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San Mateo County City M~nagers Association 6.1G Page 5 evaluations to cost close to zero for many agencies. This was due to the unprecedented investment returns earned by the retirement system in the latter part of the 1990's. Although many agencies were skeptical of these "free benefits", the convergence of the tight labor market, binding arbitration and ostensibly inexpensive enhancements created a fertile environment for wage and benefit expansions for labor units. As more and more c~ties began implementing these benefits, others felt the pressure to provide the same for their employees. Similarly, when CalPERS made available pension enhancements for miscellaneous employees, the pressure of competitiveness, issues of within-agency equitability, and inexpensive enhancements caused many agencies to enhance miscellaneous benefits as well. Clearly over the last few years cities have realized that their worst fears were being realized and the costs associated with these salary and benefit changes were no longer sustainable. In an effort to address the issues subsequently discussed in the Grand Jury's report, in the spring of 2008 San Mateo County cities created the Municipal Employee Relations Committee (MERC). The purpose ofMERC is to identify and develop information and analysis that will assist municipalities in understanding the dynamics ~t are occurring relative to employee costs and recruitment, and to provide options for consideration for use by San Mateo County cities in addressing the employee cost growth that has been exceeding the growth in revenues. The MERe Committee seeks to identify actions that could be jointly undertaken that would better inform the staff and elected officialst as well ast pOssibly secme resources that could initiate the development of an array of alternatives for consideration by the respective city councils throughout the County. A priority goal for the committee has been to develop contidential1abor relations information that will allow the staff and elected leaders a better understanding of total employee cost trends in the county and how their jurisdiction fits into that broader picture. As evidenced by the testimony provided to the Grand Jury by different City Managers we believe the MERe has been able to elevate this important issue. ll) Stakeholder Interests Regarding Escalatin2 Costs of Wages and Benefits In order to fully understand this issue from a policy perspective, MERe, the City Managers Association and the Human Resources Association felt it was imperative to identify key interests that should guide policy development and implementation for the elected officials within the County. Though not explicitly stated, these interests are embedd~ throughout the Grand Jmy's report: a) Attract and retain a highly qualified municipal workforce. By and large, positions in the municipal workforce require specialized skills, knowledge and education. Cities employ a plethora of occupations from Engineers to Attorneys to Firefighters and Police Officers. Municipal govemment$ must maintain a competitive compensation package that is adaptable to the needs of our diverse workforce as well as the fluctuations in the overall ~nomy.