“Forget about logic,” Jack advised. My analytics instructor says that all logic is mere tautology. She says it is impossible to learn anything through logic that you did not already know.”
Robert A. Heinlein, Tunnel in the Sky

What about facts? There are certainly facts we don’t already know. According to the logic of the labor union spokespersons who relentlessly lobby and negotiate for higher wages and benefits for public sector workers, they are still underpaid because they have higher levels of education than the average worker. According to the logic of AFSCME Local 3336, the only reason anyone might think public sector employees are overpaid is because of right wing propaganda. Yet it seems the many studies that fund their own analyses come from taxpayer supported institutions staffed with unionized faculty, or think tanks funded by grants from public employee unions.

But why impugn the sources? Why consider their logic? Why not just present the facts and let journalists, policymakers, and voters employ their own logic to form an opinion?

That is what compensation studies from the California Public Policy Center have attempted to do. They have now done public employee compensation studies on four California cities, most recently Irvine, along with Costa Mesa, Anaheim, and San Jose. Not only have they presented the data objectively, but for anyone to verify the data and the assumptions, they have made the payroll spreadsheets and analysis available for downloading by anyone who wants to review the data themselves; here are these spreadsheets: Irvine, Costa Mesa, Anaheim, and San Jose.

Here are some facts on total compensation (direct pay plus employer funded benefits) for full time employees of these four cities:

TOTAL COMPENSATION – FULL-TIME CITY EMPLOYEES

Irvine: Total compensation average = $143,691, median = $133,782.
Costa Mesa: Total compensation average = $146,863, median = $146,378
Anaheim: Total compensation average = $146,551, median = $138,442
San Jose: Total compensation average = $149,907, median = $139,634

TOTAL COMPENSATION – FULL-TIME CITY EMPLOYEES NOT INCLUDING PUBLIC SAFETY
Irvine: Total compensation average = $127,115, median = $120,063.
Costa Mesa: Total compensation average = $103,755, median = $95,526
Anaheim: Total compensation average = $122,717, median = $110,792
San Jose: Total compensation average = $120,092, median = $114,923

These figures are for full time workers, unlike the numbers provided by the State Controller on their “transparency” website. Those averages are not only fail to include all employer provided benefits in the numerator, but they include every part-time worker in the denominator. Not surprisingly, these “facts” reveal much lower averages. Here are the “average wages for all employees” according to the California State Controller’s transparency website:

CALIFORNIA STATE CONTROLLER’S “AVERAGE WAGE” FIGURES
Irvine
: Average wage = $48,506
Costa Mesa: Total compensation average = $72,177
Anaheim: Total compensation average = $56,850
San Jose: Total compensation average = $68,339

Why not let the reader determine which of these “averages” is more representative of reality? For any readers who might argue that the cost of benefits don’t belong in calculations of average or median earnings, we invite them to start paying for 100% of their pensions, 100% of their retirement health care, and 100% of their health insurance, disability insurance, life insurance, 401K plan, and social security and medicare premiums out of their direct pay.

Here are some additional facts:

Using California’s Employment Development Department’s 2010 report “Labor Market Trends,” (ref. figure 1) it is evident there are 2.4 million Federal, State and Local employees in California, 12.2 million full-time private sector employees who work for an employer, and another 1.4 million “self-employed” private sector workers. According to the California State Dept. of Finance, in 2011 the state’s Gross Domestic Product was $1.96 trillion.

So what if every one of California’s 16 million full-time workers were all earning total compensation of $143,691 per year – the lowest of our four cities under consideration? Multiplying this average times the number of full-time workers in the state, and comparing the result to the state’s entire economic output might help us ascertain the feasibility of such a feat, would it not?

As it turns out, if every one of California’s 16 million full-time workers earned $143,691 per year in total employer paid compensation (pay and benefits), it would amount to $2.3 trillion, 17% in excess of California’s entire economic output. This means that if California had no net exports and no business investment – elements that typically comprise at least 30% of GDP – paying everyone what the average local government worker makes would still consume 17% more than the state’s entire economic output.

Here’s another fact:

AVERAGE TOTAL COMPENSATION, FULL-TIME CALIFORNIA, PRIVATE SECTOR, $63,361

According to the U.S. Bureau of Labor Statistics, and as reported in the Sacramento Business Journal, the average annual salary for a worker in California was $51,910 in 2012. To convert this into total compensation, using generous assumptions, add 7.5% for employer contributions to social security and medicare, plus a 3% matching contribution to a 401K, plus $500 per month for health insurance benefits, and you get $63,361 per year (don’t forget there are 2.4 million government workers who pulled the BLS statistics upwards). That is an absolute best case.

This means that the average worker for the City of Irvine, which has the lowest paid workforce among the four cities considered in the CPPC studies so far, is making $143,691 per year in total compensation, compared to the average Californian who makes at most $63,361 in total compensation.

At the risk of Robert A. Heinlein turning in his grave, let’s now indulge in some logic.

Maybe, just maybe, their allegedly superior levels of overall educational attainment don’t justify municipal bureaucrats (not even including public safety) making average total compensation that is approximately twice as much as the total compensation earned by the average full-time private sector worker in California.

Maybe, just maybe, when public sector unions clamor for even higher levels of compensation and benefits because “public employees need to be able to afford to live in the communities they serve,” they might consider the fact that their relentless lobbying and negotiating for more pay and benefits, combined with their relentless lobbying and negotiating for more laws and regulations in order to expand their membership base of public employees, is the reason that nobody can afford to live in these communities.

And maybe, just maybe, public employees will renounce their union agenda of more taxes, more regulations, and more benefits for themselves, just enough to allow California’s economy to recover. Maybe they will take it upon themselves to oppose their union agendas that, if unchecked, condemn California to an immediate future where the rich play with movies and software, the poor collect entitlements, and the government employees are the only middle class left.

After all, despite Heinlein’s nearly 60 year old vision, there is no tunnel in the sky, at least not yet. No M-class planets to escape to. For that matter, there are still no blue water floating city states beckoning just off the coast. But the interstate highway system is alive and well.

*   *   *

UnionWatch is edited by Ed Ring, who can be reached at editor@unionwatch.org

5 Responses to Public Sector Compensation: The Facts Speak for Themselves

  1. Tough Love says:

    Mr Ring, Excellent article as usual.

    One item wasn’t clear. When you stated that the average and median “Total Compensation” figures for the four Cities (in the $130K-$150K range), what was the source of the cost figures for Pensions? I ask this because from what I have read, most CA gov’t entities report as the year’s “cost” the amount they actually contributed (i.e., PAID) to pensions in that year. Clearly that understates the true value of the pension “accruals” actually EARNED in that year due (primarily) to the use of the aggressive (i.e., too high) investment return assumption for discounting Plan liabilities, and hence understating the Plan’s Normal cost and ARC necessary to fully fund the promised pension over the working career of these employees.

    If the former (actually PAID contributions) are included for this component of Total Compensation instead of a proper estimate of the value of the accrued benefit earned in that year, the true Total Compensation figures would be considerably higher that the figures you have presented.

    Reasonably estimating the difference between the cost of what is ACCRUED vs what is actually PAID to be 10-20% of payroll, would likely add $12k-$15k to your published figures above.

  2. Editor says:

    ToughLove – you are correct that recognizing the accrual value of future pensions earned when working would probably add 10-20% to the actual total compensation average/median. We discuss that in all of the four CPPC studies.

    Because the accrual depends on using a lower rate-of-return projection than the official one, however, we didn’t bring it up in this editorial. The reason for this omission is not because we don’t agree that the current rate-of-return projections are too optimistic, but rather because we wanted to report average/median total compensation facts that are absolutely beyond debate.

    When you add the current year funding requirements for retirement health insurance and pension benefits – using realistic rates-of-return for the money that must be funded during each year of active employment, as you say, the total compensation rises by about 10% of base pay for every 1% the rate-of-return drops.

    That is best case, since that rule of thumb does not include the obligation to provide retirement health insurance, which is also inadequately funded, if funded at all, and since health insurance isn’t even a future cost that can be accurately estimated given it is a promise to pay all or some portion of future premiums.

    • Tough Love says:

      Thank you. Also, good point adding the (almost 100%) unfunded cost of retiree healthcare promises to the discussion …. particularly material for Public Sector retirees who often retire 10 years before eligibility for Medicare.

  3. Robert T says:

    It’s the pensions and free healthcare paid to these public employees for 30 years of retirement that’s strangling the taxpayer and driving all these muni’s into bankruptcy. We are making millionaires out of police and fire. Any private sector employee with a self-funded 401k can only dream of having that kind of money in a pot waiting for them in retirement.

    • Tough Love says:

      Exactly …… which is why fixing this cannot be sufficiently addressed by a few % point increase in employee contributions but rather by … just to stop digging the hole we are in even deeper … a 50+% reduction in the pension accrual rate for FUTURE service for all CURRENT (yes CURRENT) workers.

      And even THEN, the Public Sector pension would STILL be considerably greater than than the retirement benefits provided Private Sector workers by their employers.

      We should keep in mind that Public Sector workers earn no less in “cash Pay” than their Private Sector counterparts. This being the case, there is ZERO justification for ANY greater Taxpayer-funded pensions or better benefits, let alone the multiples greater Public Sector pension and benefit structure that exists today.

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