Personnel Costs

There are a few core situations that drive me nuts.
First, it appears that every single Democrat attended a “new-speak”
training session that permanently eliminated the words “tax increase” in
favor of “revenue enhancement”.   And, by golly, it works.   They get so
many people saying to themselves, “Yes, we just need to enhance revenue
to get out of this mess.
Second, isn’t it ironic that the biggest expense of State
operations—-employees’ pay and benefits—is the last thing mentioned
with respect to cost-cutting, because . .
A very high percentage of State employees are unionized, meaning that
there are union contracts guaranteeing cost-of-living pay increases,
change-in-grade pay increases, merit review pay increases, health
insurance, vision insurance, dental insurance, generous sick leave,
generous vacation accruals, 14 or 15 paid holidays, and that wonderful
defined benefit pension plan.

When all of those expense items are virtually untouchable, yes, it will
be painful to accomplish “expense diminution” —oops, I mean
cost-cutting—in other areas.

 Pension plans in particular:   The issue is not really keeping the plans
currently funded.  The more important issue is getting rid of the plans
entirely, just as most private companies have done.  The simple reason:
defined benefit plans are too expensive and too inflexible in bad times;
the promises just keep piling up, regardless of “revenue”.   Private
industry has decided that defined benefit plans are too rich a benefit,
and employees have accepted 401k plans with modest company contributions

 Government employees participating in defined benefit plans would have
their (diminished) future benefits determined as of the date of
termination of the plans.   Except for underfunded plans, contributions
by city/county/state governments would cease.  Instead, the governments
would contribute an amount equal to a fixed percentage of pay to defined
contributions plans such as 401k plans.   There would be no irrevocable
promise to contribute that percentage of pay.  In tough times,
governments might need to suspend their contributions.  Welcome to the
real world!

 It is simply totally unaffordable to make irrevocable promises to vast
numbers of employees that we will provide pension benefits for the rest
of their lives, ESPECIALLY when every government employee union wants
the same thing public safety employees have:   retirement at age 50 with
up to 90% pay for life . . . and then you claim disability and get the
money tax-free.

Let’s stop the gravy train, please.

 Robert H. Andrews

Jordan & Andrews, Consultants and Actuaries

Phone:  (707) 545-1001

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