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Regarding Government Executive Pay, Cities Could Become Role Models
By Dan Gougherty
Since
the start of the recession and the ongoing state budget problems,
there seems to be a small but growing number of people expressing
disgust with the compensation packages government executives are
receiving.
To me, the fascinating aspect of this is that it seems criticism is coming from
across the political spectrum.
An example of this was on display recently when the UC regents announced the
32 percent tuition hike. On several video clips, angry students rightfully questioned
regents about the excessive pay of university executives.
There has also been much written about the explosive growth of CALPERS pension
liabilities and what some government executives receive in retirement. I will
not argue with providing government employees a reasonable pension — this
is only fair for those have provided years of service to the government.
The problem really comes into focus when those executives who draw six figure
salaries receive up to 90 percent of their final pay in retirement for life.
If you want to see some examples, peruse the Web sites Pension Tsunami or The
California Foundation for Fiscal Responsibility to get a good taste of the problem.
These schemes remind me of what Roger Smith, former CEO of General Motors and
the Roger in Michael Moore’s “Roger and Me,” said of his company
over 20 years ago: “GM is a health insurance company that happens to manufactures
cars.”
We all know how GM fared.
Likewise, if executive pay and their accompanying platinum pension plans continue
unabated, taxpayers could be paying an unhealthy amount of their hard-earned
dollars just to support these executives at the expense of providing vital public
services such as law enforcement.
Before I hear the inevitable choir of complaints from soon-to-be or current pensioners,
we also need to be reminded that most private sector employees are not covered
by a defined pension plan. Indeed, one source, Global Economic Analysis, notes
that nationally, 80 percent of public sector employees are covered by pensions
while only 18 percent of private sector employees have pensions.
For local and state government, it has been said that pension benefits are like
a lobster trap — once you get in, you can’t get out. Last spring,
the City of Vallejo found itself in such a trap as it was forced to file for
bankruptcy. The culprit was the burgeoning city pension obligations.
Like Vallejo, scores of California cities are looking down the barrel of a loaded
pension gun. San Diego alone is reportedly looking at a $2.7 billion pension
shortfall.
As all California cities work through several fiscally difficult years, it will
be worth watching how cities handle the crisis as they, unlike the federal or
state government, must balance their budgets. Likewise, because they are not
a big as, say the state government, they can react quicker to changing economic
situations.
One gauge to watch is how cities handle recruitment of city executives. By the
virtue of their size, cities can initiate a pro-taxpayer, fiscally responsible
government agenda that would put them at the leading edge of taxpayer accountability.
Here are just a couple ways city governments could set new fiscal standards:
(1). Until the current fiscal problems of the city are resolved, leave as many
high-paid positions unfilled as possible, or at least until the next fiscal year.
I realize the demands on government don’t move entirely lockstep with economic
cycles. On the contrary, it could be argued that on an aggregate they may actually
increase.
Nonetheless, executive vacancies can provide cities an opportunity to redirect
funds. Perhaps this money could be used to help fund pressured public transit
systems which, even in the best of times, are heavily subsidized.
(2). If the city has a position that just cannot go unfilled, look at the current
pay structure. Can the pay scale be dropped?
It is no secret that California’s unemployment rate is above 12 percent.
There is a huge pool of highly qualified people. It is an employer’s market.
If you must fill the position, remember you hold the leverage. Send the message
to taxpayers that you are trying to make government more cost effective.
And don’t even try the argument about having to offer the same or higher
compensation because of competitive labor markets. If you do, you’ll look
like AIG or any of the other investment banks who are paying executive bonuses
on the backs of taxpayers who bailed them out with TARP funds.
Obviously these solutions alone will not solve the myriad fiscal problems local
governments face, and they could be characterized as simplistic. However, sometimes
simple solutions can be the building blocks to solving more complex problems.
And who knows, if cities can be fiscally wiser and raise standards, it could
raise taxpayer expectations and put pressure on the state to get its act together.
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