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HomeMy WebLinkAbout03-02-2005 City Council Study sessionCouncil Priority- Setting Study Session I March 2, 2005 S:OOPM Expected Schedule 5:00 pm City Manager Dave Anderson Introduction of concepts: Minimum Services City and New Normal (see Attachments A and B) Need for Council direction in face of preliminary revenue and expenditure forecasts for 2005 -06 5:20 pm Community Input 30 minutes allocated for public comment Time divided by number of interested speakers indicated by show of hands 5:50 pm Priority- setting Exercise (see below) 6:30 pm Mayor Kathleen King will summarize commonalities and differences of priorities, and try to determine consensus 6:50 pm Steps for Study Session II scheduled for March 8 at 5:00 pm Priority- setting Exercise Before the meeting, please review the attached "List of Service Levels and Estimated Costs" (Attachment C) and begin to determine your priorities (i.e., using a pencil, go down the list of topics and indicate "1 "2 etc., then bring your priority sheet to the meeting). You may write in additional services on the fill -in lines. At the meeting, each Council member will receive a packet of pre printed index cards with the service levels and estimated costs shown. You will also receive blank cards in order to add City functions or services not represented but important to you. Using the Finance Commission's recommended criteria (Attachment D), staff has created three priority levels to help Council begin the process: ESSENTIAL SERVICES: Services Citizens cannot provide for themselves SHOULD PROVIDE: Services that contribute to Saratoga's unique quality of life WOULD LIKE TO PROVIDE: Services that are currently in place but may not be necessities You will be asked to prioritize all of the cards and tack them to a board in one of the three categories during the session. You may change your priorities throughout the exercise. At the end of the session, the Mayor will summarize the results and try to bring all Council members to consensus in preparation for Study Session II. Referenced Materials Attachment A: "Saratoga as a Minimum Services City and the New Normal" Attachment B: Saratoga's New Normal and Employee Retention" Attachment C: List of Service Levels and Estimated Costs Attachment D: Finance Commission's Recommendation to Council Memorandum To: City Council From: Finance Commission Date: February 2, 2005 Re: Budget Priorities and Saratoga as a Minimum Services City The Commission certainly supports the concept that core priorities should receive first priority when allocating funds. Core priorities can also be thought of as the absolute minimum services that the City must provide. The first challenge then becomes to define the core priorities and also the lower strata of priorities. It is also important for the City government to remain in step with how the core priorities change over time as the goals and objectives of the community change. In addressing the issue of defining the priorities of Saratoga, the Commission divided City services into the following three classes: Class A Core Priorities, Must Provide: Essential services that members of the community cannot provide for themselves, that they expect the City to provide, and that are critical to the maintenance of the quality of life in Saratoga. (along with the level of administrative services needed to support class A services.) Class B Should Provide: Services that make an important contribution to the quality of life in Saratoga but that are not absolutely necessary. (along with the additional level of administrative services needed to support class B services.) Class C Would Like to Provide: Services that enhance the quality of life in Saratoga but that make a less important contribution than class B services. (along with the additional level of administrative services needed to support class C services.) The Commission feels that whenever possible fees should be charged to those benefiting from a service to cover part or all of the cost of a service, particularly when the service is not a core priority and particularly when the service benefits a subset of the population and not the citizenry at large. Indeed, substantial fees can justify funding a service even though a higher priority service that does not generate substantial fees is not receiving funding. The following is a list of services currently provided by the City broken down into the three classes described above according to the collective opinion of the Finance Commission. Class A o Police Services Including three traffic safety officers Without school resource officer Without DARE officer Infra- structure (streets, sewers, etc.) All mandated programs Animal control Development review and regulation Appropriate staffing levels to support class A services Class B o Development review and regulation non mandated services o Code enforcement o Library services maintenance of grounds and facility o School resource officer o DARE officer o Parks and Orchard minimal maintenance for passive use Class C o Neighborhood Traffic Management Program o School crossing guards o Economic development o Parks maintenance for active use Arts program Special events Web -based information and services Financial and staff support to outside agencies (Chamber, Seniors, KSAR, Hakone Gardens) o Recreation Important Notes: 1. As was previously stated, services in class B or C that can generate fees from the beneficiaries of the services that cover all or substantial portions of the cost of the services should be favored over class B and C services that do not generate such fees. 2. Some class B and C services may be fundable from non City sources and every effort should be made to identify services that can be non City funded. It was noted in our discussions that the only way to force non City funding, in some cases, may be to cut off City funding. 3. All of the services listed above are more complex than just yes or no questions. Those complexities will need to be addressed when dollar budget alternatives are attached to each service prior to detail budget discussions. ATTACHMENT A Saratoga as a Minimum Services City and The "New Normal" March 2005 ATTACHMENT A Background Saratoga was incorporated in 1956 as a reaction to the post -war population boom and residents' fear of unplanned development, higher taxes and piecemeal annexation by adjacent cities. After incorporation, the City developed land use policies that fostered low- density semi -rural residential development with the following characteristics: Large lots Single family homes Single story ranch style development Paved roads without curb, gutter or sidewalks No streetlights except at major intersections and commercial areas Neighborhood schools Neighborhood parks Institutional uses immediately adjacent to homes without intervening buffer zones. Only one percent of City land zoned as commercial Protection of property values In addition, the City Founders believed that City government should provide a minimum of services with correspondingly low tax rates. This low tax rate structure was locked in with the passage of Proposition 13 in 1978 which capped property taxes levied from all local agencies to 1% of the assessed valuation of the property. Saratoga became a permanent "low -no tax" City with a below average property tax allocation. The sales and gas tax revenues are low as business in Saratoga is limited to two shopping centers, a small downtown and limited number of single proprietor retail shops, service businesses and restaurants. Implicit in the Founders' decision for Saratoga to be a minimum services city is a desire for government to be small, efficient, and unobtrusive; an entity that meets standard needs such as ensuring safety, keeping the roads paved without potholes, overseeing building permits, etc., but is not a proactive force within the community. Other groups and service clubs such as the Rotary would be relied upon to play a large role in civic life. Special districts provide significant traditional municipal services such as water, sewer and fire services. Saratoga started out on this path but now seems in transition as residents have less and less time to become personally involved in civic activities and increasingly turn to local government for help. In recent years, the demographics of Saratoga have changed substantially. Our long -time population has gotten older while newcomers are typically younger, more ethnically diverse and are more likely to have school -aged children. Approximately 30% of our population is Asian. In addition, residents are especially affluent —the mean household income in 2000 was $177,000 and property values are among the highest in the country. Demographic changes have affected the community's expectations. For example, active use playfields for organized youth sports are in great demand. Additionally, the senior community is expanding and the Saratoga Area Senior Coordinating Council (SASCC) has requested additional resources to provide additional services. In response, the City built a state -of- the -art p. 2 ATTACHMENT A soccer and baseball complex at Congress Springs and an additional neighborhood park (Azule), and has renovated four others E1 Quito, Wildwood, Gardner and Brookglen. Over the past 10 years our City Councils have reflected the move to enhance the quality of life in our neighborhoods. For Saratoga this means that residents want a say in determining who will use City parks, where trails are placed, how traffic can be mitigated, etc., even what their neighbor's home can look like. In response, the City has attempted to reach out to solve neighborhood and school traffic problems by hiring additional police and instituting efforts such as the Neighborhood Traffic Management Program. The City has also instituted programs to protect neighborhoods by passing limits on construction hours, noise and tree protection ordinances, sewer hookups and enhanced code enforcement efforts. This focus on neighborhoods extends to the City's eight active Commissions. They have brought renewed interest in promotion of citywide special events as well as other activities. Also part of the current City status is the aging City facilities and infrastructure. Many of our roads, storm drains, etc., were constructed in the 1960s and 1970s, and are approaching the end of their life spans. During 2002 the Public Works Department began using a new computer tool that evaluated pavement condition and provides the results in a Pavement Management System Survey. The analysis showed that city streets were in above average condition but that the funding necessary to maintain that condition level was almost twice the funding available. City buildings were largely constructed during this same period. Maintenance on these facilities has been deferred for many years leading to gradual deterioration and increased maintenance costs. Consequently two workshops held in Fall 2003 brought the need to address deterioration of City infrastructure and facilities into sharp focus and led to the Council's decision to place a Utility User Tax on the ballot for voter consideration in November 2004. This measure failed to pass in November 2004. Finances As the City was in the midst of gearing up to provide an enhanced level of service, and greater citizen participation, the city's funding base started to erode. Saratoga started with low revenues due to the minimum services orientation and has suffered further financial hardships brought on by a variety of reasons described below. Proposition 13 locked in the low funding base reflective of a Minimum Services City. In 1991, the legislature passed the Education Resource Augmentation Fund (ERAF) take -away, diverting funds from local City property taxes to subsidize the schools. The ERAF shift continued during the State's surplus years and continues to this day to divert approximately 11 of the City's property tax base. In the 1990s an attempt by the legislature to equalize the tax rate to 7% (of the 1% collected) was derailed by Santa Clara County. Legislation was passed that diverted 45% of the "Tax Equity Allocation" funding to Santa Clara County. Instead of 7 Saratoga receives less (4.4% in 2003 -04). Due to special legislation passed in 2000 and the passage of the Library Bond issue, the City has now been made whole in this area. p. 3 ATTACHMENT A A Utility User Tax was in effect for several years in the 1990s with voters choosing not to extend the tax in 1996. A recent attempt to pass another Utility User Tax to supplement spending on public safety, infrastructure and parks failed to pass in November 2004. In FY2003 -04 the State took $516,900 from the City by not funding the "VLF Gap In FY2004 -05 and FY2005 -06 the State will take $260,100 each year as a part of the formula under Proposition 1A. The current recession has cut tax revenues over the past 3 years. The struggling economy in combination with state take -aways has resulted in three years of expenditure reductions that included staff layoffs and other service cuts. Revenues have been relatively flat during this period while costs beyond the City's control such as the contract with the Sheriff's Office and the cost of employee pension, health insurance and workers compensation have risen rapidly. Clearly, Saratoga is at a crossroads and needs to choose a path that will reconcile what's fiscally possible with residents' expectations. Saratoea's Future Given Saratoga's minimum service beginnings, the changes in our City's population and expectations, and the budget situation where expenses continue to outpace revenue, what kind of City does Saratoga want to be? Without an increase in revenues, the City is left with service levels that cannot be sustained by the current revenue stream. Consequently, the City must revert back to a level of services for the City that can be sustained over the long term including changes needed to create a definition of "The New Normal" that can be sustained by our revenue stream. Returning to the City's traditional core values produces a set of principles that can be used by City Council to develop a philosophy of service delivery and may aid in setting priorities such as the following General Fund revenues should be used to fund core priorities Fees should cover the costs of providing other than core services where possible Consider alternatives to direct service delivery for the sake of efficiency and cost effectiveness, and use contracted services where possible; examples follow: o Sheriff o Animal Control o Street Sweeping o Traffic Engineer o City Attorney o Project design and engineering o City Surveyor o City Geologist o City Arborist o Public Works Inspectors p. 4 ATTACHMENT A o Recreation Instructors Partner with other public agencies via joint powers or use agreements where advantageous; Saratoga examples follow: Solid Waste and Recycling Services Library Services Insurance /Risk Management Worker's Compensation Environmental mitigation o Emergency services support (County Fire) (EOC- Saratoga Fire) o Facility use at schools To extend service delivery, partnering with private non profit organizations should be considered. Existing examples are: o Senior Services o Adult Care Services Leverage City dollars via support for private non profit agencies that provide civic oriented services: Saratoga Historical Foundation Friends of the Saratoga Libraries Hakone Foundation o Chamber of Commerce o Sister Cities Encourage joint use /cooperative agreements with other public entities to make more efficient use of public facilities such as joint use agreements with school districts for facilities City staff should be small and efficient; proficient in contract management techniques and project management Promote the use of volunteers Additional changes are needed to bring the City out of crisis mode and back into equilibrium. Attention to staff retention and organizational issues Evaluation of needed resources, i.e., funds for equipment and maintenance The New Normal For the past three years the City has been following the traditional course of recessionary budgeting —where budgets are repeatedly scrutinized to wring out any expenditures not affecting direct service provisions. Corresponding actions have been taken such as reducing employee expenses by instituting a hiring freeze and layoffs, and limiting salary and benefit growth. In addition, the City has deferred facility maintenance, under funded pavement management, suspended capital equipment and furniture replacement, and halted purchasing of new computer hardware and software. This process has resulted in high staff turnover, deteriorating facilities, long -term degradation of our streets and roads, and greater costs for equipment maintenance. p. 5 ATTACHMENT A "The New Normal" is a term used to represent an end to recessionary budgeting as described above and a return to normalized City operations around core City priorities. Examples of the types of changes needed include funding for facility maintenance, addressing employee retention issues, and beginning to once again purchase equipment. Implementation of the New Normal may take several years. For example, 5 -year master plans for facilities and infrastructure maintenance, and equipment purchases are presented for Council adoption now even without funding sources being identified at this time. Priorities Preliminary revenue and expenditure estimates for 2005 -06 indicate a need to reduce expenditures by approximately $1.2 million. However, even by doing so, the shortfall trend is expected to continue so that further cuts will likely be needed starting in 2007 -08. The City Council is challenged with the task of redefining core city priorities, achieving excellence in services with fewer resources, and the unenviable responsibility for making permanent reductions in current service levels to achieve fiscal stability. This process will begin in March with several Council Priority Setting Study Sessions and continue during the annual budget development process. The study sessions are the first steps in setting the vision for Saratoga's future which may well require that the City reduce its scope of services, shift responsibility for services to other institutions, or stop providing certain services and support. In order for the New Normal to be successful, Saratoga residents must be viewed as partners. In that capacity their participation is encouraged, and their understanding of the state of the City's finances must be accurate. By focusing on redefining core city priorities, the Council will be better able to make the tradeoffs necessary to once again provide quality services on an ongoing basis regardless of the state of the economy or state funding cuts. These tradeoffs are essential for the long -term viability of the City. p. 6 ATTACHMENT B Saratoga's "New Normal" and Employee Retention March 2005 ATTACHMENT B Executive Summary Since 2002, Saratoga as an organization has been operating in "crisis" mode. We've made budget cuts in many areas including some with substantial staff impact. Frozen positions and layoffs have translated to more work for remaining staff. In addition, wage freezes have been implemented. In effect, staff has been doing more with less —a condition that is not sustainable without consequences. Discussion of "minimum services" and a "new normal" for Saratoga includes beginning to again invest in staff. This paper presents information and questions for Council discussion. Decisions made over the past several years related to employee compensation are now producing or at least contributing to unintended consequences. Staff turnover has substantially increased since July 1— eleven regular employees have left or given notice so far this year compared to two in 2003- 04 and four in 2002 -03. Staff recommends Council reconsider the wage freeze currently in effect and recommends reinstatement of annual increases of up to 5% for employees currently in mid range. In addition, we recommend salary surveys be conducted every two years and range adjustments made as an administrative matter instead of as part of negotiations. More information with greater detail follows. Overview of Public Sector Compensation Compensation methods and issues in the public sector are very different from those in the private sector. In addition to salary, private sector compensation options can include profit sharing, bonuses, stock and stock options as well as other perquisites such as free trips, gifts, and honoraria. These types of compensation are not available in the public sector for a variety of reasons—mostly because they don't exist in the government structure and may present opportunities for conflict of interest. Pensions were once common among private sector employers but have become less so over time. Common types of compensation in the public sector follow: COLA or cost of living adjustment. Often but not always tied to CPI, these salary increases are designed to help salaries keep up with inflation. Step (or Merit) increases. Except for City Managers and occasionally department heads, salary ranges are typically used for job classifications. Most public sector employers use salary ranges to assess annual salary increases based on increasing job proficiency. The most basic use is to bring a new hire in at the bottom step and each year give them the ability to advance by either a standard 5% or a variable amount up to a specified percentage. By the end of say, 4 -5 years, the employee has become an "expert" in that particular job and earns the top step. Usually the top step is based on established criteria (such as salary survey) and then a range that represents 25% of salary below that point sets the bottom step. Advancement is made in increments —for example, 5 steps of 5% each; in Saratoga we have 26 steps of 1% each. When an employee reaches the top step, they stop advancing although they may continue to receive the other types of salary increases described in this section. 2 ATTACHMENT B Market adjustments. Most cities conduct salary surveys and compare existing salaries to those of a set of comparable cities (usually negotiated with employee groups). Typically cities also set a policy for how to use the data, i.e., a policy that states Council's intention of remaining competitive by maintaining salary levels at the average of the comparable group. The salary survey data is then used to reset the pay range including moving the employees within the range. In the past few years, Saratoga has adjusted only the range with no actual increase to the employee. Bonus or Incentive pay. Some cities offer a one -time lump sum annual bonus for superior performance. The amount is often a percent of salary. This mechanism is an incentive for employees who are at top step to keep providing superior performance. Many benefits are common to both public and private sectors. For example, health insurance is often provided to both groups. Increasingly, pension programs such as the Public Employee Retirement System (PERS) are less common in the private sector. Saratoga's Recent History In the past, Saratoga has used salary ranges for all positions except the City Manager and City Attorney (who are employed under contract), and provided salary increases linked to merit, promotion, probation, performance incentive pay, and COLAs (either negotiated or tied to CPI). Starting in 2003 -04, all salary increases were frozen with the exception of a 1.4% across the -board increase provided to everyone. In June 2004, the Saratoga Employee Association and the Saratoga Management Organization agreed to continue the salary freeze with the exception of a 2% increase for all represented staff each year in 2004 -05 and in 2005 -06. The Millman's Union (who represents the streets and parks staff located at the Corporation Yard) recently agreed to accept the same 2% increase for 2004 -05 but limited the agreement to one year. Saratoga Compared to Other Cities Actual salaries in Saratoga are falling behind. Periodically, we survey other cities' salary levels. The agreed -upon comparison cities are Campbell, Cupertino, Los Altos, Los Gatos, Menlo Park, Morgan Hill and San Carlos. The average of the group's highest salary is then compared to Saratoga's highest for each classification. A summary of results from Spring 2004 follows: Employee Group Relationship between Range of high and low Percent of employee Saratoga salary and salaries by classifications average salary of classification below average Surveyed Cities Saratoga Employee 2.5% below average 4.8% above to 10.3% 85% Association SEA below average Millman's Union 0.5% below average 9.7% above to 4% 78% below average Saratoga Management 10.1% below average 3.8% below to 12.9% 100% Organization (SMO) below average The SMO ranges were adjusted July 1 as part of negotiations but no salaries were increased beyond the 2% per year in the 2004 -06 agreement. SEA's and the Union's salary ranges were not adjusted. ATTACHMENT B Not only are salaries low, but other compensation offered by Saratoga is also conservative. Some examples follow: Retiree Medical. Some cities pay the full cost of medical insurance for retirees who meet certain criteria. Saratoga provides $200 per month for employees who retire with more than 20 years of experience with Saratoga (a very small number of employees). The City agreed to this modest benefit in 2001 by requiring that the costs were offset by employee payment of 5% of health care premiums. The net effect is that Saratoga retirees receive a modest medical offset that is paid for by current employees. Employee Contributions to Benefits. All Saratoga employees pay 5% of health care premiums. Many other cities pay the full cost of health care premiums. (Because this is a percent and not fixed, the amount saved by the City will grow while the retiree medical benefit stays fixed unless further action is taken.) Retirement. Saratoga offers the most conservative retirement plan for employees —PERS 2%P55. Other options available to non public safety employees are 2.5 @55, 2.7 @55, and 3 @60. Examples of other cities that offer enhanced PERS plans follow: Campbell 2.5 @55 Milpitas 2.7 @55 Los Altos 2.7 @55 Pacifica 3 @60 Wage Freezes. Other cities have implemented wage freezes as well. However, their freezes were different from Saratoga in that we froze every form of increased compensation including step increases (previously called merit increases here). Other cities did not and this difference is now contributing to staff turnover. Council is familiar with the recent impacts of other agencies' decisions to adopt 3 @50 for public safety employees. Most if not all cities in California are grappling with both the financial and the equity implications of the new retirement plan. In Saratoga's case, the Sheriff's contract includes the enhanced retirement benefit. Consequences— Intended and Unintended Saratoga's actions over the past several years have been reactive to budget uncertainty and meant to be temporary until revenues increased. The actions have produced a number of intended and unintended results that are described below. Mid -range staff are more negatively impacted than other staff. In 2003 -04, 2004 -05, and 2005 -06, staff either received or have agreed to accept a flat, across the board increase that applies to everyone. As a result, staff who were not at the top of their salary range have sustained a greater financial loss. Typically these staff were hired more recently and are in the middle of their career. Staff who have been here a long time are generally at the top of the salary range and not eligible for any additional step increases. Over the long term, Saratoga will be especially unable to keep mid -range employees. M ATTACHMENT B Saratoga is losing its ability to keep workers as demonstrated by dramatically increasing turnover rates: 6.8% in 2002 -03; 3.5% in 2003 -04; 19.4% so far in 2004 -05. The list of who has left in the past few years follows. Fiscal Position Title Name Date left Status Year FY Park Maintenance Worker I Juan Arriaga 08/02/02 Filled 2002 -03 Office Specialist III Laura Miyakawa 10/30/02 Frozen Administrative Analyst Paula Reeve 07/11/02 merged w/EDC Community Services Officer Rhett Edmonds 02/28/03 frozen FY Rec. Program Coordinator S. Lowery 09/03/03 Refilled 2003 -04 AS Director Jesse Baloca 5/6/2004 Refilled FY Park Maint. Worker D. McLean 7/9/04 Refilled 2004 -05 Facilities Maint. Supervisor Robert Kirk 7/29/04 Refilled Park Maint. Supervisor Dennis Leong 9/9/04 Refilled Facilities Maint. Worker Joe Vega 9/17/04 Refilled Public Safety Officer Steve Prosser 10/21/04 Recruiting now Admin Analyst II/Econ Dev. Danielle Surdin 12/3/04 TBD Community Dev. Director Tom Sullivan 12/31/04 Recruiting now Admin Analyst I Cary Bloomquist 1/3/05 TBD Building Inspector Jeff Britton 1/21/05 Recruiting now Building Inspector Jim Sutherland Mar 2005 TBD Assistant Engineer Morgan Kessler May 2005 TBD We've created an incentive to leave Saratoga. Many staff salaries, because they are frozen, continue to fall farther behind other cities in the region. Taking a new position in a different city would allow staff to make up the 2 -3 year loss. Several staff members have already done so. Turnover is costly. While a small amount of regular turnover benefits the organization by bringing in new experience and skills, excessive turnover creates instability and is very costly both in time and in real dollars. HR staff defer other important duties while recruitment efforts are underway. Sometimes outside recruitment agencies are hired to conduct the process. Interim employee costs can be high and not always offset by regular staff savings. For example, the salary savings resulting from Jesse Baloca's departure mostly covered the compensation paid to Interim Finance Director Pete Kolf. However, because no local interim candidates were available, the City paid Pete's hotel and other related costs at an estimated cost of $14,000. New hires may be brought in at higher salary than existing employees. Because new hires have continued to increase their salary elsewhere while salaries here have been frozen, we may have to offer more than the salary of existing workers to be competitive. Alternatively, if we cannot offer competitive salaries, we may not be able to hire first choice candidates. 5 ATTACHMENT B Negative impacts on service to the community. Loss of continuity and institutional memory; more risk of mistakes by new employees with corresponding costs in legal fees and /or loss of public good will. Other negative effects. Employee morale is low and makes moving the organization forward difficult. A sense of uncertainty also negatively affects our ability to attract quality staff to fill vacancies. Performance evaluations —an important management tool —are viewed as worth little time or effort. With revenues continuing to lag behind expenditures and the increasing realization that our financial problems are structural, staff urges Council to revisit wage freeze decisions and consider reinstating some form of additional compensation to attract and retain quality employees. Council Policy Issues No Council articulated policies for its relationship with staff exist. Some examples of where policies could be set follow: What message to send to staff regarding compensation? Many cities have policies stating a goal i.e., remain competitive with other similar cities, attract high quality employees, etc., and then set salary ranges in line with that goal (i.e., regional average, 75' percentile, etc.). What type of employees to attract and /or retain? If we are looking to keep employees for most of their career then we focus on retiree benefits such as the retiree medical benefit. If we want to attract those in mid career then salary and health care while working are probably most important. How often salary surveys are to be conducted and how is data used? Many cities conduct the surveys annually or on a regular basis, and reset the salary ranges as an administrative matter. Accept that Saratoga serves as training ground for other cities? If not, what can be done within Saratoga's limited resources to reduce turnover? If so, should we develop and implement mechanisms to help address the negative impacts of constant turnover? For example, create an orientation process for each department and /or director position that helps transfer institutional memory. Document policies and procedures so that new employees have written guidelines that help service remain consistent. Types of Salary Compensation for Council Consideration Estimated costs of each compensation type for 2005 -06 for each employee group: 0 Estimated Cost COLA 1% $40,000 Step /Merit 5% for eligible employees (could be called "Performance Pay" $250,000 Market Adjustment To be determined Bonus /Incentive Pay 1% $40,000 0 ATTACHMENT B Staff believes the four compensation types listed above are most influential to address the turnover and some of the other issues that have been identified at this time. However, other compensation options exist such as increasing the retirement benefit or implementing deferred compensation contributions. With Council direction, staff will investigate these other options. Conclusion The organization has been asked to do more with less over the past few years and additional cuts will be challenging to find. Saratoga has become uncompetitive with other cities, and staff is starting to leave in large numbers. With the financial challenges we face and our history, attracting high quality employees who will work for the City for 3 -5 years with some opportunity for advancement here may be the best target. Discussion and action are needed to help shape Saratoga's future. Recommendations Staff recommends Council articulate a policy that will establish the City's position regarding the kind of employees they wish to attract and retain. We also recommend that Council reinstate a step increase mechanism effective July 1, 2005, and that it be removed from the negotiated MOUs and instead become incorporated into City policy. In Saratoga, step increases are called Merit Increases. We recommend Council reinstate the opportunity to advance up to 5% within the salary range each year; another name such as "Performance Pay" could be substituted to convey the intent to reward excellent performance. These actions would trigger meet and confer action with the employee groups. In addition, salary surveys should be conducted on a regular basis and staff suggests they be performed every two years. Salary range adjustments based on the survey results should then be made administratively and not as part of negotiations. If accepted, the salary data collected in spring 2004 would be applied to existing salary ranges. Staff further recommends that market adjustments (increasing actual salaries as a result of the salary range adjustment) be considered in future years.