Despite Public Perception, Government Workers Aren't Living Large

Government workers are in an uproar over Wisconsin Governor Scott Walker's (R) plan to sharply curtail their collective bargaining rights, along with similar efforts in Ohio and Indiana. They were already fuming at New Jersey Governor Chris Christie's plan to make them pay more for health care and pension costs. Much of their anger appears justified.

Though the media often reports on eye-popping, six-figure salaries of government officials, such as school superintendents and other political appointees, most public-sector workers don't do nearly as well. Typically, they earn about 6% less than workers in the private sector.

Not Exactly "High Off the Hog"

The average salary of a member of the American Federation of State County and Municipal Employees (AFSCME), the largest union representing government workers, is about $45,000, according to Kerry Korpi, the union's director of research and collective bargaining. Data from the Bureau of Labor Statistics shows the median salary of a U.S. worker at $43,640. The average AFSCME member collects a pension of about $19,000 a year.

'It's not like they are living high off the hog," Korpi says.

Some members of the Communications Workers of America in Trenton, which represents New Jersey workers, are working second or third jobs to make ends meet, according to Thomas Palermo, president of CWA Local 1039. "We have had some people that have had financial difficulty," he says, adding that his members earn about $50,000 annually, which underscores the high cost of living in the state.

In response, Gov. Christie has argued that benefits to state workers are "wildly out of proportion with the private sector," Bloomberg News says, adding that he tried to eliminate automatic cost-of-living increases last year and stopped paying into the pension plan.

Layoffs and Furloughs Abound

Though government workers traded in lower salaries for better benefits and job security, these jobs are far less secure than they used to be. A 2010 survey by the National Association of State Budget Officials found that many states were slashing their payrolls through layoffs and furloughs. That trend has continued this year.

"In fiscal 2011, 24 states reported that they would be laying off state personnel," the survey says. "Of these 24 states, 22 had also reduced the number of full-time positions in 2010."

For instance, Georgia Governor Nathan Deal (R) has proposed eliminating 2,000 state jobs, most of which are already vacant. Raises are being delayed for state workers in Nebraska and Idaho. Lawmakers in Texas, facing a $27 billion deficit, are considering eliminating more than 9,000 jobs.

Job losses at state and local governments are expected to continue through the end of this year and the beginning of next year or even until 2014 when a rebound in tax receipts may lead to more hiring, according to Gus Faucher, an economist at Moody's Analytics. The firm expects state tax revenues to grow 6.6% in fiscal 2011 and 7.2% in fiscal 2012. States will continue to struggle, however, because federal stimulus funds have dried up.

Ditching Pension Plans for 401(k)s

The costs of benefits for state workers are rising, just like they are for their counterparts in the private sector. States are eager to ditch pension plans for 401(k) plans, though Korpi -- as other union officials -- argues that pensions give workers "more bang for their buck" given the recent volatility in the stock market. "Nearly half of all baby boomers are estimated to outlive their savings," Korpi says, adding that workers in pension plans don't have to worry about swings in the stock market since losses are amortized over 30 years.

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Workers in 18 states have filed suit to block plans to pare pension costs by increasing employee contributions, raising the retirement age or curbing cost-of-living increases, according to Bloomberg News. Pensions have not, however, reached the crisis point that some have claimed. The Pew Center on the States pegs the differences between what states owe and what they have set aside for retiree health benefits at $1 trillion. When local governments are included, that figure rises to as much as $3 trillion.

As the Center for Budget and Policy Priorities argues, the figure "calculates liabilities using what is known as the 'riskless rate,' because the pension obligations themselves are guaranteed and virtually riskless to the recipients. In contrast, standard analyses based on accepted state and local accounting rules, which calculate liabilities using the historical return on plans' assets, put the unfunded liability at about a quarter of that amount, a more manageable (although still troubling) $700 billion."

Faucher agrees that in the long run, the states need to address the problem, but it doesn't have to happen immediately. Nor can it be ignored for long, however. Struggling states such as California, Illinois and New York are behind in payments to vendors and beneficiaries. "As cash constraints have intensified, states have been forced to hoard cash for payroll and debt service payments to bondholders at the expense of local liquidity," according to Moody's.

Health Care Costs Remain a Sticking Point

According to the National Conference of State Legislatures (NCSL), states provide health care to about 7 million public employees and their dependents. Many state workers, however, pay next to nothing for their health care. In 2010, the average U.S. worker paid $4,000 for family coverage, an increase of 14% over 2009, according to the Kaiser Family Foundation. That's well above the $2,256 the NCSL estimated in 2009 that state workers pay in a survey.

A 2009 NCSL survey found that the average monthly premium for individuals on state plans was $474, of which the employee paid $38. Workers bore $188 of the $1,062 monthly coverage for families. It's no surprise that states are increasingly asking retirees to shoulder more of the costs for their health care.

And the costs are rising at an astronomical rate. Taxpayers in Wisconsin are expected to pay $1 billion toward premiums for state workers, up from $423 million in 2001. Walker, though has more options than taking away rights from workers such as restructuring the state debt, which would save him $165 million. The Badger State needs to plug a deficit of about $136 million.

It Takes Two

Making government workers pay additional money toward their health care seems to be a reasonable request by state governments. It's wrong, however, for state workers to be blamed for the irresponsible fiscal decisions of elected officials. It takes two parties to agree to a union contract.

Unfortunately for workers, the public is against them. A recent Gallup poll shows that support for unions remained at a historic low. The tough times for states and their employees are far from over.
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