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Week of August 23, 2010

Government workers' compensation may be more than area cities can afford

By Mitchell Schnurman
Star Telegram
Posted Friday, Aug. 13, 2010

Like much of the country, cities in North Texas are scrambling to balance their budgets. Dallas faces a $130 million shortfall. Fort Worth has a $73 million gap. Arlington is $10 million short.

They're considering closing libraries and pools, slashing maintenance programs and aid to the homeless and laying off workers.

The moves may plug next year's hole, but they don't address the most vexing problem: Government employees, as a group, get higher salaries and richer benefits than their private-sector counterparts -- and whacking those public expenses is a political nightmare.

The disparity in pay is greatest among federal employees. Their average compensation is twice as high as the private sector's, according to studies from the Cato Institute, a think tank dedicated to limited government.

But state and local government employees also earn more, largely because their benefits are worth almost $6,000 extra per person. Traditional pensions, becoming rare in private business, remain a valuable benefit for government workers and a ticking time bomb in many public budgets.

At a Friday retreat, Fort Worth officials discussed ways to cover the growing pension liability, and all the options are expensive.

"We realize we're not in sync with the private sector," Mayor Mike Moncrief said. "It's not acceptable or responsible to just kick this down the road."

Councilman Danny Scarth called for a broader assessment of the city's compensation. Fort Worth should benchmark its rates against other industries', not just those of Austin, San Antonio and Dallas, because he worries that city-to-city comparisons "tend to ratchet up" pay.

He's on to something. According to Cato, state and local government workers earn 26 percent more than those in private industry in the region that includes Texas. The premium is much larger in the Pacific region, which includes strapped California. Government workers there have the highest hourly rates, earning 59 percent more than the private sector.

The pay advantage isn't equal across job categories, says Chris Edwards, Cato's director of tax policy studies. Managers and professionals make about the same in both workplaces. But sales, office and service workers have a significant edge in the public sector.

Pensions are four times more prevalent than in the corporate world, and they're twice as generous. The costs are often exacerbated by favorable retirement formulas and workers who game the system by piling up overtime.

Government often has better health insurance and more paid leave, too. And retiree healthcare coverage remains a staple in many government jobs.

Most private employers dropped pensions and retiree healthcare years ago because the perks are unsustainable. Companies can't add enough workers to handle the burden of an aging work force, so they switch to a pay-as-you-go 401(k) and get out of the healthcare business as much as possible.

Painful as it may be for individuals and the economy, getting smaller and cheaper is often a matter of survival in business. But elected leaders don't generally follow the private world template. They're especially reluctant to challenge police and firefighters, even if their compensation packages are among the most generous.

Labor accounts for about half the spending in most cities' general funds, and collections from sales tax and property tax are falling. So Moncrief had it right last week when he said Fort Worth has to redefine local government.

But the city staff proposes changes that would affect future workers only; they see a moral obligation, not a legal one, in continuing programs that were in place when employees joined the city. In a financial crisis, private companies get over such reservations quickly.

For employees, working for government used to present a trade-off between upside potential and job security. Government employees gave up a shot at big bonuses, stock options and the kind of job switching that could boost pay by 30 percent; in exchange, they rarely got laid off, and salaries rose slowly and steadily, with many workers accruing a rich retirement package.

About 30 years ago, public-sector employees started earning more than private workers. The gap narrowed in the late '90s during a booming job market. But the public-side pay gap resumed growing a decade ago and expanded through the recession, according to Edwards.

Government workers in other states earn much more than in Texas because public-sector unions are more widespread and powerful. Police in Fort Worth, for example, have a right to "meet and confer" over contracts, but that isn't quite on par with a formal union negotiation.

Still, it's tough for any elected official to push for deep cuts for police, firefighters or other city workers, because employees are effective advocates. They can garner public support, sway the media and turn out voters.

"They can be boisterous and loud and can cause quite a headache for anyone who takes them on," says Tad DeHaven, a Cato analyst who worked as deputy director of the Indiana Office of Management and Budget.

If market forces influenced leaders more than politics do, local governments could cut pay and benefits and still have lots to sell: Their jobs are more stable, and the average workload is smaller, about 225 fewer hours per year.

In 2009, private employees were four times more likely to be laid off than federal workers, according to Cato, and government employees are fired less often for poor performance.

More evidence of the appeal of government work: Just one-third as many employees voluntarily left public-sector jobs, according to federal statistics on turnover.

"That suggests that state and local pay is higher than needed to attract qualified workers," Edwards wrote.

Situations vary by city, state and job, but changes are coming. The great reset that rocked private industry is knocking on government's door.

By Kenny Green
Star Local News
Published: Thursday, August 12, 2010 4:25 PM CDT

The Mesquite City Council received a presentation Aug. 2 regarding the proposed health care changes for the upcoming fiscal year during its regular work session.

The new proposal included the first rate increase to the city employees in three years.

"We have had some very good years since 2000," said George Mones, director of human resources and civil service. "We had good news the last three years by not having to raise rates. Unfortunately this is not going to be one of those years. It has finally caught up to us."

Mones told the council the MEHC clinic, a joint venture between the city and Mesquite ISD school district, has been operating without a physician since late last year.

The city did not put out maximum effort to seek a replacement because they were waiting to see what the MISD decided to do with its health care plan.

"Fortunately they decided they are 100 percent committed to the clinic and pharmacy," Mones said. "This is perceived as an ongoing commitment."

The changes being made to the PPO under the proposed plan include increasing the out-of-pocket maximum to $4,000 and changing the retail co-pays to co-insurance for prescriptions filled outside of the MEHC pharmacy.

"This will provide greater incentive for employees to use the MEHC pharmacy," Mones said.

The proposed plan also would convert health reimbursement to a health savings account.

"Under the change the deductible increases from $1,200 to $1,500," Mones said. "This provides a long-term savings vehicle for employees and encourages employees to use the on-site clinic and pharmacy. You don't have to pay a deductible when you go to the clinic."

Mones indicated the city would also remove the HMO plan under the changes recommended in the new plan.

"The plan benefits are too rich," he said. "This shelters employees from the true cost of health care and there is no incentive for wellness."

"I appreciate the task force for doing this," said Bill Porter, Mesquite Mayor Pro Tem. "It was not an easy job. They have done a good job with what they had to work with,"

One factor that has necessitated a rate increase this year is the rise in the amount of large claims. If the city remains on its current trend, it will end the fiscal year with approximately $3.2 million in claims.

"The largest claims that we have are two premature infants and two cancer cases," Mones said.

Hospital costs are also up over previous years.

"Hospital rates are going up because the intensity of services is higher," Mones said. "They are doing more in a day and charging for it."

A fact that doesn't sit well with some.

"I am disgusted with these big increases," said Dennis Tarpley, Mesquite Deputy Mayor Pro Tem. "I still don't understand the relationship with Cigna and the hospitals. I thought there were contracts with hospitals."

Due to requirements created by the federal health care reform legislation, the city will change the dependent coverage age from 25 to 26 beginning with the 2010 fiscal year and will be covering 100 percent of preventive care beginning in January 2011. The city will remove the lifetime maximum benefit in the 2011 fiscal year.

The city will change health care plan administrators under the proposed plan. They will begin using TML instead of Cigna.

"The fees are lower and is the same network as we have now," Mones said. "Their discounts are right in line with Cigna."

Mones estimated the cost savings as a result of the switch would be around three percent. If the proposed plan is adopted, the city will increase its contribution to the health care program by $900,000. The funding includes $250,000 from the water and sewer fund, $250,000 from the general fund and $400,000 from the general fund reserve.

"We have the lowest cost, highest value for employees in the Metroplex," said John Monaco, Mesquite Mayor.

The city will not be increasing the contribution to the retiree health care plan due to budget constraints.

Due to the lack of increased contribution, retirees will face an increase in the cost of their health care plan. The rates have been fixed since 2004. The increases would include an $88.42 uptick for a single individual under the HSA1500 plan and a $203.32 increase to include a spouse. Under the HSA500 plan, the individual plan would increase by $146.73 and a $330.42 increase to include a spouse.

"There is a fear that some retirees may have to drop the plan entirely," Mones said. "Another option is a $2,500 deductible plan."

The council instructed Mones to bring them the information on the proposed HSA2500 plan so they can see the cost associated with adding it.

"It may be attractive for retirees," Mones said. "I will develop a chart for that."

The city is trying to position itself for the impact that the Obama health care legislation will have on its health care plan.

"The great unknown is the effect of Obamacare," Monaco said. "Everybody in the nation is frustrated with the lack of hospital info. The apparent solution appears to be legislatively"

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