Soaring Public Pay and Benefits Fuel Fiscal Crises

Spring 2004


Cal-Tax Commentary

Soaring Public Pay and Benefits Fuel Fiscal Crises

Lavish pay and pension benefits showered on public employees have surfaced as a major force driving state and local government into deep fiscal crises.

News media around the state are taking note of this fact, reporting rumblings from numerous government bodies as school board members and county supervisors lament their current predicaments, how they got there, and debating whether to raise taxes or cut services so they can continue to afford ever-growing payrolls.

How did it happen? Public employee unions, including those representing teachers, pay big bucks to elect sympathizers to support their quests for (a) more pay, (b) fatter pensions, and (c) job protections that often stand in the way of efficiency. As the unions succeed with pay and benefits, growing the size of government, they also rake in more dues to increase political clout in future elections.

Public payrolls have grown far more than inflation in the last five years, reported the Los Angeles Daily News (March 13). In fact, the newspaper’s analysis found that costs of salaries and benefits for the financially troubled Los Angeles Unified School District grew three times the 17 percent rate of inflation.

Steven Frates, senior fellow at the Rose Institute of State and Local Government at Claremont McKenna College, told the Daily News: “At all levels of government, the rate of compensation has gone up much more rapidly than it has in the private sector and, most importantly, faster than the personal income of the people who pay for this.” Personal income per capita in California increased 24 percent over the five years through 2002-03. “There has been a wealth transfer. It has gone from the citizens to the people in government.”

The newspaper reported these statistics for the state, city of Los Angeles, Los Angeles County, and the LAUSD:

State of California -- Costs of salaries and benefits, including pensions, soared 41 percent, from $13.3 billion to $18.7 billion. The number of full-time employees increased 10.5 percent, to 212,563. State correctional officers’ pay increased 25.4 percent, from $65,450 to $82,066 a year.

City of Los Angeles -- Pay and benefits, including pensions, increased 26 percent, from $1.8 billion to $2.2 billion. The paper said average pay for police officers grew 28 percent, compared to 23 percent for civilian workers. Overtime costs increased by 61 percent, and workers’ compensation costs were up 81 percent.

Los Angeles County -- Salaries and benefits jumped 39 percent, from $5 billion to $6.9 billion, while average county employee’s pay increased 31 percent, to $49,343.

LAUSD -- Salaries and benefits grew 51 percent, from $3.6 billion to $5.4 billion, as the average salary and benefits package grew 27 percent, to $65,526. On March 10, the board approved $427 million in budget reductions and gave the superintendent until April 9 to find $61 million more to cut. The board eliminated 480 positions, mostly nurses, clerks and administrators.

Other illustrations of the squeeze on public finances as a result of increased wages and benefits:

Retired Teacher Health Care Straps School District. The West Contra Costa Unified School District some 30 years ago agreed to provide fully-paid health care for employees and spouses for the rest of their lives, reported the San Francisco Chronicle (March 14). Now, the district’s fully funded health deal is costing $9.5 million, and district officials say next year’s health costs will jump as much as 20 percent.

Even if the district stopped offering lifetime health benefits to new hires, district actuaries say the bill would still amount to $275 million over time, with no money set aside for it. The teachers’ union notes that the health care benefit was in lieu of higher wages. The paper said fewer than a dozen of the state’s 1,000 school districts offer such generous retirement.

Meanwhile, voters on March 2 rejected an $80 parcel tax that would have raised $7.5 million annually, and the school board voted March 12 to place another measure on the June 8 ballot that would seek $85 a year from property owners. The board threatens to shut down athletics and libraries, but says they could be funded if voters approve the tax, including a newly proposed 7.2 cents-per-square-foot space tax.

The district, which also has been plagued by declining enrollment, is faced with the problem of cutting $16.5 billion from its $180 million general fund.

Manteca Looks to Taxes to Offset Rising Retirement Benefits. In Manteca (San Joaquin County), the City Council has been considering higher taxes to deal with a revenue shortfall and rising pension benefits for public safety personnel.

The Stockton Record (March 13) reported that the city may conduct a poll to see whether voters would support a half-cent sales tax. Since the city has boosted benefits for police officers who retire at age 50 and for firefighters who retire at age 55, the city’s retirement costs have escalated. They’ve gone up $1 million per year since 1991.

The Bee: No to More Pay Raises. The Sacramento Bee (March 16) noted that just because Sacramento County supervisors have given pay raises and generous pension benefits to other employees is no reason to continue giving away the store. In an editorial, the paper urged the board to forego granting pay raises that would amount to 19 percent over two years for some of the 605 nonunion employees. It would cost $4 million over two years while the county faces a $45 million deficit. How can supervisors even think about pay raises in the midst of “draconian” budget cuts? The Bee asked. This board also has given generous pensions, so a county worker can retire at 55½ years of age with 70 percent of pay, and sheriff deputies, after 25 years on the job, can retire at 50 with 75 percent pay, or wait eight years and take home 100 percent of pay. Just because everyone else is giving these rich compensation packages is lame justification, the newspaper said. “Someone at some level of government has to say no. Sacramento supervisors should be the first.”

Richmond in Fiscal Ruin. The East Bay city of Richmond has rapidly become the poster child in California for a municipality that can’t manage money. The Contra Costa Times (March 4) reported the city’s $35 million deficit amounts to a third of its general fund budget. A city analysis, with outside help from fiscal rescue experts, found the deficit will be as much as $28 million in the next fiscal year unless immediate action is taken. According to The Times, the report found the city has mismanaged costs, particularly labor costs. It blames much of the deficit on skyrocketing salaries and benefits for public safety unions, whose pay and benefits have soared more than 40 percent in the past three fiscal years.

Sacramento Firefighter Pay is Cricitized. In a scathing editorial on March 14, The Sacramento Bee denounced a 27 percent, three-year pay raise granted by the Sacramento Metropolitan Fire District. The Bee said, “The extent of the Sacramento Metropolitan Fire District’s generosity should not be surprising. The board is dominated by members whose elections were bankrolled by the firefighters union.” The Bee said the 27 percent pay hike is actually bigger, as 9 percent per year compounds into 19.5 percent. The paper also says the figures do not include incentives. Senior firefighters will get an extra $267 a month for an EMT certificate, double the current amount. In three years, firefighters with five years on the job and EMT and Paramedic certificates will get $80,000 a year, not including overtime and education incentives.