Doug Whitsett: Public Employee Compensation — The Problem that Will Not Go Away

By Doug Whitsett 

Note from the author: Oregon’s state government budgets have been in disarray for nearly two decades. Many of the causes seemed evident to me following my first legislative session. The following opinion was part of my 2005 “end of session” newsletter.

Anybody that has had the chance to discuss Oregon politics with me for longer than five minutes has probably heard me discuss the crisis that Oregon is facing in terms of the unsustainable rate of public employee compensation. It is NOT a myth dreamt up by some conservative right-wing Republican. The crisis is very real. If we do not act to reverse it, we are in serious trouble.

I wanted to take a few minutes, at the end of a legislative session where this impending crisis was intentionally ignored, to share some thoughts on the issue. It is my hope to create some momentum to deal with the problem in the future.

The simple fact is that Oregon has a structural budget problem. It is very much like a family who has over extended their credit. Many families have experienced the financial and social distress caused by over extending their credit to the point that their earnings may not be able to pay the principle and interest on their debt. It is always much easier to purchase services or products on credit than it is to pay as you go. However, unexpected expenses, or the loss of a job, results in immediate catastrophic financial consequences.

The state of Oregon is currently in that situation. Over time our State has made promises in contracts that incurred huge future debt. The greatest of these promises include public employee retirement benefits and long term commitments to provide medical insurance premium benefits to public employees. No means have been established to adequately fund these debts. Most knowledgeable legislators understand the predicament, but find it politically inexpedient to address the problem.

Public employees generally receive much better employee compensation than their peers in the private sector. In fact, a recent white paper funded by the Oregon Employment Department promotes expansion of state employment as an “economic development plan”. The paper oxymoronically reasons that creating more state jobs would create economic development because state employees are so much better paid than private sector employees. This paper explains that expansion of public employment would infuse more cash and more buying power into recipient communities. The paper did not address a sustainable means to fund these additional highly paid state jobs.

Nevertheless, public employees are receiving new contracts with biennial pay increases from 8 to 18%, maintaining fully funded health care premium benefits, retaining unfunded retirement benefits, and retaining paid workplace, sick leave, and vacation benefits. This Legislature has not even attempted to address any of these issues that could be described by the following equation:

Unsustainable salary/productivity costs + Unsustainable retirement benefit costs + Unsustainable health care benefit costs +Unsustainable paid leave benefits = Unsustainable administrative costs

This Legislative Assembly has further failed to enact any legislation that would improve employee accountability and productivity or create any sanctions for poor choices or sloth. Sadly, it hasn’t even been content to maintain the unsustainable status quo.

Instead, our Democrat controlled Senate passed measures on virtual “party line” votes that would authorize public employee unions to organize unrepresented employees without a secret ballot vote, and incredibly, that would eliminate the requirement that public employee contracts be in the “best interest” of the people of Oregon.

Thankfully, these public employee union promoted measures were stopped in the Republican controlled House.  

Note from the editor: What follows is additional thoughts from the author, which were written addressing the PERS deficits being faced in 2017.

During the ensuing dozen years, the legislative majority has steadfastly refused to address, or even acknowledge most of these problems. Worse, at the request of public employee unions it has taken actions and enacted legislation that have virtually ensured the current fiscal crisis.

It has enacted the “card check” law allowing union formation without a secret ballot vote and passed legislation authorizing state compensation contracts that are not in the best interest of the public. It even authorized “only for the benefit of collective bargaining” state employees to avoid the constitutional cap on the number of public employees the state may hire.

The Legislative Assembly has continued to budget for double digit biennial salary increases and expanded employee paid vacation, paid sick leave and paid personal leave. The unfunded public employee retirement debt has been allowed to continue to spiral out of control. No effective means has been identified to control the escalating costs of public employee health insurance.

According to data from the Department of Administrative Services and our Legislative Fiscal Office, the mean compensation for Oregon state employees now exceeds $80,000 per year. Even that bloated figure does not include the cost of paid leave. Incredibly, the state neither calculates those costs nor includes them in their employee cost ledgers.

Meanwhile, our Democrat Governors and legislative majorities appear to remain in abject denial. Those Governors have continually asked for more state employees and the legislative majorities have complied by authorizing the positions and the funding to pay them.

All these factors have strongly influenced our alleged nearly $2 billion budget shortfall. An astute citizen might ask how it is possible to have a budget deficit when the state is predicted to have as much as $1.7 billion more to spend than ever before in its history.

The obvious answer is we can’t.

The evident cause of the problem is sustained out of control spending. Nevertheless, Governor Kate Brown’s suggested budgets propose to continue the spending binge. She asks the Legislative Assembly to authorize more than $3 billion more spending than ever before in the history of our state.

Just her proposed increase equates to about $3,000 for each Oregon family of four. How many Oregon families have the option to increase their spending $3,000 for the coming biennium?