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02/09/1989 - Minutes MINUTES: Committee of the Whole Thursday, February 9, 1989 6: 30 - 9:30 p.m. City Council Conference Room Suite 300, City Hall 324 South State Street In Attendance: Florence Bittner, Wayne Horrocks, Sydney Fonnesbeck, Alan Hardman, Tom Godfrey, Roselyn Kirk, Willie Stoler, Linda Hamilton, Lee King, Cam Caldwell, Christine Richman, Cindy Gust-Jenson, Mayor Palmer DePaulis, Mike Zuhl, Emilie Charles, Scott Bond, Lance Bateman, Buzz Hunt, Gary Mumford, Larry Failner, Gordon Hoskins, Louis Miller, Elwin Heilman, Duane Fuller, Dan Mule, Allen Johnson, Larry Spendlove, Brad Stewart, Charles Johnson, Barbara Speer, Roger Black, Press, Sgt. Mac Connole 1. Charles Johnson, Roger Black, and Barbara Speer, Peat Marwick Main and Company, briefed the City Council on the findings of the recently completed independent management audit of the Salt Lake City Department of Finance. Ms. Speer reviewed the process and methods used by the audits and briefed the Council on the significant findings. Ms. Speer stated that the Department is proficient in its day-to-day operations, but the overall mission and role of the Department is not clearly defined as it relates to the City as a whole or for the employees in the Department. Ms. Speer indicated that the auditors had discovered that some employees were performing functions which did not contribute to the role elected officials want the department to perform and, therefore, they recommend that the activities of those employees be redirected to perform greater oversight of other City Departments. Ms. Speer indicated that organizationally there are two functions which engage in activities unrelated to the overall mission of the Department of Finance. They are Business Licensing and Parking Administration. She stated that the Auditors recommend transferring business licensing to the Department of Development Services and parking administration to the Circuit Court. Ms. Speer also stated that the budgeting function in the City is fragmented in a number of Departments including the Finance Department, the Department of Development Services, the Department of Human Resources, and the Mayor's Office. The Auditors are recommending that all of the budgeting functions be consolidated to create a Budgeting Division within the Department of Finance. Council Member Tom Godfrey asked if the Auditors had investigated the costs of transferring parking administration back to the Circuit Court. He observed that when the City had decriminalized parking tickets, transferring administration and collection to the City, the revenue received from parking tickets had increased. Roger Black indicated that the recommendation concerning parking administration had been intended to be revenue neutral. He stated the recommendation is that the City contract with the state agency for the service, and redirect managerial resources to oversight activities. Council Member Sydney Fonnesbeck asked if the recommendation to move Business Licensing from the Department of Finance to the Department of Development Services was based upon a finding that the duties performed by business licensing fit better within the scope of the mission and goals of Development Services. Mr. Black stated that assessing the mission and goals of Development Services was not within the scope of their audit, but that business licensing would most likely fit well in Development Services. Council Member Roselyn Kirk asked why the auditors recommended relocating Risk Management to the Department of Finance. Mr. Black stated that when interviewing the Risk Manager it became apparent that the majority of interaction the risk manager has on a daily basis is with the Finance Department, not the Department of Human Resources. He indicated that the organization as a whole will benefit by facilitating information exchange and policy development. Council Member Florence Bittner asked the auditors to elaborate on their recommendations concerning the streamlining of small purchases. Ms. Speer stated that small purchases on a streamlined basis can be accomplished by using approved vendor lists without sacrificing internal controls. She indicated that the specifics of the streamlined process should be developed by the Department of Finance. Council Member Godfrey asked the auditors to elaborate on their recommendation that the City engage in long-range budgeting. He observed that everyone would agree that it is a good idea, but may not be very practical. Mr. Black stated that although it is difficult to anticipate some budgeting emergencies, it is always a good idea to fully assess the impact of current budget actions on future years. Council Member Horrocks asked the auditing team to elaborate on the SPANS process. He asked if the program measured productivity or perceptions of job roles. Ms. Speer indicated that the SPANS program measures types of activities performed by employees against activities expected by supervisors. She stated that the activities expected by supervisors are based upon the mission and goals of the entire department. Council Member Horrocks observed that the auditing team had indicated that the mission and goals of the entire department were not fully defined or communicated. He asked how employee activities could be measured against something which is not fully defined. Ms. Speer stated that the occurrence of unrelated activities is not wide-spread in the Department. She indicated that the auditors didn't uncover any information which would lead them to believe that the Department is significantly overstaffed. Council Member Horrocks indicated that it is his experience that the Purchasing Division always has a backlog of Purchase Orders. He asked how eliminating a clerical position in the Division could help solve this service problem. Ms. Speer stated that the work performed by the clerk could be incorporated in the job duties of other purchasing employees when the recommendations concerning small purchases are implemented. Council Member Alan Hardman asked what the recommended net reduction in staff is. Ms. Speer stated that the net reduction proposed is six. Council Member Stoler asked if the unrelated activities identified by the auditors are a result of a dedication to cross-training of employees. Ms. Speer stated that unrelated activities are those which management deem as unimportant, not cross-training activities. Mr. Black stated that one example is a position in property management which spends approximately 50 minutes per day copying rather than giving the information to the secretary or clerk to copy. Council Member Bittner asked if the recommendations for streamlining the Purchasing Division would result in decentralized purchasing. MS. Speer stated that all requisitions would be sent through the Purchasing Division but that the purchases would be made off of a "set list" rather than the buyers assessing and researching each purchase. Council Member Kirk stated that the recommendation that the Department of Finance expand its role of city-wide oversight appears to be the most significant recommendation in the audit. She asked for elaboration on exactly what the auditors meant by "oversight. " Mr. Black stated that it is the opinion of the auditors that the Department of Finance should be involved in all substantive financial decision rather than deferring to the judgment of the department head. He indicated that the Director of Finance will have a more complete view of what exactly is occurring in the City economically and would be better able to assess the overall feasibility of proposals. Council Member Bittner asked if the role that the Department of Finance currently takes is a result of the fact that, up until nine years ago, the City had a more decentralized Commission form of government. Mr. Black stated that that is possible. Council Member Stoler asked if the Department of Finance had been performing the duties originally expected of them. Mr. Black indicated that the tradition of approval in the Finance Department was, if there were adequate funds and pertinent procedures had been performed, approval was given. Mr. Black stated that that is fine except that sometimes department heads, as anyone does, have bad ideas. Council Member Sydney Fonnesbeck asked if the auditors foresaw the Department of Finance interfacing with the General Fund and Enterprise Fund departments in the same way. Mr. Black stated that the nature of the Department and the role of the advisory boards would determine the extent of the Departments interaction. Council Member Stoler asked if the auditors had identified any legislative bodies with independent audit teams. Mr. Black stated that there are a number of precedents for assigning the audit team to the legislative body, but that he felt the independent auditors should report to a full-time elected official or an independent audit committee. Mayor Palmer DePaulis asked how much time the auditors spent reviewing the Department of Finance processes and how much time they spent utilizing the SPANS process. Ms. Speer stated that 40% of the auditors time on-site was spent with SPANS, 60% in interviews and observation. Mayor DePaulis asked how the auditors verified the performance of the division or section. Mr. Black stated that they verified performance through observation. Ms. Speer indicated that the audit team had spent time charting time in different activities. Mayor DePaulis asked what type of relationship the auditors envisioned between him and the independent audit function. Ms. Speer stated that the audit function should be a department, not personal staff. 2. Lance Bateman, Director of Finance, reviewed his departmental response to the audit with the Members of the Council. He stated that departmental responses were based upon independent verification and analysis of evidence. He indicated that, of the major recommendations pertaining to reorganization, the Council needed to be aware of a number of issues. The first, concerning parking administration, is that as parking administration collects fines and fees, it fits into the Treasurers Office as the revenue collecting agent. Moving the internal auditing function would make internal management audits independent, but would not address the ongoing need of auditing internal controls to verify that procedures are being followed. Mr. Bateman stated that each of his Division Heads was present to address concerns in each of their areas. Buzz Hunt, City Treasurer, indicated that there a number of Statutory responsibilities which reside with the office of City Treasurer. He stated that the audit didn't address, in any section, the bonding duties of the City Treasurer. If all of the recommendations of the audit pertaining to his division are implemented, the City Treasurer would not have the resources necessary to fulfill the bonding requirements set forth in State law, City ordinance, or existing bonding documents. In the area of Business Licensing, Mr. Hunt stated that the administration had performed an audit of the function last summer which concluded that the licensing and collection should be functionally separate from enforcement activities to avoid possible conflicts of interest. In the area of Parking Administration, Mr. Hunt indicated that he had contacted Bill Vickery, State Court Administrator, to assess the willingness of the courts to take over the task of collecting parking ticket fines. He stated that Mr. Vickery had stated that it is not legally possible for the Courts to deal with civil collections such as the parking tickets. Gary Mumford, Manager of Auditing and Reporting, indicated that the recommendation to form an independent Auditing Department would strip his Division of personnel which he would still need to fulfill the reporting functions necessary in the City. Council Member Bittner indicated that the City Council should schedule a Committee of the Whole meeting to discuss in full the possibilities involved in establishing an independent auditing department. Mr. Mumford indicated that it is his opinion that the auditors did not adhere to generally accepted auditing procedures in formulating the findings and recommendations. He stated that he feels that the Council would find the audit more useful if they assigned their staff to review the audit findings and reconstruct the basis of the recommendations. Mr. Mumford indicated that it has been his experience as an auditor that audits are most successful when the auditor has worked with the auditee to help them recognize the need for a Correction. Council Member Bittner indicated that she is disturbed by the fact that Department personnel were focusing their response on the quality of the audit rather than on the specific findings. Larry Failner, Procurement Officer, stated that his concern is based upon definitional problems encountered by his employees when they were filling out the SPANS survey. He indicated that concerns with the validity of SPANS are important because the audit is based on SPANS. If the SPANS information is inaccurate, the audit is inaccurate. In the area of contract processing, Mr. Failner stated that the procedures haven't been fully implemented because of a lack of clerical staff. The audit is recommending the elimination of one clerk in his Division. Council Member Bittner indicated that perhaps by streamlining the purchasing process on small orders staff time can be freed up to address the contracting problem. She stated that the problems are such that the Council, Mayor, and Department could work together to solve them and create more effective government. Gordon Hoskins, Manager of Financial Information and Development, stated that the only concern he has with the way the SPANS survey was used is that, although management may not believe that certain activities by their employees are important to the overall mission, most of them must be performed by somebody. He indicated that because of this there would be no real_ increased efficiency, but simply a reassignment of work. Mr. Hoskins indicated that he is in favor of the recommendation to implement long-range budgetary planning and the best way to accomplish this is to incorporate all of the budgetary functions, including Risk Management, Capital Planning, and the Mayor's Analysts in one department. Mr. Hoskins stated that if this is done, however, the Council and the Mayor must understand that there will be an offsetting decrease in the amount of other duties performed by these positions and divisions. Mr. Hoskins indicated that another way to accomplish an increased budgeting capability would be to "refocus" the elements in question without actually physically consolidating the divisions. Mr. Hoskins stated that in connection with the recommendations to decrease the amount of signature authorization, he is uncomfortable with the decrease in control this would mean. Mr. Hoskins also indicated that the Council should be aware that the new computer systems recommended in the audit may be costly in the areas of development and implementation which would reduce the amount of real savings to be expected from the implementation of the audit recommendations. Mr. Bateman indicated that the intent of the Department is to redefine their role as recommended in the audit by developing a solid budgeting function and expanding its realm of control. Council Member Stoler asked how Mr. Bateman had viewed his role as Director of Finance. Mr. Bateman indicated that the Department had controlled spending by Department Heads to within their budgets. His Department was in charge of financial management while Department Heads management their departments. He stated that the Department of Finance could move in the recommended direction, but that the recommendation would be facilitated by moving budget analysts into the budgeting function. Council Member Hardman asked if Mr. Bateman's recent resignation had been a result of the audit. Mr. Bateman indicated that he and the Mayor had been discussing his resignation for some time. He had decided to resign prior to the FY 1989/90 budget process getting well underway and that his resignation coinciding with the release of the audit had simply been unfortunate timing. Council Member Bittner observed that a number of the findings in the audit are administrative which must be resolved in discussions between the Department and the Mayor. Mr. Bateman agreed, stating that the Department should view the audit as a starting point. Mr. Johnson stated that in the Departmental response there was a sense of pride in what the Finance employees do. He indicated that it is this sense which will move the Department forward in improving its operations. 3. Allen Johnson, Director of Planning and Zoning, reviewed a proposal to amend the zoning ordinance to allow churches and schools to be used, conditionally, as offices for charitable organizations. 1 r W. M. "WILLIE" S 0 ER, CHAIRPERSON ATTEST: i CI Y RT Management Audit Report Salt Lake City Finance Department Presentation to City Council February 1989 .=/ ''!Peat Marwick Approach • Conducted interviews • Reviewed available documentation • Applied SPANS • Compared Salt Lake City to other cities • Prepared draft report • Reviewed draft with Steering Committee and Finance • Prepared this final report 2ClallPeat Marwick f Objectives • Evaluate organization and staffing • Assess the philosophy of the Department • Perform an operations review • Determine extent Department has met the expectations of City officials and citizens • Evaluate adequacy of supporting activities, equipment and facilities Peat Marwick Major Findings and Recommendations • Mission and role of Department • Role expectations • Budgeting • Internal audit • Unrelated functions • Cost savings !! "Peat Marwick Other Findings • Cash management • Purchasing and property management • Budget and planning • Business licensing • Records management • Parking administration • Special assessments • Accounting and finance ! POI - g Peat Marwick y , SAL ' �, rTYCORPO IOI OFFICE OF THE CITY- COUNCIL SUITE 300, CITY HALL 324 SOUTH STATE STREET SALT-LAKE CITY, UTAH 84111 • 535-7600 MEMORANDUM To: Council Members From: Linda Hamilton Date: February 14, 1989 Re: Early Retirement Briefing Paper Attached is the briefing paper I prepared for your policy discussion on Early Retirement. When the briefing paper was prepared, the City Attorney's full legal opinion was not available to me. It is my understanding from Roger that he will opine that the Council does have the legal authority to make changes in the Early Retirement Program. I will transmit his full opinion to you as soon as I receive it. There are literally an infinite number of ways in which you can manipulate variables to change the Early Retirement Program. The second option which I propose seems to me to have several advantages, which are expressed in the report. If you choose to change variables other than those proposed, I will attempt to give you a projection of potential future liability. I am significantly dependent on data from Finance and Human Resources so I will be limited in the amount of analysis which can be completed between now and Friday. The more options you want evaluated by Council staff, the more time will elapse between your discussion and final action--which may increase the City's liability. The following are attachments to the main report: Attachment A - Net Cost Calculations for Early Retirement Attachment B - Early Retirement Costs by Department and Year Attachment C - Early Retirement General Fund Costs by Department and Year Attachment D - Early Retirement Other Fund Costs by Department and Year Attachment E. - Early Retirement Policy Effective September 26, 1988 Attachment F - Early Retirement Policy Effective January 1 , 1985 Please let me know if I can answer any questions before Thursday's Committee of the Whole discussion of this issue. cc: Mayor Palmer DePaulis Mike Zuhl Emilie Charles Karen Suzuki-Hashimoto All Department Heads City Council Staff EARLY RETIREMENT POLICY BRIEFING This briefing paper is intended to assist the City Council to identify the major issues which should be considered in establishing the City's early retirement policy. It is broken into the following sections: The current goals of early retirement; the costs and benefits of the existing early retirement policy; alternative early retirement policies and their costs and benefits. The Goals of the Mayor's Early Retirement Policy The Mayor's current early retirement incentive policy, as expressed in Executive Order 3. 11 .300, has the following stated policy goals: It is the policy of Salt Lake City Corporation to provide an award to retiring employees for their valued years of service to the City. The policy of the City is that this award, in addition to being an expression of gratitude, also serves as a cost-effective tool for the City to encourage eligible employees to retire. The Mayor's policy really has two goals. The first goal is to provide a benefit. to employees as a reward for years of valued service. This is a value judgment on the part of the Mayor that City employees should be rewarded, beyond regular retirement benefits, for their years of service. The second goal is to provide a cost-effective management tool for encouraging eligible employees to retire. Benefits and Costs of Current Program Benefits The early retirement incentive has resulted in less dollars being appropriated for personal services because the savings have exceeded the net costs. Attachment A shows the calculations for arriving at the net costs and savings resulting from early retirement. There are three reasons this happens. The primary method for achieving budgetary savings is to leave early retirees' positions vacant until the salary savings equal or exceed the benefit paid. Second, employees opting for early retirement are usually replaced by less senior employees with lower salaries. On average, replacement employees have been hired at 19% lower salary which equals a monthly reduction of $487 and an annualized salary reduction of $5,844 per early retirement. Finally, early retirement provides opportunities to reorganize and streamline City operations while minimizing displacement and resistance among employees. The program has facilitated the elimination of positions. Because of reorganizations, 31 positions have not been filled between July 1 , 1982 and December 1 , 1987. (It was assumed that positions that have not been filled for more than 12 months would not be filled. Some positions left vacant in the last 12 months may not be filled either, but they were not included in this total. ) 1 There may be other benefits which are not easily quantified. It can be argued that the City benefits from more senior people leaving and allowing the movement of those with less tenure to move into the positions. New people may bring a new perspective which result in new and creative solutions to problems. Particularly in the public safety area, early retirement may provide a mechanism for retiring employees who may not be as physically capable of performing some of the functions of the position, resulting in better service to the public. The current policy is beneficial for morale in two ways. First, it communicates to employees that they are valued and that they will be rewarded monetarily for remaining in City government. Second, it provides an opportunity for upward mobility for less senior employees, providing motivation for them to remain with the City. In summary, the benefits of the current early retirement program are: 1) It has saved the City dollars in the budget; 2) It can be argued that better service is delivered by bringing in new employees with a fresh perspective; 3) It can be argued that it results in employees more physically capable of performing some functions in public safety; and 4) It can be argued that it has a positive affect on morale (at the very least, it does not have a negative affect on morale). Costs The total costs of the early retirement program have averaged $898,622 per year between its inception in fiscal year 1982/83 and 1987/88. In the first three months of fiscal year 1988-89 costs accrued equal $692,812. It appears very likely that costs for the current fiscal year will significantly exceed the yearly average of previous years. The increased costs can probably be attributed to anxiety among employees about possible changes or elimination of the early retirement program. Since the beginning of the program, the average total benefit paid per employee has been $23,861 , with an average of 41 - - employees taking advantage of the program each year. The total early retirement costs, by department, since the beginning of the program are as follows: % of Total % of Total General Fund GF Cost Other Other Cost Administrative Services $ 69,233 1 .3% $18,506 3.2% Airport 0 • 0 65,298 11 .4% Attorney's Office 0 0 0 0 • City Council 0 0 0 0 Development Services 189,990 3.4% 0 0 Finance 86,568 1 .6% 0 0 2 • L % of Total % of Total General Fund GF Cost Other Other Cost Fire 2,174, 159 39.5% 0 0 Mayor's Office 18, 152 0.3% 0 0 Parks and Recreation 131 ,388 2.4% 0 0 Police 2,595,352 47. 1% 0 0 Public Utilities 0 0 479,825 83.6% Public Works 246,088 4.5% 0 0 Redevelopment Agency 0 0 9,991 1 .7% TOTAL $5,510,930 100.0% $573,620 100.0% Of the total costs of early retirement, 78.4% are in public safety. Public safety represents 86.6% of all general fund early retirement costs. The primary reason that most costs are incurred in the Public Safety departments is that the incentive is offered at 20 years, 10 years earlier than the other City departments. If the Council chooses to modify the Early Retirement Program in order to reduce costs, the impact will be felt the most in Police. and Fire. A side benefit of any changes to reduce costs in the public safety departments may be the establishment of more equitable treatment of other City employees in comparison with Police and Fire. It should be noted that the costs discussed above are total costs. It is probably more equitable to calculate net cost increase of the early retirement program above the cost for regular retirement. If the 255 City employees had --_ retired under the City's regular retirement program, they would have been entitled to be paid for all vacation hours accrued plus 25% of their unused sick leave. Thus, of the $6,084,550 total costs, $1 , 163, 129 for 25% of unused sick leave and $775,403 vacation time should be deducted for a total net cost of $4, 146,018. Thus the average net benefit per early retiree (the amount by which early retirement exceeded regular retirement) is $16,258. The costs of the early retirement benefit can be paid in two ways. First , the Council could budget for the costs. When this direction is taken, there are significant up front annual costs. Savings are only achieved over many years of paying lower salary to the replacement employees. So, while you could expect to see lower salary costs in the budget, the Council would probably not see any net savings because of having to budget up front for early retirement benefits. The second way in which the benefits can be paid is to ask departments to absorb them within current appropriations. Realistically, departments have one primary method for absorbing those costs within current appropriations ; they leave the position vacant until the salary savings accrued equal or exceed the cost of the early retirement benefit. Historically, the City has not budgeted for the total costs of early retirement and departments have been asked to absorb most of the costs by 3 t leaving positions vacant. In the fiscal year 1988-89 budget no funds were appropriated in the non-departmental budget for early retirement. While it can be documented that the early retirement program has resulted in less dollars in the budget, the practice of leaving positions vacant to absorb the costs does have a cost in terms of the value of the lost service to the public. Public funds are expended for position from which the public no longer receives service or benefit. Long-term vacancies of some positions clearly impact service delivery to the public. A current example is the inability of the Fire Department to fill positions because they are paying early retirement benefits; as a result, they must sometimes run 3 person engine crews rather than the 4 person crew which provide better fire response and emergency medical service. In assessing the cost/benefit effect of the early retirement program, the value of the service which would have been provided must be identified. If it is assumed that salaries of the vacant positions equal the value of the service to the public, it can be argued that the value of the lost service equals the salary savings, and that there is no real net savings. There are other costs which are more difficult to quantify. First , the City loses the services of its most experienced, knowledgeable, and in some cases, most productive employees. Additionally, there is undoubtedly a cost associated with long-term vacancies due to loss of leadership and supervision which may lead to reduction of productivity, efficiency, and effectiveness of affected portions of the City's labor force. There may also be negative affects on morale as a result of vacancies creating vacuums in leadership. Another cost is the loss of the experience and knowledge of the City's most senior employees. In summary, the costs of the early retirement program are: 1) Loss of service to the public ; 2) Loss of leadership and supervision; 3) In some situations there may be a negative affect on morale resulting from long-term vacancies; - _ and 4) Loss of the experience and knowledge of senior employees. Policy Options and Recommendations I strongly recommend that the City Council attempt to reach a consensus on the Early Retirement Program during Committee of the Whole on February 16 so that formal action can be taken by the Council February 21 . Continued discussion and expression of dissatisfaction by the Council will cause currently eligible employees to take advantage of the program now for fear that the benefit will be eliminated or substantially modified in the near future. Departments have no way of paying for those benefits other than maintaining even more vacancies. I do not think the departments will be able to absorb large number of new early retirements within existing budgets without affecting service levels. 4 Options A. The Council could choose to eliminate the early retirement incentive . Public Safety personnel would still have the opportunity to retire at 20 years, but the City would not have the obligation to pay for their sick leave or two months base salary. The advantage of this option is that it eliminates future liability. The disadvantage is it is likely that the vast majority of currently eligible employees will sign up to retire between Thursday and when an ordinance is adopted. City departments carried over $551,389 early retirement costs from last year. In addition to this amount, departments have already incurred $1 , 191 ,459 liability for early retirement of employees who have already filed for the program during this fiscal year. Finally, if all employees who are currently eligible file for early retirement between now and adoption of an ordinance, $3,314,285 additional liability will be incurred for fiscal year 1989/90. If the Council chooses to eliminate the program, the projected liability for the period from July 1 , 1988 through January 1 , 1990 ( 18 months) , will be as follows: Liability Carried Over from FY 87/88 $ 551,389 Liability for Retirements in FY 88/89 (Already Paid) 1 , 145,318 Liability for Retirements in FY 88/89 (To Be Paid) 46, 141 Total Liability in FY 88/89 $1 ,743,299 Liability for FY 89/90 (All currently eligible $3,314,285 employees who have not signed up) TOTAL 18 MONTH LIABILITY (OPTION 1 ) $5,057,584 Thus, total liability which departments would be asked to absorb within an 18 month period would be $5,057,584. In the next 10-1/2 months departments would have to be asked to absorb $3,360,426 in early retirement costs ($46, 141 + $3,314,285). It is unlikely that departments would be able to absorb these costs within existing budgets without affecting service delivery. B. The Council could choose to modify the public safety early retirement program in a way which maintains the program, reduces the long-term liability, and reduces the incentive for all eligible employees to file for the program before the Council can adopt an ordinance--thus reducing the short-term liability. This can be accomplished by doing the following: ( 1) Provide an early retirement incentive only once after 25 years of service. Employees could choose to retire before or after that-date, but the City would not provide a monetary incentive to do so. - (2) Cap the amount of sick leave for which retiring employees could be reimbursed at six months. (3) Provide a benefit of two months base pay. (4) Under any circumstances the City would have to pay for unused vacation time. (5) Employees would become eligible the July following their 25th anniversary date. (6) The monetary calculation of their early retirement benefit would be based on their salary which was effective on their 25th anniversary date. Under this type of structure, public safety employees would only have one opportunity to decide to choose early retirement. This makes the program easier to manage because each year Police and Fire would know what their liability would be. It is also likely that not all eligible employees would opt out at 25 years because they would be too young to collect social security 5 or other pension benefits, and may find it difficult to maintain their current life style without those sources of supplemental income. To the extent that these circumstances applied, costs would be reduced. By capping the amount of sick leave for which early retirees could be reimbursed to six months, you would reduce the overall benefit to roughly ten months of annual salary or less. The reason for this is that the most senior employees can only carry over 35 days of vacation from December 31 of each calendar year to January 1st of the following calendar year. The most leave they could accrue from that date to July 1 would be 12 days. Total liability would then be six months sick leave plus two months base pay plus 47 days vacation (approximately 2. 1 months). Total liability would be a maximum of 10 months rather than the current 12 months. By continuing to provide payment for two months base pay you maintain the benefit at a high enough level to likely avoid a massive out-migration of employees between 20 and 25 years service and thus mitigate your short-term liability to those with 25+ years of service. You also provide a continuing benefit for senior employees and a management tool which enables the administration to retire employees and gain the advantages discussed early in the Benefits portion of this briefing. The are two disadvantages to this option. First, it is likely that all currently eligible employees with 25 or more years service will sign up for the program between now and when the Council is able to take final action. The estimated liability is $1 ,071 ,381 . This is, however, significantly lower than the liability you are likely to face if you eliminate the program. The second disadvantage is that it may create an incentive for employees to abuse sick leave, using it instead of vacation time, to bring the level of unused sick leave down to six months while maintaining maximum allowable vacation accrual. This can, however, be managed by the administration. Liability from July 1 , 1988 through January 1 , 1990 is projected as follows: Liability Carried Over from FY 87/88 $ 551 ,389 Liability for Retirements in FY 88/89 (Already Paid) 1 , 145,318 Liability for Retirements in FY 88/89 (To Be Paid) 46, 141 Total Liability in FY 88/89 $1 ,743,299 Liability for FY 89/90 (all currently eligible $1 ,071 ,381 employees with 25+ years of service) TOTAL 18 MONTH LIABILITY (OPTION 2) $2,814.680 Under this second option the City is projected to have a total 18 month liability $2,814,680 as opposed to the $5,057,584 short-term liability under option 1 . During the next 10-1/2 months a total of $1 , 117,522 liability is projected ($46,141 + $1 ,071 ,381) under this option rather than the $3,360,426 projected under the first option. It is more likely that departments would be able to absorb this liability within current budgets without seriously reducing service levels. 6 The two options discussed above are the only practical options identified. There are myriad ways in which to manipulate the variable in the current early retirement program, but changing many of them would setup negative incentives which would likely negatively affect the City. An example might be the notion of simply limiting the benefit of unused vacation and sick leave to be paid to six months. This would have the undesirable affect of providing motivation to employees to use all their vacation time so that the City would still be paying for six months sick leave. If you stipulate that only four months of sick leave will be reimbursed, you create an incentive for employees to abuse their sick leave to bring it down to the four month level. Virtually all other options explored created negative incentives which would adversely affect the City in similar ways. 7 Attachment A NET COST CALCULATIONS FOR EARLY RETIREMENT Total Costs: FY 82/83 through 9/30/88 $6,084,715 Sick Leave which Would be paid under regular retirement. (1, 163, 129) (25% of unused) Vacation (paid under any circumstances) ( 775,403) Net Cost $4,146,018 Attachment B ' ACTUAL EARLY RETIREMENT BENEFITS PAID BY DEPARTMENT BY FISCAL YEAR DEPARTMENT FY 82/83 FY 83/84 FY 84/85 FY 85/86 FY 86/87 FY 87/88 FY 88/89 TOTAL % OF TOTAL AIRPORT $18,979 $40,693 $5,625 $65,298 1.1% DEVEL. SER. $32,395 $55,090 $8,665 $93,840 $189,990 3.1% FIRE $135,415 $623,611 $115,399 $372,856 $309,007 $258,318 $359,552 $2,174,159 35.7% FLEET $2,807 $15,698 $18,506 0.33 WATER $11,501 $54,642 $88,149 $49,747 $4,664 $257,701 $13,421 $479,825 7.9% PUB. WORKS $61,191 $56,668 $15,229 $12,420 $25,687 $62,262 $12,632 $246,088 4.0% PARKS $34,019 $32,164 $47,898 $17,307 $131,388 2.2% POLICE $77,005 $572,437 $105,940 $529,262 $367,988 ,$635,512 $307,208 $2,595,352 42.7% ADMIN. SER. $38,505 $4,489 $7,093 $19,147 $69,233 1.13 FINANCE $18,320 $32,032 $36,216 $86,568 1.4% MAYOR $18,152 $18,152 0.3% REDEVELOPMENT $9,991 $9,991 0.2% TOTAL $373,312 $1,451,437 $356,750 $1,136,098 $737,372 $1,336,771 $692,812 $6,084,551 100.0% Attachment C ACTUAL EARLY RETIREMENT BENEFITS PAID BY GENERAL FUND DEPARTMENTS BY FISCAL YEAR . DEPARTMENT FY 82/83 FY 83/84 FY 84/85 FY 85/86 FY 86/87 FY 87/88 FY 88/89 TOTAL % OF TOTAL DEVEL. SER. $32,395 $55,090 $8,665 $93,840 $189,990 3.4% FIRE $135,415 $623,611 $115,399 $372,856 $309,007 $258,318 $359,552 $2,174,159 39.5% PUB. WORKS $61,191 $56,668 $15,229 $12,420 $25,687 $62,262 $12,632 $246,088 4.5% PARKS $34,019 $32,164 $47,898 $17,307 $131,388 2.4% POLICE $77,005 $572,437 $105,940 $529,262 $367,988 ,$635,512 $307,208 $2,595,352 47.1% ADMIN. SER. $38,505 $4,489 $7,093 $19,147 $69,233 1.3% FINANCE $18,320 $32,032 $36,216 $86,568 1.6% MAYOR $18,152 $18,152 0.3% TOTAL $340,024 $1,396,795 $268,600 $1,029,959 $727,082 $1,069,078 $679,392 $5,510,931 100.0% Attachment D ACTUAL EARLY RETIREMENT BENEFITS PAID BY ENTERPRISE AND INTERNAL SERVICE FUNDS BY FISCAL YEAR DEPARTMENT FY 82/83 FY 83/84 FY 84/85 FY 85/86 FY 86/87 FY 87/88 FY 88/89 TOTAL % OF TOTAL AIRPORT $18,979 $40,693 $5,625 $65,298 11.4% FLEET $2,807 $15,698 $18,506 3.2% WATER $11,501 $54,642 $88,149 $49,747 $4,664 $257,701 $13,421 $479,825 83.6% REDEVELOPMENT $9,991 $9,991 1.7% TOTAL $33,288 $54,642 $88,149 $106,138 $10,290 $257,701 $573,620 100.0% Attachment E SALT LAKE CITY POLICY MANUAL Effective Dote Number EXECUTIVE ORDER September 26, 1988 3. 11.300 Subject EARLY RETIREMENT INCENTIVE PROGRAM Reference Rescinds Amends 3. 11.300 dated 4-1-85 Distribution Re-evaluation Dale ALL DEPARTMENTS September 26, 1990 Authority: PALMER DEPAULI5, /f No. Pages Signature f cef, t,c�c/ .0 l/M,�IYO r/�'.t�.�..� 7 I. POLICY It is the policy of Salt Lake City Corporation to provide an award to retiring employees for their valued years of service to the City. The policy of the City is that this award, in addition to begin an expres- sion of gratitude, also serves as a cost-effective tool for the City to encourage eligible employees to retire. II. PURPOSE AND OBJECTIVE A. The purpose of this order is to establish a retirement incentive program and to define responsibilities relating to the implementa- tion and maintenance of said program. B. The objective of this order is to design a program which will encompass employees at several career stages. Additionally, the program is designed to cover the following groups of employees utilizing different incentive options: - : 1 . Members of the Public Safety Retirement System 2. Members of the Firefighters Retirement System 3. Members of the Public Employees Retirement System 4. Members of alternative retirement systems established for employees who have elected to opt out of the Utah State Retire- ment System (Executive Retirement Program) . III. INCENTIVE PROGRAM A. Incentive A Eligibility 1 . Employees who have 30 years of service in the Utah State Retirement System* shall be eligible to retire from Salt Lake City Corporation at any age. (*Includes Public Employees Retirement System [Contributory and Non-Contributory], Public Safety Retirement System and Firefighters Retirement System. ) EXECUTIVE ORDER - EARLY RETIREMENT INCENTIVE PROGRAM 3. 11 .300 PAGE 2 AWARD: Eligible employees will receive two (2) months' base pay, 100% of their accrued vacation, and 100% of their accrued sick leave. The total incentive award shall not exceed one ( 1) times the employee's annual salary. 2. Employees in the Public Employees Retirement System (Contributory and Non-Contributory) who have 30 years of service but who do not exercise their option to retire under Incentive A. 1. , because they are not yet eligible for Social Security benefits, may retire under Incentive A.2. at 62 years of age. AWARD: Eligible employees will receive two (2) months' base pay, 100% of their accrued vacation, and 100% of their accrued sick leave. The total accumulative incentive award shall not exceed one ( 1) times the employee's annual salary. Employees will not be eligible for Incentive A. 1 . if they do not retire with 30 years of service, or for Incentive A.2. after the year in which they are 62. B. Incentive B Eligibility Employees 62 years of age who have completed 10 or more years of service. AWARD: Eligible employees will receive one ( 1) month's base pay, 100% of their accrued vacation, and 100% of their accrued sick leave. The total incentive award shall not exceed 100% of the employee's annual salary. C. Incentive C Eligibility Employees 65 years of age who have completed at least four (4) years of service. AWARD: Eligible employees will receive one (1 ) month's base pay, 100% of their accrued vacation, and 100% of their accrued sick leave. The total incentive award shall not exceed 100% of the employee's annual salary. D. Incentive D Eligibility Employees who have completed at least 20 years of service in the Public Safety or Fire Retirement System may retire under the Early Retirement Incentive Program at 20, 25 or 30 years of service. AWARD: 1 . Eligible employees with 20 years of credited service will receive upon retirement two (2) months' base pay, 100% of accrued vacation, and two-thirds (66.7%) of accrued sick leave. This award applies to eligible employees retiring with 20, 21 , 22, 23 and 24 years of service. EXECUTIVE ORDER - EARLY RETIREMENT INCENTIVE PROGRAM 3. 11 .300 PAGE 3 2. Eligible employees with 25 years of credited service will receive two (2) months' base pay, 100% of accrued vacation, and three-fourths (75%) of accrued sick leave. This award applies to eligible employees retiring with 25, 26, 27, 28 and 29 years of service. 3. Eligible employees with 30 years of credited service will receive two (2) months' base pay, 100% of accrued vacation, and 100% of accrued sick leave. Public Safety and Fire Department employees are not eligible for the Early Retirement Incentive in D.3. after they have more than 30 years of credited service. In no event will the award exceed one times the annual base salary. The Police and Fire Department will notify their employees of their eligibility. It is the employee's responsibility to inform his/her department of the year in which they will retire. IV. RESPONSIBILITIES A. Human Resource Management 1 . Coordinate with department representatives to determine eligibility for award. 2. Calculate incentive award and prepare all relevant paperwork to effectuate payment. 3. Maintain records on all incentive payments. B. Finance 1 . Coordinate with Human Resource Management to effectuate payment of incentive awards. 2. Audit incentive award calculations. 3. Maintain records on all incentive payments. C. Departments Coordinate with Human Resource Management to determine eligibility of employees and report all relevant information regarding sick leave and vacation. D. Employees who purchase ANY service time from the Utah State Retirement System to help qualify for this incentive must notify Human Resource Management so that notice of eligibility can be given in a timely and accurate manner. . EXECUTIVE ORDER - EARLY RETIREMENT INCENTIVE PROGRAM 3. 11 .300 PAGE 4 V. IMPLEMENTATION A. Employees who are eligible to retire under this incentive program will be notified by Human Resource Management by May 1 of each calendar year. B. Employees wishing to exercise their option to retire under the incentive program must notify their department head and Human Resource Management between July 1 and July 14 of each calendar year. C. Eligible employees must retire (and be off the payroll) during the window period of July 1 through August 31 of each calendar year. D. Employees who are eligible to retire with the Early Retirement Incentive may retire outside the window period of July 1 to August 31 , but will not be paid the incentive award until the next regular window period. E. Employees who are eligible for the Incentive Award after a window period will be eligible to be paid for the incentive due them, during the next window period in the following fiscal year. VI . PAYOUT Eligible employees will receive payout of their respective retirement incentive, only during the window period, in the following manner: 50% during retirement within the window period and 50% six months later. Expenditures for Early Retirement Incentive payouts will be charged in the fiscal year that payouts are made. Departments must leave the position which has been paid out vacant until the cost of the payout is made up in the budget. EXECUTIVE ORDER - EARLY RETIREMENT INCENTIVE PROGRAM 3. 11 .300 PAGE 5 EARLY RETIREMENT INCENTIVE PROGRAM DATE DEPARTMENT/DIVISION NAME OF EMPLOYEE (Please Print) I wish to take advantage of the Early Retirement Incentive Program implemented by Salt Lake City Corporation. I plan to retire and be off the payroll on (Date) I understand that I will receive 50% of the incentive payment to which I am entitled during the window period and 50% six months later. I further understand that I will not be eligible to return to full-time work with Salt Lake City Corporation after my retirement payments under any existing compensation plan. I DO NOT WISH to take advantage of the Early Retirement Incentive Program. I understand that I forfeit all of the Early Retirement Incentives that I am eligible for under this program, but that on the date I choose to retire I will receive 100% of my accumulated vaca- tion and 25% of my accumulated sick leave as provided for under the current compensation plan. - = EMPLOYEE SIGNATURE DEPARTMENT HEAD HUMAN RESOURCE MANAGEMENT - EXECUTIVE ORDER - EARLY RETIREMENT INCENTIVE PROGRAM 3. 11 .300 PAGE 6 APPLICATION FOR EARLY RETIREMENT I hereby submit an application for early retirement from employment with SALT LAKE CITY CORPORATION (hereinafter "City"), under the City's Early Retirement Incentive Program, as specified in Order No. of 19 My application is based upon the following compensation incentives: Retirement Benefits From Salt Lake City Corporation Month(s) base pay $ 100% vacation $ % sick leave $ TOTAL $ Amount of first payment Date of first payment Amount of second payment Date of second payment Retirement Benefits Under Utah State Retirement Act I understand that the foregoing compensation is in addition to any retirement benefits provided under the provisions of any applicable State Retirement Act. In consideration of the foregoing: 1 . I hereby submit my resignation from employment with Salt Lake City Corporation. Such resignation shall be effective upon final approval by the City of this application. Under the terms of my resignation, I understand that my last day of employment shall be 2. I expressly waive all rights to full-time employment by the City and agree not to seek full-time reinstatement or re-employment with the City at any time. 3. I completely waive and release Salt Lake City, its officers and employees, from all claims to compensation and all other awards, claims, obligations, or actions arising out of or in connection with my employment, except as has been set forth above. (This does not include your statutory rights under Worker's Compensation Law.) EXECUTIVE ORDER - EARLY RETIREMENT INCENTIVE PROGRAM 3. 11 .300 PAGE 7 4. I understand that I can prepay my health and life insurance premiums for a minimum period of 36 months or until age 65. The premiums will be placed in a non-interest bearing account. Premiums will be deducted from this account on a monthly basis to pay for continued coverage. Premium rates are not guaranteed from year to year and depend upon group experience. 5. I further understand that I will not receive dental benefits once I retire. I understand that my beneficiary will be eligible for a $1 ,000 life insurance benefit upon my death and that my dependents will be eligible for the same $1,000 life insurance benefit as long as I continue to cover them. I certify that I have read the foregoing document and am fully aware of its contents. Name Date STATE OF UTAH ) :ss. County of Salt Lake) On the day of , 19 ,.personally appeared before me , the signer of the foregoing instrument, who duly acknowledged to me that he/she executed the same. NOTARY PUBLIC, residing in Salt Lake County, Utah My Commission Expires: Approvals Department Date Human Resource Management Date • Attachment F • • SALT LAKE CITY POLICY MANUAL • EXECUTIVE ORDER Effective Date Number January 1, 1985 3.11.300 Subject EARLY RETIREMENT INCENTIVE PROGRAM Reference Rescinds Executive Order Amends 3.11.300 dated 7/1/84 • Distribution Re-evaluation Date ALL DEPARTMENTS January 1, 1986 Authority: TED L. WILSON, MAYOR 4t No. Pages Signature 7 I. POLICY It is the policy of the Salt Lake City Corporation to provide an award to retiring employees for their valued years of service to the City. The policy of the City is that this award, in addition to being an • expression of gratitude, also serves as•a cost effective tool for the City to encourage eligible employees to retire. • II. PURPOSE AND OBJECTIVE • A. 'The purpose of this Order is to establish a retirement incentive program and to define responsibilities relating to the implementa- tion and maintenance of said program. B. The objective of this Order is to design a program which will encompass employees at several career stages. III. RETIREMENT COMMITTEE ESTABLISHED There is hereby established a Retirement Committee chaired by the Risk Manager with representatives from: Utah State Retirement System, Public Safety Retirement System, Office of Personnel Management, Fire Retirement System, representatives from Medicare and Social Security and an estate/money management consultant. This Committee shall hold formal training at least twe times per year inviting all employees of Salt Lake City Corporation who are eligible for retirement incentives. It is the responsibility of this Committee to ensure that adequate information is provided to employees consider- ing retirement which will assist them in determining and evaluating their retirement needs. If for any reason the employee was not given at least 30 days' notice by the responsible department or Risk Management then the person's eligibility shall be extended for that amount of time. EXECUTIVE ORDER - EARLY RETIREMENT INCENTIVE PROGRAM 3.11.300 • PAGE 2 • IV. INCENTIVE PROGRAM �- A. Incentive A Eligibility 1. Employees who have at least 30 years of service shall be eligible to retire from Salt Lake City Corporation at any age. Award: Eligible employees for this retirement incentive will receive two (2) months' base pay, 100% accrued vacation, and 100% accrued sick leave. The total accumulative incentive award shall not exceed one (1) times employee's annual salary. 2. Employees in the Utah State Retirement System who have at least 30 years of service but who do not exercise their option to retire under Incentive A.1. because they are not eligible for Social Security benefits may retire under Incentive A.2. at 62 years of age. Award: Eligible employees for this retirement incentive will receive two (2) months'. base pay, 100% accrued vacation, and 100% accrued sick leave. The total accumulative incentive award shall not exceed one (1) times employee's annual salary. • B. Incentive B Eligibility . • • Employees 62 years of age who have completed .10.or more years of service. Award: Eligible employees for this retirement incentive will receive one (1) months' base pay, 100% accrued vacation, and 75% accrued sick leave. •The total accumulative award shall not exceed three quarters (3/4) of the employee's annual salary. C. Incentive C Eligibility • Employees 65 years of age who have. completed between 4 and 12 years of service. • Award: Eligible employees for this retirement incentive will receive one (1) months' base pay, 100% accrued vacation and 50% accrued sick leave. The total accumulative incentive award shall not exceed one-half (1/2) of the employee's annual salary. • EXECUTIVE ORDER - EARLY RETIREMENT INCENTIVE PROGRAM 3.11.300 __, PAGE 3 D. IncentiWi igibility Employees not otherwise included in collective bargaining agreements who have completed at least 20 years of service under the-Pub Safety Retirement System or Firemen's Retirement System may retire under the EarTy Retirement Incentive Program. at 2.0, e5 or 30 years of service. Award: Eligible employees with 20 years of .credited service will receive upon retirement two (2) month's base pay, 100% of accrued vacation and two-thirds (2/3) of accrued sick leave. Eligible employees with 25 years of credited service will receive upon retirement two (2) month's base pay, 100% of accrued vacation and three-fourths (3/4) of accrued sick leave. Eligible employees with 30 years of credited service will receive upon retirement two (2) month's base pay, 100% of accrued vacation and 100% of accrued sick leave. In no event will the award exceed one times the annual base salary. The Police or Fire Department will notify their employees of their eligibility. It is the employees' responsibility to inform their department of the year in which they will retire. V. IMPLEMENTATION This Executive Order will take effect January 1, 1985. The Mayor' s Office may grant eligiblity extensions or a reduction in notification on an individual basis for extraordinary reasons. Persons eligible under Incentives A, B and C must retire six months after the date they are eligible under the requirements stated herein. Employees falling in the Incentive A.2 and D categories may exercise their option without the six-month restriction. Eligible employees shall give their Department Head 30 days' notice prior to exercising their option to retire. EXECUTIVE ORDER — EARLY RETIREMENT INCENTIVE PROGRAM 3.11.300 PAGE4 The Police or Fire Department will notify their employees of their eligibility. It is the employees' responsibility to inform their department of the year in which they will retire. V. IMPLEMENTATION • •• • - This Executive Order will take effect January 1, 1985. The Mayor's Office may grant eligibility extensions or a reduction in notification on an individual basis for extraordinary reasons. .: Persons eligible under Incentives A, B and C must retire six months after the date they are eligible under the requirements stated herein. Employees falling in the Incentive A.2 and D categories may exercise their option without the six month restriction. Eligible employees shall give their Department Head 30 days' notice prior to exercising their option to retire.