Revised March 8, 2018

MEMORANDUM

DATE: March 7, 2018

TO: Honorable Mayor and Council FROM: Michael J. Ortega, P.E.

Members City Manager

SUBJECT: Follow Up from the Mayor and Council Retreat of January 26, 2018

I was originally going to talk through most of the following information during the retreat
scheduled for March 6, 2018, but because of the delay until March 20, I decided to provide you
detailed information, along with several attachments, to help explain my thoughts and
specifically the direction I am seeking from you during the follow up to the retreat. Please note
this memorandum does not contain all the information or topics we will be covering during the
retreat follow-up or future study sessions, but it does provide you with what I see as the
important topics going forward.

The following information is both in response to your questions during the Jan. 26, 2018 retreat
along with additional thoughts for your consideration. At the March 20, 2018 follow up retreat, I
would like to receive the following direction from you:

1. Authorize 29-year amortization for the Public Safety Personnel Retirement System
(PSPRS).
2. Authorize a 2.5% salary adjustment for most employees.
3. Direct me to develop strategies for implementation of the employee retention program.
a. Authorize proceeding with a police officer retention program
4. Direct me to proceed with exploring the consolidation of City Court with Pima County
5. Direct me to continue to explore self-funding for our health insurance.
6. Direct me to explore the alternative revenue models presented:
a. Districts
b. Surcharges
c. Differential surcharges
d. Review of all fees
7. Direct me to continue with the development of a Capital Improvement Plan along with
strategies for funding it.
a. General Obligation Bonds (GO)
b. Highway User Revenue Fund (HURF) capital program funding

Direction on the 29-year amortization for PSPRS (#1 above) is an integral part of establishing
the FY 18-19 budget, and staff and I need your direction for us to be able to proceed. The details
are outlined below. In addition, because I am recommending the 2.5% salary increase for
TO: Honorable Mayor and Council Members
SUBJECT: Follow Up from the Mayor and Council Retreat of January 26, 2018
Page 2

employees (#2 above) be implemented early next month, I am looking for direction from you
now. Items, #3-7, are direction to continue to explore these ideas and concepts. In each instance,
I will schedule a future study session item to inform you on our progress and look for direction.
To that end, I expect to have a standing item on most future study sessions to keep you abreast of
our progress.

#1 – 29-year amortization of PSPRS

As you are aware from our conversations in the past including at the Jan. 26 retreat, if we
continue to use a 19-year amortization, our combined Police and Fire PSPRS payment for FY
18-19 will be $87,590,000, an increase of $4,356,000 over FY 17-18. As you may recall, I did
not recommend going to the longer amortization period last year because PSPRS staff/board
mentioned we would be in a negative amortization for several years and it could increase our
annual payment amount above what it would have been if we simply kept paying the 19-year
amortization amount. We asked the PSPRS actuary to perform an analysis of what they projected
our contributions to be for the 19-year, 24-year and 29-year amortizations. Generally speaking,
the actuary data came in, on average, 5.25% lower than staff assumptions, resulting in a
combined decrease of overall contributions across all schedules. The 19-year schedule saw a
combined decrease in overall contributions of 6.17% or $173,320,658 from staff’s estimate of
$2,809,468,269 to the actuary’s projection of $2,636,147,611. The 24-year schedule saw a
combined decrease in overall contributions of 4.73% or $149,865,301 from the staff’s estimate
of $3,167,185,900 to the actuary’s projection of $3,017,320,599. The 29-year schedule saw a
combined decrease in overall contributions of 5.17% or $190,085,958 from the staff’s estimate
of $3,674,869,424 to the actuary’s projection of $3,484,783,466. Ultimately, it is important to
note that even with the lesser payment projected by the actuary, our total cost of going from 19
years to 29 years will increase $848,636,000 over the entire timeframe. Although this is a large
amount, I do not see we have a choice as the projected cost increase would negatively affect our
ability to fund other city services.

Recommendation: M&C authorize going to a 29- year amortization timeframe for PSPRS. 

#2 Authorize a 2.5% salary adjustment for most employees

As you may recall, we included $2M in the FY 17-18 budget for ongoing salary adjustments.
During the development of the FY 17-18 budget, we discussed not making a decision on how
those monies would be used until later in the fiscal year. This delay in making a decision was
based on a couple of things. First, I suggested waiting to see how our revenues were holding and
second, I also wanted to see what we could project for employees for the coming year(s). Our
revenues continue to be at projections, so I am comfortable making a recommendation to
proceed with the decision to allocate the $2M for employees at this time as a part of their base
salaries. Keep in mind that a 1% across the board salary increase equates to about $2.7M
annually. Using a prorated amount for the remainder of the year (April – June), $2M would
equal a 2.5% increase. The 2.5% increase would cost the general fund approximately $6.75M
annually. Hence, we would need to cover an increase of $4.75M additional funding in FY 18-19
($6.75M - $2M = $4.75M). Based on our projections, we can cover this increase going forward.
TO: Honorable Mayor and Council Members
SUBJECT: Follow Up from the Mayor and Council Retreat of January 26, 2018
Page 3

There has been discussion and some concern over this recommendation in that it does not
address compression in the salary schedule and that the lower paid employees would receive less
actual dollars. Both of these concerns are valid and my thoughts on them are as follows:

Compression – Staff reviewed the situation with regard to compression and what we found is
that the actual salary schedules are ok and that compression exists because of wage stagnation,
not because of compression in the salary schedule. This distinction is important since the
solutions for addressing them are different. In essence, the lack of salary increases over time has
caused more tenured employees to earn about the same or only slightly above those recently
hired. Until about 10 years ago, employees would almost automatically receive 5% or 2.5%
annual increases based on “merit.” Hence you hear some employees refer to the good old days of
receiving “merit raises.” In addition, some labor contracts provided for “steps” based on
longevity. Hence you hear other employees refer to missing “steps” since they have not been
funded for many years. In both of these instances, merit and step increases, employees generally
received annual salary increases along with Cost of Living Adjustments (COLA).

For the past 10 plus years, there have been some salary adjustments, but not to the level of the
previous merit and step increases. Attachment A is a table of employee salary adjustments over
the past 15 years. As you can see, employees have actually received adjustments during this
time, but I believe the reason you hear “we have not gotten a raise…” is because they are
referring to merit or step increases. I show this information to you so when you are approached
by employees; you can point to accurate information on this topic.

Wage stagnation is a big problem for our organization and can only be addressed in the long
term through methodical steps. To that end, I am recommending the 2.5% salary increase be for
permanent employees who have been with the City for two or more years. In addition, once
those employees with the city on April 1, 2018 for less than two years reach their two year
anniversary, they would be eligible for a 1% adjustment based on performance. This would
allow us to start working toward expanding the separation between tenured employees and new
hires. The cut off for this two year tenure would be a start date of April 1, 2016. I will address
other thoughts on addressing wage stagnation under #3 below.

Lower paid employees – It is intuitive that when a percentage of salary is the basis for salary
adjustments, the lower paid employees receive less in terms of actual dollars than those at the
higher end of the salary schedule. However, if we implement a larger percentage (larger dollar
amount) instead of a percentage for this employee group, it will cause true compression and
exacerbate the problem that has developed due to wage stagnation.

Please keep in mind, that I have been mindful of the lower paid employees’ situation and this is
one of the reasons I have advocated for the across the board one-time distributions. Aside from
not having to pay toward retirement, it is regressive when compared to employees’ salaries. I
will continue to recommend these one-time distributions as outlined in #3 below.

Recommendation: M&C authorize a 2.5% salary adjustment for employees who have been
here longer than 2 years on April 1, 2018 and 1% for those with less than two years of service
upon their 2 year anniversary and based on performance.
TO: Honorable Mayor and Council Members
SUBJECT: Follow Up from the Mayor and Council Retreat of January 26, 2018
Page 4

# 3 Direct me to develop strategies for implementation of the Employee Retention Program

During the Jan. 26 retreat, I presented to you Attachment B. It outlined thoughts on how we
could approach employee retention, particularly pay. Based on feedback during the retreat and
conversations since that time, I have made some changes to my proposal as shown in Attachment
C. The overall numbers have stayed the same, but the timing for implementation has changed. In
addition, instead of the one-time distributions continuing with actual dollars to the employees as
salary, I am recommending we place this future funding as a way of helping us move toward
self-funding for health insurance. No decision on this future benefit is needed now, but I am
thinking this source could be used to fund employees’ HSA accounts or some other offset to
health insurance cost increases.

Please note on Attachment C that the 2.5% salary increase is still recommended for April 2018.
The 2% salary increase originally scheduled for July 2018 is proposed to move to January 2019
and the one-time $1,000 distribution to employees is proposed to move from January 2019 to
November 2018. The thought in changing these is to give us more time to develop a more robust
long term strategy for addressing wage stagnation. It also gives the organization an opportunity
to make progress toward some of the strategies outlined in #4-7 below and assure us the ability
to fund the program going forward.

Addressing wage stagnation will be a long process since it took us many years to get to this point
and will take us a bit to undo, but more importantly, the amounts necessary to fund them need to
be developed both through efficiencies and revenue increases over time.

I again call to your attention the change in the one-time distributions in Jan 2020 and 2021 as
they may not be $1,000 employee distributions, but could instead be allocated as other employee
benefits such as self-funding for health insurance. This does not preclude the distribution of
monies to employees, but this would give us some flexibility during the FY 19-20 and FY 20-21
budget development process.

With the exception of the one-time distribution amounts, the other amounts corresponding to
employee base salary adjustments are cumulative and must be funded long term. Attachment D
shows the cumulative impact to our ongoing budget. This is important to note since we will rely
on operational efficiencies and increases to revenues to be able to fund these costs going
forward.

Police officer turnover and retention strategies – One area that has me concerned is the
turnover in our police officer ranks. As you may recall from last year’s budget discussions, we
proposed eliminating vacancies, but increasing the total force by an additional 20 officers per
year for five years for a total net increase in officers of 100. An additional 100 officers would
have brought the total number of officers to 936 in 2022. This was based on the assumption that
about 6 officers would leave every month (standard attrition) and that we would recruit and add
about 95 officers per year to replace those leaving through attrition along with adding 20 new
officers annually.

Unfortunately, over the past several months, attrition has increased on average by an additional 2
officers per month. We are now losing on average 8 officers per month and staffing is at a
TO: Honorable Mayor and Council Members
SUBJECT: Follow Up from the Mayor and Council Retreat of January 26, 2018
Page 5

critical level. Hence we must recruit/hire closer to 120 officers per year for the next few years to
stay even and make up for not getting the additional 20 officers last year. I have authorized the
additional classes necessary to reach that goal.

In addition, Chief Magnus has proposed other ways to provide police services to the community
to include hiring additional Community Service officers and hiring retired TPD officers to assist
in call taking and some non-law enforcement duties, such as report writing and follow up. This
strategy will need immediate implementation, and I have authorized the hiring of these
additional service officers using current year vacancy savings. Although these positions may not
be long term solutions, they can assist in the immediacy of our lower than sustainable police
officer positions. Ultimately, this will be a net increase in the number of FTEs, but it is necessary
to address this need.

The reasons for the increased turnover are probably several, but from exit interviews and many
conversations with those leaving our organization, pay and the wage stagnation (what they call
compression) are given as main reasons. In looking at the numbers, it costs us about $100k per
officer to replace them when they leave. Simplistically, an additional 24 officers leaving every
year equates to a cost of about $2.4 million. It is not fair to say this costs the organization these
dollars solely like an additional expense, but more accurate to say these are opportunity costs
associated with the City not providing about $2.4 million in police services. Regardless of how
this is referred to, it is an inefficient use of taxpayer money and needs to be addressed.

I attached a memo from Tucson Police Department (Attachment E) along with some suggested
action. As you can see from the memo, I am not recommending we implement all parts of the
recommendation, but focusing on those that we can fund and in my opinion will have the
greatest impact. My recommendation for addressing this matter in FY 18-19 will cost
approximately $1.2 million. Because of the urgency of this situation, I am recommending you
direct me to move on implementation immediately and not wait for the new fiscal year. There is
some risk in making this move before July 1, but the risk associated with continued loss of police
personnel is greater.

Recommendation on employee retention program:

1. M&C directs the Manager to proceed with developing the proposed Employee
Retention Program including the funding strategies associated with it.
2. M&C authorizes the Manager to proceed with implementation of the retention
program for Police officers as outlined/recommended by the Manager.

#4 Direct me to explore Court consolidation with Pima County

The consolidation of portions of our court system has been a topic of discussion over the past
couple of years. In our first retreat together I mentioned the need to partner on services where
possible to enhance the services we provide to the general public. Courts is one of those areas
where consolidation could be of value to the taxpayer in the long run. I previously copied you
on a memo from County Administrator Chuck Huckelberry to Presiding Superior Court Judge
Kyle Bryson (Attachment F) where the County Administrator outlined thoughts on exploring this
possible consolidation. Since that time, Mr. Huckelberry appointed Mr. John Voorhees to be the
TO: Honorable Mayor and Council Members
SUBJECT: Follow Up from the Mayor and Council Retreat of January 26, 2018
Page 6

project manager on this possible consolidation effort. Attached please find a memo from Mr.
Voorhees to me, Attachment G, outlining the steps he sees to accomplishing a consolidation of
City Court with Pima County Courts. The steps are many and it will take some time to get all
stakeholders engaged, but it can be accomplished and is an important piece of generating
efficiencies and reducing expenses if we are to succeed with the various other initiatives I have
outlined for employees. My request is for you to allow me to continue to explore this
consolidation and keep you in the loop via memorandums and future study sessions on this topic
as we determine the viability of full consolidations. As you know, co-location could help with
efficiencies, but we will not see full potential savings until a consolidation is accomplished.

As we move forward, it will be important for us to focus on the services to the public and ensure
there is not a loss in those services such as the specialty courts like Veteran’s, Domestic
Violence, Mental Health, etc., courts. We have seen much success with these courts and this
consolidation can in no way cause a deterioration of those services. In discussing these with the
County Administrator and Presiding Judge, they have assured me these services are important to
the County and they would like to see them continue and even enhanced.

The key for this consolidation to work is adequate assurances through agreements and practice
that will keep the fundamental services and authority the City has under our charter yet
providing the public with a more efficient service. I am confident we can accomplish both as we
move forward.

Recommendation: M&C direct staff to continue exploring consolidation of City Courts with
Pima County and bring back to M&C periodic updates on progress.

#5 Direct staff to explore self-funding for health insurance

We have been discussing this option for the past several years. In essence, I see this as
something important for our future in order to react to market forces with regard to health
insurance cost increases by developing a benefits design to better suit our needs instead of being
at the mercy of an insurance company. What we have learned over the past several months is that
the plan design of health insurance benefits is generally not the driving force behind going to a
self-funded model. It is usually the ability to focus efforts on reducing targeted expenses and
react with plan design changes that aren’t available in a fully insured structure.

Our cost per employee tends to run higher due to two factors. First we still cover many of our
retirees, although we no longer offer that benefit to employees hired after Jan 1, 2016. This
continues to cost us more than just covering current employees. In addition, we offer a very rich
benefit with HMO coverage. The HMO is not used by most organizations any longer and instead
most organizations offer a High Deductible Plan (HDHP), like a HSA or HRA. Going to self-
funded does not affect plan design (going from HMO to HDHP), and it should not be confused,
but regardless of which funding model we ultimately choose, it is unlikely we can continue to
offer the HMO model at reduced costs. I suspect we will see an increase in employee premiums
for those wanting to continue to use an HMO model. Hence the reason for my suggestion under
#3 above about changing the one-time distribution model from dollars to employees to “other
employee benefits.” This gives the flexibility to make a decision on what can be offered to
TO: Honorable Mayor and Council Members
SUBJECT: Follow Up from the Mayor and Council Retreat of January 26, 2018
Page 7

employees in future years as the cost associated with providing an HMO alternative continues to
increase or we begin movement to HDHP models only.

We believe we can save on an annual basis if we use a self-funded approach toward our health
insurance, but more than that, we believe we can better manage our future cost. Attachment H
shows the increases we have seen since 2012. Many factors affect these increases, but we believe
this trend will continue for the foreseeable future and again, believe self-funded could help us
drive the conversation around more affordable health insurance. At this point I am hopeful we
can develop a strong recommendation for you to consider us going to self-funded for the FY 19-
20 budget (July 1, 2019). I will continue to keep you abreast of our progress with regular updates
including study sessions on this topic.

Recommendation: M&C direct the Manager to continue exploring going to a self-funded

health insurance model and bring back to M&C periodic updates on progress.

#6 Direct me to explore alternative revenue models

As I mentioned during the Jan. 26 retreat, relying on sales tax to fund the services we provide is
now antiquated and in need of rethinking. In years past, it was understood that as the economy
changed, so did the sales taxes coming into the city, but with the advent of the internet and
online shopping that model no longer holds. Simplistically, the average resident pays less for city
services as a percentage of their household income than in years past (10-20 years ago). Online
shopping may not be the only reason for this percentage decrease, but we can certainly attribute
a significant portion to it. Joyce Garland and I recently met with UA professors in an effort to
attempt to quantify what we could expect with regard to internet sales and project how it will
affect our future budgeting. They did not have any specific answers to our questions, but agreed
to assist us through an existing agreement in doing more focused research on trends with an eye
toward developing a robust public conversation about how city services should be funded in the
future.

As we discussed at the retreat, there are other models we can explore:

a. Districts
A fundamental shift from reliance on sales tax could be to property taxes. The
formation of either a fire district or parks district could accomplish this. Both
would be difficult to form given that 50%+1 of both assessed valuation (property
owners) and 50%+1 of the voters would have to approve the formation of the
districts. As I mentioned during the retreat, it would be difficult, but not
impossible if the populace understood the need for the shift and is willing to assist
us in undertaking this task. City Attorney Mike Rankin will get into more detail
during our March 20 discussion on the actual formation of the districts.

This option tends to be progressive in its allocation of costs as it would allocate

higher costs toward more expensive properties. Because districts are tied to
TO: Honorable Mayor and Council Members
SUBJECT: Follow Up from the Mayor and Council Retreat of January 26, 2018
Page 8

property values, it could also be a disincentive for businesses considering

relocation to this area.

b. Surcharges
Surcharges on Water and/or ES billing are another option to be considered. This
could shift reliance on sales taxes to across the board amounts paid by users of
these services. A water surcharge could be used to assist in our conservation
efforts. It would be more difficult for ES charges to be tiered since there are fewer
tiers and would not necessarily affect the habits of our ES services.

c. Differential water surcharges

Another surcharge option is to charge a differential rate between water customers
inside the city limits and outside the city. Attachment I shows the potential
revenue streams of a differential charge.

d. Review of all fees

Part of our ongoing review of operational efficiencies includes a review of all
aspects of fees we charge for services. Some of our fee structures have not been
reviewed for many years and have not kept pace with increasing costs. Staff is
reviewing all fees associated with their individual departments and developing
recommendations for your consideration in the future.

Recommendation: M&C direct the Manager to continue exploring alternative revenue models
and bring back to M&C periodic updates along with recommendations.

#7 Direct me to continue with the development of a Capital Improvement Plan (CIP) along
with strategies for funding

As we discussed at previous retreats, our capital needs continue to increase daily. Although we
have invested some funding toward capital improvements, such as facilities, vehicles, and
equipment, we have not invested enough to keep up with the deterioration of some of our capital
assets. It is difficult to place exact numbers to the needs since they change as the assets decline,
but we will embark on a review of all of our assets in order to identify strategies for addressing
replacement and ongoing maintenance. This process is outlined in Attachment J. I am expecting
it will take several months to complete. The CIP development effort can be a part of a more
robust conversation about development of a strategic plan. I will be asking you to consider
moving in the direction of a strategic plan during summer of 2018.

a. General Obligation Bonds - As we define our capital needs, the next step will be
to develop strategies for funding them. Attachment K is a slide showing the
capacity of our secondary property tax as it relates to debt service. As you can
see, the debt service and corresponding rate starts to drop in 2021 and continues
this downward trend until 2028. Because of this payoff of debt, we will have
TO: Honorable Mayor and Council Members
SUBJECT: Follow Up from the Mayor and Council Retreat of January 26, 2018
Page 9

capacity to finance new one-time expenses. I believe timing is exceptionally

important. If we were to go to the voter for a General Obligation Bond in the near
term (Nov 2018 or 2019), we could issue up to $225 million over 15 years with
five years at the same tax rate and then decrease the rate over the following ten
years as shown in Attachment K.

b. HURF capital program funding – Attachment L shows the debt service

schedule for previously issued HURF debt. As you can see, the debt service is
paid off over the next five years, allowing us more funding to allocate to city
streets. At this time, I do not recommend additional bonding or debt to finance
road repair as the life of bonds generally exceeds the useful life of the pavement.

Recommendation: M&C direct the Manager to develop a Capital Improvement Program to

include funding strategies and bring back to M&C periodic updates along with
recommendations.

In summary, there are several issues that I wanted to share with you, and because of the delay in
the retreat until March 20, I thought it important to give you more detail so you are prepared for
the discussions on the various topics.

A few thoughts for you to consider:

1. As I have mentioned to you many times, we need to become an employee-focused

organization. In order to do this, we have enhanced many employee benefits and worked
on improving communication. Unfortunately because of the way we approached
compensation in years past, we built an expectation with employees and have not been
able to overcome it. Due to limitations on funding, it is unlikely we will ever be able to
get back to “merit” or “step” increases, but my proposal of salary adjustments over the
next three years will help in demonstrating our commitment toward employees,
reinforcing the value they bring, and providing them an environment to be successful. If
we focus on employees’ well-being, they will carry the organization forward and develop
the strategies to address the challenges we face now and will face in the future. We have
proven this in the past two years where we have challenged employees to be part of the
“one city – one team” effort as we have returned to a structurally balanced budget.

2. Ongoing operational reviews will be a part of our everyday efforts within our
organization for the foreseeable future. To that end, I have asked staff to take “deep
dives” in their areas of responsibility. As you saw recently, the Water Department has
undergone such an effort that culminated in recommendations presented to you including
strategies for reducing our dependence on debt financing for infrastructure investments.
Another area we are pursuing is Transit. Amber Kerwin from my office has been working
with TDOT and transit contractor RDMT to perform an exhaustive analysis of all aspects
TO: Honorable Mayor and Council Members
SUBJECT: Follow Up from the Mayor and Council Retreat of January 26, 2018
Page 10

of the transit system. Specifically she will be looking at the capital replacement program,
overall effectiveness of our service, and fare rates. As a part of this ongoing effort, we
will be bringing recommendations to you for consideration.

3. Shifting our reliance on sales tax to other forms of revenue is a difficult conversation, but
I remain convinced that the conversation needs to occur. We will work to engage the
public on what services they want from their city government, with a corresponding
discussion on how to best fund those services.

4. Partnerships will remain key to our long-term success as a region and although the
possibility of a consolidated court can yield savings to the taxpayer, there are other
partnerships that remain worthy of exploration in the law enforcement field and parks
operations. We will continue exploring all potential partnerships and bring them back to
you for consideration as they develop.

5. Long term planning is key to developing sustainable strategies that will address our needs
as a community. As I mentioned above, I am suggesting Mayor and Council consider a
strategic planning effort to commence this summer. This will help in crafting
implementation plans for everything from dealing with capital investment to updating
Plan Tucson.

I realize this is a lot of information, but I am hopeful it provides enough detail on the issues we
face as well as the approach the staff and I are employing to address them. I look forward to
discussing it in more detail on March 20.

Thanks. . .
Attachment A

Compensation – COLAs
* 2014 
$1.00 per hour for all non‐exempt Emergency 
Communication Workers

$  .55 per hour for all other employees 
(except Emergency Communication Workers) 
and for exempt  commissioned police officers 
and firefighters (except the rank of Police 
Lieutenant and Fire Battalion Chief)

Step increase for commissioned staff hired 
before 1‐1‐11
$ .55 per hour for commissioned staff hired 
after 1‐1‐11 and those at the top of their 
range

% increase = to next closest non‐exempt rank 
for Police Lieutenants and Fire Battalion 
Chiefs

Furlough History:
FY 09‐10  5 days  All employees except commissioned
Police and Fire

FY 10‐11  9 days All employees

FY 10‐11  5 days  All employees except Environmental

Services
 Employee Retention Plan
ATTACHMENT B

2018
2019

2019
2020

2020
2021
$12 million
annually

$8.1 million
annually

$6 million
annually

2.5%
Increase 2% $ 1 ,0 0 0 1 - 3% $ 1 ,0 0 0 V a r ie s V a r ie s V a r ie s
one time distribution one time distribution

Date April 5, 2018 July 2018 Jan. 2019 July 2019 Jan. 2020 July 2020 Jan. 2021 July 2021
Payment to Employees

E mp l o y ee Reten tio n - Al l Em pl o y e e s Ma r ke t - A l l Em pl o y e e s Pe r f o r m a n c e B a s e d

Ongoing operational efficiencies and other additional revenues.

 Employee Retention Plan
ATTACHMENT C

2018
2019

2019
2020

2020
2021
$12 million
annually

$8.1 million
annually

$6 million
annually

2.5% Other Other

Increase $1,000 2% 1 - 3% E m p lo y e e V a r ie s Em p l o y e e V a r ie s
one time distribution B e n e f it s Benefits

Date April 5, 2018 Nov. 2018 July 2018 July 2019 Jan. 2020 July 2020 Jan. 2021 July 2021
Payment to Employees

E mp l o y ee Reten tio n - Al l Em pl o y e e s Ma r ke t - A l l Em pl o y e e s Pe r f o r m a n c e B a s e d

Ongoing operational efficiencies and other additional revenues.

 Attachment D
$35.0

$30.0

Performance Performance
1‐3% Market $12.0M
$25.0
2% Retention
EE Health Benfits
2.5% COLA
$20.0

1‐3% Market 1‐3% Market
Increase in Cost measured in Millions

$8.1M $8.1M
$15.0

$10.0 2% Retention 2% Retention 2% Retention

$4.3M $4.3M $4.3M

EE Health Benefits EE Health Benefits EE Health Benefits

$2.3M $2.3M $2.3M
$5.0

2.5% COLA 2.5% COLA 2.5% COLA

$5.4M $5.4M $5.4M
2.5% COLA
$0.0 $1.4M
4/1/2018 FY19 FY20 FY21
Ongoing Operational efficiencies and other additional revenues.
 Attachment E

MEMORANDUM

DATE: February 7, 2018

TO: Chris Magnus FROM: Eric Kazmiercza

Chief of Police Assistant Chief of Polic

SUBJECT: Retention Funding Options

City Manager Mike Ortega requested information specific to funding options to reduce on-going training funding
through a reduction in turnover. The following recommendations address this request.

Measuring the Cost of Turnover versus Retention

Measuring the true cost of attrition against the long term benefits of retention involves an incredibly complex
set of calculations. Though professionals across a wide range of employment fields have tried, no consensus
formula exists to measure this relationship. That sa id, a number of consistent themes exist throughout human
resource literature regarding the key factors to consider when conducting a comprehensive cost benefit
analysis.

In terms of metrics, advertising, testing, and overtime coverage are widely accepted as consistent hard costs.
Widely accepted soft costs include reduced quality of service, errors, loss of job knowledge, and productivity
reduct ions. Whil e adding the hard and soft costs together is necessary and produces a reasonably accurate
account, some details get lost in the shuffle. In order to get a real understanding, the best approach involves
distinguishing between programmed and non-programmed turnover.

Programmed Turnover- Programmed turnover includes all retirements and terminations. This rate, to some
extent, can be forecast and represents a healthy cycle of attrition. In 2016, TPD's programmed turnover, all
retirements and terminations, was 45% of the overall turnover (30 out of 67 separations). In 2017, that number
was 48% of all turnover (40 out of 83 separations) . This is natural, anticipated attrition unlikely to be
significantly impacted by retention efforts .

Non-Programmed Turnover - Non-programmed turnover is a function of resignations that occur outside of the
lifecycle of a police officer. For TPD, the same two-year period saw 48% (37 out of 67 separations) and 52% (43
out of 83 separations) non-programmed turnover respectively. In some cases, non-programmed turnover is
healthy for the department. Either the person did not fit with the organizational values or they recognized they
were not going to meet standards and chose to leave before termination.

In other situations, however, non-programmed turnover damages the health of the organization as high-
functioning employees leave for "greener pastures." It is this critical subset of non-programmed turnover,
common ly referred to as dysfunctional turnover, which makes up the mostly costly form of attrition.
Importantly, our dysfunctional turnover increased in each of the last two years, reaching 18% (12 out of 67
se parations) in 2016 and 19% (16 of 83 separations) in 2017. This is the target group in need of focused
retention efforts. Retention of these officers is a benefit not only the health and productivity of the
organization, but enables the department to provide better service to the community.
Rete ntion Funding Options Attachment E
Page 2

Financial Toll of Dysfunctional Turnover

Measuring the cost of this dysfunctional turnover requires computing the expense to train a new police dfficer
as opposed to retaining experienced police officers. The first cost consideration is salary. An officer in training
performs no public service during their 10 months of training. Each month, the salary for an officer in training
amounts to $3,927.73 ($22.66 I hr), with an ERE rate of 1.67. Computed out over a 10-month period, this equals
$65,593.09 per officer in training.

If you take this per training officer cost and then multiple it by 14 (the 2016/17 average of police officers lost to
dysfunctional turnover), this equals $918,303.27 in sunk costs to train employees with no immediate return on
investment as they do not possess the skills or ability to handle calls for service, are tethered to the training
grounds for a majority of their instruction, and provide little public service.
It is important to note that every officer retained saves the department both the hard costs associated with
hiring and the soft costs associated with replacing high-performing staff with newly trained officers . It is equally
important to note that for every year an officer is retained, the department gets a return on the substantial
fina ncial investment made to train that officer.

Retention Driven Funding Recommendations

1. Targeted Pay Increase

Given the high cost, both financially and institutionally, of dysfunctional turnover, two actions should be
taken. First, reduce the April class size from 35 to 21. This reduction by 14 recruits equals the average
number of employees that left as a result of dysfunctional turnover in 2016 and 2017 . This reduction is
a direct savings of $918,303 .27, or the cost to train those 14 officers during one 10-month training cycle .
Second, divert the savings from the department's tra ining budget to retention efforts that focus on
dramatically reducing the non-programmed turnover.

The department has recommended a targeted raise for officers and detectives (approximately 450 in
total) who have over 3 full years of service (this represents a step increase - approximately 5%) . This pay
increase would at least signal to our members that the department recognizes their value and begins to
account for the realities of the law enforcement job market. The approximate cost for this retention
initiative would be $2,500,000 annually. Taking the savings calculated above and applying those funds
to this pay increase would leave approximately $1.6 million remaining to fund the retention effort.

2. Community Service Officers

Option 1 - We have an existing civil service list for the professional staff position of Community Service
Officer (CSO) that currently contains 11 qualified candidates . Unfortunately, at this time, we have no
CSO vacancies . CSO's are not only cost effective, but uniquely further the community engagement
model we continue to build within the department. This presents a rare opportunity to almost instantly
grow the current CSO rank from 32 to 43, realize the customer service enhancements that go along with
that addition, and simultaneously save financial capacity. For FY19, the conversion from hiring 20
officers (cost of $2,441,160 salary and ERE) to hiring 10 officers and 11 CSO's (cost of $1,928,243 salary
and ERE) represents a savings of $512,917. That savings can be applied to the targeted 5% raise
previously outlined .
Retention Funding Options Attachment E
Page 3

Option 2 - A second option exists to fund the 11 additional CSOs. That option involves the use of an
over-hire strategy. Using this option, the department can hire the 11 additional CSO cand idates
($707,663) using anticipated capacity set for an authorized strength of 876. This would not require the
conversion of sworn positions . Timing on this option is critical. These 11 candidates on the CSO list are
currently in the on-boarding process to work in a non-permanent general office worker capacity.
Funding for these positions was approved late in 2017 as part of the vacancy projections returned to the
department. Funding for these positions for the remaining portion of FY18 would come from that
capacity. For FY19, utilizing this group of 11 on the CSO list for the position they processed for, rather
than the non-perm general officer worker positions, would negate the need to set aside non-permanent
salary costs as part of the continued call mitigation strategy. Those savings would simply be converted
into sa la ry costs for these additional positions.

3. Take-Home Vehicles

There are individual and organizational attributes that department members take into consideration
when choosing to stay or leave the department. In order to attract and retain staff we must implement a
multi-faceted retention program, one that relies on more than just pay. Implementation of a structured,
tenure based take-home vehicle program for patrol officers is among the most fiscally attainable yet
meaningful retention steps that the department can take.

Take-home vehicle programs are not unique in law enforcement. In fact, many agencies in Southern
Arizona provide take-home vehicles for their officers and deputies. This would place Tucson Police in a
more favorable recruitment and retention position. Further, studies have shown that officers take
better care of assigned vehicles, increasing vehicle longevity, and decreasing operations and
maintenance costs.

We currently have 295 vehicles assigned to the Field Services Bureau (FSB) covering the needs of 365
patrol officers and sergeants. Given the current size of the fleet it is impossible to assign a take-home
vehicle to all F.SB officers and sergeants . Therefore, the department recommends the assignment of a
take-home vehicle to all FSB sergeants and officers with 4 years or more of service. There are
approximately 250 personnel that have reached this tenure. A 2-year phased implementation of this
tenure based take-home vehicle program would allow the City to slowly grow the fleet using new
vehicles purchased through the Tucson Delivers program . More staff work is needed to identify the
exact roll -out schedule and specific numbers associated with this initiative, but the foundation for full
implementation has already been laid.

Conclusion

The department recognizes that any meaningful retention efforts must be multi-faceted in order to be
successful. A pay raise alone fai ls to achieve the desired retention impact needed to stem the tide of increased
dysfunctional turnover. The immediate inclusion of 11 additional CSO staff (which adds nearly three to each
patrol division) will reduce the calls for service burden, particularly in terms of lower level calls for service that
impact quality of life issues for a broad spectrum of the public. Additionally, implementing a tenure based take-
ho me vehicle program will provide a much needed benefit to the segment of our officer population most
depleted by the increase in dysfunctional turnover. Together, these initiatives represent a broad, fiscally
respo nsible, and attainab le retention plan.
Attachment F
Attachment F
Attachment F
Attachment F
Attachment F
Attachment F
Attachment F
Attachment F
Attachment G
Attachment G
Attachment G
Attachment G
 Attachment H

Health Insurance
• Health Insurance for July 1, 2018
• 3.95% rate increase ($2.3M) – City can absorb cost increases or increase COLA
• Plan Design Modifications
• Assumption – City covers premium increase

• Strategy 
• Enrollment System Opportunity 
• Overall Assessment of Critical Areas
• Survey of Employee Population 
• Community Partnerships
• RFP Development
• Self Funding Transition Plan
• Contribution Strategy Considerations
 Attachment I 
Surcharge based on Bill Amount (10/20/30%)
Outside Tucson Rates ‐ Revenue Estimates
2/23/2018

Estimated  Estimated 
Est Additional 
Number of  Water  Number of  Water 
Accts Outside  Projected  Increase  Additional  Accts in Other  Projected  Increase  Additional  Revenues* 
Tucson Limits   82,050 Revenues Percent Revenues* Jurisdictions       13,795 Revenues Percent Revenues* County Only
(68,255 Accts)
FY 2018  (Baseline) $     60,596,000 $                ‐ FY 2018  (Baseline) $        9,462,000 $                 ‐ $                   ‐

FY 2019 $     60,596,000 10% $     6,059,600 FY 2019 $        9,462,000 10% $        946,200 $      5,113,400

FY 2020 $     60,596,000 20% $   12,119,200 FY 2020 $        9,462,000 20% $     1,892,400 $    10,226,800

FY 2021 $     60,596,000 30% $   18,178,800 FY 2021 $        9,462,000 30% $     2,838,600 $    15,340,200

FY 2022 $     60,596,000 30% $   18,178,800 FY 2022 $        9,462,000 30% $     2,838,600 $    15,340,200

FY 2023 $     60,596,000 30% $   18,178,800 FY 2023 $        9,462,000 30% $     2,838,600 $    15,340,200

*Estimated revenue increases assumes that both base rates and volumetric rates would be increased by the applicable percentage.  
 Attachment J

Develop CIP

DRAFT
Attachment K 
 

City of Tucson, Arizona
Projected Tax Rate/Capacity Analysis
Example: $225,000,000 November, 2019 Bond Authorization with Fifteen Year Amortization
(With 2% Annual Primary Property Tax Growth and Total Tax Rate Capped at $1.47)
$45,000,000 $1.6000
$1.5000
$40,000,000 $1.4000
$1.3000
$35,000,000 $1.2000
$30,000,000 $1.1000
$1.0000
Debt Service

Tax Rate
$25,000,000 $0.9000
$0.8000
$20,000,000 $0.7000
$0.6000
$15,000,000 $0.5000
$10,000,000 $0.4000
$0.3000
$5,000,000 $0.2000
$0.1000
$0 $0.0000
2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039
Outstanding GO Debt Service Estimated Additional Debt Service
Outstanding GO Debt Rate Projected Total Tax Rate
 
 Attachment L

HURF – Moving to Pay‐as‐You‐Go System
Street  and Highway User Revenue Bonds
Total Debt Outstanding = $64.2M

$‐
100%
90% $4.7  $4.8  $5.1  $5.7 
80%
70%
60% $16.9
Millions

$16.9 
50%
$12.2 $12.1 $11.8
40% $11.2
30%
20%
10%
$0.0
0%
2017/18 2018/19 2019/20 2020/21 2021/22 2022/23
Fiscal Year

Debt Service Available HURF Pay‐As‐You‐Go