A post published last October, “Public Employee Compensation” estimated the average state and local employee in California makes about $100K per year. This post attracted a great deal of comments and discussion, including identifying some minor errors in the calculations. These errors were offsetting, however, and the findings generated in that report are now distilled in this post. Not only the data compiled, but the methodology, may hopefully be of value to interested citizens who wish to independently assess how much their local public servants are actually costing the taxpayers in total compensation when the true value of their benefits are included.
Determining a credible estimate for the average base pay of California’s state and local employees is fairly straightforward. Here is the basis of those calculations – using only full-time workers this time: As of March 2008 there were 1,245,734 full-time workers employed by local government agencies, mostly cities and counties, in California, and their payroll for the month of March 2008 was 7,070,297,612 (ref. http://www2.census.gov/govs/apes/08locca.txt ). This equates to 5,652 per month, or 67,818 per year. During the same period there were 338,725 full-time workers employed by the state of California, and their payroll for the month of March 2008 was 2,002,723,495 (ref. http://www2.census.gov/govs/apes/08stca.txt ). This equates to 5,913 per month, or 70,950 per year. Using the state of California’s own payroll data, data that is 2.5 years old and therefore assumes zero increases to compensation, in aggregate, the state and local government workers have an average base salary of $68,488 per year. Assuming the COLAs over the last 2.5 years added at least a paltry $12 to this average, we can round the average base salary of a state or local government worker in California up to $68,500 per year.
Calculating the costs of benefits overhead is not nearly as straightforward as estimating base pay, but it is possible to look at the various benefits granted on average, make conservative assumptions, and develop a number that is probably fairly accurate. With that in mind, here are the overhead assumptions for a total overhead benefits estimate for state/local public employees in California of 56% over base pay:
33% for the retirement pension: This is based a total retirement pension contribution of, on average, 38%. How that number is arrived at is discussed in the post “Sustainable Pension Fund Returns,” and elsewhere, with the assumption made that the average public employee contribution through payroll withholding is 5% (that is changing fast, by the way, but probably still holds true for 2010). Please note that a 38% average pension fund contribution is not what is typically being contributed today, on average, but is what needs to be contributed for California’s state and local employee pension funds to remain solvent according to their current benefit formulas, and is probably a very conservative assumption.
4% for future retirement health benefits: This is a very conservative assumption. In many agencies I think this figure currently (again based on what needs to be contributed under current benefit formulas, not what is being contributed) averages more than twice that.
12% for all current benefits such as health insurance, dental and vision plans, long-term care, long-term disability, tuition reimbursements, car allowances, interest-free loans, and much more: Allocating 12% for this, which would only be $7,200 per year (or $600 per month) for the average full-time state/local worker is almost certainly lower than reality.
7% for extra vacation compared to a private sector worker: In an apples-to-apples comparison of public vs. private sector total compensation, you have to normalize for the greater number of days off enjoyed by public sector workers. If everyone worked five days per week, every week of the year, they would work 2,080 hours per year. If you assume the private sector worker – on average – gets 20 paid days off (including paid holidays) per year, and I think the average is lower than that, and if you assume the public sector worker gets 35 paid days (including paid holidays, personal time, “comp” time, etc.) off per year, and I think the average is higher than that, you will compare 1,920 hours of work per year for the private sector worker, which exceeds the 1,800 hours of work per year for the public sector worker by 6.7%. This is an entirely valid calculation of overhead in an apples-to-apples comparison of public vs. private sector because within the gigantic agencies of the state and local governments in California, when one person is getting paid time off, another person is required to fill that position – or a work project is extended proportionately. That is to say, this is a real and tangible additional cost.
These add up to 56%. Additional corroboration for this number is found in a study produced by the union supported organization CERA entitled “The Truth about Public Employees in California: They are Neither Overpaid nor Overcompensated” where they calculate an average overhead cost for California’s state and local workers of 36% total compensation. That is, they claim 36% of total compensation is benefits overhead, and 64% is actual pay. 36% of total compensation equates to a 56% overhead rate, i.e., [ 1 / (1 - .36) ] = .56. The Berkeley researchers, who did not do a back-of-the-envelope analysis, which is what this is, but rather did a very comprehensive study, had no motivation to overstate the benefits overhead paid to public employees. I believe the actual overhead is probably much higher than 56%, because I doubt the Berkeley researchers used a number nearly as high as 33% for the necessary pension fund contribution, because the conventional wisdom still adheres to higher rates of investment fund returns than I believe are actually out there over the next 20-30 years. Therefore they are valuing these other variables at even higher percentages than I do, since they get the same overall number.
When you apply a 56% overhead rate to an average base salary of $68,500, you arrive at a total compensation estimate for the average state or local government worker in California of $106,860 per year. As also explored in the earlier post, “Public Employee Compensation,” the average private sector worker’s total compensation in California is estimated at $57,000 per year – probably well under that, since the data sets used did not include self-employed individuals. Readers are invited to challenge these calculations, the underlying assumptions, or the source data.
It is important to emphasize that the disparity between public sector and private sector total rates of compensation in California may point to an overall problem – that many public employees receive compensation that greatly exceeds market rates – but this realization should not detract from the fact that many public employees are either underpaid, or receive rates of pay that are certainly not excessive. There are solutions that would go a long way towards solving these problems, such as implementing pay and benefit cuts that target the most highly compensated, most overpaid strata of the public workforce, or streamlining top-heavy bureaucracies and cutting costs from the top down instead of from the bottom up, or, gasp, making pay-cuts more palatable to public employees by reinventing the regulatory environment to actually lower the cost of living in California.
* * *
* * *