One Economist Predicts Taxpayer Revolt Over Public v. Private Sector Pay Differentials

Are Elk Grove public employee pensions in line with Elk Grove private employees?

Over the course of the last few years there has been a slow simmering controversy in California over CALPERS.

Aside from the multi-million dollar payoffs made to so-called middlemen facilitating financial transactions, there seems to be a perception cutting across political lines that the current CALPERS system is unsustainable and could hobble California and local governments for years to come. The states on-going budget problems have brought this issue to the fore.

While there are several groups in the state that have taken up this issue, most notably Pension Watch, the issue seemed to be confined to California. It seems the issue is now getting national attention in face of stagnant wages and continued unemployment.

According to an economist from the University of Michigan-Flint, public employees now make an average of 45% more than private sector employees.

According to a December report from the BLS, state and local government employers spent an average of $39.83 per hour worked ($26.24 for wages and $13.60 for benefits) for total employee compensation in September 2009. Total employer compensation costs for private industry workers averaged $27.49 per hour ($19.45 for wages and $8.05 for benefits). In other words, government employees make 45% more on average than private sector employees.

According to another BLS report, compensation for private industry workers has increased by 6.9% between December 2006 and December 2009, compared to a 9.8% increase for government workers (state and local) over the same period.

Ripe for local taxpayer revolt?

Closer to home, a review of the warrants presented for payment at the last city council meeting revealed the City of Elk Grove paid $177,521 to CALPERS for city employees. According to city finance manager Rebecca Craig, the city makes similar sized payments on a bi-weekly basis for the 260 full time equivalent employees on the city’s payroll.

Using some basic calculations, that amounts to approximately $4,550,000 annually or an average contribution of $17,500 per employee.

For comparisons sake, let’s take the average Elk Grove household income of about $80,000 and say they are enrolled in a 401k. Further, let’s assume the employer matches 50% for each dollar up to 6% and our average family contributes up to the 6%.

Under this scenario, the $80,000 income household would be getting about $2,400 in matching employee contributions, or about 14% of what the average Elk Grove city employee receives. Even if our typical Elk Grove household has a generous employer and gets an even match up to 6%, they would still be getting only $4,800, or about 28% in employer paid retirement funding compared to the average city employee.

Lest we forget, for our typical Elk Grove family to get either of the above amounts, the employee is compelled to make a matching contribution. Furthermore, 401k’s move at the whim of world markets and offers no guarantee while public pensions have an implied guarantee on the backs of taxpayers.

So as we move into the 2010 elections, city council members would be well served to consider the burdens of generous city pensions being placed on the backs of local taxpayers. After all, public employees are meant to serve the public, not the other way around.