October 14, 2011
Today’s Wall Street Journal published an article by Phil Izzo entitled “Bleak News for Americans’ Income,” where, citing U.S. Census Data, it was reported that U.S. median household income – adjusted for inflation – fell by 7% over the past ten years. In constant 2010 dollars, the average household in the U.S. saw their income drop from about $54,000 per year in 2000 to just under $50,000 today.
When debating what level of compensation is appropriate and affordable for public safety personnel, the average income of private sector workers is an important baseline. It provides context for determining whether or not the premium paid to public safety employees – for the risks they take – is exorbitant or fair. The trend of the past ten years is also an important baseline when making this comparison. For example, if the level of risk, the value we place on safety and security, and the degree of training required for public safety personnel have all elevated over the past decade – and they have – does this justify their pay increases exceeding the rate of inflation? Even over this past decade, when ordinary private sector workers have seen their total pay and benefits decrease by 7% relative to inflation?
Here then, also relying on U.S. Census data (ref. 2010 Public Employment and Payroll Data, State Governments, California, and 2010 Public Employment and Payroll Data, Local Governments, California, along with 2000 Public Employment and Payroll Data, State Governments, California, and 2000 Public Employment and Payroll Data, Local Governments, California), are the rates of base pay and pension obligations for California’s public safety personnel in 2000 (adjusted for inflation and expressed in 2010 dollars), and 2010, starting with Firefighters:
Several points on the table above bear explanation. These numbers reference firefighters who, typically, work 24 hour fire suppression shifts, and do not include administrative personnel. These work schedules usually involve three 24 hour shifts on duty, followed by six days off. If a firefighter works more than three out of every nine days, they receive overtime, which is included in these numbers. Worth noting is that when adjusting for vacation, the average mid-career firefighter in California works two 24 hours shifts every seven days, earning overtime for whatever extra days they work beyond that. Not included in these figures are any current benefits, including health insurance, or funding set-asides to cover retirement health insurance. We published a complete work-up of the total compensation of firefighters in August 2010 in a post entitled “California Firefighter Compensation.” In that analysis, the total compensation of the average Sacramento firefighter was estimated at $180,000 per year.
It is also important to explain the rationale behind the higher pension costs (as a percent of salary) between 2000 and 2010. It was around 2000, and for several years afterward, that the “2.0% at 50″ benefit for public safety personnel was changed to the current “3.0% at 50″ formula – retroactively. The so-called “2.0% at 50″ formula meant that a firefighter was eligible to retire at any time after turning 50 years old, and would receive a pension equivalent to the number of years they worked, times 2.0%, times the salary they earned in their final year working. The “3.0% at 50″ formula increased this benefit, logically, by 50%. A firefighter now can retire any time after turning 50 years of age with a pension equivalent to the number of years they worked, times 3.0%, times the salary they earned in their final year working. The numbers shown on this table and the others, which represent the funding requirements per year expressed as a percent of salary, reflect the 50% increase required. These percentages assume 30 years working and 25 years retired, and they assume CalPERS will continue to earn 7.75% per year on their investments – 4.75% after adjusting for inflation. These are very conservative numbers, and indeed, most government agencies already set aside more than this into public safety pension funds. For much more on these calculations, refer to our analysis “What Payroll Contribution Will Keep Pensions Solvent?,” posted in July 2011.
Here are pay and pension trends between 2000 and 2010 for California’s police officers:
And here they are for California’s correctional officers:
Here is a summary of this data: During the decade between 2000 and 2010, a period when, adjusting for inflation, household income for private sector workers fell by 7.0%, California’s firefighters saw their pay and pension benefits (after adjusting for inflation) increase by 33%, police officers saw their pay and pension benefits increase by 28%, and corrections officers saw their pay and pension benefits increase by 19%.
The next table attempts to quantify these costs in terms of their impact on California’s taxpaying households. While there are 12 million households in California, once you eliminate the nearly 50% of households who pay no net taxes, and the 15% (estimate) of households whose primary income comes from a government job, you’re down to about 5 million households. Corporate taxes, which presumably could cover some of these costs, are passed onto consumers in the form of higher prices. And these costs do not include anything other than pay and pensions – none of the other payroll overhead.
The above figures, all extrapolated from the data presented on the previous charts or from the U.S. Census Bureau’s tables linked to earlier, show salary and pension costs for California’s nearly 200,000 public safety personnel, expressed in billions. The first figure, $21.8 billion, is the estimated amount currently expended per year for base pay (including overtime) plus pension funding. The second figure, $25.2 billion, shows how much that amount will increase if CalPERS lowers their pension fund return on investment projection from 7.75% to 5.75%. The third figure, $17.4 billion, is how much base pay and pension funding for public safety employees would cost taxpayers in California if their base pay and pension benefits had merely kept pace with inflation, instead of escalating at a rate between 19% (correctional officers), 28% (police officers), or 33% (firefighters) greater than the past decade’s inflation. Finally, the fourth figure, $16.2 billion, shows how much taxpayers would pay to fund public safety base pay and benefits in California if, instead of increasing their pay and benefits during a period when everyone else was getting paid less, they took 7% cuts to their pay and benefits – i.e., did not see their income rise quite as fast as the rate of inflation.
Between 2000 and 2010, not only public safety personnel, but all state and local employees in California saw increases to their pay and benefits that exceeded the rate of inflation. The reasons for the decline in real income in the private sector are many and complex; globalization, increased productivity and overcapacity, the obsolescence of middle-management and skilled jobs – lost to office automation and robotic manufacturing – unsustainable and maxed debt accumulation, over-regulation, under-regulation, and of course, insufficiently progressive taxation and insufficient taxes on wealthy individuals and corporations – or is it the lack of a universal flat tax and excessive taxes on everyone. It depends on who you ask. But for the five million households in California who do pay taxes, it is fair to wonder what level of compensation is equitable for public safety personnel, and why their compensation has increased by double-digits (after inflation) during a time when private sector incomes have gone down.