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Appendix B
Expenses
Operating Costs
Operating Costs are ongoing and one-time costs the City incurs in order to provide
services and pursue Council and community goals. These Costs include Employee
Services, Operations Costs, Special Programs and Projects, and Capital Projects.
Employee Services
Employee Services are typically about 60% - 65%
of General Fund expenditures and comprise all of
the costs for employee salaries and benefits.
Employees are grouped into five different
categories or bargaining units. (Atascadero Police
Association, Atascadero Firefighters Bargaining
Unit, Local 620 Service Employees International
Union, Non-Represented Professional, Mid-
Management, Management, and Confidential
Employees, and Non-Represented Part-time
employees.) Salaries and benefits for each of the
three represented bargaining units are set forth in
Memorandums of Understanding (MOUs). Pay
and benefits for Management and Confidential
employees are governed by a resolution of the Council and pay for part-time employees
are governed by administrative policy.
The City is a service organization and it is the City staff that provide services to the
community. However, determining the number of employees and the salary rates of each
employee is a delicate balancing act with the associated costs. The more employees the
City hires, the more hours of service that can be provided to the community and the more
costs the General Fund will bear. If there are too few staff, the sufficient services will not
be provided to the people of Atascadero, but if the City is staff-heavy, then the City might
not be able to afford other items that might be as or more important at the time.
While there are some differences in benefit packages between jurisdictions, the City has
historically been amongst the lowest total compensation for most positions at the City.
While compensation is often not the only reason an employee chooses to work for an
employer, when there are significant differences in pay, it is an important consideration.
Because the cost of living is high in the Central Coast area, and neighboring
jurisdictions are able to pay more, the City’s low wages can be a barrier to attracting,
hiring and most importantly, retaining, professional employees. This has a large effect
on City operations as vacancies lead to even lower staffing levels, inefficiencies,
additional incurred costs as new employees are trained, and losses of institutional
knowledge when key employees leave.
Measure D-20 made large strides toward enhancing staff salaries and helping to bring
them into better alignment with other agencies. However, at the same time that
Atascadero voters passed Measure D-20, voters in other cities passed similar
measures. Those other agencies were able to use their new sales tax measure
65%
27%
8%
2024-25 Budget by Category
Employee Services Operations Other
revenues toward increasing salaries at their agencies. The labor market is a dynamic
environment, and while strides forward definitely help Atascadero from falling further
behind, they don’t necessarily put us near the head of the pack as neighboring agencies
continue to sharpen their competitive edge as well.
Atascadero has always been lean on staffing levels and carefully considers adding staff
only when necessary and when it makes sense in the long run. There are times when
service level demand increases in the short-term, and in such cases, the City does not
over-hire and instead finds alternate solutions to meet the short-term needs.
Along with the number of staff and the rate of the salary schedules, the following issues
also impact the costs of Employee Services.
Minimum Wage
California’s minimum wage has seen significant increases in recent years. The
minimum wage for the City’s part-time staff in 2017 was $10.50 per hour. Since then,
minimum has increase to $16.50 per hour. This is a 57% increase in costs since 2017,
and definitely impacts City operations. Budgeted amouns allocated to part-time
employees are based on a lump sum dollar amount versus hourly rates times the
number of expected hours. Therefore, the increases in hourly wages have affected how
many hours the lump sum budget will buy, or alternatively, the lump sum amount will
require increases in order to provide the same number of staff hours at a higher hourly
rate. Increases are difficult due to the limited resources the City has to work with, and
the City continues to compete not only with other agencies for part-time help, but also
with private industry. This continues impact the City’s ability to hire part-time staff to
provide City services. Many of the part-time employees work in recreation-related
activities where additional recovery of costs may not be the best option.
CalPERS Retirement
The City is enrolled in CalPERS to provide employees fixed benefit retirement plans. In
2012, the Council adopted pension reform that separates the City’s retirement benefits
into three different tiers: 1) existing employees, 2) employees hired after 7/14/12, but
already part of CalPERS, and 3) employees hired after 1/1/13 not previously part of
CalPERS. Each tier has a related formula that is used to calculate future benefits.
These changes to retirement plans are consistent with the California Public Employees’
Pension Reform Act (PEPRA).
Details of each of the tiers for Safety and Miscellaneous are in the following tables:
Tier 1 Tier 2 Tier 3
Hire date
Prior to
July 1, 2012
On or after
July 1, 2012
On or after
January 1, 2013
Benefit formula 3.0% @ 50 3.0% @ 55 2.7% @ 57
Benefit vesting schedule 5 years service 5 years service 5 years service
Benefit payments monthly for life monthly for life monthly for life
Retirement age 50 50-55 50-57
Monthly benefits, as a % of eligible compensation 3.0%2.4% to 3.0%2.0% to 2.7%
Required employee contribution rates 9.00%9.00%13.75%
Required employer contribution rates 27.11%22.83%13.54%
Safety Plan
Tier 1 Tier 2 Tier 3
Hire date
Prior to
July 1, 2012
On or after
July 1, 2012
On or after
January 1, 2013
Benefit formula 2.5% @ 55 2.0% @ 55 2.0% @ 62
Benefit vesting schedule 5 years service 5 years service 5 years service
Benefit payments monthly for life monthly for life monthly for life
Retirement age 50-55 50-63 52-67
Monthly benefits, as a % of eligible compensation 2.0% to 2.5%1.426% to 2.418%1.0% to 2.5%
Required employee contribution rates 8.00%7.00%8.25%
Required employer contribution rates 14.92%12.63%8.00%
Miscellaneous Plan
The calculation of the pension costs is a complicated actuarial process and involves a
number of different assumptions and strategies. CalPERS Board of Administration
(Board) authorizes changes to the assumptions and structural changes to risk pooling
as they see appropriate to ensure the program remains properly funded. A number of
changes have occurred in recent years that affect the City’s pension costs including a
change in the smoothing policy, changes to the risk pools, changes to the method of
allocating the pool’s unfunded liability, retiree life expectancy assumptions, investment
impacts due to the state of the economy, and actual investment rates differing from
assumed earnings rates.
The City has two components to the CalPERS annual contributions. The first is the
“normal rate”, or the cost of pension benefits for one year. CalPERS’ actuaries
determine what the normal cost percentage is for each employer, and the employer
pays an amount throughout the year equal to the percentage multiplied by the
applicable payroll. The second component is a flat dollar amount known as the
Unfunded Accrued Liability, or UAL. The UAL is also determined by CalPERS actuaries
and the City pays it as a flat dollar amount at the beginning of the fiscal year.
The CalPERS Board determines the discount rate for actuarial calculations. The
discount rate is the assumed rate of return on investments, or essentially, interest
earnings. Decreasing the rate means the Board assumes that CalPERS will earn less
interest income on its investments each year. Typically, a lower discount rate is
expected to reduce the large fluctuations in employer contributions. However, the
process of lowering the discount increases in the costs required from employers to fund
the retirement plans as less of the costs are assumed to come from investment
earnings and more is expected to come directly from employers.
In July 2021, a strong 21% fiscal year (2020/21) investment return automatically
triggered a discount rate reduction to 6.8% under CalPERS’s Funding Risk Mitigation
Policy. This Mitigation Policy was adopted by the CalPERS Board in 2015 and is
triggered when investment returns during the fiscal year exceed the current target rate
of return by 2 or more percentage points. When this happens, the discount rate for the
Public Employees’ Retirement Fund (PERF) is automatically lowered by an amount
commensurate with the excess returns. The higher the excess returns, the more the
discount rate drops. The maximum amount the discount rate can be reduced in any one
year is 0.25% (25 basis points).
The positive returns earned from fiscal year 2020/21 helped increase PERF assets, and
the overall funding status was estimated at 82%. However, the reduction in the discount
rate to 6.8% dropped the funding status to 80%. In fiscal year 2021/22, CalPERS’
investment return was negative 6.1%. Between the drop of the discount rate to 6.8% in
2021 and the fiscal year 2021/22 negative return, the overall funded status of the PERF
dropped to 72%. These two items will offset the positive impact to the City’s contribution
rates due to CalPERS’ positive earnings from fiscal year 2020/21. In fiscal year
2022/23, the CalPERS’ investment return was 5.8%, which was a big improvement from
the prior year, but was still under the new discount rate of 6.8%. The investment return
in 2023/24 was 9.3%, which will help to offset only a small portion of the prior years’
poor returns. CalPERS estimates the funded level of the PERF at 75% as of June 30,
2024.
The City’s normal rate (excluding any City-paid employee portion) and the annual UAL
for each tier for both the Miscellaneous and Safety Pools are listed in the following
charts.
23/24 24/25 25/26 26/27 27/28 28/29 29/30 30/31 31/32
Tier 1 - normal rate 14.92%14.99%15.05%14.90%14.90%14.90%14.90%14.90%14.90%
Tier 2 - normal rate 12.63%12.67%12.74%12.60%12.60%12.60%12.60%12.60%12.60%
Tier 3 - normal rate 8.00%8.18%8.27%8.30%8.30%8.30%8.30%8.30%8.30%
Tier 1 -UAL 1,009,625$ 1,208,391$ 1,439,413$ 1,542,000$ 1,625,000$ 1,804,000$ 1,845,000$ 1,881,000$ 1,881,000$
Tier 2 - UAL -$ 6,917$ 8,354$ 8,500$ 8,500$ 8,600$ 8,700$ 8,700$ 8,700$
Tier 3 - UAL -$ 29,809$ 37,452$ 38,000$ 39,000$ 39,000$ 40,000$ 40,000$ 40,000$
23/24 24/25 25/26 26/27 27/28 28/29 29/30 30/31 31/32
Tier 1 - normal rate 27.11%27.32%27.38%27.40%27.40%27.40%27.40%27.40%27.40%
Tier 2 - normal rate 22.83%23.00%23.06%23.10%23.10%23.10%23.10%23.10%23.10%
Tier 3 - normal rate 13.54%13.76%13.99%14.00%14.00%14.00%14.00%14.00%14.00%
Tier 1 -UAL 1,629,826$ 1,909,492$ 1,838,902$ 1,975,000$ 2,088,000$ 2,327,000$ 2,379,000$ 2,424,000$ 2,424,000$
Tier 2 - UAL -$ 17,728$ 20,794$ 21,100$ 21,200$ 21,300$ 21,300$ 21,300$ 21,300$
Tier 3 - UAL -$ 33,775$ 39,972$ 40,000$ 42,000$ 42,000$ 42,000$ 42,000$ 42,000$
Miscellaneous
Safety
Vacation accruals
Details on vacation and other leave accruals are discussed at length in Appendix B of
this document. At this point, it is critical to simply understand that as employees utilize
more of their vacation time, there are less people to accomplish the tasks for the
vacationing employees. While in some cases the work could be delayed, in most
cases, the work still has to get done on schedule and/or works shifts have to be
covered. At the end of the day, what this really translates into is additional overtime
costs and employee burnout. Overtime is an unavoidable component of spending down
the vacation accrual.
21.3%
-6.1%
5.8%9.3%
-20.0%
0.0%
20.0%
40.0%
20/21 21/22 22/23 23/24
CalPERS Investment Returns
Health Care
The City has been on the offense regarding health care costs. Health care benefits are
important to the well-being of the employee group. As health care costs continue to be
on the rise, the City continues to search for efficient options to meet the employees’
health care needs. The health care cost trend increases in California have averaged
about 8% over the last five years. The City’s costs increases have averaged less than
the state average over the last five years due to some low rates negotiated recently by
the City’s broker and insured experience. Increases in future years are expected to be
between 7% -8% per year, consistent with market trends.
Future Expectations
In order to project labor costs, a spreadsheet was developed which details salary and
benefits for each employee. Every employee’s expected labor costs were developed for
each of the seven years. Step increases and other expected pay changes as an
employee moves through his/her career were built into the projections.
The projections include a cost-of-living salary increase for the period of the current
negotiated Memorandums of Understanding (MOUs) 2024/25 through 2026/27.
2025/26 2026/27
Police - Corporals, Property Evidence Specialist,
Lead Records Technician 2.5%2.5%
Police - Officers, Sergeants, Dispatchers, Recruit,
Community Services Officer 3.0%3.0%
Fire - all 3.0%3.0%
SEIU - all 3.0%3.0%
Management, Mid-Management, and Confidential 3.0%3.0%
Current MOU Salary Increases
The projected General Fund Employee Service costs for the next seven years include
items in the above discussion and is displayed in the following graph. The assumptions
include the existing staff levels and do not include any new positions for the future so
that a baseline of costs can be calculated prior to any future budget changes.
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$5,000,000
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$35,000,000
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Employee Services (excludes Wastewater and Transit)
History & Projection
Operations Costs
Operations Costs are the second largest
component of General Fund costs. Operations
Costs is a covers a large variety of costs that are
necessary for day-to-day operations of providing
City services to the community.
Some costs are common to all departments, and
some costs are specific to one or a few
departments and while costs for all operations
continue to rise with inflation, there are subsets of
costs that rise at accelerated rates.
Each year as the budget is being prepared, a
target is established for the operations category.
Even with some expenses increasing at rapid rates, departments were asked to target
either very minimal increases, no increases, or even decreases in each of the last ten
budget cycles. These minor escalations (and the reductions) in operations were
effective in closing the deficit gaps in the light revenue years to an amount that was
consistent with Council’s strategic plan. Certainly, these cuts were not easy, but in the
short term were achievable. As the cost of doing business continues to rise,
departments will need additional increases in order to sustain service levels in the long
run. Targeted operating cost increases averaged 1% per budget cycle for the last ten
cycles (or twenty years). According to the US Bureau of Labor Statistics, inflation
increased about 64% during that same twenty-year period.
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
General Fund Operations
History & Projection
65%
27%
8%
2024-25 Budget by Category
Employee Services Operations Other