Panel suggests a series of budget cuts for San Luis Obispo

Putting binding arbitration for police and firefighters back on the ballot, reducing staff, and cutting pay and benefits for city employees are among key recommendations by a budget task force to San Luis Obispo leaders.

The task force also urges the city to develop a process designed to bring government employees’ pay and benefits closer to that of those in private business.

Those recommendations come from the 32-member Financial Sustainability Task Force, handpicked by City Manager Katie Lichtig in June to advise her on the city’s finances leading up to San Luis Obispo’s two-year, budget-setting process.

The task force membership is a mixture of business representatives, city employees and nonprofit organizations. A four-person subcommittee wrote the draft report based on recommendations by the entire committee.

The group’s report, discussed for the first time Thursday, acknowledges that cuts in staffing and compensation must be made to keep pace with revenue projections.

The final report is expected to be made public and presented to the City Council in the coming months.

A five-year fiscal forecast presented to the council in October predicted a $2.2 million shortfall in the city’s roughly $54 million annual general fund for the fiscal year 2011-12.

That shortfall is expected to grow to about $3 million in 2012-13 and continue to average about $2.6 million over the next five years.

The rising costs of the California Public Employees’ Retirement System and the effects of the recession have been blamed as the main contributors to what officials call a structural deficit.

Employee costs — which include salaries and compensation such as pensions — use up more than 80 percent of the city’s general fund revenue. Because of that, the task force identified several short-term recommendations to reduce staffing costs. Those recommendations include:

Using attrition to reduce the number of full-time staff.

Temporary furlough days for all city staff, or possible layoffs.

Closer scrutiny of overtime costs.

Long-term reductions in compensation packages offered to employees.

Asking employees to pay a larger contribution to employee health insurance premiums. “We continue to keep positions vacant and spend city resources wisely, actions which seem to be consistent with the direction being contemplated by the task force,” Lichtig said. “But because the recession has lasted longer and been deeper than anyone expected, more changes are needed to restore the fiscal health in the city.”

In the past two years the city has eliminated more than $14 million of spending and the equivalent of 26.5 positions from the budget, she said.

“Financial sustainability has many components including pay and benefits that must be aligned,” Lichtig said. “Successful navigation of these turbulent times will require collaboration and cooperation with employees during the upcoming budget process and future negotiations.”

Longer-term solutions were also outlined by the task force. Those include:

Asking the council to put binding arbitration related to contracts for police and fire employees back before city voters.

Working toward a two-tier pension program.

Reducing health benefits for retirees.

Reviewing city compensation vs. the private sector.

Binding arbitration refers to a mandate in the city charter that local voters approved in 2000, which entitles the unions for public safety employees to turn to a third-party arbiter if labor negotiations reach an impasse. The charter requires the city to abide by that referee’s decision.

In June 2008, an arbiter gave sworn police officers a 30 percent raise and increased dispatchers’ and other nonsworn police staff’s pay by 37 percent.

Since that ruling, city leaders have complained that the mandate has stripped them of their budget-making authority and threatened financial ruin for the city. Unions say arbitration is fair because they can’t go on strike.

The task force’s analysis also found that spending on capital improvement projects has remained relatively flat while staff compensation costs have continued to grow, according to the report.

Renewing a half-cent sales tax increase voters approved in 2006 as Measure Y — scheduled to expire in 2014 — should depend on the city actively reducing staffing expenses and streamlining day-to-day operations, according to the report.

In addition, the task force recommends against raising fees, taxes and rates as a way to overcome the projected shortfall.

But they ask that parking fees and rates at metered spaces and in the city’s three parking structures be looked at as a way to increase revenue.

Other revenue suggestions include leasing or selling nonessential city assets such as land and buildings, and selling city services such as dispatch and selected equipment to other agencies.