"In order to attract qualified workers during the dot-com boom, the cities, flush with revenue, increased wages and benefits, especially pension benefits, with unrealistic expectations that the economy and the stock market would continue to expand. These increases are largely guaranteed by union collective bargaining agreements," the report said
But now tax revenues are decreasing and cities are using their reserves and cutting services to keep up with rising employee costs, the report said.
"Wages and salaries climb, even as the economy struggles," the report reads.
"Pension and health care benefits have risen substantially since 2000. Vacation, holiday and sick leave policies are overly generous and exceed those of private industry. Cities need to negotiate, approve and implement considerable cost containment measures so that employee financial obligations do not continue to escalate."
City Council member Mike Kasperzak said the problems in the grand jury report sounded familiar.
In Mountain View, which faces a $4 million budget deficit this year, officials often say they are ahead of other cities in reducing employee costs, having instituted a two-tier system in 2006 to lower the cost of retirement benefits for new employees. This year, the city seeks to reduce by $1 million the over $2 million in raises scheduled for employees this year.
But the city' unions got something in return for the two-tier system in 2006, to the chagrin of Kasperzak and other conservatives on the City Council, who warned it would lead to budget problems in the future. Non-public safety employees got a pension rate increase from "2 at 55" to "2.7 at 55"— meaning retire as early as age 55 and receive 2.7 percent of your highest annual salary multiplied by the number of years worked for the city. After 30 years of employment, that comes to 81 percent of your highest salary.
For public safety personnel, rates increased to "3 at 50," meaning they can retire at age 50 and receive, for example, 90 percent of their salary after 30 years of employment.
In an effort by city managers to collectively reduce those costs, city manager's associations in San Mateo and Santa Clara Counties pledged in a July 2009 letter to reduce the growing cost of city employee pensions. Mountain View City Manager Kevin Duggan gave a copy of the pledge, which he supports, to the Voice.
The pledge says that Public Employee Retirement System Investment losses, combined with higher payout rates in city union contracts have caused a "dramatic increase" in pension contributions from city budgets. Pension costs rose in Mountain View from $2.8 million in 2000 to $7.7 million in 2010.
Duggan, who made $294,000 last year, recently told the Voice, "My pension doesn't make any sense."