Why is Napa in a budget pickle?

They may disagree on the solution, but City Manager Mike Parness and the Napa Valley Taxpayers Alliance both agree on the cause.

While city revenues have been rising at a healthy rate, employee wage and benefit costs have shot up much faster.

To Michael Haley, president of the taxpayers alliance, the city is on a path to fiscal ruin.

“It is economically unsustainable to have your costs continually rising faster than your income to pay for them,” he wrote in a letter to council members.

By the alliance’s calculations, police salaries have risen at a compounded rate of 33.5 percent over the past five years, while firefighter pay increased 24 percent. Meanwhile, the cost of employee pensions, medical care and worker’s compensation soared.

During the same five years, the city was barely holding its head above water, freezing dozens of positions and spending millions from reserves to stay afloat.

The crux of the problem, Haley said, are long-term contracts that tie city pay to average wages and benefits in surrounding cities without regard to the city’s ability to pay for them. If Vallejo or Santa Rosa give big wage increases, Napa may have to match them the next year.

As a member of the California Public Employees Retirement System, Napa has enriched employee retirement plans, following the lead of other cities. This has proven costly, Haley said.

Police and fire can now retire as early as age 50 with 3 percent pay for every year worked. Retirees in their 50s are getting 90 percent of active duty pay or more, Haley said. This is vastly better than retirements in the private sector, he said.

Haley conceded that if every other city is offering 3 percent at 50, Napa may have to follow suit to be competitive in recruiting quality applicants.

That doesn’t lessen his resentment that public employee unions have negotiated a rewards system that leave a city like Napa with little money left over to pay for other public services.

“They’ve gamed the system statewide,” Haley said. “(Public employee unions) are the big dog in California politics.”

Parness takes a more measured view of employee contracts. Although labor costs consume 78 percent of the general fund budget, they are a fact of life. Multi-year contracts were negotiated long before his December arrival.

These contracts made sense at the time, Parness wrote in his budget message to council. Before 2001, Napa was optimistic that new hotels and a healthy economy would boost city revenues within a few years.

With the stock market booming, CalPERS was rolling in money. The city had to pay little or nothing as its share of employee retirement costs.

In that fiscal climate, long-term contracts provided the city with financial stability and “positive labor relations,” Parness said.

Things changed after Sept. 11, 2001. The stock market tanked, retirement rates shot up, medical insurance costs began rising at a double-digit rate and economic development, as well as the flood control project, lost momentum.

This left Napa in a financial squeeze, Parness said. Labor costs were going up sharply while revenue growth was anemic.

In 2002, fringe benefits represented 7.8 percent of the city’s operating budget. In 2006, they were 23.7 percent.

In the short term, Parness is asking the city’s six unions to make $800,000 in concessions for next year. Four unions have agreed to more than $400,000 in give-backs while negotiations continue with the remaining two.

In his budget message to council, Parness said the city needs to be cautious when it negotiates future labor deals. “It is imperative that we monitor carefully the growth of those costs and strike an appropriate balance between providing the salaries and benefits that will establish Napa as an employer of choice and retaining adequate control over spending to allow preservation and necessary expansion of public services,” he said.

“We’re in an awkward situation,” he said in an interview. Napa could suddenly find itself unable to recruit and retain good employees if it fell behind going pay rates and benefit programs, he said.

Josh Pero, president of the Napa City Firefighters’ Association, said his membership is simply being paid a fair wage. By matching the average of surrounding cities, Napa wages are “right in the middle,” he said. “We’re not getting anything out of the ordinary.”

The rates that the city pays for CalPERS have increased in recent years, but they will just as certainly drop because of the recent strong performance of the stock market, Pero said.

While firefighters do have a good pension plan, members are paying 12.5 percent of their paychecks as their contribution, he said.

Public safety employees earn their paychecks by putting themselves at risk every day they come to work, Pero said. “It’s hard to put a price tag on asking someone to possibly give his life to the community,” he said.