Tag Archive for: OCFA

Firefighting in Orange County – Part Two, Building An Independent Fire Dept

On July 1 the City of Placentia will begin to operate a fire department independent of the Orange County Fire Authority. The motivation for the Placentia’s City Council to take this step was to provide equal or greater service at a lower cost. In this report, those cost savings will be summarized. The figures cited in this report were gathered using 2018 payroll data provided to the state controller, budget documents available from the City of Placentia, as well as via numerous conversations with local elected officials, city staff, and outside consultants familiar with the project.

Providing these estimated savings in a format detailed enough to be useful, yet brief enough to be readily absorbed by policymakers and interested observers, required use of assumptions and projections which are open to interpretation. This is freely acknowledged, and readers are invited to offer alternative interpretations as well as any information that may have been incorrect or overlooked. Taking all of that into account, however, it appears clear that Placentia will save significantly over the next several years by forming an independent fire department.

The first step in understanding how much Placentia will save is to consider what Placentia was paying to the Orange County Fire Authority in the most recent fiscal year which ends this June 30. In the first chart, below, these costs are estimated. The first set of rows shows the average annual pay in 2018, by category of pay, for OCFA’s four primary operating positions. How these pay averages were derived were discussed in detail in part one. The second set of rows shows headcount by position.

It turned out to be a controversial topic, to determine exactly what firefighting personnel and firefighting equipment Placentia was getting in exchange for the $7.1 million they paid to OCFA in the fiscal year ending 6/30/2020. OCFA maintained that a 3rd engine was provided, in addition to the two noted on the chart. But when asked about this, officials and informed observers repeatedly stated that the 3rd engine was only based in Placentia because there was not a station in the neighboring city of Yorba Linda (also an OCFA client) that could accommodate it, and that 85 percent of the use of that truck was for service into Yorba Linda. In fact, OCFA agreed in 2016 to relocate this engine, but because of the lack of space in Yorba Linda, it stayed in Placentia even though it primarily served Yorba Linda during this time.

To understand the staffing, assuming two engines were what Placentia was actually paying for, the chart shows each engine’s crew times three. Firefighters typically work two 24 hour shifts, then get four days off, which means that every piece of equipment has assigned to it three times as many full time employees as required to operate it during any given 24 hour shift. Thus under OCFA’s regime, an engine would have one Fire Captain, one Fire Engineer, and two Firefighters.

Several interesting facts are evident on this chart. It can be seen that of the $6.7 million this chart projects as direct operating costs incurred by OCFA to serve Placentia, as much as $1.6 million may have been paid in overtime. Please note the cost estimates here represent 2018 averages for all of OCFA’s operations, so what occurred specifically in Placentia could differ. But it is accurate to say overtime costs are a major cost.

Another major cost is so-called “other pay,” which is applied on top of base pay in exchange for firefighters obtaining additional training and skills, as well as pension expenses, which are discussed in detail in part one of this series.

The next chart, below, attempts to depict the planned compensation packages and staffing for Placentia’s new and independent fire department. Several major changes distinguish Placentia’s model from the OCFA model it replaces. Most significant among them are how they plan to minimize overtime costs, other pay, and pension costs, as well as how they plan to make use of “reserve firefighters.”

With respect to overtime, Placentia has budgeted $100,000 in FY 2020-21 for fire department overtime, which is a small fraction of what OCFA pays their firefighters. The reason they can accomplish this is because they plan on staffing, as appropriate, either part-time firefighters (typically firefighters who already work for other agencies), or reserve firefighters. As a result, they believe the necessity to pay overtime will be significantly reduced.

While “other pay” may still be the subject of negotiation, Placentia’s model returns to what firefighter compensation used to cover. That is, if a firefighter renews or upgrades their skills and certifications, that’s part of doing their job, not grounds for additional pay. The only “other pay” formally recognized so far is for their battalion chiefs, who receive other pay equal to between 2 to 6 percent of base pay in exchange for completing higher education degrees.

What Placentia has done with pensions is revolutionary – they have done away with them, replacing them with a 401A plan. The 401A plan is a defined contribution plan, similar to the 401K plan but offering different taxation rules based on the likelihood that public employees may retire sooner than private sector employees. Placentia has set a ceiling on employer contributions to these 401A plans at 10 percent of base pay, with no other categories of pay being eligible. In addition, Placentia instituted a 4-year vesting period, which acknowledges a return on investment for personnel that may be receiving high quality training, yet decide to leave. If they don’t meet the vesting period, the funds go directly back to the City’s General Fund.

The “reserve firefighter” program is an innovation that in some respects is a back to the future move. Reserve firefighters are essentially trained volunteers, paid a stipend to work shifts alongside the full time firefighters. The difference between volunteer firefighters, at least in many cases, is that Placentia requires their reserve firefighters to fulfill State and National training standards that match and in some cases exceeds what full time firefighters typically have to fulfill, and Placentia plans to invest equally in these reserve firefighters training as their full time counterparts. Having these reserve firefighters also provides a pool of recruits to fill full time positions whenever there is turnover.

To understand how dramatic these savings are, the second half of the chart (above) depicts the planned staffing. Not only will Placentia have two heavy apparatus, but while one will be an engine (the most commonly used firefighting vehicle), but the other will be a so-called “Quint,” a huge dual-axle ladder truck that anticipates future needs in Placentia. Also planned to roll out on July 1st is a patrol vehicle, also known as a mini-pumper, which is intended to be staffed with two firefighters 12 hours per day during peak periods. Since most fires are small – kitchen grease, a dumpster set alight, an outdoor grill – this patrol vehicle can respond more rapidly with a capacity still equal to the threat, sparing wear and tear on the larger vehicles, thus extending their useful life over OCFA’s model.

Another way to generate savings is by having one of the four crew members on the larger vehicles be a reserve firefighter, and by having part-time firefighters fill in when there is an absence or a vacancy. All of these changes add up.

As can be seen, Placentia’s personnel costs, to crew three vehicles instead of two, are a fraction of what OCFA’s personnel costs were, $2.7 million to $6.7 million. Yet OCFA claims, with some justification, that Placentia was getting a bargain at $7.1 million per year, set to increase to $7.4 million in fiscal 2020-21. To understand why this is, Placentia’s additional costs need to be considered. The next chart shows what Placentia intends to spend in 2020-21, for everything associated with their new fire department.

This total cost, $5.2 million, is taken directly from the City of Placentia’s fiscal year 2020-21 budget. It reflects their anticipated total costs for their new fire department in its first year of operation. As shown, the total salaries and benefits includes management and non-operating personnel. It also shows, under “other operating costs,” the cost for investigations, professional services, radio fees, staff training, supplies, uniforms, software, furniture, payments to other agencies, etc. It also reflects, under equipment leases, the full costs of the fire trucks, including a new 2nd engine that will be held in reserve.

The City of Placentia also intends to pay for a contractor to provide ambulance services, including two permanently available ambulances and a surge capacity of up to seven ambulances. The city will also have trained 911 paramedics on every vehicle. Collectively, between the paramedics and the fire crews, this increases Placentia’s totally daily first responder staffing by 67% over their current contract with OCFA and at a fraction of the cost for taxpayers.

What Placentia is doing is arguably providing better service than what they were getting before, and at a demonstrably lower cost. In 2020-21 they expect to pay $5.2 million to operate their independent fire department, whereas if they had stayed with OCFA, the cost would have been $7.4 million; a savings of thirty percent. What they are doing to manage their personnel costs is a paradigm shift, and perhaps long overdue. However much we revere firefighters, taxpayers cannot afford OCFA rates of pay and benefits, which in 2018 averaged over $240,000 each for full-time operations personnel.

How Placentia got from there – contracting with OCFA – to here – building their own independent fire department – is another story. Part three of this series will attempt to describe that process. It was not easy.

This article originally appeared on the website California Globe.

 *   *   *

 

Firefighting in Orange County – Part One, Firefighter Pay and Benefits

In June 2019 the City of Placentia, in a 3-1 council vote, decided to leave the Orange County Fire Authority and build their own fire department. The reasons for this decision, and the means to accomplish it, will be explored in greater detail in a follow up article. But the decision came down to this: a majority of members of the city council believed that they could build a fire department of equal or greater effectiveness, at an equal or lessor cost.

The consequences of this decision are significant. How Placentia manages their independent fire department could inspire other cities currently being served by OCFA to withdraw from their contracts and also build their own fire departments. Placentia’s experience may also inspire cities in Orange County that already have independent fire departments to renegotiate the terms of the collective bargaining agreements they’ve made with their firefighter unions.

The Orange County Fire Authority, or OCFA, originally served the cities of Cypress, Irvine, La Palma, Los Alamitos, Placentia, San Juan Capistrano, Tustin, Villa Park, and Yorba Linda, along with unincorporated areas of Orange County. Since then, new cities have incorporated, and existing cities have decided to choose OCFA services over managing their own fire department. These additional client cities are Aliso Viejo, Buena Park, Dana Point, Garden Grove, Laguna Hills, Laguna Niguel, Laguna Woods, Lake Forest, Mission Viejo, Rancho Santa Margarita, San Clemente, San Juan Capistrano, Santa Ana, Seal Beach, Stanton, Tustin, Villa Park, Westminster, and Yorba Linda.

So how much does it cost to be a client of OCFA, and what drives these costs? A quick look at page 60 of the OCFA’s most recent budget document shows that in the last three fiscal years, by far the biggest expense was salaries and employee benefits. In FY 2017/18 salaries and employee benefits consumed $357 million out of total expenditures of $418 million; 85 percent. In FY 2018/19 the budget estimate was $367 million for salaries and benefits out of total expenditures of $449 million; 82 percent. In FY 2019/20 the budget estimate was $386 million for salaries and benefits out of total expenditures of $464 million; 83 percent.

The conclusion that can be drawn from these numbers is unambiguous. Nearly all of the costs incurred by OCFA are to pay salaries and benefits.

The remainder of this analysis will report on how an annual salaries and benefits budget of nearly $400 million translates into individual compensation profiles for the average full time firefighter employed by OCFA. These numbers are not presented with an aim to criticize these levels of compensation, but merely to provide the information, because this information is not readily available either to local elected officials or to the general public. It is uncertain, frankly, whether or not even the managing board of OCERS sees compensation profiles presented from this perspective. So here goes.

OCFA’s Average Pay and Benefits for Full-Time Employees

Using 2018 data provided by the California State Controller, it is possible to compile OCFA individual compensation averages both for categories of pay and benefits and also by department. Because detailed pay records are downloadable by individual payees, it is also possible to isolate the full-time employees. Failure to provide averages that are limited to full-time employees has often been a source of misleading information.

To develop representative averages that accurately represent what full-time OCFA employees make, four criteria have been employed: (1) verify that a record’s “base pay” is equal or greater than the “minimum pay for position,” (2) verify that the “base pay” is in excess of $30,000, (3) verify that the “pension benefit” field is not zero, and (3) verify that the “health dental vision benefit” field is not zero. While there are cases where full-time employees will be excluded using these criteria, especially 1 and 2, these are typically individuals who did not work a full year, making their data unrepresentative. In fact, individuals whose actual rate of pay may have exceeded the minimum may have in fact still only worked a partial year, so if anything, applying this criteria to screen individual records may still yield averages that are skewed lower than the actual reality. Here then are the average salaries for OCFA’s full-time employees:

As can be seen on the above chart, the largest department within OCFA is Operations, comprising 74 percent of all full-time personnel during 2018. The average pay and benefits package for these employees totaled $241,230 during 2018. As can be seen, their base pay averaged $98,876, but was augmented by “other pay” of $26,560, meaning that total pay, not taking into account the cost of benefits or overtime, averaged $125,436 for the average full-time Operations employee. On top of that, overtime averaged $59,672 per full-time employee, making their average pay before benefits $185,102.

Taking into account the cost of benefits yields some interesting discussions over what should be included, but what appears on this chart is probably the lowest calculation possible. This is because it does not take into account the cost of paying off the unfunded actuarial accrued liability (UAAL) for the pensions, only the ongoing so-called “normal” cost of the pension benefits. Also, these benefit calculations do not take into account the cost of pre-funding retirement health insurance benefits. By any normal accounting standards, the cost for any benefit that is promised in retirement must be recognized during an employee’s working years, since it is only while working that they are exchanging their labor for value – either current or future.

Not including these factors – the UAAL payment and pre-funding retirement health insurance – the average full-time  OCFA Operations Dept. employee earned $56,128 in pension and health insurance benefits in 2018. This yields, again, a total pay and benefits package that averaged $241,230 during 2018. But what positions are within the OCFA Operations Department?

The next chart shows the seven positions within the OCFA Operations Department. Three stand out as occupying the most personnel: “Fire Apparatus Engineer,” “Fire Captain,” and “Firefighter.” During 2018, nearly 97 percent of all Operations personnel were filling one of these three positions. On average the total pay and benefits in 2018 for a full time OCFA Fire Apparatus Engineer was $244,191, for a Fire Captain it was $290,021, and for a Firefighter it was $205,913. 

What about the true cost of pensions?

There are several ways to evaluate what the present cost of future pensions should be, and all of them rely on not one, but an entire basket of crystal balls. There is the crystal ball that will predict how long the individual will work, and another to predict when they will retire and when they will die. Then there’s another that will predict how much they will earn each year that they’re working, and how much pension eligible pay they’ll be earning the year they retire. And then the biggest crystal ball of all will be the one that predicts how much all that money set aside for their pension will earn, year after unique year, on the investment markets of the world. It takes a lot of balls to think you know how much you’re supposed to set aside each working year to fund an individual’s future retirement.

Taking all of this into account, the actuaries hired by the Orange County Employee Retirement System (OCERS), have concluded that as of 12/31/2018, their total unfunded actuarial accrued liability was $5.7 billion, and the OCFA share of that totaled $380 million. If you pay this $380 million back at the rate of average rate of return that OCERS claims their investments will earn each year, 7 percent, and you pay it back over 20 years, which is the term required by the Government Accounting Standards Board, that is equivalent to a payment of $36 million per year. But the question then becomes how does that stack up against the number of participants, and here is where it gets interesting.

According to Transparent California, OCERS paid out $70 million in pensions to 981 OCFA retirees in 2018. Since years of service are disclosed per individual record, it is possible to calculate an average pension benefit of $3,357 for every year worked. The average OCFA veteran retiring after 30 years service will earn a pension of $100,711. Of course since 26 percent of OCFA employees are not members of the more highly compensated Operations Dept., for that department one may surmise the average pensions after 30 years of work are measurably greater.

More to the point, how do you allocate a UAAL payment that ought to total at least $36 million per year between active employees and retirees? It is reasonable to argue that active employees should not have to have the full UAAL payment prorated onto the calculation of their true compensation, since retirees are also receiving pensions that became underfunded when they were employed. Taking this into account, consider the total pension eligible pay of the active OCFA employees, full and part-time, which is $118 million. If you apply half of the $36 million UAAL payment, $18 million, to these active employees, that equates to a UAAL overhead of 15.2 percent on top of base pay. Such a calculation would indicate that OCFA’s Operations Dept. personnel are actually making at least $15,000 more than reported, if you take the UAAL cost into account. And why wouldn’t you?

For decades, actuaries have peered into their crystal balls and delivered up predictions that were invariably too optimistic, and they still are too optimistic. Does anyone really believe that the rate-of-return in the aftermath of this overwrought, record setting bull market in stocks, bonds, and real estate, can be sustained over the next few years at a rate of 7 percent? OCERS will be lucky to break even in 2020, and that achievement will only occur in the wake of the most impetuous application of modern monetary theory in the history of the world, i.e., we just printed $3 trillion in magically materialized money. So yes, the stock market may indeed soar to new heights. In the Twittersphere, the wags are saying if you don’t believe that, you’re simply not cynical enough.

Or not. Buckle up. Five years from now, OCFA clients called upon to service their UAAL by only paying an additional $36 million per year may seem like an unbelievable bargain. Five years from now, OCFA clients may remember when the “official” UAAL for their firefighter pensions was only $380 million and marvel at how minuscule it was back in the good old days.

Predicting the fate of OCERS, or pension systems, much less the economic fate of nations, is well beyond the scope of this discussion. What has been offered is a context in which to gauge the looming breakaway of Placentia’s fire department from OCFA. How will Placentia, and any cities that eventually may join Placentia, choose to manage firefighter pay, pensions, overtime, and staffing? In part two, what Placentia hopes to achieve will be explored in greater detail.

Providing reliable and professional public safety is a fundamental obligation of local governments. Respect for public safety employees and the challenges they face is a given. But local governments are also obligated to manage their expenses in a manner that balances the needs and wants of public employees with the financial resources of the citizens they serve.

This article originally appeared in the California Globe.

 *   *   *