south area. She said that while the closure of the south area is not expected until 2015, excavation of the north side will begin prior to that time so that the soil excavated from the north side can be used to close the south side. Mr. Reedy explained actual closure costs will depend on what year the landfill actually reaches the point of closure. Vice Mayor Eggleston asked why they are digging the north side deeper. Ms. Schurhammer explained the city would have to purchase dirt to close the south cell if the north cell were not dug, resulting in a $17 million closure/post-closure cost for the south cell. Vice Mayor Eggleston asked at what point did the city stop generating revenue from its landfill service. Mr. Reedy explained they were no longer able to set funds aside for future closure once Peoria pulled out of the landfill. Ms. Schurhammer said that City Council was told at the April 2, 2002, workshop that staff expected a Landfill Fund balance draw down of about $313,000 for FY01-02, and there was an actual draw down of$926,000 for FY00/01. Vice Mayor Eggleston asked where Peoria went after it left Glendale's landfill. Ms. Schurhammer explained the City of Peoria signed a contract with Waste Management and uses one of its disposal facilities on the west side. Councilmember Clark asked if Glendale built extra capacity into the MRF to accommodate the City of Peoria. Ms. Schurhammer responded yes. Councilmember Clark stated the City of Glendale is now having to draw down the fund balance to subsidize an underutilized facility. Ms. Schurhammer agreed. Mayor Scruggs asked if the city bought anything in anticipation of increased commercial business that did not come to fruition because of a law passed by the Legislature. Mr. Reedy said they had not yet expanded service levels, therefore, they did not realize significant cost increases. He pointed out, however, revenue offsets have been seen because the Legislature now requires the city to pay an in-lieu tax on profits it makes for services provided outside the city's limits. Ms. Schurhammer confirmed they did not purchase trucks or add personnel as a result of their plan to extend beyond the city's limits. Ms. Schurhammer continued her presentation, stating the current balance of the 15 Sanitation Fund totals $1.1 million. She said continuing with the current level of service without any rate adjustments would deplete the fund balance to less than $200,000 by 2008. Ms. Schurhammer reviewed an alternative scenario, explaining it assumes the same level of service, with the exception of the Woodwaste program, and a full cost recovery tip fee for refuse disposal/gas management/scale house services. She first showed the impact of this on the landfill tip fee. She explained that we must look at the impact of this change on the landfill tip fee because the cost per ton flows through to the residential sanitation monthly fee. This scenario shows that the cost recovery rate per ton at the landfill would decline from $20.92 per ton (based on the FY02-03 budget) to $19.50 per ton (based on the FY03-04 budget). This means that the internal tip fee charged to the residential and loose trash collection programs could decline from the current $19.98 per ton to $19.50 per ton, and still remain at a level that recovers the costs to process refuse at the landfill. She explained the Woodwaste program could be eliminated because of changes that have been seen in the program over the past ten years. She said the program was initially put in place in the early 1990s, when the landfill's life was 10-20 years, in an effort to divert the amount of material going into the landfill so the landfill's life could be extended. The initial purpose of the program was volume reduction, not revenue maximization. She said the same amount of diversion (volume reduction) is now being achieved through the Curbside Recycling program. Furthermore, the cost of the Woodwaste program has increased significantly since it was first brought online and revenue from the sale of ground material peaked in 2000 at about $133,000. She said revenue from the sale of ground material has since dropped significantly because of changing market conditions and competition from the private sector. She discussed the impacts of eliminating the Woodwaste program, stating the life of the south cell will shorten by about two years; closure/post-closure costs will increase from $2.15 per ton to $2.28 per ton; there will be no woodwaste grindings to prevent soil erosion of the landfill slopes; customers will experience longer wait times at the landfill; and some commercial collection customers will see a noticeable cost increase. In addition, the tip fee for woodwaste and greenwaste would increase from $16.50/ton to the gate rate of$26.25/ton with the elimination of the woodwaste grinding operation. Ms. Schurhammer then reviewed the impact of eliminating the woodwaste operation on the Sanitation Fund. To minimize the immediate impact of covering the costs of the MRF and the inspections and education program on the Sanitation Fund, the numbers shown reflect graduated rate increases in the sanitation rate. She said this option creates a more significant draw down of the Landfill Fund balance because of the costs of recycling services (the MRF and the inspections and education program). She explained this approach minimizes residential sanitation rate increases for the next three years by increasing the monthly fee $1 per year for the next three years, and 50 cents in the fourth year, rather than doing one large increase of several dollars to immediately recover all costs. She stated the transfer from the Sanitation Fund to the Landfill Fund ramps up gradually, but does not reach full cost recovery for recycling services until 2008. Ms. Schurhammer reviewed the rate adjustment being considered for the commercial collection program based on the no woodwaste scenario. She noted that the last commercial rate increase occurred in September 2000. She said there would be an eight percent increase in 2004 and a few three percent increases thereafter. 16 Ms. Schurhammer discussed the impacts of the graduated rate increase approach, with a gradual draw down of the Landfill Fund to cover the costs of recycling services, on the Landfill Fund balance. She stated the fund balance would be reduced to $11 million by 2013 at which point closure is estimated to cost about $12 million, so there would not be enough funds to cover the costs of closure/post-closure of the south area of the landfill. She stated that this rate option is not the most prudent approach for the long- term because there will not be sufficient funds to cover the costs of closure/post- closure. In response to Mayor Scruggs' question, Ms. Schurhammer explained most of the rate increase would be needed to cover costs in the Sanitation Fund. Mr. Reedy stated a $3.99 per month rate adjustment would not translate to a significant amount for the Landfill Fund, pointing out the transfer amount would total about $1.45 per household per ton. Vice Mayor Eggleston asked how people are charged when they go to the landfill. Mr. Reedy said most pay at the scale house. Ms. Schurhammer said the solid waste assessment showed that only 22 percent of scale house transactions are automated, so 78% of all scalehouse transactions require talking to a person at the scalehouse. She noted people coming to the landfill from other cities are required to leave a deposit prior to disposing of their refuse and are charged a gate rate of $26.25 per ton. Vice Mayor Eggleston asked if it would be easier to charge each truck a flat rate. Mr. Reedy explained the current system allows them to keep better track of costs. Ms. Schurhammer pointed out self-haul loads accounted for 13 percent of all tonnage last fiscal year. She acknowledged a flat rate could be assessed, stating, however, the most efficient way for the landfill to recover its costs is to charge based on the weight of the material brought to the landfill. Mr. Reedy assured Vice Mayor Eggleston the process of weighing material does not represent a significant portion of the overall cost of operations. He pointed out the current system helps ensure customers are charged proportionately to their impact on the landfill. In response to Councilmember Martinez's question, Ms. Schurhammer clarified that the elimination of the Woodwaste program would shorten the life of the south cell by about two years. Mr. Reedy noted that the elimination of the Woodwaste program would result in an operational savings of about $500,000-$600,000 per year. Councilmember Clark pointed out the city uses woodwaste as cover for the landfill slopes. Ms. Schurhammer said Landfill staff has indicated elimination of woodwaste grindings will have a minimal impact on their Landfill budget. In terms of operations, she said staff will have to spend more time shoring up the landfill slopes after heavy rains. Mr. Reedy pointed out changes to the exterior slopes will result in fewer erosion problems as well. Ms. Schurhammer said the Sanitation Fund balance remains within 10 to 12 percent of operating revenues if the residential and commercial sanitation rates are increased as presented. Ms. Schurhammer reviewed where a $1 per year increase would put Glendale in comparison to other cities around the valley. She said the $14.50 rate recommendation for FY 03/04 would move Glendale above Scottsdale, but below Goodyear, Mesa and Phoenix. She pointed out Glendale provides a higher level of service than the cities that charge a higher rate. 17 Ms. Schurhammer stated that the proposed $14.50 rate recommendation should be sufficient for the short-term, but the draw down of the Landfill Fund balance would leave the city with insufficient funds for closure of the south cell in 2013. Therefore, several other options have been identified for future evaluation. She said the evaluations would be complex and require the time, expertise and depth of knowledge that an objective, outside party could best provide. She said options that could be considered include privatization of the MRF, privatization of all landfill operations, privatization of all or part of commercial collections, privatization of loose trash collections and the sale of all landfill operations. Upon Council's direction, staff would proceed with issuing an RFP for a consultant to conduct the evaluations. Mayor Scruggs asked Ms. Schurhammer if, in her opinion, the city should proceed with the evaluations. Ms. Schurhammer responded yes, that the options merited an evaluation, but noted that the sale of all landfill operations could be eliminated as an option. Mr. Reedy agreed. He said the evaluations could identify areas where improvements could be made or verify that the city is running an efficient operation. Mayor Scruggs asked if the evaluations would include impacts of the various options on the General Fund. Ms. Schurhammer answered yes. Mayor Scruggs asked how long it will take to conduct the study. Mr. Reedy estimated it would take close to one year. He stated the results should be available in time for next year's discussions on rates. In response to Councilmember Martinez's question, Ms. Schurhammer confirmed Phoenix puts residential collection for certain districts out for bid. She said Glendale would not benefit from a similar setup because its districts are too small. She noted that the size of one Phoenix district is estimated to be about the same size as the City of Glendale as a whole. Councilmember Clark stated she would like to see the information the studies would uncover. Councilmember Frate agreed. Vice Mayor Eggleston asked if staff is recommending a $1 Sanitation rate increase and that they proceed with an evaluation of the various options. Ms. Schurhammer responded yes. Vice Mayor Eggleston stated he would be very interested in seeing the results of privatizing the MRF and commercial collection. Mr. Reedy stated they are also recommending an eight percent increase on the commercial side and an increase to the gate rate for woodwaste. Ms. Schurhammer pointed out the rate increases will require staff to return to Council with a resolution. Councilmember Martinez suggested landscapers would abuse the Loose Trash Pickup program to a greater extent if they are charged a higher rate to dispose of their woodwaste and greenwaste at the landfill. Mr. Reedy said the city would encourage residents to report anyone they catch dumping onto their piles of loose trash. Ms. Schurhammer reviewed solid waste divisions' supplemental requests, noting the rate recommendations just discussed include the cost of the supplementals. She said the first request is for $30,000 to cover the cost of newspaper advertising of the city's residential holiday services, loose trash collection schedules, and Christmas tree recycling. She said information is also provided through the Connection newsletter, KGLN, the city's website and various HOA and neighborhood newsletters. She said the $27,500 request relates to compliance activities, $15,000 of which would be used to hire a part-time temporary employee to do data entry and letter generation. She explained inspectors currently have to take time away from the field in order to input data and generate letters sent to people who are not in compliance. 18 Ms. Schurhammer stated the $82,419 request is for the lease purchase of a new roll-off truck and additional vehicle repair and fuel costs. She stated the requests for $35,497 is for the lease purchase of a new front-load truck. The request for $127,619 is for the lease purchase of an automatic side-load truck and additional landfill tip fees because the amount of refuse collected continues to grow each year. With regard to the Loose Trash supplemental requests, Ms. Schurhammer explained the $55,000 one-time request is for the cash purchase of a new articulated loader and the $254,339 in ongoing requests will cover the lease purchase of two new rear-loaders ($59,000), additional landfill tonnage fees ($54,800), three additional FTE's ($119,585) and additional vehicle repair and fuel costs ($210,000). She noted that a similar request for temporary employees would have to be submitted if the request for three additional FTE's is denied. Councilmember Clark pointed out the fund balance is being used to offset losses, asking why they would not draw down the fund balance for the initial purchase of the trucks. Ms. Schurhammer explained the trucks are in the Sanitation Fund which has a significantly lower balance. Ms. Schurhammer clarified for Councilmember Martinez that the additional FTE's would increase the number of FTE's to nine, but reduce the number of temporary employees to three. Mr. Reedy said hiring full time employees will help improve efficiency because there is a lower turnover rate among full time employees. Ms. Schurhammer agreed, noting they typically have to train two to three temporary employees for every one that they keep. Mayor Scruggs asked if it would be prudent to bring three full time employees on board if the city is going to consider privatizing loose trash collections. Mr. Reedy said the city would likely turn its employees over to the private company. In response to Councilmember Clark's question, Ms. Schurhammer explained training is currently conducted by field staff. Councilmember Clark asked if the reduction in the amount of time spent training would increase efficiency and, ultimately, impact the number of people needed to actually perform the services. Ms. Schurhammer acknowledged it could result in the need for fewer temporary employees. Councilmember Martinez asked what the city would save if it went to an every other month collection schedule for loose trash. Mr. Reedy said, while an every other month schedule could reduce the rate increase by about 40 cents, it would result in confusion over the pickup days and substantial violation of the rules. He agreed the issue should be studied further, stating, however, they would not recommend taking such a step as a short-term fix. Mr. Reedy said they are recommending a policy change that would allow people to put loose trash out at 6:00 a.m. on the weekend prior to the week collection starts, not a full week prior to the start of collection. Council agreed the policy should be changed to restrict when loose trash can be placed on the curb. Council also agreed to proceed with the evaluations of the various options and to consider the monthly Sanitation rate increase of$1.00. ADJOURNMENT The meeting was adjourned at 8:25 p.m. 19