How California's State and Local Governments Can Save $50 Billion Per Year

Back in the early 2000’s, in the aftermath of the internet bubble’s collapse, California’s state and local governments endured a period of austerity that resulted in “furloughs,” where, typically, employees would take Friday’s off in exchange for a 20% cut in their pay. That is, they worked 20% less, and made 20% less in pay – but their rate of pay was not cut.

This display of “sacrifice” was an eye opener for private sector workers, especially salaried employees of small businesses, who endured cuts to their rates of pay at the same time as their hours of work increased. Most people in the private sector back in the early 2000’s felt lucky to have a job, even if it meant working harder and making less.

There’s a lesson to be learned from the period of state and local government “furloughs” in California:  California’s government functioned just fine with 20% fewer hours spent at the job, overall, and California’s government workers got by, overall, making 20% less money. So since we know these cuts are feasible, it is interesting to estimate just how much money Californians would save, if there were a 20% reduction to California’s state and local government workforce, and then there were a 20% reduction to the pay and benefits collected by those state and local government workers who remained employed.

Getting information on just how much California’s state and local workers make is notoriously difficult. California’s state controller’s Public Pay database collects the data, but presents “averages” that include part-time employees in the denominator, and do not consolidate the data. Transparent California, a public information project jointly produced by the California Policy Center and the Nevada Policy Research Institute, provides very good information on individual pay and benefits, but also does not consolidate the information.

A California Policy Center study, “How Much Do California’s State, City and County Workers Really Make?,” uses 2012 raw data from the state controller that screens out part-time workers to develop averages for city, county and state workers.

California’s State and Local Government Employees
Average Compensation by Entity – 2012

20140131_CA-Gov-Pay_Table2-b

A recent UnionWatch analysis of Los Angeles Unified School District provided a baseline estimate for total teacher compensation – although in variance to the table, please note the same analysis adds an estimated value of $4,033 per teacher to take into account the state’s direct contribution to CalSTRS. As a representative example of total teacher pay, LAUSD is pretty good; the California Dept. of Education reports the Statewide Average Teacher base salary averaged $69,324 during 2014, nearly identical to the LAUSD analysis.

Los Angeles Unified School District
Average Compensation by Job Class – 2013

20150303-UW_Ring-LAUSD-Actual

Armed with this information, and cross-referencing with the U.S. Census Bureau’s estimate of current numbers of full time state and local government employees in California (ref. Government Employment & Payroll, and select “state” and “local,” in each case selecting “California”), we can make a reasonable estimate of how much our full time state/local workforce is currently costing taxpayers. We can also estimate how much a 20% reduction in workforce combined with a 20% reduction in total compensation would save taxpayers each year:

California State and Local Government Employees, Est. Total Cost per Year
Projected Annual Savings via 20% Reduction to Headcount and to Compensation

20150512-UW_20percent-solution

While this thought exercise may seem to be an exercise in futility, the fact is, we’ve tried it once already, and it worked. That is, during the furloughs of the early 2000’s, California’s state and local government workers got by just fine with a 20% reduction in pay, and California’s state and local government services functioned adequately even though 20% of the workforce was absent (i.e., they were all taking Friday’s off).

It is fair to ask why the focus must always be on austerity. Why not pay everyone more in the private sector? That’s a good question and the answer is simple: It’s impossible. The average total compensation in California’s private sector is roughly half what public employees make. There isn’t enough money in the world to pay everyone this much money, and it is grossly unfair to taxpayers and private workers to treat public sector workers as a privileged class, exempt from the economic challenges facing everyone else.

The problem is even deeper than just one of inequity and insolvency. The problem with creating a privileged class of government workers is that they no longer make common cause with the people they serve. This consequence should trouble social liberals at least as much as it troubles fiscal conservatives, because the most powerful bloc of voters in California, unionized, politically active government workers, are putting their personal financial interests ahead of other worthy government projects. Imagine what $52.7 billion could buy.

The solution is to combine cutbacks in government employee compensation with investments in infrastructure and reductions in regulatory hurdles in order to reduce prices for goods and services. Government created artificial scarcity has raised the price of housing, energy, water and transportation to levels that only the elite can easily afford. If government workers were compelled to make common cause with other workers, instead of this elite, maybe they would finally support reforms to lower the cost of living.

*   *   *

Ed Ring is the executive director of the California Policy Center.

16 replies
  1. john m. moore says:

    The unions get salary increases based on the highest salaries in near-by comparable units, not the market place. As a result its salaries are bloated. Therefore a 20% acroos the board salary cut and freeze until pension deficits and debt are brought to zero is necessay. Letting them work less is a reduction in services.

    I notice that you did not attribute pension bond payments and unfunded pension deficits to salaries and benefits. Semantics aside, they are true employee costs and should be exposed in any comparisons.

  2. RA says:

    What about the reduction in tax revenue that a 20% reduction in workforce and compensation would result in? And is there even enough private sector jobs out there to absorb the influx of people that will be looking for work? I doubt it, so did you think of the strain nearly 300,000 individuals could potentially place on the state if they began drawing unemployment when they lose their jobs? Couldn’t this approach just result in more overtime for the remaining public sector workers? What about the money those public workers spend at local businesses that employ all those private sector workers? There is certainly a lot of private sector jobs supported in the state because of their spending. You also claim that the average private sector workers total compensation is half that of what public employees are compensated, but why didn’t you include the figures in the article? I suspect your assumption is not based on employees with a comparable level of skill to the average public sector employee? You probably include low skilled workers like burger flipper when you came up with that number, when in reality most public sector employees have earned a bachelors degree or higher and many have advanced technical skills. They really should only be compared to private sector workers with similar qualifications. I am not saying public sector workers are all that great, and yes, many are paid more than they should be and some are lazy workers, but the same can be said in the private sector, I am sure you have encountered some of these folks in your career. Besides, why would you want to increase unemployment rates right now and all the negatives that come with it? There has got to be a better approach than putting people out of work.

  3. john m. moore says:

    I did not suggest a reduction in the workforce, only salaries, which would allow more govt. workers, not less. New workers would be subject to PEPRA, which would still create pension deficits but not at the same high rate. The salary savings, for the most part, should be used to eliminate pension debt and thereby garner some liquidity. The new GASB rules will be applied for most govt. entities as of June 30, the end of the fiscal year. A “shocker” for sure.

  4. Equal Time says:

    The comparison of the average compensation of the entire California private sector to the average of the government workforce is not a statistically valid comparison. Why not compare the average government worker salary to the average at Boeing, or Goldman Sachs, or Google? It would be just as invalid but in all probability show a different outcome. You have a lot of arguments going for you, but inserting this kind of comparison is damaging to your cause as it is an apples to oranges comparison.

  5. SeeSaw says:

    What a joke! Let’s just cut peoples’ salaries and benefits and then they won’t be able to spend as much as they would have spent at your establishment. And, by the way, its not the rank and file that get the high salaries–its the managers who, also by the way, are not in unions! When are you and your ilk going to understand that!

  6. SeeSaw says:

    If done at the Bargaining Table it can be done. If not put on the table and debated, forget it then.

    My trust lawyer charged $330/hr. When are you going to cut your fees down to where your clients can afford it?

  7. Tough Love says:

    Some “bargaining table” ….. as previously stated,…”snakes negotiating with other snakes”.

  8. marcia fritz says:

    Many private companies, like HP, are adopting “phased retirement” packages after they discovered that employees dislike working full force one day and suddenly doing nothing when they retire. HP employees after 60 can now work part time and begin taking distributions from their 401(k) plan. Many older workers would prefer to work fewer hours with the same pay. If public agencies adopted phased retirement plans like HP, we can avoid the brain drain and reduce pension costs.

  9. Tough Love says:

    Google and Goldman Sachs are premier companies, who for new hires seek out risk-takers with an entrepreneurial mindset, who work with PASSION and and find the often 14 hour work-day simply necessary to beat the competition to market ……… qualities diametrically opposed to the highly-secure, never take-a-risk, and demand for overtime the minute the clock strikes 5PM mindset of most Public Sector workers.

  10. Equal Time says:

    Ms.Fritz – I like that idea. Sounds like a win-win. If it could be done by government without the reform crowd labeling participants as double dippers and there is a workable strategy for dealing with other working benefits, like health insurance during such phasing. It is labor contract negotiation time right now in some California local governments – I wonder if this phasing approach will be on the bargaining table somewhere?

  11. john m. moore says:

    I assume that the current unfunded pension deficits will compound at the investment rate(7.5% in most plans),will double every eleven years, and will cause hundreds of cities and counties to become dysfunctional. I consider the pension mess a financial emergency. And I hope that there is not even a modest business downturn. Of course then, dreamers will say it is not the outrageous pensions, but that dagnab wall street. I don’t defend wall street, but it is what it is: there will be occassional financial crisis and we should allow for them.

  12. S Moderation Douglas says:

    I think Ed be pullin’ your leg, RA,

    No one can be that consistently incorrect by accident. In addition to your comments:

    1) “Typically” pay was reduced by about 14%, (3 days per month.) not 20%

    2) California’s government did not function “just fine”  with 20% (sic) fewer hours spent at the job. Scheduling was a cluster…. thing. Much of the lost time was made up by overtime and hiring outside contractors. There are still thousands of vacation hours on the books because furloughs were used in lieu.

    3) Many government workers did not “get by” with 14% less pay. There were numerous foreclosures and bankruptcies. The number of retirements increased significantly.

    4) Arnold Governor Schwarzenegger actually INCREASED hiring during “furloughs”:

    “The state employed 204,525 full-time workers last June. By November that number jumped to 206,251. It dipped slightly in December, before jumping back up to 206,650 in January 2009. The number of employees went up in 66 agencies.”

    http://reason.org/news/printer/when-is-a-hiring-freeze-not-a

    5) Ironically, during the furloughs, contributions to CalPERS, both from employee and employer were REDUCED by about 14+%, as it is based on a percentage of salary, ……….but……… all employees retiring during that period had their pension calculated on their full nominal salary, not on the 14% reduced amount.

    ” The average total compensation in California’s private sector is roughly half what public employees make.” Is a Limbaughism, now also a Ringism. Do not try to apply logic to that statement.

  13. S Moderation Douglas says:

    I assume the unfunded liability will double every eleven years ……only if…….. there are NO payments on the unfunded liability.

    But there are, so….

  14. john m. moore says:

    Valid point. Right now CaLPERS requires 20-25% of the annual deficit accruing on the unfunded deficits. So it will only double about every 12.5 years.

    At the hearing on the 2014 CaLPERS contribution increases, the report of the Office of the Actuary stated that the increase gave CaLPERS a 50/50 chance of being 50% funded by 2030.

    But I do appreciate that this discussion has not become personal; otherwise it is a waste of time. Thank you.

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