Are MoCo Public Employees Overpaid?

Yesterday, the Post reported on growing disagreements between Montgomery County leaders over compensation paid to county employees. Labor costs account for 80% of the county’s $4.3 billion budget and the county is facing a $297 million deficit. As a result, some county officials are scrutinizing employee contracts.

Council Member Phil Andrews told the Post that the county’s collective bargaining agreements were “unsustainable, unnecessary and unrelated to real-world economic conditions,” and said they should be rejected. Council Member Duchy Trachtenberg wants to know exactly what the county’s future obligations are under the contracts so the council can figure out how to pay for them. And the Post reported this tense exchange between Council President Mike Knapp and County Executive Ike Leggett:

Council President Michael Knapp (D-Upcounty) said Leggett's approval of the contracts appears to run counter to his message about the need to slow down spending.

“One would have thought that a more conservative approach would have been taken,” Knapp said. “It looks like we're trying to play both sides. Do we have bad economic times, or do we need to have generous increases in our contracts?”

In a prepared statement, Leggett called the contracts “consistent with agreements throughout the region” and said Knapp does not fully understand collective bargaining. Leggett said he has limited flexibility because of past decisions by the council and the school system and because of the possibility of binding arbitration in the event of an impasse. He cited the council's approval in 2006 of a $13 million enhancement to pensions for school system employees.

“I believe the Council President voted in favor of additional pension enhancements and every collective bargaining agreement that has ever been placed before him, thereby establishing less than favorable conditions in which future executives must negotiate,” he said in the statement.

So are Montgomery County’s public employees overpaid? Let’s examine a range of issues connected to their compensation.

Wages
The Post points out that many wage increases in the county’s contracts are actually intended to catch up to higher pay levels in other jurisdictions. As an example, the Post looks at fire fighters:

John Sparks, president of the Montgomery County Career Fire Fighters Association, said the county is playing catch-up for its 1,050 firefighters and paramedics. Rookie firefighters are paid $39,997, compared with $44,301 in the District, $40,784 in Prince George's County and $47,472 in Fairfax County. Among jurisdictions such as Montgomery with more than 500,000 people, the average salary nationally is $44,275 for starting firefighters.

Consider the county’s teachers. The Washington Area Boards of Education (WABE) estimates the total compensation cost of a teacher paid $60,000 in salary in nine of the metro area’s jurisdictions. Montgomery compensates such a teacher $81,792, above only Prince George’s County ($78,720). Montgomery trails Arlington County, the leader, by 7.1%.

WABE also reports the starting salary of a step 1 teacher with a bachelors degree in Montgomery as $44,200. The average sale price of an existing townhouse in the county was $364,000 a year ago. A simple analysis with a mortgage calculator and a spreadsheet generates some interesting revelations. If this starting teacher put down 10% of the townhouse’s value, took out a 30-year mortgage at a 6% fixed rate and paid $2,500 per year in property taxes, he or she would owe 59% of pre-tax salary per month to make the payments. A step 9 teacher with a masters degree makes $64,498 and would owe 40% of his or her pretax monthly salary for the mortgage and property tax payments on the same townhouse.

How can this be considered excessive pay?

You can view a breakdown of county salary schedules here.

Pensions
Government jobs used to be known for having modest salaries but great retirement benefits. This is not the case in Montgomery County. Since 1994, the county’s Employees’ Retirement System, its defined benefit plan, has been closed to new employees other than public safety workers. Currently only 5,294 of the county’s workers have county-funded defined benefit pensions. The county’s 11,486 teachers are covered by Maryland’s State Retirement and Pension System. This means that half of the county’s total workforce of 38,000 must rely only on a defined contribution pension plan for retirement. Most of Montgomery’s neighbors continue to grant their employees defined benefits.

Health Care
The county is projecting payments of $80.7 million for group health insurance premiums for its workforce next year (and that does not include school employees). It also projects $2.6 billion in future liabilities for retiree health benefits and is phasing in annual contributions towards those liabilities which will rise to $259 million after the next five years. Montgomery is not the only county facing a large liability for retiree health care: Howard reports a $477 million liability, Anne Arundel reports a $1.3 billion liability and Prince George’s reports a $2.7 billion liability. None of them approach Los Angeles County, California, which will have to deal with a $20 billion liability. This is clearly a lot of money so why not cut health coverage for county employees?

There are two problems with that. First, county employees already pay 20% of their health costs. Raising that percentage would be effectively a wage cut. Second, cutting health benefits will not decrease illness among public employees. They will continue to seek care in local hospitals. And in Maryland, state law provides that hospitals are reimbursed for their cost of uncompensated care (which totaled $734 million in 2006). Where does this money come from? About 90% is covered by allowing hospitals to charge higher rates that are determined partially by their uncompensated care experience. The remaining 10% comes from an assessment imposed on hospitals equaling 0.75% of their net patient revenues. Virtually all of this money comes back to taxpayers because government entities (like Medicare and Medicaid), premium-charging insurance companies and patients wind up ultimately paying the higher rates charged by the hospitals. In the end, if county employees get less health coverage, we will all pay for their health costs anyway. The only difference is that, with less coverage, county employees would be less likely to seek preventative care and more likely to use emergency rooms, thus driving up health care costs for everyone.

Recruitment and Retention
Consider the view of a talented prospective job applicant pondering whether to accept employment with the Montgomery County government. Unless that applicant is seeking a public safety or teacher job, he or she will not get a defined benefit pension. Unless the person is qualified for a top management job, he or she will be unlikely to afford a home in the county without assistance. He or she will be able to make more money in the District, Arlington County, Fairfax County or perhaps even Prince George’s County. For this applicant to commit to Montgomery, he or she will have to believe that Montgomery will one day pay at least as much as its neighbors and the applicant will someday be able to afford in-county housing. Otherwise, it makes little financial sense to work for Montgomery County and the best applicants will go elsewhere.

Competitiveness
Finally, an important part of the economic bedrock of Montgomery County is its superior level of government services – especially its public schools. When the county invests in its schools, it provides a powerful reason for businesses and residents to want to live here and create jobs here. Without top-grade public services, we will increasingly be seen as merely a high-cost jurisdiction in the metropolitan Washington area – and what happens to our economic competitiveness then?

It’s in the best interest of county taxpayers to attract and retain the best public employees to work for them. We do have to figure out how to pay for them. But spreading the mythology that county employees are overpaid will not get us there.