Furloughs Are Designed to Protect the Government Class

Right From the Start

You may remember Peggy Joseph, the woman who, in the aftermath of President Obama’s election in 2008, raved on television that Mr. Obama would now pay for her mortgage and her gasoline.  For many she became the face of entitlement.  But reality has demonstrated that Ms. Joseph was a convenient distraction from focusing on the real “face of entitlement” – the government class.

We have reached a point now where government now longer exists primarily to serve the needs of its citizens but rather it exists to serve the needs of government and those who are employed by government. – the government class.  Virtually every act of government falls into one or more of the following three categories:

• To increase the power of government over its citizens
• To increase the numbers of the government class
• To increase or protect the benefits of the government class

One of the latest scams employed by the government class is the use of the “work furlough.”   In order to meet budget constraints, the government class has resorted to using “furloughs” in lieu of work force reductions.  As a result, they reduce production by half again as much if they were to use actual workforce reductions.  Here’s how it works.  [The figures used here are for illustrative purposes since various government agencies faced varying degrees of budgetary shortfalls – please note that I use the term budgetary shortfalls because few if any actually experienced budget reductions, rather only reductions in growth of their budgets. However, the ratio of the cost of salaries to the cost of benefits is, on average, close to correct.)]

First, we need to understand the budgeting process.  It begins by applying what is known as the Continuing Service Level (CSL) formula which assumes that the agency will continue to produce the same functions performed in the previous budget cycle.  However the cost of performing those functions are grown by a complicated formula which includes growth in inflation, salaries, benefits and the growth of the function to meet the alleged growth in the number of elements to be served.  [I use the term “elements” advisedly because it can refer to people, animals or ecological factors.]  Let’s apply the concept to an illustrative example.

Department A has 100 managers and employees – that would make it one of the smaller government agencies.  By applying the CSL to the previous cycle’s budget, it is determined that the budget needs to grow by eight percent to meet the CSL requirements.  Because of revenue restraints, the legislature is only able to provide a four percent increase.  In the business world this would be viewed as a four percent increase while in the government world this is viewed as a four percent budget reduction – they wanted eight but they only got four therefore their budget was reduced by four.  No, I don’t understand the logic either but this is the government class and the rules, including the rules of logic, apparently do not apply to them.

Department A had a budget of $20 Million per year in the previous budget cycle – one half of that is for salaries and benefits and one-half for its programs.  The eight percent increase would have resulted in a budget of $21,600,000; however, the revenue restrictions only allowed a four percent increase to $20,800,000 – $10,400,000 for salaries and benefits for employees and $10,400,000 for its programs.  Salaries represent about two-thirds of that amount while benefits represent the remaining one-third.

But a funny thing happens on the way to the bank.  The employees of the department were represented by one of the public employee unions – the collective bargaining agreement required a 2.5% wage increase and 1.5% step increase (that is the increase you get by simply being on the payroll for each twelve months from your hire date) meaning that the salary expense increased by 4.0% – that’s an additional $432,000 per annum.  In addition, the cost of the public employees retirement system (PERS) increased from 16% of payroll to 21% of payroll to meet current and future unfunded liabilities – thus adding five percent or $540,000 per annum to salaries and benefits.  And the cost of healthcare increased from $1,000 per month to $1070 per month or $840 for each employee for the year -$84,000.  All together these represent an increase of $1,056,000 for salaries and benefits – an increase of 10.056%.   (Yes, I recognize that not all of the employees are part of the collective bargaining unit – there are managers – but history has shown that the union contracts drive the salaries and benefits for most employees whether bargained for or not.)

So the government class is faced with a problem.  They are $656,000 or 6.56% over their budget for salaries and benefits.  They must either reduce their employee expense by that amount or reduce their program (the other half of their budget) by that amount, or some combination of the two.  To reduce the employee expense, the government class will either have to reduce the number of employees or reduce the salaries, but the public employee unions seldom, if ever, agree to either.  And so thus the concept of “furloughs” begins.  This is a program that reduces the number of workdays an employee works but not the number of employees.

Assuming the employees average three weeks of vacation plus an additional ten government holidays, public employees works about forty-seven weeks or 235 days per year – a lot fewer for teachers.  A 6.56% reduction results in 15.5 “furlough” days.  But that will not achieve a 6.56% reduction in salary expenses because the costs of healthcare and PERS continues unabated.  In fact, a 6.56% reduction in workdays will result in only a 4.3% reduction.  In order to achieve a full 6.56% reduction in salaries and benefits using furloughs, the number or “furlough days” would have to be increase to 23 days or 9.84%.

The public, presumably the beneficiaries of the government class’ work, would receive 9.85% less production.  In contrast, if there was a 6.56% reduction in the workforce, there would only be a 6.56% reduction in production.  In a workforce reduction all of the salary expense is eliminated, all of the PERS cost is eliminated and all of the healthcare cost is eliminated.

In addition, a workforce reduction provides the opportunity to remove the least productive workers (except union workers who are protected by seniority).  In a furlough situation everyone is treated the same – the most productive workers must take the same number of furlough days as the least productive workers.

More importantly, a workforce reduction results in a permanent reduction in recurring expense while the “furlough” is temporary at best.  Oregon has been using the “furlough” artifice for a number of years now and the overwhelming number of citizens have never noticed the change in production – it might suggest a permanent workforce reduction is warranted.

But that is never going to happen because today’s government class – who make these decisions – continue to be guided by their three fundamental principles:

• To increase the power of government over its citizens
• To increase the numbers of the government class
• To increase or protect the benefits of the government class

The government class is the real face of entitlement – and they are making the decisions.