Yes, this is an incredible statistic. But only one assumption is necessary to generate this shocking result – just assume that pension funds will only earn 4.5% per year instead of 7.5% per year. If you wish to cling to the utterly absurd belief that over the long-term, decade after decade, pension funds can achieve an average annual return of 7.5%, then Anaheim’s city workers only earn an average total compensation of $146,551 per year. A pittance, right?
This is still a shocking statistic. But this lower average, $146,551 per year, is an unvarnished fact, based on 2011 payroll records that were provided to researchers at the California Public Policy Center by Anaheim’s payroll department. Here is the recent study by the CPPC, “Anaheim California – City Employee Compensation Analysis,” and here is the actual spreadsheet provided by the city “Anaheim_Total_Employee_Cost_2011.xlxs.” Anyone who thinks the data being presented here is distorted in any way is invited to download the raw data and see for themselves.
Before delving further into details of pay and benefits for Anaheim’s city workers, it is important to emphasize that Anaheim is not unique. Anaheim is typical. Another recent CPPC study examined 2011 payroll data for the city of San Jose, and determined their workforce enjoyed average total compensation (not adjusted upwards to account for adequate pension contributions) in 2011 of $149,907. Here is that recent study, “San Jose California – City Employee Compensation Analysis,” and here is the actual payroll spreadsheet provided by the city “San_Jose_Total_Employee_Cost_2011.xlxs.” Over the past 10-20 years, California’s unionized city and county employees have worked hard to ensure that every increase to pay or benefits granted by any jurisdiction, anywhere, was immediately matched through collective bargaining everywhere else across the state. With rare exceptions, per job classification, there is pay and benefits parity among public employees across California.
For years, these pay and benefit increases were negotiated behind closed doors, between local politicians and the union bosses who elected them. Public sector unions are subject to only minimal public oversight, making their financial power difficult to ascertain, but in California, they are estimated to collect at least $750 million per year in dues, and they probably spend about one-third of that on direct political activity (ref. “Understanding the Financial Disclosure Requirements of Public Sector Unions,” and “Public Sector Unions and Political Spending.” Few corporations are willing to stand up to these unions, and why should they? The public sector union agenda of higher taxes and bigger government doesn’t hurt big corporations. They benefit when the barriers to competition are raised; it drives smaller emerging companies out of business. And financial entities benefit directly from the public sector union agenda of bigger government because expensive and inefficient government causes budget deficits, requiring issuance of debt. Generous pension plans for government workers results in hundreds of billions of taxpayer’s money flowing annually into pension funds – public employee pension funding is the biggest source of new Wall Street investment capital on earth. When public employees urge voters to “blame Wall Street,” they need to look in the mirror. They are Wall Street’s privileged beneficiaries and willing partners. And taxpayers cover the difference.
Returning to Anaheim, and San Jose, and our assertion that in reality their city workers don’t average around $150,000 per year in average total compensation, but rather $175,000 per year, this is because of one simple fact that journalists, politicians, and voters are finally realizing: Pension fund solvency is extremely sensitive to the annual rate of return that pension funds can earn. As the CPPC proves in their study “A Pension Analysis Tool for Everyone,” and as anyone with an intermediate understanding of spreadsheets can calculate for themselves by downloading the CPPC’s “Pension_Analysis_Model.xlxs,” for every 1.0% a pension fund’s long-term rate of return drops, the annual contribution to the pension fund must go up by at least 10% of pension eligible pay. Additional explanatory material, along with the many reasons that rates of return cannot return to the levels sustained during the 20-30 year debt binge that ended in 2008 can be found in the CPPC study “Why Lower Rates of Return Will Destroy Pension Funds.”
Public sector workers who consider themselves to be threatened members of the “middle class” are invited to verify any of the facts presented here, and once they are satisfied as to their veracity, explain why earning a compensation package averaging $175,000 per year is “middle class.” Here are two charts extracted from the more in-depth CPPC study. The first one, Table #4, shows by job classification and compensation categories, Anaheim’s average city employee compensation. The second one, Table #5, also broken out by compensation category, shows the average household income for those private sector taxpayers who live in Anaheim:
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As can be seen, the average employee working for the city of Anaheim enjoys employer pay and benefits that are at least twice that of the people they serve. This is financially unsustainable and profoundly inequitable. Remedying this will require significant reductions to the pay and benefits granted to public employees. But only this painful adjustment will salvage our civic finances and restore faith in government institutions. It is an utterly bipartisan imperative.