HomeMy WebLinkAbout1985-08-20; City Council; 8289; City employees under social security proposalLB#~-
flTG. 8/20/85
)EPT. FIN
RECOMMENDED ACTION:
Adopt Resolution No.bU? stating the City Council's opposition to the federal
proposal to place all city employees under the Social Security System.
ITEM EXPLANATION:
In January
and management employees under a provision in the federal statutes which
allowed local governments to elect to be included in or excluded from the
system.
1981, the City dropped Social Security coverage for miscellaneous
TITLE:
PROPOSAL TO PLACE CITY EMPLOYEES
UNDER SOCIAL SECURITY
Recent proposals at the federal level are working toward placing all city
employees back under Social Security beginning January 1, 1986. These
measures, aimed at reducing the federal deficit, would generally mandate the
following :
1. All current employees would contribute to the Medicare portion of
Social Security at a rate of 1.45% of gross salary.
be required to match this contribution.
The City would
2. All newly hired employees would be subject to FICA (Social Security)
coverage and would contribute at a rate of 7.15% of gross salary.
(5.70% for basic Social Security and 1.45% for Medicare.)
would be required to match this contribution.
The City
The cost to the City of such a proposal would range from $63,500 for the
six months between January 1 and June 30, 1986, to as much as $299,000 by
the end of 1989-90. (These estimates assume no increase in city staff and
no inflation. )
The City currently pays about $2.3 million in retirement costs to the Public
Employees Retirement System (PERS) with contribution rates of 21% for
miscellaneous and management employees and 35% for safety employees. The
mandated Social Security coverage could increase these rates to as much as
28% and 42% respectively for city employees.
The staff recommendation is for Council to take a position in opposition to
mandatory Social Security coverage and to notify all California Senators and
Representatives of this position. In addition, letters should be directed
to the Senate and House Budget Committee members and the League of California
Cities office.
FISCAL IMPACT:
The fiscal impact of the proposed Social Security coverage is summarized in
the attached memo to the City Manager.
1.
EXHIBITS :
Resolution No. f/39 stating the City Council's opposition to mandatory
Social Security coverage for State and Local Government employees.
Memo to City Manager dated 8/6/85 RE:
under Social Security.
2. Proposal to Place City Employees
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AUGUST 6, 1985 v TO: CITY MANAGER
FROM: Finance Director
LEAGUE BULLETIN -- PROPOSAL TO PLACE CITY EMPLOYEES UNDER SOCIAL SECURITY
In January 1981, the City dropped Social Security coverage for miscellaneous and management employees under a provision in the federal statutes which allowed local governments to elect to be included in or excluded from the sys tem.
Recent proposals at the federal level are working toward placing all City employees back under Social Security beginning January 1, 1986. These measures, aimed at reducing the federal deficit, would generally mandate the following:
1. All current employees would contribute to the Medicare portion of Social Security at a rate of 1.45% of gross salary. be required to match this contribution. The City would
2. All newly hired employees would be subject to FICA (Social Security) coverage and would contribute at a rate of 7.15% of gross salary. City would be required to match this contribution. The
Obviously, the cost of this legislation will be substantial to local government. It is important to understand the true impact of this proposal and to communicate this to the legislators prior to any action on adoption of a federal budget.
The tables attached show the impact of this proposal on the City of Carlsbad. Table I shows that with an annual payroll of about $8.8 million, the City would be paying $127,000 in Social Security benefits for existing employees. Although the contribution rate is only 1.45%, the cost is substantial. addition to the City's contribution, there would be an equal contribution from
the employee out of the employee's gross wages.
In
The cost to the City for the six months between January 1, 1986 and June 30, 1986, would be about $63,500.
Table I1 shows that during the next four years Social Security contributions will cost the City between $173,000 and $299,000 per year. As the City staff turns over more and more employees, we will fall under the full contribution section of the proposed law escalating the City's costs each year. employees were under the full contribution method, the City would spend about $630,000 per year in Social Security payments.
If all
For comparison purposes, it should be noted that the City already pays about $ 2.3 million in PERS contributions per year. The City contributes 21 % of gross salary for miscellaneous employees and 35 % for Safety employees under our present contract.
Based on these calculations, there is a considerable cost to both the City and the employee if the legislature imposes the Social Security system on local government.
J FE : mmt attachments
a
TABLE I
CITY OF CARLSBAD
ANNUAL COST OF CONTRIBUTION
TO SOCIAL SECURITY/MEDICARE ONLY
Total City Annual Payroll (full time employees)
City contribution for existing employees
medicare portion only (I. 45%)
$8.8 million
$127,000
Employee share - medicare only (1.45%) 127,000
Total Annual City and Employee cost for
contributions to Medicare - Existing Staff $254,000
Cost from January I, 1986 to June 30, 1986
City Share
Employee Share
$ 63,500
63 , 500
TOTAL COST 1985-86 $127,000
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TABLE II
CITY OF CARLSBAD
SUMMARY OF PROJECTED SOCIAL SECURITY COSTS*
1986-87 1987-88 1988-89 1989-90
$8.8 million $8.8 million $8.8. million $8.8. million Gross Wages
Total City Work Force 350 350 350 350
Medicare Only
No. of Employees covered 230
$5.8 million
$ 84,100
260 290 320
$8.0 million Salaries
City Share @ 1.45%
$7.3 million $6.5 million
$ 94,250 $ll6,000
$116,000
$105,580
Employee Share (3 1.45% $105,580 $ 94,250 $ 84,100
Subtotal : Contribution
Medicare Only $168.200 $188,500 $232 , 000
30
$211,700
Full Social Security Coveraqe
No. of Employees Covered 60 120
$3.0 million
$214,500
$214 , 500
90
$2.3 million
8164,450
Gross Wages $1.5 million $0.8 million
$ 57,200
$ 57.200
~~ ~
City Share @ 7.15% $107,250
Employee Share @ 7.15% $107,250 $164,450
Subtotal : Contribution
Full Coverage $429,000 $328 , 900 $214,500 $114,400
TOTAL ALL SOCIAL SECURITY
CONTRIBUTIONS
$173,200 $213,100
$213,100
$258,700
$258,700
$298,600 CITY
EMPLOYEE
GRAND TOTAL
$173,200 $298,600
$597 , 200 $517,400 $426,200 $346,400
* Based on constant staff of - 350 full time employees at current salaries.
A turnover rate of 30 employees per year has been used for
i I Ius tra tive purposes.
work Together
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LEGISLATIVE BULLETIN
League of California Cities
1400 K Street Sacramento 95814 (916) 444-5790
1128-1985
July 29, 1985
/' -r
TO: MAYORS, CITY MANAGERS, AND CITY CLERKS IN NON-MANAGER CITIES
Mandatory State and Local Government Ehployee Medicare and/or Social Security
Coverage Proposed to Increase Federal Revenues and Reduce the Deficit.
Affected Cities Must Contact Their Congressional Representatives During the
Aucrust 3 - SeDtember 3 Recess.
Senate Proposa 1:
California cities and their employees stand to lose millions of dollars under a Senate budget proposal offered this week. The proposal by Senator Robert
Dole would mandatorily include all current state and local employees under the
Medicare portion of Social security. This would require a contribution of
1.45% of payroll made by both the employee and the employer. In addition, all - newly hired employees would be under the full Social Security provisions which
entail a 7.15% contribution to be made by both employees and employers. The -- -- cost implications for cities of California, the majority of whose employees
are not currently covered by any part of the Social Security system, could run
well over $100 million. (The City of Los Angcles has estimated its own
employer contribution -- not including its employees' contribution - to be
close to $24 million alone.) The effective date for coverage according to the
Senate plan would be January 1, 1986, which will catch most municipal budgets
mid-stream.
I3y way of background, under current law, cities may choose whether to join the
Social Security System, and therefore, Medicare. The cost of such membership
is evenly shared by employers and employees. Beginning January 1, 1986, the
contribution rate for each party will be 7.15 percent of salary (5.70 percent
for basic Social Security and 1.45 percent for Medicare).
Estimating the cost to cities is difficult because it is related to the amount
of new hiring (both permanent, part-time and seasonal) by each municipality.
One of the major arguments used to support mandatory Medicare coverage is the
fact that most public employees (70 percent) establish eligibility for
Medicare through other non-public employment or as spouses of workers insured
by Medicare.
. . .OVER
House PrOpOsa I:
Last month, the House Budget Conference Cornittee recoimentled that all newly
hired state and local employees be subject to full Social Security coverage.
This proposal was rejected by the Senate Conferees along with the rest of
their proposal. However, the House Budget Conferees are still considering
some form of coverage as a way to pick up additional revenues. California
House budget conferees (Representatives Fazior Millerr Fiedler) should be
contacted innediately.
Meanwhile, the House Ways and Means Camittee proposal on this issue - was
initially to cover - all state and local employees under the Pledicare provisions
of the Social Security Act. This proposal was successfully opposed by public
interest groups and removed. Last week, however, the Ways and Means Cocnmittec
adopted the recornendation of the Subcommittee chaired by California
Congressman Pete Stark, which would mandatorily include all newly hired state
and local employees under the Medicare provision as of January 1, 1986. This
provision is pending in a package which is expected to come to the House floor
the week of July 29.
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Action Needed:
All California Congressional merbrs should be made aware of the cost
implications for California cities and their employeesr and the steep price
cities are already paying to narrow the deficit. All cities should be
assessing how these proposalsr which are applicable January lr 1986, would
affect their retirement plans and collective bargaining agreements.
Inclusions of state and local employees have precedents in recent actions
taken on federal employees. Currently all civilian federal employees pay
Medicare premiums while those hired since January 1984 have been made full
members of full Social Security.
Congress will be in recess from August 3 until after the Labor Day wc-kend.
This is an excellent time to contact your Representative and Senators Wilson
and Cranston with our concerns and information about the unanticipated fiscal
impact. obviously city employees should also be notified and encouraged to
write their Congressional Representatives.
Splg bl28/1eq
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RESOLUTION NO. 8139
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD,
CALIFORNIA, STATING THE COUNCIL'S OPPOSITION TO A
FEDERAL GOVERNMENT PROPOSAL TO PLACE STATE AND LOCAL
G~VERNMENT EMPLOYEES UNDER THE SOCIAL SECURITY SYSTEM.
WHEREAS, the federal government has recently taken several actions which
tantially affect the fiscal position of state and local governments; and
WHEREAS, among these actions are the elimination of the Federal Revenue
Sharing program which will cause the City of Carlsbad to lose about $500,000
per year in funding, and the implementation of the Fair Labor Standards Act
which will cost the City of Carlsbad an estimated $100,000 per year in
additional labor-related costs; and
WHEREAS, the federal government is again proposing to implement a
program in the form of mandatory Social Security coverage which will cost
the City $173,000 during fiscal 1986-87; and
WHEREAS, the total additional burden of these federal programs placed
upon the City of Carlsbad in 1986-87 will total more than $773,000; and
WHEREAS, the City already participates in the Public Employees Retirement
System inthe State of California and contirbutes between 21% and 35% of
salaries to this system totaling about $2.3 million in 1985-86; and
WHEREAS, local government employees may now elect to participate in
the Social Security System, if the employees wish such coverage.
NOW, THEREFORE, be it resolved by the City Council of the City of
Carlsbad, California that local government has substantially participated
in the federal governm-at's efforts to balance the budget and has born the
mandated costs of federal programs without compensation.
Social Security coverage €or local government employees is neither necessary
nor proper, and should not be included as a provision of the federal government':
budget package.
The effort to mandate
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PASSED, APPROVED AND ADOPTED at a regular meeting of the City Council
, 1985, by the following vote, to wit: In the 20th day of August
AYES:
NOES:
Council l@rbers Casler, Lewis, Kulchin, Chick and Pettine
ABSENT: None
MARY CASLE$, Mayor
iTTEST :
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