Citing significant recruitment and retention challenges, Palo Alto is preparing to approve a new three-year contract with the city's largest labor union that would include an immediate 3.5% salary hike and raises as high as 20% for critical utilities positions that have been particularly difficult to fill.

The city's contract with the Service Employees International Union, Local 521, will also give the union's 580 employees a 3.5% raise on Dec. 1 and a 3% raise on Dec. 1, 2020, while requiring them to add an additional 1% of their salaries toward the "employer paid" portion of pension contributions. The city had traditionally footed the entire employer-paid portion, but has recently required workers to contribute 1%, which would be raised to 2% starting in Dec. 1, 2020.

Some of the biggest salary increases will be in the Utilities Department, where recruiting challenges have been most acute. The city's electric operation, which has 68 positions, has 18 vacancies, including all three electrical assistant positions, according to a Feb. 6 presentation that utility staff gave to the Utilities Advisory Commission. And five of the department's 15 electrical lineperson positions were vacant, requiring the city to increasingly rely on contractors to maintain transmission lines.

Tomm Marshall, assistant director of utilities, told the commission at the meeting that the city is also likely to see "a large number of people" leaving the city at the end of the year, in many cases because of retirement. Currently, some utilities employees commute from as far as Lodi and at least one lives in a car throughout the week, he said.

"After a while, they look for closer jobs so that they don't have to make the two-to-three-hour commute each way to get here," Marshall told the commission.

According to city data, in 2017 the lineperson position had a pay rate of between $46.90 and $61.51 per hour, with the highest paid lineperson earning $161,672 in total compensation that year (which included $37,160 in overtime).

The new contract tries to make these positions more lucrative by adding a 20% salary increase in addition to the across-the-board increases every union member will receive. When coupled with the two subsequent across-the-board salary increases granted to all SEIU employees, workers in these and other hard-to-fill positions would get a 30% raise over the contract's three-year term.

The proposed contract, which the City Council is scheduled to approve on April 22, is estimated to increase city costs by $3.7 million in fiscal year 2020 (which begins on July 1, 2019), and by $4.4 million and $4.8 million in the two subsequent years. The majority of the costs will be in utility funds, which are disproportionately impacted by the city's recruitment and retention challenges, according to staff.

In the general fund, which covers most basic services (outside utilities), the projected increases are $917,000 in 2020, $1.2 million in 2021 and $1.3 million in 2022, though some of the costs will be offset in the third year by greater pension contributions from employees.

Despite the increased expenditures, top management believes the adjustments are necessary to bring stability to a workforce that beset with vacancies — a trend that staff attributes largely to the high cost of housing. The problem is particularly pronounced in Palo Alto. A new report from the Human Resources Department notes that geography "plays a greater role in impacting Palo Alto than many of our comparator agencies because 60% of the City's workforce lives more than 30 miles from Palo Alto."

"This key factor makes Palo Alto vulnerable to losing employees to other cities or employers who are closer to their residences," the report states.

In the SEIU bargaining unit alone, there are currently 70 vacancies, according to staff, a number that has grown steadily over the past three years.

The Human Resources Department states that compensation package "will allow Palo Alto to be more successful in retaining current employees and to compete for new talent." The parties had met 23 times between September 2018 and last March to reach these terms, with the SEIU voting to ratify the tentative agreement on March 27, according to staff.