San Jose city officials report that the agreements reached last month with four employee unions will not only cost $24.5 million in just the first of three years, but also another $4.2 million this year to boost wages for non-union employees and union employees whose contracts were approved earlier this year.

The City Manager’s Office also told San Jose Inside the increases headed for formal adoption by the city council Sept. 12 exceed the adopted 2023-24 General Fund budget by approximately $3.9 million.

This will require the council to cut spending and dip into reserve, which the manager’s office calls “ongoing expenditure offsets in 2023-24 to ensure that ongoing cost obligations do not exceed the ongoing revenues expected to be received in 2023-24, and that the General Fund remains in balance.”

When the council revealed Aug. 15 that it had approved the employee contracts, heading off a three-day strike, details of the vote could not be released because it occurred in a private executive session. The council’s public vote will occur Sept. 12.

The unions on Aug. 15 declared victory: The 11th-hour settlement succeeded in moving the city millions of dollars past its “final and best offer.”

Mayor Matt Mahan, without saying how he voted, didn’t mince words in describing his displeasure with the council’s action.

“We came to a tentative agreement with the city unions that have been threatening to strike,” he said. “We averted what would have been a minor inconvenience to residents today–and all but assured service cuts and higher taxes tomorrow.”

City Manager Jennifer Maguire’s team, led by Human Resources Director Jennifer Schembri and Budget Director Jim Shannon, on Sept. 1 wrote to city council members, saying that while the new employee contracts will mean minimal service cuts and elimination of some vacant positions but no layoffs this year, there will be additional impacts in future years.

Raises at a glance

Here are the highlights of the new contracts:

• Lump-sum payments to full-time employees of $1,200 for the biggest union, Municipal Employees Federation, and $1,770 for three others, representing engineers, architects, maintenance supervisors and other managers
• 6% increase, effective Sept. 17
• 4% in 2024-25, plus an additional 1% in January 2025
• 3.5% in 2025-2026
• Increases in uniform allowance, bilingual pay, shift differential
• 8 weeks of paid parental leave, plus 3 weeks of sick time
• The new contracts also apply to all non-union senior managers, park rangers and police dispatchers and prompted “side-letter agreements” increasing pay to members of four unions that this spring had agreed to 5% pay increases.

The ‘Living Wage’ argument

The rhetoric of this year’s contentious contract negotiations with unions representing more than half of city employees often focused on “living wage” conversations, with the unions arguing that inflation was making it increasingly impossible for city employees to afford to live in the city in which they served.

The city determined this year, based on cost-of-living estimates, that the annual “living wage” minimum for individuals in San Jose is $54,205, for workers who receive health care benefits.

The average pay, including salaries and overtime, of all 8,475 San Jose city employees in 2022 was nearly double the city’s living wage–$97,614–according to the annual Government Compensation in California released in June of this year by state Controller Malia M. Cohen.

Wide disparities in pay

The standard–and the city’s and unions’–across-the board approach to pay, increases the disparity among city departments and salary grades–in the negotiated contracts and the proposed matching raises for non-union senior managers. This resulted in significantly more cash for higher wage earners and higher wage departments than others.

Of the departments covered by the contracts approved this summer, here is a snapshot of some 2022 City of San Jose wages, from Cohen’s report:

• City Manager’s Office, average wage, $125,989, with 17 earning more than $200,000; 32 more than $150,000
• Environmental Services average wage, $99,922, with 10 earning more than $200,000; 78 more than $150,000
• Planning/Code Enforcement, average wage, $98,233, with five earning more than $200,000; 35 more than $150,000
• Airport, average wage , $92,380, with six earning more than $200,000; 19 more than $150,000
• Finance, average wage, $87,378, with four earning more than $200,000
• Public Works, average wage, $85,401, with 11 earning more than $200,000; 71 more than $150,000
• Transportation, average wage, $85,158, with five earning more than $200,000; 45 more than $150,000

At the lower end:

• Human resources, average wage, $56.813, with one earning more than $200,000
• Parks/Recreation, (many part-time), average wage, $35.163, with four earning more than $200,000; 21 more than $150,000

The two highest pay departments whose contracts approved last year:

• Fire, average wage, $172,553, with 27 earning more than $300,000
• Police, average wage, $141,032, with 83 earning more than $300,000

Kicking the can down the road

The memo from the manager’s office to the City Council predicted “difficult budgetary tradeoff considerations for the foreseeable future” because of the results of last month’s contract settlements.

“It is also important to note that because community needs and expectations to expand various services already exceed the city’s limited budgetary capacity, the General Fund faces a service level/structural shortfall from a practical perspective,” the memo said.

According to the manager’s office, increased cost can be accommodated by a reduction to fund balances or alternative funding sources. “No immediate service impacts to Capital and Special Funds are anticipated,” the memo said.

Reserves set aside for negotiated wage increases for these employees and for classification-specific salary adjustments totals are $2.8 million short of the commitments in the first year.