Posts

City of Stanton Proposes Higher Taxes Instead of Cutting Pay and Benefits

On November 4th, voters in Stanton, California, will be asked to vote on a 1.0% sales tax increase, which if approved will raise their sales tax to 9.0% – the highest in Orange County. Nestled in the heart of Orange County, tiny Stanton, a city of barely three square miles in size with a population in 2012 of 38,915 residents, is an unlikely candidate for the spotlight, when California’s local ballots are about to be inundated with over 140 local tax increases affecting many cities and counties that are ten times bigger. But Stanton is ground zero in a battle over how to manage municipal budget deficits, because if their voters approve this tax increase, cities throughout Orange County will follow suit.

We’re not talking small potatoes here. Stanton currently only retains 1.0% (one-eighth) of the 8.0% sales tax they currently collect. According to Stanton’s Consolidated Annual Financial Report for the fiscal year ended 6-30-2013 (page 9), their total sales tax revenue for that year was $3,683,199. If they increase their sales tax rate from 8.0% to 9.0%, they should double the amount of sales tax collections retained by the city. A spokesperson for the city of Stanton confirmed they project the new sales tax will add $3.1 million to their projected annual sales tax revenues. How does that compare to their spending?

According to Stanton’s “Measure GG,” the city “now faces a $1.8 million structural budget deficit.” This means the sales tax increase is expected to eliminate their budget deficit with $1.3 million left over. But if you evaluate Stanton’s expenditures, there is an alternative to new taxes. How does the city spend most of their money?

To answer this, again, look no further than the “Whereas” section of Measure GG. The third “Whereas” states “public safety is a top priority in Stanton and represents over 70% of the City’s General Fund budget, and without a local funding source the City will be forced to significantly cut public safety services.”

It’s quite clear that Stanton has already cut everything else. Based on information reported to the California State Controller’s Office, in 2012, the City of Stanton had 26 full-time non-safety personnel. Their average base pay was $74,146 per year, with negligible overtime, and “lump sum” payments averaging $4,700 per year, mostly to management. The lowest full-time regular rate of base pay was $42,359 for an administrative clerk. When you pile on the employer payments for retirement health care (average per year $8,691) and for their 2% at 55 pensions (average per year $15,693), the total pay and benefits for Stanton’s 26 non-safety employees in 2012 averaged $104,990. Nice work if you can get it. But it represents less than 18% of Stanton’s estimated direct personnel costs.

Finding information as to just how much Stanton pays for police and fire protection is not easy, but a reasonably accurate estimate is possible. According to Stanton’s city website under “Fire Services, we learn “there are a total of 21 firefighters who serve the City of Stanton.” Under “Police Services,” we learn “the Sheriff’s Department provides 44 staff members to the City of Stanton.” If we make just one assumption – that the rates of pay earned by the sheriffs and firefighters assigned to Stanton are representative of the rates of pay earned by all Orange County sheriffs and firefighters, we can estimate how much Stanton incurs in direct personnel costs for public safety. Pay for Orange County sheriffs can be found using 2012 data reported by Orange County to the CA State Controller. Pay for Orange County firefighters can be found from 2013 data recently obtained by the California Policy Center directly from the Orange County Fire Authority. Here goes:

Orange County Public Safety – Average Compensation

20141007_OC-public-safety-comp

Based on the data and assumptions as noted, on average, Stanton’s 21 firefighters earn a direct pay and benefits package of $217,956 per year; Stanton’s 44 sheriffs earn an average direct pay and benefits package of $186,682 per year. The source data used for these calculations and others cited in this post can be downloaded here “Stanton_2014_Statistics.xlsx” and readers are invited to point out any errors in calculations or reasoning therein.

There are a lot of takeaways here. For example, if Stanton were to join with other Orange County cities who contract for their police and fire protection and negotiate a 14% decrease to the average total pay and benefits their police and firefighters earn, they would eliminate their structural deficit of $1.8 million – and their firefighters would still earn average pay plus benefits, after the reduction, of $187,285 per year, and their sheriffs would still earn average pay plus benefits, after the reduction, of $160,412 per year. The average household income in Stanton during 2012 was $48,146.

A final observation – CalPERS has announced a 50% increase in required annual pension contributions, to be phased in between now and 2017. If Orange County’s independent pension system follows suit, and there is no evidence their financial imperatives differ significantly from CalPERS, then Stanton’s annual required pension contributions will increase by $2.2 million per year – nearly all of that for public safety. So even if Measure GG passes, the projected surplus of $1.3 million will probably be more than offset by increased pension contributions. Expect more taxes, or start cutting pay and benefits.

It is always important to emphasize that public safety employees deserve to be paid a premium to compensate for the risks they take to protect the public. But Stanton’s citizens and elected officials, and their counterparts in cities throughout Orange County, will have to decide where to draw the line on that premium. Perhaps the facts should speak for themselves.

*   *   *

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

RELATED POSTS

Palo Alto’s Proposed New Pension Tax – Oops, Hotel Tax, Sept. 30, 2014

California’s 2014 Local Tax Proposals – The Costly Alternative to Pension Reform, Sept. 23, 2014

Watsonville, California – Another Tax That’s Really Just For Pensions, Sept. 16, 2014

The Average Orange County Firefighter’s Total Compensation is $234,000 per Year

Most fire fighters do not get Social Security, so they completely count on the pensions they have contributed to, been promised and earned over a career. Take their pensions away or cut their pensions and you have fire fighters who risked their lives over a career to save others living in destitution, on public assistance, meaning the taxpayers have to foot that bill, too.

–  Harold A. Schaitberger, President of the International Association of Fire Fighters, Press Release Sept. 26, 2013

The implication in Mr. Schaitberger’s remark, apparently, is that $234,000 per year isn’t enough to permit someone to save enough money to avoid “living in destitution.”

Here’s how Orange County’s full-time firefighters did in 2011, according to data from their own website (ref. OCFA Employee Compensation2011 – Grand Jury Format). Anyone who wishes to verify all of the calculations referenced in this post can download the spreadsheet produced by the California Public Policy Center.

20131001_OCFA-2011-payroll

 

Slicing this data another way, during 2011 there were 47 OCFA firefighters who made over $300,000, and another 594 firefighters who made less than $300,000 but more than $200,000. That is, out of a full-time workforce – not including support personnel – of 747 firefighters, 641 of them made over $200,000 in total compensation during 2011. The average general physician practicing in California reported an average annual salary of $182,200 per year to the U.S. Bureau of Labor Statistics in 2012. To be able to do this, doctors need eight years of postsecondary schooling and three years of training and residency before they can legally practice. This is comparable to the average direct pay of veteran OCFA firefighters, and it is unlikely that doctors collect benefits that are nearly comparable to OCFA’s, which on average add another $76,000 per year to their total compensation.

A phone call to OCFA revealed that when there is a need, an announcement is posted on their website inviting people to apply to become firefighters. During the last call for applicants, between May 13 and June 13, “thousands” of people applied for 30 positions. According to the spokesperson, anyone may apply.

It is important to emphasize that total compensation is the only proper way to measure how much someone really makes. And several factors combine to make the average total compensation for OCFA firefighters, $234,000 per year, a misleadingly low number. The primary reason for this is because their retirement health benefits and retirement pension benefits are woefully underfunded (ref. “Orange County Pensions At Risk – Unions Just Call Critics “Extremists“). This means that unless the benefits are cut, or the firefighters themselves start contributing far more of their direct earnings to these funds via payroll withholding, the employer share of the payment will have to increase.

Another factor that is important to consider is the actual hourly and daily pay. Firefighters working “suppression” shifts log a lot of work hours. The average OCERS firefighter worked 2,877 hours of normal shift time, plus another 861 hours of overtime shifts. This translates into 156 shifts of 24 hours each. But included in these hours are, for firefighters with 10 years service or more, vacation hours that equate to 12 shifts of 24 hours each (ref. OCFA MOU, page 44). This means that even including overtime, the average OCERS firefighter worked 144 days and was off 221 days. Obviously working 24 hour shifts represent a sacrifice. But during these shifts firefighters are eating and sleeping. And if the cost of firefighter pensions weren’t so expensive, it would be possible to hire more firefighters in order to eliminate so much overtime. If OCFA firefighters collected zero overtime, they would still have collected average total compensation of $190,000 during 2011, and they would have worked – taking into account vacation time – 108 shifts of 24 hours each and had 257 days off. There’s more. For example, firefighters accrue sick leave without limit and after 20 years of service may collect 100% of the value of their accrued sick leave as additional pay. Wasn’t sick leave supposed to be for when you’re sick?

What about the average pension for an OCFA firefighter? If you assume that only direct pay and “specialty pay” are eligible, if you assume that the average salary is the same as the final salary (not even close), and if you assume there are no incidences of “spiking,” the “pension eligible pay” on average for an OCERS firefighter is $106,000. If they work 25 years, with their 3.0% per year multiplier, they may expect a pension of $80,000 per year. This estimate is undoubtedly lower than reality.

It’s a long way from $80,000 per year to “destitution,” Mr. Schaitberger.

There’s nothing wrong with paying firefighters more than what the market might offer based purely on their skills and work hours, because firefighters incur risks in their jobs that most jobs don’t impose. And there’s nothing wrong with paying more than market rates in order to attract the most capable people to fill these positions. But it is important to counter claims that firefighters are on the brink of “destitution,” and therefore cannot agree to anything more than token concessions with respect to their pay and benefits.

How much someone should make is a very subjective and contentious issue. But it is probably reasonable to suggest that firefighters should not make more than doctors. Nor should they make more than four times as much as the average citizen they serve. And since they earn direct pay that is on par with top management in most private firms, they should be able to save for their own retirements. Insisting on a pension after 25 years of work that pays at least five times as much as the average Social Security benefit available after 40 years of work is not financially affordable nor fair. Saving the defined benefit may well depend on returning – retroactively and across the board – to pension benefit formulas that were in effect 20 years ago, before we had booms, bubbles, and bloated benefit binges.

*   *   *

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