CitJOf "maktng a positive difference now "

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1 CitJOf "maktng a positive difference now " STAFF REPO.RT CITY COUNCIL MEETING OCTOBER 21, 2014 TO: FROM: RE: Honorable Mayor and City Council Nancy Kerry, City Manager Resolution of the City Council of the City of South Lake Tahoe Approving Changes to Wages and Benefits for Employees Represented by the South Lake Tahoe Police Employee's Association RECOMMENDATION: Adopt resolution BACKGROUND: On October 10, 2014, at a Special Meeting of the City Council, resolutions approving changes to wages and benefits for all other represented and unrepresented employees were approved. At that time, the City had reached a Tentative Agreement with the South Lake Tahoe Police Employee's Association ("SLT PEA"). The Tentative Agreement was ratified on October 10, 2014, which is now before the City Council for consideration to allow the implementation of changes to wages and benefits. ISSUE AND DISCUSSION: This item is before the City Council to adopt the attached resolution approving changes to wages and benefits for South Lake Tahoe Police Employee's Association ("SLT PEA"). The overall funding strategy along with details of the need to transform the City's wage and benefit compensation packages were described in the Staff Report for the Oct 10, 2014 City Council meeting (Attachment 2). The South Lake Tahoe employees and their representatives are to be commended for reaching Agreement with the City of South Lake Tahoe. Summary of Key Wage and Benefit Changes For employees represented by SL T PEA, the following is a summary of wage and benefit changes. The funding for these changes to wages and benefits is derived from restructuring current wages and benefits similar to the City Council's financial strategy adopted on August 5, 2015 to restructure the City's debts. The changes in wages and benefits demonstrate a transformation from traditional government benefits structures for which the taxpayer bears the primary cost burden, toward a mixture that includes defined contributions to benefits, options for employees providing greater flexibility in their benefits and opportunities to deferred compensation from the City into investment plans delivering employees more assurances and greater control over their compensation. Employees were offered changes to wages and benefits from which they negotiated to retain some benefits or exchange those benefits for others.

2 SLT PEA Salary and Benefit Changes City Council Meeting: October 21, 2014 Page 2 The following is a summary of the changes to wages and benefits for employees represented by the SLT PEA: Medical Plan: The City's Medical Plan will be "Plan A" as designed by the City's broker (Keenan & Associates). The City will continue to provide 100% of the premium for employees and their dependents (single, two-party, or family rate). SL T PEA members and plan participants have the option to pay the difference between "Plan A" and other available plan options. Dental & Vision: The City will no longer provide dental and vision benefits, but employees may purchase these as optional benefits. Retiree Medical Benefits (Current Employees): Members of the SL T PEA who have not yet retired, are not eligible to participate in the City's Medical Plan upon retirement, unless the participant pays 100% of a monthly premium (to be determined), which may be different than employee premium rate. Retiree Medical Savings Account ("RMSA"): SL T PEA elected to retain funds previously contributed to a Retiree Medical Savings Account (RMSA) Trust Fund for employees hired after January 1, 2008 although the City will no longer contribute to the RMSA Trust Fund. Employees must retire from the City to be able to access those funds with the applicable vesting schedule. As a result of retaining funds in the RMSA Account, for employees represented by SL T PEA, only employees hired before January 1, 2008 will be eligible for Deferred Compensation. Deferred Compensation: 401(a), 457, etc. "50% Matching Contribution Option": SLT PEA elected to accept the City's "Matching Deferred Compensation Plan" however, as noted above, this option will only be available to employees (represented by SL T PEA) who were hired before January 1, The plan offers employees with five (5) years of service with the City hired prior to January 1, 2008, the option to contribute to a personal retirement investment account to which the City will provide a 50% matching contribution, up to $1,500 per fiscal year, payable in equal pay period installments. Wage Changes: SL T PEA members will receive the following wage increases are authorized for employees represented by SL T PEA: The first pay period following adoption by the City Council of the attached resolution approving the tentative Agreement, shall be 4.0%. The first day of the first pay period in October 2015 shall be 4.0%. The first day of the first pay period in October 2016 shall be 3.5. %, unless through Meet and Confer "reopener" as defined below and in the Tentative Agreement concludes with a salary increase. The City agrees to meet and confer in good faith regarding wage and benefit changes beginning in FY 2016/2017 if the City's audited Net Fund Balance in 2015 and 2016 are each 5% above the previous year. Section 125 (also known as Cafeteria Plan) Contributions: SL T PEA members elected to receive $100 per month (payable in equal pay period installments) to be deposited in to the City's Employer-Sponsored Section 125 Plan. "Section 125 Plan" group participants are provided an opportunity to apply the funds on a pre-tax basis to benefits that may include, but are not limited to, monthly premiums for medical, dental, vision, accident and other IRS approved benefits; employees may also choose IRS defined taxable options.

3 SL T PEA Salary and Benefit Changes City Council Meeting: October 21, 2014 Page 3 Elimination of Sixth Step Pay & Merit Pay - Replace with Longevity Pay. The City currently offers additional compensation for employees with five (5) years of service and a high balance of sick leave hours in their sick leave "bank" additional compensation of 6% (for SL T PEA members) as "Merit Pay" payable as non-pensionable compensation, which converts to "PERsable" (pensionable) rate of 5% after 15 years of service. Linking sick leave to compensation resulted in employees being reluctant to use sick leave when needed. Further, providing non-pensionable compensation at five years based on sick leave and then reducing the compensation by making it pensionable at 15 years added complexity to the payroll system that is cumbersome. "Merit Pay" and "Longevity at 15 years" are eliminated and replaced with a simple 5% pensionable compensation at 10 years of service, which shall not linked or dependent upon sick leave or vacation leave accruals. In addition, it shall be clearly identified on the paychecks as "longevity pay." Employees already receiving the benefit will retain the benefit and those within 30 hours of having earned the "Merit Pay" benefit shall be considered as having earned the benefit. Vacation Accrual Limits. The City's employees have a maximum vacation accrual they are allowed, by group. However, the "maximum accrual" has typically only been enforced each January. For SL T PEA members, the vacation cap shall be enforced effective June 1, 2015 and remain in force. Opting Out of Medical Insurance. Each year during open enrollment, employees will be offered the opportunity to "Opt-Out" of the City's Medical Plan and receive an annual "opt-out" disbursement of $3,000 (single) or $4,000 (employee + 1 ). An "Opt Out" provision is an important benefit to those who may have medical coverage elsewhere. Anti-Nepotism: The City will not hire, promote, or transfer employees into positions which results in any person related by consanguinity or marriage being employed as a Safety Dispatcher (or in a position of other titles that is involved in dispatching police and fire to emergencies) or in a safety officer (police or fire) position such that one related individual is dispatching the other. The immediate family member (within this definition) of a current City employee will be ineligible to be hired into such a position unless the other family member resigns. Transformative Change For employees represented by the SL T PEA, the changes in wages and benefits represent a transformative shift from undefined benefits to a more clearly defined compensation plan employees can count on. The high cost of medical and health care benefits has impacted this City for many years due to the City being "self-insured" and the fact the City's Medical Plan was vague, undefined by any measure, subject to constant changes and divided the organization. As noted by the following discussion, although the rising cost of medical benefits and health care in general is not resolved for the nation, the City has taken a giant leap forward in resolving a significant liability for the City and the community.

4 SL T PEA Salary and Benefit Changes City Council Meeting: October 21, 2014 Page4 Health Care Costs -A National Problem The City's been discussing the issues and flaws in its Medical Plan and health care 15 benefits for quite a number of years. Although changes to the Medical Plan have been made many times, additional changes were not only necessary to reduce long-term liabilities, but were necessary to comply with the Patient Protection and Affordable Care Act ("ACA" or "Affordable Care Act"). 20 Chart# 1: Health Care Spending as % of GDP % '70 '80 ' The high cost of health care is not unique to Hoa th Coro f1110nc1n South Lake Tahoe. Nationally, health care costs have risen four times faster than the consumer price index (CPI), twice as fast as wages and health insurance premiums have increased 80% over the last Total Health Care Cost as Percentage of GDP.. Chart #2 decade. Health care spending as a percent of the Gross Domestic Product.. (Chart #1) has tripled since 1960 and as.. compared to other countries, the United States spends more on health care than ~ most other developed countries (Chart ~ 10 #2, next page) Unittd S th - c.,... - Au.UM - Jaoen - Sp.In - Untttd Kingdom Of particular interest is Chart #2, which demonstrates the U.S. spent relatively the same on health care as a percent of GDP in 1960 as other countries yet, by 2010 we outpaced those countries by double digits. 0 IHO 1'70 1MO 100 Veer Reviewing "Cumulative Changes in Health Insurance Premiums" as compared to inflation and worker's earnings between , it is significant that the cost of health insurance premiums rose 131 % (nationally) as compared to workers earning (38%) and overall inflation (28%), see Chart #3 to the right. Cumulative Changes in Health Insurance Premiums, Inflation, and Workers' Earnings, Chart #3,, 199t ) 2004,,..,,... - : 0utcoa~11-111r r_, lor_.. JOOS 2G I 200t "-fl«et s..-y,, c...,., ~-- SetlllrS..-VO.,..

5 SL T PEA Salary and Benefit Changes City Council Meeting: October 21, 2014 Page 5 Industry is the Issue: Not the Employee, nor the Employer The health care industry has a cost-containment problem and the result is employers and employees (private and public sector) are negotiating for changes to health care benefits more so in the past ten years than in years previously. The cause of the problem is the medical industry itself, not employees nor their employer who attempted to offer benefits which, at first, were inexpensive. As the costs in the medical industry outpaced cost-of-living and other expenses, cost-containment strategies were implemented but they haven't resolved the issue. Private sector employers have done a better job at containing pension and health care costs and developing creative compensation packages. The difference between private and public sector employment benefits have characteristically been the difference between "defined" and "undefined." Private sector employees typically have defined financial contributions for pension and health, which enables defined budgeting. Prior to the Great Recession, government sector benefits were more typically "undefined" resulting in taxpayers bearing the burden of the rising costs, which also created substantial unfunded liabilities nationally, state and at local levels (both pension and health care). City's Cost Containment Strategies As has been explained in many public meetings, workshops and for many years in the City's budget messages and presentations, the City's Medical Plan is full of design flaws contributing significantly to the high cost of benefits. The City has implemented many cost-containment strategies over the years. Employees (and retirees because they receive the same plan as employees) have been subjected to the frequent changes in the benefit plans. Over the years, the Medical Plan included increased deductibles, reduced and eliminated coverages, and eliminated participants. The Medical Plan benefit has remained undefined, unreliable and therefore unsustainable. As the cost of health care (and pensions) rose exponentially over the years, the City's cost-containment strategies included the following : Increasing deductibles Increasing out-of-pocket expenses Eliminating or reducing coverages Eliminating participants Changing benefit plan designs (eg: from 100% covered to shared cost plans) Eliminating coverages for expensive prescription and other expensive office visits Implementing pension plan "tiers" In other words, the solutions were to reduce or eliminate benefits. In 2001, the City eliminated medical coverage for spouses of employees hired after June 30, 2001 and in 2007, the City eliminated coverage upon retirement all together for employees hired after January 1, Although these were "cost containment strategies," costs have continued to rise because those changes would not positively impact the City's annual expenses for 20 to 30 years. In the meantime, costs would rise considerably (as employees retired and new employees hired) before expenses would begin to recede. Further adding to the City's unfunded retiree medical care liability is the number of lives for which the City is providing medical coverage. Although the City only employs about 175 permanent employees, the City is covering the medical expenses for approximately four times that many people: the City covers the medical expenses for 800 lives, about half of which are retirees and their dependents.

6 SLT PEA Salary and Benefit Changes City Council Meeting: October 21, 2014 Page 6 The decisions made in 2001 and 2007 created significant design flaws in the City's Medical Plan and created a substantial imbalance in the organization. Medical benefits for employees should not be as imbalanced as one group having 100% benefit and another group having zero (0%) benefit both performing similar jobs. The imbalance was further complicated by the costs of medical care, which have not slowed and in spite of the many cost containment strategies, health benefits continue to strain the City's financial resources. Affordable Care Act In 2010, the federal government adopted the Patient Protection and Affordable Care Act ("ACA") with the majority of provisions phased in by January Because the City is self-insured, we must adopt a Medical Plan that meets the Affordable Care Act requirement. Following ACA regulations, the City's broker (Keenan) designed a Medical Plan that meets those regulations, which the City is referring to "Plan A" of the Keenan Plan. A New Plan: Follow the ACA, Provide Basic Health Care Coverage and Offer Options The City has had one benefit plan for all employees for many years; however, the benefits have changed quite a bit throughout the years. Medical coverage and other health benefits are not suitable to a one-plan-fits-all approach; most employers have various plans and options and provide coverage for a standard plan. Other examples of employer sponsored medical benefit choices include the elimination of an "employer plan" for medical insurance and replacing that with cash compensation provided through a Cafeteria Plan, from which employees are able to make benefit choices. More employers will likely transition to Cafeteria Plans in the coming years due to opportunities afforded by ACA regulations. As a result of good faith negotiations with SL T PEA (as well as all other employees following City Council approval of the agreements on Oct 10, 2014), "Plan A" will be the City's Medical Plan. "Plan A" meets the federal ACA regulations, and because of that, participants will finally have a plan they can rely on. In accordance with the Affordable Care Act requirements, "Plan A" provides 100% of many important 'well-care' visits and $50 co-pay for office visits, but has a high deductible. Plan participants have the option to purchase other medical benefit plans with lower deductibles by paying the difference between the "Plan A" and other available options. Retirees For employees who have retired who were represented by SL T PEA, if they are eligible to participate in th.e City's Medical Plan they remain eligible. Those retirees under the age of 65, "early retirees" shall receive the same plan as the employees ("Plan A"), of which the City will pay the percentage of the premium for single, two-party or family rate for the retiree in accordance with their eligibility and premium vesting schedule as authorized at the time of their retirement through a Memorandum of Understanding. The City's Medical Plan remains subject to change at any time through negotiations and by agreement of the City and employees and shall continue as long as the City retains such a plan without any guarantee that a City Medical Plan will exist for any defined period of time. The City's Medical Plan is limited to medical benefits as defined in "Plan A. " Dental and vision insurance are no longer being provided by the City although plan participants may elect to purchase dental and vision insurance coverage at their own expense.

7 SL T PEA Salary and Benefit Changes City Council Meeting: October 21, 2014 Page 7 STRATEGIC PLAN AND BUSINESS PLAN RELEVANCE: The adoption of the attached resolution approving changes to wages and benefits for employees represented by SL T PEA will substantially improve the City's Fiscal Sustainability. FINANCIAL AND/OR POLICY IMPLICATIONS: In 2013, the City contracted with John Bartel and Associates to conduct an actuarial analysis of the City's outstanding healthcare financial liability. The analysis is required under Government Accounting Standards Board (GASB) 45. GASB 45 requires state and local governments to report to the taxpayers the amount of unfunded liabilities for pension and Other Post Employment Benefits (OPEB) to ensure government employers, and the taxpayers who fund the government, understand the long-term costs and implications of OPEB and pension benefits. The 2013 evaluation estimated the City's long-term liability for retiree health costs at over $25M, which does not include the City's annual Healthcare Plan costs of $4M per year. In 2015, the City will contract with Bartel and Associates for an updated analysis of the City's OPEB liability. As a result of the amendments to the City's Healthcare Plan, the City's unfunded liability is expected to be substantially reduced. In order to provide funding for wage and benefit changes, reductions in expenses were required. The wage and benefit changes described in this report and in the attached resolution has been funded through the following overarching strategies. Overall, the funding for these wage and benefit changes as described in this report is derived from restructuring the City's Medical Plan for employees, combined with the elimination of retiree health benefits for employees not yet retired, and modification of coverages. In addition, the elimination of contributions to retiree medical savings accounts coupled with additional restructuring provides sufficient funding for the three year term of the agreement. The most important element of the overall financing strategy for the restructuring of wages and benefits is that it is funded from current and anticipated available resources, not additional taxes from the taxpayers, and in fact, it will reduce the City's (and therefore the taxpayer's) contribution payments to the OPEB (Other Post-Employment Benefits) Trust over the next many years. Staff will return to the City Council with an updated actuarial study when it is complete (estimated January 2015), which will provide detailed analysis of the reduction of financial impact to the City's unfunded liability as a result of the changes adopted by the attached resolution. SIGNATURES: Attachments: 1. Resolution Approving Changes to Wages and Benefits for Employees Represented by the South Lake Tahoe Police Employee's Association

8 Attachment 1 Resolution Approving Changes to Wages and Benefits for Employees Represented by the South Lake Tahoe Police Employee's Association. With Updated Salary Schedule

9 CITY COUNCIL OF SOUTH LAKE TAHOE RESOLUTION NO. RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SOUTH LAKE TAHOE APPROVING CHANGES TO WAGES AND BENEFITS FOR EMPLOYEES REPRESENTED BY THE SOUTH LAKE TAHOE POLICE EMPLOYEE'S ASSOCIATION WHEREAS, the City Council of the City of South Lake Tahoe has met and conferred in good faith with employees represented by the South Lake Tahoe Police Employee's Association ("SL TPEA") in accordance with the provisions of the Meyers-Milias-Brown Act of the California Government Code; and WHEREAS, employees represented by the SL TPEA have ratified an agreement with the City impacting changes to wages and benefits, as described herein, which will result in the construction of a successor Memorandum of Understanding to be finalized at a later date for the term beginning October 1, 2014 through September 30, 2017; and WHEREAS, the City Council of the City of South Lake Tahoe has engaged in significant budget restructuring over the past four years to resolve financial structural deficits stemming from the loss of revenues due to the Great Recession and substantial increases in the rise of California Public Employees' Pension (CalPERS) costs and rising costs and plan design flaws in the City's self-insured Healthcare Plan, which has included medical, dental, vision and other similar benefits; and WHEREAS, since 2011, the City of South Lake Tahoe has prepared and adopted a Five-Year Financial Forecast of its revenues and expenses including the 2014 Five-Year Financial Forecast presented to the City Council on June 17, 2014 projecting the return of a negative net general fund balance by 2016 and increasing in years thereafter; and WHEREAS, as noted in the 2014 Five-Year Financial Forecast and the Fiscal Year 2014/2015 Budget there are insufficient net fund balances to provide wage increases and other improved compensation benefits without further reductions in expenses; and WHEREAS, since 2010, employees of the City of South Lake Tahoe have participated in concessions and cost containment strategies including at least two (2) years of furloughs (removed beginning Fiscal Year 2011/2012), and wage concessions including seven (7) to nine (9) percent reductions in salary to pay the full "employee share" of CalPERs expenses; and WHEREAS, in 2013, the City of South Lake Tahoe contracted with John Bartell of Bartell Associates, actuarial services for public sector, to conduct an evaluation of the City's long-term CalPERS pension liability, which indicated an unfunded liability of more than $50M and annual increases in CalPERS payments resulting from increased longevity assumptions and projected investment performance; CalPERs new rates will increase the City's Employer contribution to a total pension expense between 26% and 42% of salary for miscellaneous (non-public safety) employees and between 40% and 70% of salary for public safety (fire and police) pensions; and WHEREAS, on September 12, 2012, Governor Jerry Brown signed the Public Employees' Pension Reform Act of 2013 (PEPRA) into law in an effort to curtail the rising costs of pension throughout CalPERs public agencies; and

10 South Lake Tahoe City Council Resolution# Police Employee's Association for Successor MOU City Council Meeting: October 21, 2014 Page2 WHEREAS, during the past 20 years or more the City of South Lake Tahoe and employees (represented and unrepresented) have agreed to amend its medical plans many times and since the early 1990s has changed the medical, dental, and vision benefits in an effort to control costs resulting in increased deductibles, reduced coverages, elimination of participants and increased cost sharing; and WHEREAS, in 2001, the City of South Lake Tahoe and employees (represented and unrepresented) agreed to eliminate retiree medical, dental and vision coverage for spouses of employees hired after June 30, 2001 ; and WHEREAS, in 2007 (the "2007 Decision"), the City of South Lake Tahoe and employees (represented and unrepresented) agreed to eliminate retiree medical, dental and vision benefits upon retirement for employees hired after January 1, 2008; and WHEREAS, the 2001 and 2007 decisions to eliminate retiree medical and other health benefits has not had an adverse impact on recruitments, but has created an imbalance in the organization; and WHEREAS, in 2012, the City of South Lake Tahoe implemented further benefit reductions to reduce healthcare plan costs, which included increases in deductibles, changes to plan design and the benefit structure; and WHEREAS, between 2010 and 2014, the City of South Lake Tahoe's management and employee Healthcare Cost Containment Committee (consisting of employees, representatives from employee associations/unions and management) have met multiple times, evaluated the cost and benefits of further plan design changes, evaluated the cost, benefits and possibility of contracting with an outside insurance company to provide the City's medical and other health benefits insurance; and WHEREAS, in 2013, the City of South Lake Tahoe again contracted with John Bartell, of Bartell Associates, actuarial services for public employees, to conduct an evaluation of the City's Other Post Employment Benefit (OPES) liability in accordance with GASS 45, and the resulting report indicated an unfunded retiree healthcare liability of more than $25M, which does not include the cost of healthcare benefits for employees; and WHEREAS, in spite of the many years of implementing these and other various cost containment strategies, medical costs continue to escalate throughout the country, of which the City is no exception, and in fact local medical costs exceed those found in larger urban locations where a greater number of competitive options are available; and WHEREAS, the federal government's attempt to control costs included the adoption of the Patient Protection and Affordable Care Act ("ACA"), which sets forth regulations governing medical insurance; and WHEREAS, the City of South Lake Tahoe administers its health benefits as a selfinsured municipal agency and thus, the City's self-insurance plan must follow the regulations set forth by the ACA; and

11 South Lake Tahoe City Council Resolution# Police Employee's Association for Successor MOU City Council Meeting: October 21, 2014 Page 3 WHEREAS, the City of South Lake Tahoe administers its Medical Plans and other healthcare benefits as a self-insured municipal agency and thus, the City's self-insurance plan must follow the regulations set forth by the ACA; and WHEREAS, Keenan & Associates drafted such a medical insurance plan, which was presented to the City's Healthcare Cost Containment Committee on January 17, 2014 which included a Basic Plan ("Plan A") in accordance with the ACA meeting federal regulatory requirements and also included four (4) optional plan designs; and WHEREAS, the City of South Lake Tahoe further directed Keenan & Associates to develop additional "tiers" in each plan for single, two-party and family rates to provide additional cost-containment options for participants in the City's Medical Plan, which was completed and presented in the summer of 2014 to unrepresented employees as well as employee associations and unions during contract negotiations for a Successor Memorandum of Understanding; and WHEREAS, in accordance with the ACA, the basic medical plan proposed by Keenan & Associates, "Plan A" provides 100% coverage for some important well-care and prevention visits; and WHEREAS, for employees represented by the SL TPEA "Plan A" will be the City's designated Medical Plan for which the City will cover 100% of the premium for employees at the single, two-party, or family rate; employees will have the option to pay the difference between the "Plan A" premium and other available plans if they choose to purchase another plan other than the City's designated Medical Plan ; and WHEREAS, similarly, SL TPEA employees hired after 2008 have agreed to terminate any continued contributions to a Retirement Medical Savings Account Trust Fund although they elected to retain the current amount of funds in the Trust; and WHEREAS, SL TPEA employees are commended for agreeing to changes in the City's health and welfare benefits, which contained tremendous plan design flaws and resulted in a variety of different benefits for employees and over $25M OPEB liability for the City of South Lake Tahoe based on current healthcare industry costs; and WHEREAS, as a result of the agreement by SL TPEA employees to accept "Plan A," as the City's Medical Plan, the City will realize sufficient reductions in expenses when combined with all of the provisions of the wage and benefit changes as defined below, along with a portion of the financial strategy adopted by the City Council on August 5, 2014, including reductions in the City's OPEB liability and projected increases in tourism revenue over the next three years to sufficiently fund the wage and benefit changes for SL TPEA employees as described below; and WHEREAS, completion of the Successor MOU, which shall contain the provisions for changes to wages and benefits as Found, Determined, Resolved and Ordered by the City Council below, shall rescind and replace all other MOUs and side-letters for employees represented by the SL TPEA. /II continued next page /II

12 South Lake Tahoe City Council Resolution# Police Employee's Association for Successor MOU City Council Meeting: October 21, 2014 Page4 NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SOUTH LAKE TAHOE HEREBY FINDS, DETERMINES, RESOLVES AND ORDERS AS FOLLOWS: Section 1. Resolution. The above recitals are true and correct and are a substantive part of this Section 2: Successor MOU. The modifications to wages and benefits as described in the attached executed Tentative Agreement, which has been ratified by the full membership of the Association, are hereby approved. Further, the City Council directs the City Manager to take the necessary steps to construct a Successor Memorandum of Understanding ("MOU") between the City of South Lake Tahoe and the South Lake Tahoe Police Employee's Association ("SL TPEA") describing the changes and modifications and to take the necessary steps to implement the terms of the agreement in the interim and hereby authorizes the Mayor to execute all necessary documents and Memorandums of Understanding in accordance and in substantial compliance with these agreed upon terms as defined and described in the attached Tentative Agreement. PASSED AND ADOPTED by the City Council of the City of South Lake Tahoe at a duly noticed meeting held on October 21, 2014 by the following vote: AYES: Councilmember(s): NOES: Councilmember(s): ABSENT: Councilmember(s): ABSTAIN: Councilmember(s): ATTEST: By: Susan Alessi, City Clerk By: Hal Cole, Mayor Attachments: Tentative Agreement executed October 10, 2014 Updated Salary Schedule

13 TENTATIVE AGREEMENT South Lake Tahoe Police Employee's Association Signed/Agreed and Dated October 6, 2014 Page 1 TENTATIVE AGREEMENT: SOUTH LAKE TAHOE POLICE EMPLOYEE'S ASSOCIATION SUBSTANTIAL DEAL POINTS NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SOUTH LAKE TAHOE HEREBY FINDS, DETERMINES, RESOLVES AND ORDERS AS FOLLOWS: Section 2: Successor MOU. The modifications to wages and benefits as described herein are hereby approved. Further, the City Council directs the City Manager to take the necessary steps to construct a Successor Memorandum of Understanding ("MOU") between the City of South Lake Tahoe and the South Lake Tahoe Police Employee's Association ("SLTPEA") describing the changes and modifications and to take the necessary steps to implement the terms of the agreement in the interim. Section 3. "City Medical Plan". Effective January 1, 2015, the City's Healthcare Plan for all classifications represented by the SL TPEA shall be "Plan A" of which the City will cover 100% of the premium at the single, two-party or family rate for employees. The City will offer employees represented by the SL TPEA who have since retired and who are under the age of 65 and who are eligible for the City's Medical Plan ("early retirees") shall receive the same plan as SL TPEA employees ("Plan A"), of which the City will pay the percentage of the premium for their benefit in accordance with their eligibility and premium vesting schedule as authorized and in accordance with the MOU under which they retired. Section 4. Medicare Age Retirees. Employees represented by the SLTPEA who have since retired and who are or become Medicare eligible remain required to join Medicare in the month in which they are eligible. As it has always been, the City's Medical Plan remains subject to change at any time and shall continue for as long as the City retains such a plan without guarantee that a City Medical Plan will exist for any defined period of time. Section 5. Optional Plans. Eligible plan participants have the option to purchase other available medical plans by paying the difference between the amount of premium paid by the City (and/or City and Retiree) for the City's "Plan A" Medical Plan and other available plans, which may vary from year to year. Participants may also elect, at their own expense, to purchase dental, vision, additional life insurance and other optional benefits. Section 6. Retiree Health Benefits. Retiree Health Benefits are hereby eliminated for SLT PSC members who have not yet retired, unless the participant pays 100% of a monthly premium (to be determined), which may be different than employee premium rate; the City makes no guarantee that a City Medical Plan will exist upon retirement nor that it will continue for any defined period of time during retirement. The City's contributions to a Retiree Medical Savings Account (RMSA) for Association members, which began in January 2008, are hereby discontinued. All funds in the City's RMSA for Association members are hereby directed to remain in the trust account in the name and in the amount attributed to employees of the Association. No additional contributions from the City will be made into the RMSA funds. The current RMSA Plan Document (including vesting schedule and distribution authority) remain in effect. The earliest possible date of vesting remains at ten years of service to the City. Section 7. Salary Compensation. The following wage increases are authorized for employees represented by SL TPEA: The first pay period following adiption by the City Council

14 TENTATIVE AGREEMENT South Lake Tahoe Police Employee's Association Signed/Agreed and Dated October 6, 2014 Page 2 of the resolution approving the tentative Agreement, shall be 4.0%. The first day of the first pay period in October 2015 shall be 4.0%. The first day of the first pay period in October 2016 shall be 3.5.%, unless through Meet and Confer "reopener" as defined in Section 14 concludes with a salary increase. The City agrees to meet and confer in good faith regarding wage and benefit changes beginning in FY 2016/2017 if the City's audited Net Fund Balance in 2015 and 2016 are each 5% above the previous year. Section 8. Deferred Compensation to 457 or 401 (a) I 50% Matching. Employees represented by SLTPEA hired prior to 2008 have the option to participate in the City's Deferred Compensation Retirement Plan. For employees electing to participate in this optional benefit, the City will provide a matching contribution of up to 50% of the employees' contribution up to a maximum contribution of $1,500 per employee (estimated at $125/month), per fiscal year, payable in equal installments, rounded to the nearest dollar. Employees choosing the City's matching contribution benefits must make the election during Open Enrollment each year. Section 9. Section 125 Contributions. Association members have elected to receive one-time non-calpersable compensation funds through the City's Employer-Sponsored Section 125 Cafeteria Plan. Effective January 1, 2015, through September 30, 2017, the City will deposit $100 per month, in equal pay period installments, for each Association member into their Section 125 Cafeteria Plan. The Plan provides employees the opportunity to make elective decisions such as applying the funds on a pre-tax basis to benefits that may include, but are not limited to, monthly prem iums for medical, dental, vision, accident and other IRS approved benefits; employees may also choose IRS defined taxable options. Section 10. "Opt Out" Provision. Employees represented by SLTPEA shall be eligible to "Opt-Out" of the City's Medical Plan with evidence of medical coverage provided elsewhere. Employees making an annual election to "Opt Out" of the City's designated medical insurance plan "Plan A" must make the election during Open Enrollment. Employees will receive an "Opt Out" non-calpersable payment of $3,000 (single) or $4,000 (Employee + 1) in March of the calendar year following open enrollment in which they make the election. Employees who elect to "Opt Out" and who have a Qualified Event in the same year authorizing a change to their election, may change their election and choose to participate in the City's Medical Plan, however, they will be required to repay the "Opt Out" payment on a prorated (by month) basis. If electing the "Opt Out" provision, it is mutually exclusive of and in addition to the "one-time" signing incentive. Section 11. Sixth Step Pay & Merit Pay. The City currently offers additional compensation for employees with five (5) years of service and a balance of 520 hours sick leave in their sick leave "bank" payable at 6% non-calpersable compensation, which converts to a 5% CalPERsable compensation after 15 years of service. For employees represented by SLTPEA the current benefit is hereby eliminated and replaced with a 5% CalPERsable compensation upon reaching 1O years of service as a Longevity Pay benefit, which shall not linked or dependent upon sick leave or vacation leave in an employees' bank. Any members of the Association within 30 hours of receiving this benefit upon execution of the Tentative Agreement, shall be considered as having earned the benefit. Any members of the Association already receiving Sixth Step or Merit Pay will be allowed to retain them. Longevity pay benefit shall be in the form of a PERSable special comp item on the paycheck, not a separate salary step. Section 12. Vacation Accrual Limits. The City's maximum vacation accrual hours of 240 shall be enforced for all employees represented by SLTPEA beginning June 1, SLTPEA employees with vacation hours above the maximum of 240 hours shall not be permitted to accrue additional vacation hours until the employee reduces the amount of vacation hours below 240 hours in their vacation accrual bank, after which time the employee may again accrue

15 TENTATIVE AGREEMENT South Lake Tahoe Police Employee's Association Signed/Agreed and Dated October 6, 2014 Page 3 vacation. Reinstatement of vacation accrual shall begin the pay period following the period in which their hours are below the 240 maximum accrual. SL TPEA members are hereby authorized two (2) pay periods in any given calendar year in which to cash out vacation hours in accordance with the City's Personnel Rules, with a maximum cash-out amount not to exceed 80 hours annually. Section 13. Re-Open. City agrees to meet and confer in good faith regarding wage and benefit changes beginning in FY 2016/2017 if the City's audited Net Fund Balance in 2015 and 2016 are each 5% above the previous year. Section 14. Anti-Nepotism. Effective as of 10/1/2014, the City will not hire, promote, or transfer employees into positions which results in any person related by consanguinity or marriage being employed as a Safety Dispatcher (or in a position of other titles that is involved in dispatching police and fire to emergencies) or in a safety officer (police or fire) position such that one related individual is dispatching the other. The immediate family member (within this definition) of a current City employee will be ineligible to be hired into such a position unless the other family member resigns. Section 15. Other benefits. Employees represented by SL TPEA remain eligible for other benefits, which shall be defined in the Successor MOU.

16 City of South Lake Tahoe Sa lary Tab le by Ba rgai ning Unit Bargaining Unit Police Employees 5601 COMMUNITY SERVICE OFFICER Index Key Value 4140 DISPATCH LEAD 4100/4108/ /4108/ /4108/ /4108/ /4108/ Index Key Value 6520 DISPATCHER TRAINEE Index Key Value 4100/4140/ /4140/ /4140/ /4140/ /4140/ /4100/ /4100/ /4100/ /4100/ /4100/ LEAD PUBLIC SFTY DISPATCHER Index Key Value 4100/4132/ /4132/ /4132/ /4132/ /4132/ PARKING ENFORCEMENT OFFICER Index Key Value 4100/4170/ /4170/ /4170/ /4170/ /4170/ POLICE TRAINEE Index Key Value 3, /4101/01 3,667 3, PROPERTY/EVIDENCE TECHNICIAN 4,043 Index Key Value 4, /4123/ /4123/ /4123/ /4123/04 4, /4123/05 4,237 4, PUBLIC SAFffi DISPATCHER 4,671 Index Key Value 4, /4113/ /4113/ /4113/ /4113/04 3, /4113/05 3,668 3, SENIOR PROPERTY /EVIDENCE TECH 4,044 Index Key Value 4, /4122/ /4122/ /4122/ /4122/04 4, /4122/05 4,236 4, SR. COMMUNITY SERVICE OFFICER 4,671 Index Key Value 4, /4112/ /4112/ /4112/ /4112/04 2, /4112/05 2,749 2,886 3,031 3, , , , , , , , , , , , , , , , , , , , , ,669