Are Oregon public employees becoming a privileged class?

by Sen. Doug Whitsett

Last September, my office and the Senate Republican Caucus asked the Oregon Department of Administrative Services (DAS) and Legislative Fiscal Office (LFO) to determine both the average and median compensation for Oregon state employees. Completing the task appeared to be a great deal more labor intensive than we had anticipated.

The agencies were able to provide the requested information in early February. Last week, the Legislative Fiscal Office published their findings in its Budget Information Brief/2016-4.

Their Brief states that in 2015, the average compensation for state employees was just over $89,000. About $56,000 was paid in salary, and another $33,000 was paid in employee benefits such as retirement, medical insurance and other payroll expenses (OPE). The cost of the benefit package and OPE computes to nearly 60 percent of the average salary. Hourly compensation averaged just under $43/hour.

Public employees often protest that average compensation computations may be skewed by a few employees earning very high salaries. While in certain instances this argument may have merit, the LFO Brief reports 2015 median state employee costs at about $7,100 per month, or $85,152 per year. Median hourly compensation was just under $41/hour.

Even these hard to believe figures do not accurately encompass all of the public employee payroll costs. For instance, the costs of paid vacation, other paid leave and paid sick leave were not included in the report. Incredibly, state accounting methods apparently do not keep track of those very real, and significant, payroll expenses with enough accuracy to report the costs.

We understand that the average state employee receives about five weeks of combined sick leave, vacation and other paid leave each year. We assume that their absence from the workplace means their assigned work would either not be completed or performed by another state employee. We further assume the average employee will use or accrue all authorized leave.

Using LFO figures and those assumptions, the additional payroll expenses due to paid leave compute to about $8,600.

Including these very real costs, the average state employee may have actually made about $97,000 last year, or about $46.50 per hour.

Public employees who are represented by unions also enjoy significant job security. Separation of an established employee for cause is very difficult, and often expensive, for the public employer to accomplish. Even in the event that the job itself is discontinued, an employee with seniority is often able to replace another employee with less seniority in the workforce. While such job security certainly has significant value, it is difficult to accurately assess its payroll cost.

In comparison, according to figures provided by the Oregon Employment Department to the Statesman Journal newspaper, the average private sector employee earned $22.60 per hour in 2015, or about $47,000. The Department has no way of accurately estimating benefits paid to private sector employees, because those costs are not reported to the agency. However, I believe we can safely assume that private sector benefits and OPE rarely, if ever, approach 60 percent of average salary.

The discrepancy between public and private employee compensation is evident. It is also unsustainable.

A very high percentage of the revenue needed to pay public employees is derived from taxes, charges and fees paid by employers, their employees and other individuals within the private sector. Annual private sector labor cost inflation appears to be running less than four percent. Annual public sector labor cost inflation is running nearer to seven percent. The structural budget deficit is obvious.

Nevertheless, the current public employee labor contracts, negotiated by the Governor and unions representing the state’s government workers, appear to call for at least 30 percent in compensation increases over the next four years. That enormous increase likely does not fully encompass either the soaring cost of the Public Employee Retirement System (PERS) or the medical insurance provided to state employees through the Public Employment Benefit Board (PEBB). Neither does it include the impending compression costs of Oregon’s new minimum wage law.

On its current trajectory, I believe by the year 2020, Oregon state employee compensation could easily be averaging more than $130,000 per year, or nearly $11,000 a month!

The growing structural budget deficit is already enormous. The only way to pay the costs appears to be through significant tax increases. That is the apparent goal of Initiative Petition 28 (IP 28).

According to the Legislative Revenue Office, IP 28’s new two and one half percent tax on certain corporate gross sales will raise at least $5 billion per budget cycle. That amount of new revenue would increase Oregon’s General Fund by nearly 30 percent.

Although the new revenue would flow to the General Fund, the IP’s sponsors claim that they will be dedicating the new money for public early childhood and kindergarten through 12th grade education, healthcare and services for senior citizens. In my opinion, their rhetoric is simply disingenuous.

The sponsors know, or certainly should know, that General Fund revenue is completely fungible. The Legislative Assembly can and will spend that revenue for any purpose it deems necessary. Because Oregon must have a balanced budget, General Fund revenue must be used wherever budget shortfalls exist. Further, it is not legally possible to bind the actions of future Legislatures, short of a constitutional amendment.

Not surprisingly, the primary sponsor of IP 28 is Our Oregon, a 501 (c) (4) corporation formed primarily by the public employee unions of Oregon. By my calculations, the preponderance of the new revenue that would be raised through the passage of IP 28 will be needed to pay for the combined costs of already negotiated public employee labor contracts, the previously identified enormous increases in PERS employer contributions, the rapidly escalating PEBB medical insurance premiums, and minimum wage compression costs.

The public employee unions appear to be feathering their own nests. The great majority of the enormous cost will ultimately be borne by private sector businesses and their employees.

Senator Doug Whitsett is the Republican state senator representing Senate District 28 – Klamath Falls