Tag Archive for: public sector compensation

How Much Do California’s County Workers Make?

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In April, with the pandemic shutdown sending California’s economy into free fall, Gavin Newsom convened a Zoom meeting with the four living California ex governors. He asked them to describe the biggest crisis they faced while in office. As reported by the New York Times, according to Pete Wilson, it was the 1994 Northridge earthquake. For Gray Davis, it was the electricity brownouts that cost him his job. Arnold Schwarzenegger and Jerry Brown both cited the Great Recession as their biggest challenge. None of them considered what they faced to be comparable to what Newsom is up against.

In June, as the lockdown eased, California’s economy started to come back to life. Maybe the damage would be contained, and maybe recovery would be swift. But when the COVID case count ticked upward in late June and early July, Newsom tightened the screws. He called his new approach using a “dimmer switch,” which would turn up or down depending on rates of positive cases and hospitalizations.

Whatever it’s called, the consequence of Newsom’s dimmer switch is less economic activity. In February 2020, California’s unemployment rate was at a historic low of 3.9 percent. Three months later, in May, it was at a historic high of 16.4 percent. As the lockdown eased, it ticked down a bit, tracking at 14.9 percent in June. With the new lockdown measures, it could go back up. One thing is certain: The pandemic shutdown is not going to end soon, as was hoped for only a month ago. California’s economy, along with the rest of the nation, is in for a long, hard slog.

The impact of an economic slump directly affects California’s state and local governments through lower tax revenues. These impacts are well documented. A projected $54 billion state budget deficit. Some California cities are seeing their tax revenue cut by over 50 percent, with no end in sight. California’s counties are equally stressed; Los Angeles County projects at least a $2 billion shortfall over the next twelve months. For an excellent and comprehensive guide to the sources of tax revenue in California, read “California’s Tax System,” from the Legislative Analyst’s office. For a summary of its contents, “Fiscal Impacts of COVID-19 and California’s Economy” from UC Berkeley is as good as any.

Rather than offer further recap of California’s imploding tax revenues, or describe the services that could be cut as a result, this series of reports focuses on the supposed third rail of California government expenditures: employee pay and benefits. Thanks to the power of public sector unions, and the politicians they control, public employee pay and benefits in California are politically untouchable. Reductions in their rate of increase, framed by union compliant politicians and press as concessions, apparently are all that political realists can hope for. But times have changed.

Last week, in part one, rates of public sector pay and benefits in California’s cities were summarized, using 2019 data that was recently posted by the State Controller’s Office. The results speak for themselves. No matter what you consider, the entire state, or individual localities, full-time non-safety workers employed by California cities earn pay and benefits that are invariably about twice what individual private sector workers earn.

For example, statewide, the average non-safety city worker earned pay and benefits of $130K in 2019, compared to $74K for the average private sector worker. For reasons described in part one, conservative assumptions were used in both cases, meaning the estimates likely understated the average value of public sector compensation, and overstated the actual average private sector compensation.

How Much Do California’s County Workers Make in Pay and Benefits?

This report calculates public sector compensation for California’s counties. It employs the same assumptions as the earlier report on compensation for California’s cities, and uses the same format. The first chart shows, by department, the compensation trends in counties between 2015 and 2019. At first glance, the increases in total compensation are fairly modest, considering four years have elapsed. Overall firefighter and miscellaneous employee compensation is only up 7 percent, and sheriff compensation is actually down 4 percent. But appearances can be deceiving.

As discussed in great detail in part one (so we won’t do it again here), starting in 2017, employers are not required to report (ref. page 10, Step B13) the contribution towards the unfunded liability as part of an employee’s pension benefit. If you just substitute 2015 pension contributions into the 2019 variables, total compensation for sheriffs in 2019 rises 2 percent to $169K, firefighter compensation rises 11% to $220K, and miscellaneous employee compensation rises by 11% to $120K.

This method still yields estimates that are misleadingly low, because pension contributions did not stay the same between 2015 and 2019. In fact, in most of California’s state and local public employee pension systems, in order to comply with new GASB regulations that have made it harder to employ creative financing gimmicks, required pension contributions are going to double over the next few years. And that was before the pandemic slowdown negatively impacted pension systems earnings.

What California Counties Pay the Most to Their Public Servants?

When comparing public sector pay to private sector pay, it is usually difficult to come up with apples-to-apples analysis. Many public sector jobs do not have easily comparable counterparts in the private sector. And in many cases when those comparisons are made, the expectations of the job may be significantly different and the various forms of compensation offered by the job may be difficult to quantify.

These challenges, which may provide ample content for a future analysis, limit the scope of what conclusions can be drawn from the following data. But as noted, the assumptions made to estimate private sector pay are, if anything, overstating the averages. The reasons for this are discussed at length in part one in the section “How Does Public Pay Compare to Private Pay in California?”

In the tables to follow, for example, average total compensation for county employees is compared to median household income for those counties. In the far right column on each table, “TC/MHI,” the ratio of total compensation over median household income for that county is presented. It must be emphasized that any more comprehensive analysis would cause these ratios to increase. To summarize the reasons why:

Public employee compensation is understated because pension contributions are understated, prefunding of retirement health benefits are not included, and the value of more public sector paid days off is not taken into account. Median household income, on the other hand, takes into account multiple wage earners in most households. And, just to be clear about this: In the public sector – very much unlike in the private sector – median compensation never differs significantly from average, and often the median is actually higher than the average.

Taking this all into account, the next chart shows the top ten counties in California in terms of average total compensation for non-safety employees. Some of these averages are surprisingly high. The average full-time non-safety employee in San Mateo County made over $160K in pay and benefits in 2019. And while San Mateo County is among the wealthiest counties in California, with a median household income of $114K, as shown, the average non-safety county worker still made 1.4 times more than what these high income households managed to earn.

Perhaps more noteworthy, and something also reflected on the tables that report on public safety compensation in California’s counties, are the TC/MHI ratios in areas with relatively low household income. For example, the average county employee makes more than twice the household income of Riverside County, where the household income averages $64K, and also in San Joaquin County, where the household income averages $61K.The top ten counties for sheriff compensation are displayed on the next chart, with wealthy San Mateo County again taking the top spot. With California’s beleaguered police and sheriffs coping with the pandemic, social unrest, and political attacks on their ability to do their job, it is not necessary to belabor their compensation issues. Especially since police and sheriff compensation in California is consistently and significantly lower than firefighter compensation, in spite of their jobs delivering more stress, harder work, and equivalent levels of on-the-job injuries and fatalities.

What should be observed, however, is the fact that overall, police and firefighter compensation is at levels that leave very little flexibility to cope with current and future challenges to public safety. Out-of-control pension costs – for whatever reason – not only are themselves an unsustainable drain on civic budgets, but lead to equally out-of-control overtime costs because paying overtime is preferable to hiring another full-time employee with pension benefits.

As will be explained, the next chart helps to show not only the centrality of pensions as a fiscal crisis, but also the problem of even getting usable information as to their true costs. Looking at this chart, one might immediately wonder why is Santa Clara County able to pay their sheriffs on average $190K per year, whereas in San Mateo County it costs an astronomical $277K to employ a full-time sheriff? Why is Santa Clara County’s TC/MHI ratio only 1.6, when San Mateo County’s is 2.5? The answer is simple, but evidence of problems getting good data.

Observe the reported pension costs for Santa Clara County sheriffs of only $19K in 2019. Taxpayers should all be so lucky. When taking into account payments to reduce the unfunded liability, pension costs for public safety employees in California invariably average around 50 percent of base pay, sometimes much higher. San Mateo County’s average pension cost of $82K per full-time firefighter is much more representative of what it truly costs to fund these pensions. The disparity in pension costs between San Mateo and Santa Clara counties is mostly an illusion, caused by different accounting treatments.

The California State Controller needs to issue clear guidelines to local agencies regarding how to fairly allocate these unfunded liability payments to active employees and retirees, because these costs are real, and are killing civic budgets up and down the state. Until then, compensation analysts may expect barely usable, consistently inconsistent gobbledygook for what is indisputably the biggest variable affecting public sector compensation.The final table shows California’s top ten counties for firefighter compensation. Notably absent is San Mateo County, and the reason for that bears further explanation. Unlike sheriffs, for which every county has a department, many fire agencies exist as special districts that are either fully independent or partially independent of county administration. In California, in addition to city fire departments and county fire agencies, there are 102 fire protection districts or fire authorities.

Some of these fire protection districts only have one or two full-time employees, and rely heavily on volunteers. Excluding the top two, the average full-time headcount for these fire agencies is 29, and the median headcount is 8. The top two of these independent fire agencies are included in this analysis, however, because they are quite large. They are the Orange County Fire Authority and the Sacramento Fire Protection District. Their compensation records, which unfortunately are still only available for 2018, was merged into the county data table to complete this analysis as representing Orange and Sacramento counties, respectively, and both appear in the top ten.

Taking all that into account, the leader in firefighter compensation is Contra Costa County, at $266K in pay and benefits per year for the average full-time firefighter. This means that in 2019 the average full-time firefighter in Contra Costa County made nearly three times what the average household income was in that county in that year.

Missing from the top ten is San Mateo County, and the reason why can explain why other wealthy counties, Santa Clara in particular, are missing from the top ten. These counties that ought to appear in the top ten do not because they don’t have a county fire agency, nor do they have a significant special fire protection district serving them. Instead, the bulk of fire services in these counties are provided by city fire departments. In San Mateo County, for example, Redwood City’s full-time firefighters earned $276K in pay and benefits in 2019. Other cities in San Mateo County were not independently analyzed, because only the 100 largest city fire departments (in terms of headcount) were considered.

As for within Santa Clara County, city fire departments represented three of the top ten, Santa Clara at $279K (TC/MHI a whopping 3.7), Palo Alto at $249K, and Mountain View at $215K. The data on fire department compensation in California justifies a more in-depth analysis that merges the full-time compensation records from the State Controller for fire personnel in all three data sets – city, county, and special district – to come up with useful and accurate composite information on just how much they make.

The intended message underlying the presentation of all this compensation data is that California’s local governments cannot hope to weather the economic storms that have just begun unless they cut pay and benefits, along with cutting headcount and cutting services. While making less is never palatable, it may be more digestible than coping with inadequate human resources to cope with challenges to the public, whether they’re fires, unrest, or social hardship.

As noted in part one, one city in Orange County, Placentia, was able to put their fire department onto a financially sustainable path by breaking free of the Orange County Fire Authority. Instead they formed an independent fire department, where they dramatically reduced operating costs through the use of trained volunteers, hiring part-time firefighters to reduce overtime costs, contracting with a private ambulance service, and replacing pensions with a 401B defined contribution plan. The performance of this innovative fire department going forward should be closely watched.

There are analogues to what Placentia did with fire protection services across all public sector disciplines. Where are job descriptions too narrowly defined? Where do opportunities to contract with private sector services make operational and financial sense? What services and functions can be eliminated, such as the ridiculously bloated administrative overhead in public schools?

Asking these questions is unpleasant. Implementing them is hard. But California’s public agencies need to think creatively, and make some hard choices, because now more than ever, it is in the public interest. As for Newsom, for reasons that will only be judged by history as necessary or not, he has imposed a dimmer switch on California’s private sector. This “dimmer switch” is wiping out generational wealth, disproportionately destroying small family businesses, obliterating incomes, and forcing those lucky enough to still have a job to accept harder work with less pay. In these times, the public sector worker must step up to share the burden, so long as they still wish to be known as public servants, not public overlords.

This article originally appeared on the website California Globe.

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Rates of Pay and Pension Debt in California’s Distressed Cities

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Nobody needs reminding that California’s cities, like every other going concern in America, are heading for tough economic times. As recently as two months ago, robust collections of sales taxes, utility taxes, transient occupancy taxes, property taxes and other sources of taxes and fees were pouring money into municipal coffers. Now, with the economy abruptly ground to a near standstill, these revenues are all but dried up. But municipal expenses haven’t dropped proportionately, if at all.

What bears reminding is the fact that even before the sudden pandemic shutdown, California’s cities were in financial trouble. Just six months ago – and it seems like a century has passed – the California state auditor released a fiscal health analysis of California’s cities. Measuring factors including cash liquidity, debt burden, financial reserves, revenue trends, and retirement obligations, the report ranked the cities from the healthiest to the most afflicted.

During the economic downturns already endured by California cities in this century, public sector pay and benefits continued to increase even as the private sector workforce experienced layoffs and pay cuts. In the aftermath of the tech bubble bursting, pension benefit enhancements continued to gain approval by cities, one by one, justified by the reasoning that if a neighboring city had done so, then every city must follow suit. In the aftermath of the real estate bubble bursting, city workers took furloughs, where they worked one day less per week and received 20 percent lower pay – but their rate of pay did not decline.

The data presented here, calculated based on data posted on the State Controller’s website, discloses average pay for twenty California cities, all of them within the worst 50 in terms of financial health according to the state auditor. The first chart, below, shows average pay for full time workers. Only five of these cities, Adelanto, Coalinga, Guadalupe, Lindsay, and San Joaquin, show average total compensation under $100,000 per year. By the way, to identify an individual pay record as for a full time worker, the criteria was that the base pay would exceed a minimum of $30,000 and be in excess of the minimum pay reported for that position, and that the individual received health and pension benefits. On that basis, tiny Isleton had zero employees in 2018.

On the chart below there are three cities, Coalinga, Hemet, and Long Beach, which are shaded. The shading indicates these cities DID include the “unfunded contribution” in their total pension benefit expenses per employee. Most cities do not report this cost as part of individual compensation, despite it being a huge expense. This is an important distinction, because the unfunded payments are almost invariably larger than the normal pension payments. That can be seen in the fact that the average individual pension cost for Hemet, $38,650, and for Long Beach, $25,404, greatly exceed the amounts calculated for the other cities. Coalinga, with a relatively small individual pension payment despite including their unfunded payment in the average, is a rare exception. A review of Coalinga’s active employees shows that all of them have post-PEPRA (the 2014 legislative pension reform) benefit formulas, and a review of their Transparent California retiree pensions shows modest retiree benefits. But Coalinga, to put it mildly, is an outlier.

Tough Times Call for Fiscal Restraint

The point of showing this pay and benefits information is not meant to overemphasize how much some city employees make, but rather to provide information that may help convince elected officials and voters that further pay increases should not be considered at this time. The City of Huntington Beach recently approved pay increases for some of their employees, despite knowing the city faces potentially catastrophic shortfalls in revenue in the coming months. There are rumors that the City of San Diego is negotiating possible pay increases. Across the state, cities face the decision to continue issuing cost-of-living increases, step increases, or even negotiating new increases to pay and benefits. But these are not ordinary times. At the least, all forms of compensation should be frozen.

What is often forgotten when discussing issues of public employee compensation is how easy it is to underestimate the accurate averages. Three concepts need to be reiterated.

First, in the public sector, median compensation is almost always higher than average compensation. This is never the case in the private sector, where a handful of very wealthy individuals invariably pull the averages up. Therefore, when we compare median household income to average total public employee compensation, we understate the disparity. (Nerdflash: When Excel comes up with an “=medianifs” function, we’ll prove this!)

Second, many calculations of average income in the public sector include part-time workers, just as many calculations of average pensions in the public sector include retirees who only worked a few years and consequently received a relatively modest pension benefit. The averages presented here are only for full time employees, which is far more representative of how much they make.

Third, total compensation must be considered as the only legitimate measurement of how much anyone makes. While “base pay” may or may not seem low, there is “other pay,” comprised of literally dozens of pay categories including car allowances, meeting stipends, longevity pay, incentive pay, and bonus pay. Similarly, the cost to the employer for pension benefits and health insurance must be counted as pay – doesn’t a self employed person have to set aside money out of their earnings to pay for those benefits?

Here then are snapshots of total compensation for five cities, chosen from among the twenty listed above based on their larger employee headcounts.

The first of these snapshots depict average pay by department for the City of El Cerrito. The first thing that jumps out of the data for this financially troubled city is that their average full time firefighter made an astonishing $246,879 in pay and benefits during 2018. Why do the police, who encounter risks that are arguably equivalent to firefighters, should be averaging total compensation of $175,305, only 71 percent as much, is a mystery. But the solution is not, as is so often the case, to increase police pay. The solution is to reduce firefighter pay.

Something else important to note is that El Cerrito, along with most of the cities considered here, does NOT report as part of its individual employer paid pension benefit, any amounts to pay down their unfunded liability. As previously noted, this grossly understates how much their employees really make.

The estimated median household income in 2017 was $104,455, compared to an average total compensation for El Cerrito’s full time city workers in 2018 of $167,606. Despite entire households (presumably with, on average, more than one worker per household) making only 62 percent of what the average city worker makes in El Cerrito, that’s among the closest ratios you’re likely to see.

Viewing the total compensation by department data for Hemet, below, offers insights into why pension costs are sinking California cities. Remember, this is 2018 data. Back in 2018, pension contributions were calibrated by CalPERS based on actuarial estimates that were only updated through 6/30/2016, because the pension actuaries always submit their formal estimates one year after financial reports are issued. That is, a typical city’s consolidated annual financial report (CAFR) for the fiscal year ended 6/30/2017 would only show pension liability estimates as of 6/30/2016. Yeah. They’re that far behind.

In any case, look at the average employer pension cost for Hemet’s police, $50,632, when base pay for police only averages $78,354. For their firefighters, the average employer pension contribution is even more, $55,431, when base pay averages $81,947. These cities were on track, before the pandemic shut down the economy, to be paying nearly as much in pension fund contributions as they were for base pay.

The median household income in Hemet in 2017 was 39,801; the average full time worker in 2018 made total compensation of $145,922. That’s 3.7 times as much.

The next city, Inglewood, offered in 2018 an average overall total compensation package for its full time employees of $142,806, as depicted in the first chart. And as seen below, their lowest paid employees are the two members of their treasury department – likely clerical positions – at $71,856, and then their Section 8 housing department, where the 22 full time members of that department earned on average $78,430 during 2018. Inglewood had an estimated median household income in 2017 of $51,456.

Let that sink in. The average total compensation of a full time employee with the City of Inglewood is 2.8 times higher than the median household income for a private sector resident of that city. Yes, household income calculations don’t necessarily include the value of benefits. But private sector benefits rarely exceed 25 percent of pay, and “households” on average have more than one employed inhabitant.

Continuing our random gallop through some of California’s financially distressed cities, the next chart shows the City of San Gabriel. The most remarkable thing about this data is that it is unremarkable. If the averages seem excessive, that’s typical. Overall, in fact, San Gabriel’s averages are a bit lower than what is found in most California cities. As usual, their firefighters are making far more than their police – why is this, when it is far harder to recruit police than to recruit firefighters?

And just to be clear: Pointing out this paradox is not to criticize firefighters. More generally, pointing out that public safety employees make a lot of money, and collect pensions we can’t afford, is not to criticize public safety employees. It is merely to make the difficult assertion, with respect, that the reason public safety employees make a lot of money is because sometimes they are on the front lines of bad things, like pandemics.

Freezing rates of public safety pay during a pandemic that paralyzes the economy, along with everyone else’s pay, is the appropriate thing to do. Their pay has always been higher because of the dangerous realities of their job. When the dangerous reality hits, you don’t raise their pay still more, because it has already been raised in anticipation.

The estimated median household income in 2017 for San Gabriel was $59,598. The average pay for a full time city worker in San Gabriel in 2018 was $131,361 (not including cost of unfunded pensions).

Which brings us to Long Beach. Why Long Beach? Sure, they’re among the top fifty distressed cities according to the state auditor’s report, but they didn’t make the top twenty. They’re not among the worst of the worst. Long Beach is a good example of a city that’s done a lot of things right, yet still finds itself estimated to be one of the most financially challenged cities in California. Why?

To really answer that, it is necessary to review not just the average pay for full time employees for the City of Long Beach, which was $143,972 in 2018, compared to an estimated median household income in 2017 of $60,557 – less than half as much. That’s a crippling payroll burden, just like it is in every other city in California. Why do members of the lowest paying department in the city earn, at $89,480 per year, 47 percent more than the average household in the city they serve? Why does the average full time firefighter in Long Beach earn nearly four times as much?

These are difficult questions. But if we can’t ask them now, when millions of Californians are unable to work at all, when can we ask them? What does public service mean in a democracy, if there isn’t shared sacrifice by the government employees, to help carry some of the burden and share some of the fate of the citizens being served?

It’s the Pensions, Stupid

Poor James Carville. His famous quote has made it all the way to the pension overhang, this abstruse albatross, a nerd’s nemesis, ominous but opaque, the theoretical tsunami, the perennial phantom that never materializes, the metaphorical can kicked down the endless road for countless years. But it is. It is the pensions. And we are stupid to ignore them this time.

It was stupid to keep enhancing pensions back in 2001 through 2005 when the economy was digging out from the tech bubble crash and even idiots had belatedly realized that the stock market couldn’t consistently log returns like it had in the late 1990s. A few years after that, it was stupid for cities like Stockton and Vallejo to declare bankruptcy but leave the pension benefit formulas untouched. And it will be stupid, unforgivably stupid, to not recognize that this time, if defined benefits are to be saved, pension benefit formulas for all employees, for future work, need to descend to PEPRA levels.

The final chart here depicts the cash flow impact of changing pension fund earnings projections. There’s actually a lot to like here, so pay close attention. This is a good case, not a typical case. Note that the pension fund, upon most recent 6/30/2018 data (the 6/30/2019 CAFR) for the City of Long Beach was 78 percent funded. That’s a terrible ratio for any pension fund at the end of an eleven year bull market, but it’s nearly 10 percent better than the funded ratio at that time for CalPERS at large.

Observe the total estimated employer contribution in 2019-20, $137.3 million, compared to where it will go in five years – up to $188 million. That’s a 50 million bump they face, and these numbers came out before the pandemic slowdown. And Long Beach is a good case. Check these actuarial estimates for other California cities. In nearly every case, they’re worse. Much worse.

Over the coming months the California Policy Center will produce ongoing analysis of agencies – cities, counties, special districts – that are going to be severely stressed by the ongoing collapse of revenues, combined with the relentless rise in pension costs. But through all of what is to come, two responsible options present themselves. At the least, freeze all pay and benefits. And if possible, move all employees, regardless of hire date, to PEPRA level pension benefits for all future work, effective immediately.

If these two steps are taken, whatever financial challenges these cities face, and there will be many, will nonetheless be significantly easier to bear.

This article originally appeared on the website California Globe.

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