City Council Agenda and Packet 2012 10 09 SP

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Bond Funding As a result of changes in Federal water quality regulations, staff anticipates having to make significant improvements to the City's Wastewater Treatment Plant. We also anticipate it may be necessary to expand the City's South Water Treatment Plant. The specific needs and funding requirements for these projects will be more clearly refined in 2013. However, staff anticipates that they will require significant funding (we have included nearly $17 million in the CIP). Because interest rates are at historic lows, because there are not currently sufficient reserves to fund these projects entirely on a cash basis, and because the benefit of these projects will be felt over many years, staff intends to explore further funding these and perhaps other projects with bonds. Another factor to consider with interest rates so low is that the overall cost of construction may increase more rapidly than the cost of borrowing. In that case, it may make sense to use bond funding to complete some projects now rather than wait until we have built up enough reserves to fund those projects on a cash basis. If we wait, we might see the cost of the project at a later date exceed the cost, including financing costs, of doing the project now. Staff will explore that issue and the pros and cons of both approaches and review the results with the City Council. Compensation, Benefits and Training Reflecting our guiding principle that "Talented, motivated, well- trained employees are the City's most important asset ", we keep our compensation and benefits package competitive —to retain good employees and be able to effectively recruit new employees when that is necessary —by annually comparing our pay and benefits with other similar employers in our market area and by making adjustments based on that data. The following actions reflect this approach and the 2013 proposed budget includes funding to implement these actions: • Merit Increases. We must maintain our commitment to enable high performing employees to move through their pay range over time. To do this, staff recommends that we provide merit increases for performance that is documented as "Outstanding" (4.0 %) or "Exceeds Expectations" (2.0 %) and "Meets Expectations" (1.0 %). We anticipate that the distribution of these merit increase will result in a 3% average annual increase in wages. Also, in order to maintain the City's commitment to Police Officers and the established pay range and steps, Officers whose performance demonstrates merit would receive a 5% increase. Many employees — including over half of all Police Officers and Sergeants —have reached the top of their pay range and have not received any pay increase or bonus for several years. To reward such employees for their continuing exemplary service, we will pay a one -time bonus of $250 to $1,000, depending on their performance evaluation. • Health Insurance Coverage and Other Benefits. As you will recall, in 2009 we reduced employee benefits in several ways, including increasing the percentage of premium that employees must pay for health insurance to make the cost sharing comparable with similar jurisdictions. In 2010 and 2011, we maintained the existing benefits package and did not shift any additional costs to employees. In 2012, due to a significant increase in the Kaiser premiums, we implemented a modest reduction in plan benefits and an increase in employee premiums of between 7% and 14% for the HMO Plan. We also increased the deductibles for the High Deductable Health Plan (HDHP) to $5,000 per year. We also adjusted the premiums and contributions for HMO and HDHP plans so the City's cost per employee would be the same for both plans, regardless of which plan the employee chooses. Our compensation review this year indicates the City's health benefits package is competitive with other jurisdictions so we intend to keep the percentage of premium that employees must pay for HMO coverage at 15% (employee only), 20% (employee and spouse or children) and 25% (full family coverage). Because the HDHP coverage is less expensive, the City offers this plan at no cost to the employee and, as an additional 15