PERS and Public Employees: If you don't pay them, they will leave.

Those Darned State Bureaucrats!

An Up Close observation of public administration:  Either you pay your employees what the market demands, or you lose your best ones.

Underlying a lot of the talk about the talk about the public employee pension crisis, here in Oregon and nearly everywhere across the country, is frustration at public employees for having such expensive pension programs.  Their benefit costs are higher and more burdensome than voters expected, and higher than the various school boards and city counsels and state legislators anticipated when they negotiated salaries, health benefits, and pension plans.  How and why did this happen?

  

   1.  Decision makers over-estimated the plausible returns from the money invested in the pension plans.  They assumed that investment yields--painless to taxpayers--would pay most of the costs.  Instead, a great deal more would fall onto taxpayers.

   2.  Decision makers under-estimated health care costs, which have risen much faster than most other things.

   3.  Decision makers made the easier decision to give the promised benefit now and leave paying for it for later, either to later decision makers and future tax payers.  After all, the problem might go away, either because investment income surprises on the upside or because of some new unexpected piece of fiscal magic.   Hope spring eternal.

I am fully aware of a widespread sentiment among the voting public and, no doubt, many of this blog's readers.  It goes something like this:  "Those people have crazy-good benefits, with full health care and huge pensions.  They should give back some of it for the benefit of the taxpayers.   Plus, we should just get tough and pay them less.  If they don't like it, tough.  The taxpayers are hurting and the public employees have it way, way too good."

From a political messaging point of view, that sentiment is a winner.  A candidate for office from either party who voiced this would get lots of support.  It rings true to a great many people.  Republican candidates take that position.  Democrats would like to take it but generally cannot because they would lose support of the OEA, the SEIU, and other public employee unions.  The result is a political logjam, with Democrats feeling pressured by public employees, Republicans considering themselves the voice of frustrated taxpayers.  

I observed up close and at first hand what happens when elected officials decide they have no choice but to "get tough" on public employees.   It works out badly.

I was younger then.

I was elected Jackson County Commissioner in 1980, a young Democrat elected notwithstanding the Reagan landslide here locally.  President Carter and Fed Chairman Paul Volker had been raising interest rates to try to stop the cycle of cost-push inflation of some 10% a year in the 1970s.  As mortgage rates climbed to 10, then 12, then 14 percent housing starts slowed and stopped.  Lumber sales plummeted. Therefore, loggers stopped harvesting timber off federal lands, and proceeds from those sales were how county government was funded.  Jackson County income dissolved.   We had to go from approximately 1,050 employees down to 480 employees, in a year.

County Commissioners reacted exactly as we thought we needed to, both fiscally and politically.   Union leaders, letters to the editor, and public comment was all from one direction:  Cut management, not workers!  We cut management salaries.   We laid off managers at a disproportionately high rate.  We froze union salaries.  We cut the salaries of the commissioners more than another job.

My house confounded efforts to describe me as a rich guy getting fat at the public trough

Politically, that was necessary but not sufficient.   Union members carried recall petitions against me, and picketed my house saying we were taking care of the people at the top, not the bottom--a charge complicated by the fact that my house was very modest, an old 2 bedroom, one bath house needing maintenance, assessed at its fair market value of $43,000.  

But the real damage was to the administration of the county.  Cuts of management personnel were popular but destructive.   Management is a function that needs to happen, whether there are managers or not. We had salary compression, with managers making less than the people they supervised.  People in the unions refused to take promotions into those now-vacant management positions.  The positions were a cut in pay and they lacked protection against overtime and future layoffs. 

It makes sense in hindsight and seems obvious, but readers need to be reminded of a reality, especially when it flies so directly in the face of the political talk and mood.  Everyone  was saying, "cut managers and save the real people doing the real work" but in reality work needs to be organized and if manager are targeted for pay cuts or layoffs then there will be no managers to organize the work flow.  

A more permanent injury also happened.  When county managers and commissioners "got tough", as the public was demanding, and we cut and froze salaries.  At first nothing happened.  It appeared to have been good, realistic management, but it was not.  Beginning in about 4 months we noticed that we were finding open positions.  People were resigning to go elsewhere.  County commissioners primarily dealt with the top echelon of managers--department heads and one notch down--but in some departments and functions we dealt more directly further down into the chain of command.   Within six months the situation was obvious to us:  we were keeping our pretty-good people but losing our best people.   

I understand that a great many people devalue government work and figure "how hard can it be?" and figure that pretty good is more than good enough.  It is not.  In an actual work environment there are unofficial leaders and people with insight and know-how.  These are the people who others turn to when there is a hard question or special case or a problem that needs someone with special understanding of how a complicated system works.   It is the person at the airline counter who the other agent turns to when in frustration they ask how one cancels and re-bills the ticket when one changes seats in an upgrade, since their efforts kept coming back as rejected.   That experienced person does in 20 seconds what the prior agent was holding up the line attempting to figure out how to accomplish.   Does it matter?   Well, in that case it is a question of whether one makes a flight or not.  The pretty- good agent stalled the line; the better agent got it moving again.

 In a county context it is the appraiser in the Assessment Department who knows how to adjust the quality code so that the assessed value comes back down to equal the actual value of your house.  It is the land use planner who knows how to re-do the findings of fact after new information comes in so that a conditional use permit can be issued rather than sit for weeks unresolved while your builder sits helpless.  If it is your property that is over-appraised or your building project that is stalled then you care deeply about whether government works.   

Excellent article: Salem Statesman Journal

If one is a county commissioner, responsible for making sure that government works, one sees that the "easy simple solution" of "getting tough" on out of control personnel costs is a dangerous path.   You really, really do not want to lose your best employees, but your best employees have options.   If you don't pay them, you lose them.  And the system suffers.

Back in 1982 and 1983 we lost our best employees because they moved to other jurisdictions.  Now state and local governments are at risk of losing them to early retirement, because there is a threat that people who stay working will retire under rules that are less advantageous.   

The take-away conclusion I offer from my own observation:  There is a sentiment in the public that government leaders have a simple, effective solution to the cost of government personnel: get tough, cut salaries and benefits.   My own experience is that governments need to pay competitive rates and that people with skills and experience have market power, just as do employers.   The taxpayer has an interest and point of view and so does the employee.  

Keep that in mind the next time you are in line at the airline check-in counter, looking at the time pass, watching an inexperienced agent confused and frustrated because he or she cannot make the complicated system work to finish booking the person ahead of you in line.