In a commentary that also appears in the Hartford Courant, Bridgeport resident David Walker, former U.S. comptroller general, writes “Connecticut pays its employees an average of 42% more in wages and benefits than large private sector employers.” Walker, a senior strategic advisor for PwC, is joined in the article by Andrew Biggs, a resident scholar at the American Enterprise Institute. From Walker and Biggs:
Whether you are a country, company, or individual, you don’t really know how good or bad your situation is unless you compare it to others. Such is also the case in connection with state government finances and compensation programs.
Many states are well-managed and financially sound. But other states are facing serious fiscal challenges, and the finances of several states are nearing the breaking point.
Connecticut ranks at or near the bottom of all 50 states in a number of key comparative indicators. It is also failing to take meaningful steps to address its structural fiscal and competitiveness challenges.
One factor that accounts for these differences is the way state governments choose to compensate public employees. A 2014 study co-authored by one of us with Jason Richwine showed that states vary widely in the salaries and benefits they pay to their employees. Some states, such as Indiana, Virginia and Minnesota, pay salaries and benefits that are very close to what employees with similar education and experience would receive from large private sector employers.
But other states compensate public employees far above comparable private sector levels. For example, Connecticut pays its employees an average of 42% more in wages and benefits than large private sector employers. Pennsylvania pays a 35% premium and Illinois a 26% premium. The real money isn’t in salaries: few states pay higher salaries than the private sector. But government pensions and retiree health coverage are far more generous than in the private sector. They are also under or unfunded in most cases.
High-paying states pay a price for their generosity. Data from the Institute for Truth in Accounting’s (ITIA) State Data Lab show that states that pay public employees a 20% or greater compensation premium have double the unfunded pension and retiree health liabilities as states that pay public employees at comparable private sector levels. The same relationship holds for explicit government debt: states that pay more, borrow more.
Such is clearly the case in Connecticut and the related unfunded retirement obligations are the primary reason why Connecticut has the highest liabilities and unfunded promises per taxpayer of any state. Additional debt and unfunded retirement obligations mean even higher taxes and a less competitive state over time absent a change in course.
Analysts and public employee unions can argue over the best ways to measure government worker pay and benefits. But there is no denying that certain states compensate their employees far more handsomely than others, and the higher-paying states suffer larger unfunded retirement obligations, weaker financial positions, and poorer competitive postures.
The current situation is inappropriate, inequitable and unnecessary. One rarely hears complaints about the quality of public employees in states like Virginia, Utah and Washington, which pay about evenly with private employers and have been ranked as among of the best-managed states in the country. And states that pay market-level compensation aren’t hiring less-qualified employees. In fact, their employees have slightly higher average educational qualifications than states paying large compensation premiums. Nor do states need to overpay in order to retain employees. There is no correlation between the compensation premium paid by states and the average job tenure of their employees as reported by the Bureau of Labor Statistics.
There is both a need and opportunity for state governments to restructure state compensation packages in ways that are fair to employees, retirees and the taxpayers who will get the bill. The Supreme Court’s recent decision on the Affordable Care Act (ACA) serves to lift a cloud of uncertainty regarding a way to restructure retiree health care coverage. The “Cadillac tax” under the ACA on excessively generous health care plans, which begins in 2018, will punish states (and their taxpayers) that fail to reform their current health plans. And rising pension debts and changing accounting rules are already causing state governments to receive bond downgrades. Reforms should include revisions to both benefit design and funding provisions, to ensure that employee benefits are reasonable and governments fund adequately to keep their promises. Both union and non-union plans need to be reformed. These reforms should be implemented as soon as feasible. The time for action is now!
Here we go, let’s go after the working man. What about the management system in this state? How about management in industry in general?
So what private-sector job is out there to compare with what Bridgeport firefighters and police officers do in putting their lives on the line every time they go to their place of employment?
The studies exclude police and fire fighters, as there is no comparable private-sector employment.
Jennifer, thank you but when Dave Walker first started posting on OIB he was talking about changing the fire and police pension right here in Bridgeport, that’s why I would challenge Mr. Walker’s comments because how could I trust anything else he said.
And he always starts with fair to employees, retirees and taxpayers. What is wrong with working on solutions with all three parties in the equation?
The first two posts were written by Tier 1 retirees living in a Tier 2 world. The working man has been replaced by the privileged class, where over-promising is written into the contract and impunity from risk is assured. If you want to change that story, you’ve got to change the law and that won’t be easy.
For those who think firefighters and police officers are being paid Tier 2 world then you try running into burning buildings carrying 70 pounds of equipment breathing in poison fumes with temperatures over 700 degrees trying to rescue and save their life and property and getting injured, then you tell us how easy it is as a retired person.
First off, you chose that job. You were not drafted. Secondly, the most common cause of death for firefighters is heart disease but that is the most common cause of death for anyone. For police, it is traffic accidents. Neither firefighter nor police officer are listed in the top 10 most dangerous jobs and look at how much more they get paid.
www .bloomberg.com/graphics/2015-dangerous-jobs/
The current governor and legislature has no hesitancy to embrace spending covered by ever-increasing taxes. The Democrat party relationship with government employee unions accounts for the generous wages and benefits. Will that relationship ever change? Not if it gets Democrats elected.
Ron, your message is getting old. People recognize the dangers associated with being a firefighter. There are other factors that must be considered in compensation and benefits packages, including the ability of taxpayers to pay.
I find it so interesting Dave Walker never talks about America bailing out Wall Street, the banking industry, the subprime mortgages and how the U.S. Congress passed the American Recovery and Reinvestment Act of 2009. He never talks about the money these failed companies paid out to there top executives, nothing but as Andy Fardy wrote, “Here we go, let’s go after the working man.”
I think Dave did speak against the Wall Street and bank bailout and I think he has told you that a few times.
So let me get this straight. 58% of large private sector employers pay more in salary and benefits than Connecticut? Is the moral of that story work for the 60% of private sector employers that pay more?
Donald,
I think what the article is saying is if a major CT employer is paying a salary and benefits package worth 100% then when this is compared to a State of CT worker doing the same duties at the same risks and necessary experience, the CT worker earns 142%. I am going to guess that part of this has to do with the fact many major employers have not been sponsoring Defined Benefit Pension plans for 20 years or more and have switched to Defined Contribution Retirement plans (like 401k) where the costs are more determinable for the business and the mortality and investment risk is on the shoulders of the employee. Part of it has to do with elected leaders who will not be around tomorrow to pay for their failure to give in to unions today and if they do not share the current and future expense they look good today. Whom do you blame for the underfunding for State of CT pensions that has been caused over the past 30 years? Would we be closer to a solution if retirees with pensions at risk sat on the Pension Committees and saw how poorly the State is prepared to fund actual amounts that were promised and they expect? Would decisions get made that make more sense over time? Time will tell.
Few states pay higher salaries than the private sector. I’m sure most would love to have their money on the front end of their lives rather than the back end. Keeping that in mind, cities and states pay considerably less in salary, but make up for it in pensions. It’s like that TV commercial, you can pay me now or you can pay me later.
Communist China is owed two trillion dollars to bail America out of its financial troubles, two trillion. Where is the outrage from Dave Walker about a Communist country bailing America out but he wants go after the working man’s pension. Where is the bailout for those everyday hard-working Americans, no way but we can bail out financial banks, General Motors and Wall Street.
Communist China is bailing out Ron Mackey. Here’s what I mean:
The USA would be bankrupt without that money. That money is a sacrosanct cashflow and supports Bridgeport pensioners. Consider it a preemptive bailout with RM as a prime beneficiary.
P.S. stop quoting Frederick Douglas from 1852 when slavery was legal.
America has been involved in invasions of two countries without any plans on how to pay for these wars but we are still paying billion of dollars for endless war. Billions for war but nothing to protect worker’s pensions. Remember, America gained its wealth with free slave labor, no health benefits, no pension, no freedom for over 250 years but that doesn’t count.
Push the unions to place retirees on the Pension committees. Let all retirees see the actuarial assumptions and come to see how out of sync with the real world they are today. Bad assumptions cover up underfunding today and if things get more dire, we will not catch up.
Ask politicians to show the results of their labor negotiations. Let the people who have to pay for them make a decision. Is that what has been happening in Bridgeport in recent years? Not by a long shot. Active union people with good representation push for their advantage. The City says it negotiates, but with an eye always on a coming election, do they really care? So a settlement is hammered out but the City never shows in a present value calculation what it costs today and through the years for what has been promised. When the people discover, when the money runs out, when the buck stops, what is the answer? Time will tell.
Let’s put the executives on your plan and their large payout and benefit package and pension and see where we stand.
John Marshall Lee, why don’t you address the bigger financial issues that America has instead of the working man’s pension? I think you would be concerned about funding two wars without any plan to pay for it or bailing out Wall Street or the big banks with no plan of a payback or putting executives in jail for subprime housing loans? No, let’s go after the hard-working worker.
Ron,
You pick your targets for whatever reasons move you. But I have chosen local issues. And lest you get the wrong idea, I am supporting the hard-working taxpayer, at all levels. And that means we need more questions raised and answered.
What is wrong about having retirees as trustees on their own plans? I have never heard why that is a bad idea. Could it be retirees might not be as generous with current hard-working members? Might retirees want plan assumptions to reflect current reality rather than 40-year averages? I think all of us need to be at more tables, together, learning, expressing, listening really hard and intelligently. The divide that seems ongoing gets us nowhere but angry, does it, my friend Ron? I know you get out and about. How about meeting for a more extended moment? Time will tell.
We can all go back to the beginning of time and blame everything under the sun, however if we don’t starting acting like grownups to solve our problems we won’t have to worry about a thing. It will take care of itself. The remaining businesses will leave and Connecticut and its cities will be like Detroit. The ironic thing about blaming the war is many businesses in this state benefited from the work from the Defense Department.
Quentin Dreher, so what is your solution? Forget about the wars, what the financial meltdown that bought America to its knees with bailing out banks and Wall Street and you think the answer is to go after the pensions of the working class, then let’s start with your pension.
Ron, with all due respect nobody forced you to be a firefighter. You chose your path in life. We respect the work you do, however, do not act like you were forced into that position.
Just think about this when you and Donald go for class warfare (even though this is America and class does not exist, just the propensity to settle for something less then complain about it). All the expensive Wall Street Executive houses and salaries that employ a good part of Fairfield County pay quite a bit of the taxes you have received as salaries in your paycheck.
Marc Delmonico, this is not about me, it’s about those who made bad business decisions and the American taxpayers bailed them out.
Marco, you are deluding yourself if you think class warfare doesn’t exists in America. Why be upset with unions because of pensions?
When I was a firefighter almost all of our contracts were negotiated by firefighters while the city had experienced individuals and attorneys negotiating on their behalf. Is your anger about excessive union contacts better generated toward the city whose experts did a piss-poor job rather than the unions, Ron or myself?
Here is an article by Heidi N. Moore. Veteran journalist James Fallows interviewed Gao Xiqing, the man who oversees $200 billion of China’s $2 trillion in dollar holdings for China Investment Corp., or CIC.
One of Mr. Gao’s thoughts illuminates his take on how we got into a mess that needed an $8.5 trillion cleanup. In his vision, Main Street and Wall Street share equal blame, and, like the chubby, infantilized citizens in “Wall-E,” are shunting off their problems on other countries and perhaps, soon, other planets. Here is what Mr. Gao tells Mr. Fallows:
Think about the way we’ve been living the past 30 years. Thirty years ago, the leverage of the investment banks was like 4-to-1, 5-to-1. Today, it’s 30-to-1. This is not just a change of numbers. This is a change of fundamental thinking.
People, especially Americans, started believing that they can live on other people’s money. And more and more so. First other people’s money in your own country. And then the savings rate comes down, and you start living on other people’s money from outside. At first it was the Japanese. Now the Chinese and the Middle Easterners.
Ron,
Isn’t that what we are doing in Bridgeport? Living on other people’s money? We spend up to $700 Million operating in a current year and the taxpayers fund only $290 Million of that. Fundamental thinking has heard the swan song of “kick it down the road” leadership at many levels.
So where are the voices of taxpayers interested in seeing what services are really necessary, how to fill them with motivated and fairly compensated local workers who also pay taxes and respect the value of a dollar; and finally build the City fund balance, and the future of youth rather than plan activities to get re-elected that will be forgotten or unused shortly? Voices? Time will tell.
JML, we all pay federal income tax, and federal government in turn transfers a portion of those funds back to the states and they also transfer funds back to the cities to help with roads, schools, police and fire protection and many other needed programs. Also the state transfers funds to the cities. Now how much of that two trillion dollars China loaned America is being used to bail out Wall Street, the banking industry, fighting two wars, the national debt could have been transferred to the states and cities? There are no plans for Wall Street and those banks to pay anything back to the taxpayers and none of them are going to jail. They didn’t lose people their pensions or payout but let’s start correcting this by taking police and firefighters’ pensions.