City Council kicks off budget planning with focus on employee pay

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City Council kicks off budget planning with focus on employee pay
Alexandria City Hall. (Photo/Missy Schrott)
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By Cody Mello-Klein | [email protected]

Only a few days after the 2021 general election, City Council gathered on Saturday to begin its annual budget process for the fiscal year 2023 budget.

Amid vocal calls from public safety employees, whose region-low salaries have resulted in high turnover, scaled back operations and increased work hours, much of council’s first budget retreat focused on employee compensation. Local fire and police unions are calling on council to increase salaries by 10% in order to remain competitive in the region. Meanwhile, the impending arrival of collective bargaining for certain groups of city employees, including police and fire department employees, added an extra layer of urgency and complication to council’s discussion.

Since 1997, the city’s pay philosophy has focused on keeping salaries between 5% above or below the average of Alexandria’s regional comparators, according to Jen Jenkins, the acting director of human resources for the city. Those comparators have historically included Arlington, Fairfax County, Prince William County, Montgomery County and Prince George’s County, although Loudoun County and Washington, D.C. now rank on that list as well.

In discussing the history of this philosophy, Jenkins admitted it has long needed an update, especially as the city moves to establish collective bargaining agreements with various employee groups and unions. The last time the city amended its pay philosophy was in 2010.

“Collective bargaining will certainly change that process, so that’s something we want to keep in mind as we look at these things and how we’re going to be managing pay and proposing pay moving forward,” Jenkins said.

Mayor Justin Wilson questioned whether a pay philosophy is even necessary for the groups of employees who will fall under the city’s collective bargaining agreement. Wilson argued that bargaining with different sets of workers will yield different results based on their needs and comparators in the region, negating the need for a general approach to pay for those workers.

“I’m just questioning the utility of a compensation philosophy that broad brushes all of our employees at all,” Wilson said.

Jenkins clarified that an overarching pay philosophy provides the city with a baseline from which it can begin to negotiate with those employees engaged in collective bargaining.

“I think when you come to the table with so many different people, who are all fighting for different things, at the end of the day we still have something that we have as our baseline,” Jenkins said. “… I think if we don’t have that, we don’t have anything to compare to and there’s not a consistent line we can start at.”

At one point on Saturday, Wilson tossed out the idea of having a compensation philosophy for the portion of the city’s workforce that does not fall under the collective bargaining agreement, with a separate collective bargaining philosophy that guides the city in its general approach to negotiations and leaves everything else at the negotiating table. In response, Jenkins said that a lot of the rules about collective bargaining have yet to be set, but there is an opportunity for the city to establish this kind of split-philosophy approach.

“For labor and management, this is such a new world, and I cannot overemphasize enough how different this is than what we’ve been doing,” Wilson said.

City Manager Mark Jinks, who is set to retire at the end of the year, said collective bargaining also has the potential to impact employee benefits, particularly when it comes to health care. Of the about 3,000 people employed by the city, about 2,000 have health insurance with the city, according to Jinks. One of the challenges Jinks anticipated is ensuring the city does not end up with an unwieldy amount of health care packages among the various unions.

Jinks also stressed the need to pay close attention to the employees who are, at least at first, not included in Alexandria’s collective bargaining policy.

“As [the city is] negotiating the non-public safety collective bargaining agreements, the organization ought to pay attention to those folks who are not part of collective bargaining agreements so that we don’t end up, in effect, leaving whole groups of employees behind,” Jinks said.

When it comes to compensation adjustments for public safety employees, typically the three public safety work groups in the police department, fire department and sheriff’s office meet and converse with management, after the city has seen and provided a baseline compensation study. The work groups then make a proposal to the city, and after those discussions, the city manager proposes changes to council as part of the budget. The city is currently waiting on its annual regional benchmark study from Fairfax County before it can begin this process.

The city increased public safety employee pay every fiscal year from 2016 to 2020, although employees say it has not been enough to keep Alexandria competitive. Amid the pandemic and a multi-million-dollar budget deficit, the city cancelled a previously proposed 1.5% adjustment to all pay scales and targeted pay increases among public safety employees. Council approved these measures as mid-year adjustments to the FY2022 budget on Oct. 26.

According to city staff, the 10% pay scale increase that public safety employees are asking for, if given to
all city workers, would require a 6.7-cent increase in the city’s tax rate. (Image/City of Alexandria)

Any compensation increase brings with it an additional cost to the city, and Jenkins laid out the potential fiscal impacts of adjusting pay. The FY2023 cost impact of just a 1% pay scale increase for general scale employees, those city employees who do not work in public safety, would come to $2.03 million, according to city staff. For police, fire and sheriffs, it would cost $400,000, $340,000 and $200,000, respectively. All told, a 1% increase for all city employees would equate to about $2.97 million.

To fund a 1% pay scale increase for all employees, the city would have to increase the tax rate by 0.7 cents. A 3% increase would result in a 2-cent increase, a 5% increase pay scale adjustment would mean a 3.3-cent tax increase and a 10% across the board pay increase would result in a 6.7-cent tax rate increase.

The city is also looking to expand and improve benefits for its employees as a way to recruit and retain employees outside of salary incentives. Among these are changes to the mental health services the city provides to its workforce. Spring Health, a service provider the city may partner with, would allow employees to get in touch with a mental health professional within hours, instead of days. The city is also looking to hire a company called Summer that would assist employees with student loan forgiveness support.

“It’s hard because you talk about salary, but if [someone else is] making $5,000 more but you’re getting a benefits package that’s $10,000 more, then we can bring that up and share that with our employees and show some of the benefits,” Councilor Canek Aguirre said.

Councilor Amy Jackson praised the city’s efforts to improve employee benefits, but also argued that younger employees often look to salaries first before they consider benefits packages.

“Any 25-year-old going into any option isn’t really thinking about their retirement and all those other benefits,” Jackson said. “They’re looking at money in order to pay their rent and support their families.”

City staff also presented preliminary forecasts for the city’s revenue and expenditure scenarios for FY2023 on Saturday.

Director of Finance Kendel Taylor laid out the city’s revenue coming out of the pandemic-impacted financial circumstances in 2020 and 2021. According to Taylor, the projected revenue level for FY2023 is currently $814.6 million compared to $770.7 million in FY2022. In FY2022, $483.3 million came from taxes on real estate in the city and $55.1 million from personal property taxes. The preliminary estimates for real estate and personal property tax revenue in FY2023 are both slightly higher, at $501.7 million and $61.4 million, respectively.

Taylor also provided an overview of how the city’s tax base has fared over the course of the last two years during the pandemic. In some ways, the city’s commercial tax base has recovered, although Taylor cautioned council not to get too excited about the data.

“What we all need to keep in mind is so much of this is just getting us back to where we were,” Taylor said. “… So much of what you’re seeing right now is needed to just get us back to where we thought we were going to be two years ago.”

At first glance, the city’s sales tax revenue appears to have weathered the storm, however, a closer look reveals the dramatically and rapidly changing nature of sales toward digital sales in the city as a result of the pandemic.

According to Kevin Greenleaf, assistant director of finance, online sales increased to about 37% of the city’s total sales tax revenue in FY2021, an increase of about 10% from FY2019. In December of 2020 alone, online sales made up 42% of the city’s sales tax revenue. Overall, in FY2021, of which December 2020 was part, in-store sales tax revenue dropped by about 15%.

Sales tax revenue for the city remained relatively steady during the pandemic, thanks in large part to an increase in online sales. (Image/City of Alexandria)

“The brick-and-mortar sales tax that’s generated in our city has gone dramatically down and continues to be dramatically down,” Wilson said. “It’s good news from a revenue perspective for the city, but to the extent that what this tells you about the state of our businesses, it is not a good story.”

On the expenditure side, the city anticipates an $8.4 million preliminary budget shortfall created primarily by merit pay increases and the recently approved mid-year compensation increases.

However, the city is also set to receive the second $29.6 million tranche of American Rescue Plan Act funding from the federal government, $10 million of which is already dedicated to two affordable housing projects and $8.7 million of which will go toward continued funding for public health initiatives and employee bonuses set in the first tranche.

The budget retreat on Saturday and council’s budget guidance during the Tuesday night legislative meeting were just the start of the city’s budget process. The city manager, or acting city manager if Jinks’ replacement has not been hired by then, will provide budget proposals based on community input and conversations with employee groups on Feb. 15, 2022, with final budget adoption set for May 4, 2022. Residents can provide input on the budget here.

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