The Great Paradox
A Special Report written for CaliforniaCityNews by Joanne Sanders of BOLT Staffing Service, Inc.
Despite stagnating wages, public employers are seeing surging employment costs due to increasing pension and healthcare bills. The result is frustration for workers and managers alike.
The story of the Great Recession is one of declining, or at best, flat wages. Though employee productivity has increased by 66% since 1989, real wages have only increased by 20.5% for state and local employees. Looking at those numbers, city and county governments should be rolling in money, receiving nearly two-thirds more labor from each worker, while paying only one-fifth more in wages – a deal if ever there was one.
Ask anyone involved in local government budgeting, however, and they’ll tell you that their payrolls are far from flat. In the last few years alone, some municipalities have seen their pension and other benefit payments rise more than 50%, meaning that the overall cost of an employee has dramatically increased, but the municipal employee has not seen any increase in their take-home pay. It’s a recipe for unhappiness all around.
According to an article in the Marin Independent Journal, the average worker at the Marin Civic Center has a salary of a little over $90,000. In 2009, the total cost of that employee was $123,000 a year to the County of Marin, including health care benefits and pension payments. Only five years later, Marin County’s cost has increased to $150,000 a year – nearly all of it due to increased pension and benefit payments.
This is a recipe for disaster. Employees are justifiably disgruntled that after years of flat wages and, in many cases even pay cuts or furloughs, they are not receiving the raises they expected in spite of rebounding sales tax and property tax revenue. There’s no good way to tell an employee that his or her raise is going to fund already hard fought for benefits, but that’s exactly what’s happening. For their part, cities and counties are caught between a rock and a hard place. Their pension obligations are absolute and have thus far been protected by the Courts at every turn. While we can all bemoan the damage done to pension funds by Wall Street speculators, there’s no way to unspill the milk. All we can do is work with the situation at hand.
Many local governments are exploring creative options to keep their payroll costs in line. For example, temporary staffing and paid internship programs can be a great way to fill needed positions without adding to pension or healthcare costs. Enforcing limits on accruing paid time off and tightening rules on receiving pension while working for a private organization can also help to trim bloated budgets. On the other hand, hiring back a former employee as a temporary or hourly worker can be very cost-effective. Though some might suggest that the employee is “double dipping” by pulling a pension while receiving an hourly wage, the lack of healthcare and pension costs that a new employee would have access to would make such an arrangement a bargain for some cities. The City of Santa Clara, for example, reports that it has saved more than $1 million by hiring back its “retired” fire chief at a part-time hourly wage with no benefits.
Though the recession has ended, local governments are still facing the problem of too many workers chasing too few dollars, and there’s no situation that will satisfy all parties. Current employees are fighting with retirees for scant resources and the solutions cities propose, such as hiring back former employees who are already pulling down pensions, often do not sit well with the public.
The situation can’t last forever. New pension agreements are more restrictive than the old benefits packages were, but for the short-term future, local governments will have to figure out a way to find and keep good employees while fulfilling growing pension and healthcare obligations. Temporary staffing of recent retirees might prove to be a solution more and more local governments can look to.