The Sacramento City Council is expected to consider cost-cutting changes to employee benefits and how they are managed in the next few weeks after an internal audit report moved forward Tuesday.

Recommendations for ways to save money are being made as the city grapples with an expected budget deficit of $35 million - $40 million for fiscal year 2011/2012. The four members of the City Council Audit Committee voted unanimously to forward a report on the completed Audit of Employee Health and Pension Benefits to the full council in as soon as two or three weeks.

City Auditor Jorge Oseguera gave a brief presentation on the report's five findings and some of its 28 recommendations to help solve issues determined by the audit. One of the findings indicates that the city's growing costs for employee pensions could be reduced if the city shares pension costs with all employees.

One recommendation would require police, fire and management personnel to pay into their retirement funds for the first time – which could save the city about $40 million over the next five years. Some committee members indicated after the meeting that they would consider supporting such a change in pension contributions.

However, employee contribution rates are set in labor contracts, so changes in employee contributions and the exact rates would have to be negotiated with labor unions.

"That's probably where we have to go," Committee Chair Steve Cohn said after the meeting at City Hall. "I think most of our labor unions understand that will be on the table. We're not trying to do a Wisconsin here where we impose things unilaterally."

City Councilman Jay Schenirer, Councilwoman Angelique Ashby and Councilman Darrell Fong are the other committee members.

Employee Pension Contributions

Like more than 1,500 other local public agencies statewide, the city of Sacramento has a contract with the California Public Employees' Retirement System (CalPERS) to provide pension benefits to city employees after retirement. Contributions typically come from both employers and employees, according to the report.

The city's annual contribution toward pensions grew from $29 million in 2004/2005 to nearly $45 million in 2009/2010 – a total increase of more than 50 percent. Pension contribution increases have grown more quickly than city revenue, which decreased slightly year to year from 2004/2005 to 2008/2009, according to the report.

"The city's pension costs have increased over the last several years," Oseguera told the committee. "Unfortunately, those costs are projected to continue to increase well into the future."

The report recommends management, fire and police personnel who have not been contributing to their pensions now start contributing 4 percent, and management support employees who've contributed 2 percent also now pay 4 percent – the same rate as all other employees.

Sacramento employees are divided into two groups: safety workers (most fire and police department employees) and miscellaneous workers (most other employees, including managers).

For most miscellaneous employees, the city pays 14 percent for each employee's pension contribution, which includes 3 or 5 percent of what would normally be the employee's total 7 percent contribution – while the employee pays 4 or 2 percent to make up the difference.

However, exempt management, fire, police and other safety employees have not paid any contributions toward retirement pensions. The city has paid both the employer and employee contributions for those groups.

The total city contribution for these employees is also higher, ranging from about 18 percent for exempt management to nearly 32 percent for fire, police and other safety employees.

Such a change is expected to save the city an average of $7.9 million a year, or $39.7 million total, over the next five years, according to the report.

Representatives of firefighters, retired city employees and management not currently represented by a labor union raised questions and concerns and gave recommendations.

The audit didn't include comparative data from all six cities that it's required to, based on city population: San Francisco, Oakland, Fresno, Santa Ana, Anaheim and Long Beach, said former city Labor Relations Director Dee Contreras, who's leading efforts to unionize 677 employees including managers and administrative staff.

Dick Mayberry, who represents Sacramento Area Fire Fighters Local 522, said the city and unions agreed the city would pick up the employees’ pension contribution in lieu of raises because making pension contributions cost less in the long run.

"It wasn't a gift," he said. "That was arranged as a benefit to the city."

Mayor Kevin Johnson recognizes cost-cutting measures are needed, according to his staff in a phone interview Monday. But it remains unclear whether he would support police and fire employees making contributions to their retirement benefits.

"Public safety is our top priority. In general, we have to look at opportunities to create savings across the board," mayoral spokesman Joaquin McPeek said."We must pursue them aggressively."

Joan Bryant, director of public employees for Stationary Engineers Local 39, said she agrees with the audit's findings. She thinks non-unionized managers and police and fire personnel who don't pay for retirement have an unfair advantage over other city employees. Requiring them to contribute to their retirement funds would show there isn't "favoritism" for those employees, she said Monday in a phone interview.

"If the city were to have this group of safety employees paying a portion of their retirement, it certainly would boost the morale of the people we represent," said Bryant, whose union represents about 1,400 city employees.

Committee members also agreed that Cohn should discuss with city staff when the report should go before the council in order to give city auditor staff time to respond to concerns raised Tuesday and to coordinate a possible decision with action on the city budget. Cohn will also talk with the city attorney and others to determine if any of the issues involving labor negotiations or legal strategy need to be discussed in closed session.

Schenirer said he doesn't know how much of a contribution safety and management personnel might be asked to make to their pensions. But the city can't gloss over impacts to people's lives as it works to find answers to its financial problems, he said.

"When you're facing a $40 million deficit, we're out of easy fixes," he said. But "Those are our employees. They're human beings. Those are not just numbers. We have to think about what's behind the numbers and how that affects individuals."

Staff reporter Kathleen Haley contributed to this report. Suzanne Hurt is a staff reporter for The Sacramento Press. Follow her on Twitter @SuzanneHurt.