CA public worker pay soars to unsustainable levels

December 19, 2012 - By admin

120px-One_Big_UnionDec. 19, 2012

By Wayne Lusvardi

Last week Bloomberg News reported that California has the highest paid state workers in the 12 largest states by population.  But that didn’t tell the entire story.

Sure, California has the highest paid public workers. But it also has the highest median income. Adjusting for median income levels, California still has one of the highest levels of public employee pay, as shown in Table A below.

But that doesn’t tell the bigger story about the huge submerged public pension iceberg approaching California.  It isn’t only pay levels, but benefit levels that are going to overwhelm California local government budgets.

Table A: Public Pay Levels by State as Percent of Median Income

State Median Income
(U.S. Census)
Average Public Pay (Bloomberg) Percent of Median Income
Ohio $48,071 $48,812 101.5%
Michigan $48,669 $49,022 100.7%
New York $59,951 $55,560 92.8%
California $61,317 $60,317 90.8%
Illinois $56,576 $51,387 90.8%
North Carolina $46,291 $41,878 90.5%
Pennsylvania $51,561 $39,868 77.2%
New Jersey $71,180 $54,064 76.0%
Florida $47,827 $34,481 72.1%
Texas $50,920 $35,442 69.6%
Georgia $49,736 $28,682 57.7%
Virginia $63,302 $36,004 56.9%

Let’s estimate the amount of investment that need to be set aside per public employee to generate just the underfunded portion of their future pensions. California has the highest unfunded pension liability per public employee of the twelve largest states.

Moreover, it would require providing a separate investment fund of about $453,980 at 5 percent annual interest for each public employee just to close the gap for the unfunded portion of their pension, as shown in Table B.

But once again, this needs to be adjusted by the average pay for each state to consider different standards of living.

Table B: Amount Needed to Fund Unmet Pension Liability by State

State Amount Needed to Fund Unmet Pension Liability@ 5% Rate of Return Per Employee
California $453,980
Ohio $434,380
New Jersey $348,920
Illinois $323,860
Pennsylvania $291,260
Virginia $249,300
Michigan $259,120
Florida $242,180
Georgia $218,800
North Carolina $209,740
New York $181,520
Texas $164,640

Accurate picture

Now, to get a more accurate picture, let’s divide Table B’s numbers by the average pay in each state. We do this in Table C. The key is Average Salary Years: that is, the total salary of that year dedicated to one thing.

Table C – Number of Salary Years Needed to Fund Unmet Pension Liability

State Number of Average Salary Years Needed to Fund Unmet Pension Per Public Employee
Ohio 8.9
Georgia 7.6
California 7.5
Pennsylvania 7.3
Florida 7.0
Virginia 6.9
New Jersey 6.5
Illinois 6.3
Michigan 5.3
North Carolina 5.0
Texas 4.6
New York 3.2

It would take 8.9 Average Salary Years in Ohio to fund the unmet pension liability, 7.6 years in Georgia and 7.5 years in California.

By contrast, it would only take 3.2 years in New York, 3.9 years in Virginia, and 4.6 years in Texas.

So, no matter how you cut it, California still has one of the highest levels of unmet pension liability.

Dangerous combination

California politicians and unions tend to pooh-pooh the large unmet pension liability in California by saying that California also is the wealthiest state and thus pays its public employees higher.  But even if we spread the estimated $516.3 billion of unmet pension liability over the 12,433,172 households in California, that would reflect a staggering added debt burden of $41,526 per household (without considering interest, which would make the sum about three times greater).

Bloomberg is right that California public employees are paid the highest wages. And unions can argue back that California also has the highest median income. But California has not only high average wages, even when adjusted for state median income, but it also has the highest pension levels even after adjusting for the higher average wages.

California has a dangerous combination of the highest pay levels and the highest unmet pension liability.  States such as Texas and New York have relatively high pay levels, but correspondingly much lower unmet pension funding gaps. Closing their pension gaps by lowering pension levels is more reachable.

Pay levels for public employees can’t be considered in isolation from benefit levels. Bloomberg.com has exposed that California public employees are living in high-income state. But it missed reporting on the state’s looming crisis of unsustainable pensions.

—————————————-

DETAILED TABLES

Detailed Table B: Amount Needed to Fund Unment Pension Liability by State

State Unfunded Pension Liability (Source: Pew Trust) Number of Public Employees (per U.S. Census in 2009) Unfunded Pension Liability Per Employee Unfunded Pension Liability Per Year Over 15 Years Per Employee Amount Needed to Fund Unmet Liability @ 5% Rate of Return Per Employee
California $516.306 billion 1,516,367 $340,489 $22,699 $453,980
Ohio $175.368 billion 538,288 $325,789 $21,719 $434,380
New Jersey $123.234 billion 470,902 $261,699 $17,446 $348,920
Illinois $138.794 billion 571,383 $242,909 $16,193 $323,860
Pennsylvania $118.165 billion 540,938 $218,445 $14,563 $291,260
Virginia $75.889 billion 405,852 $186,986 $12,465 $249,300
Michigan $77.848 billion 400,560 $194,347 $12,956 $259,120
Florida $148.116 billion 815,427 $181,643 $12,109 $242,180
Georgia $81.093 billion 494,144 $164,108 $10,940 $218,800
North Carolina $79.558 billion 505,749 $157,307 $10,487 $209,740
New York $156.572billion 1,150,047 $136,144 $9,076 $181,520
Texas $163.417 billion 1,323,369 $123,486 $8,232 $164,640

 

Detailed Table C: Unmet Pension Liability Adjusted for Pay Level by State

State Amount Needed to Fund Unmet Pension Liability Per Public Employee Average Pay Per Public Employee Number of Salary Years Needed to Fund Unmet Pension Per Public Employee
Ohio $434,380 $48,812 8.9
Georgia $218,800 $28,682 7.6
California $453,980 $60,317 7.5
Pennsylvania $291,260 $39,868 7.3
Florida $242,180 $34,481 7.0
Virginia $249,300 $36,004 6.9
New Jersey $348,920 $54,064 6.5
Illinois $323,860 $51,387 6.3
Michigan $259,120 $49,022 5.3
North Carolina $209,740 $41,878 5.0
Texas $164,640 $55,560 4.6
New York $181,520 $55,560 3.2

 

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Comments(25)
  1. SeeSaw says:

    The bulk of the funds that you show in the averages are in the hands of the CM’s, Dept. Heads, and middle managers. The rank and file, usually in the unions are on the bottom of the pile–yet the unions are those that the rest of you desparage. City Managers make more than the President of the United States, while the rank and file earn $50,000 or less–(I worked in a municipality for 40 years–was just crashing the $50,000 barrier at the time of my retirement.) A few years ago the CM in Upland, CA, population, 65,000 was earning $460,000+ in base salary; same applies in other nearby cities. The retired CM of another City, is getting a CalPERS retirement that goes to the CalPERS cap, plus an additional $100,000+ that was negotiated by him with the elected officials, adding that burden on the local taxpayers. His total retirement amount for that City, population 39,000 is $350,000+. The salaries of the people in these entities is what goes into making the averages for the rank and file. I hold no ill will against any of these high earners–just giving numbers for informational purposes. Maybe it will sink in someday–you are picking on the wrong people when you single out everyday, rank and file public workers and the unions. Instead of getting this “high pay” you show, they are getting layoffs and stagnant wages.

  2. Rex the Wonder Dog! says:

    SeeSaw says:
    The bulk of the funds that you show in the averages are in the hands of the CM’s, Dept.

    The levcels cited inthe charts are ALL MEDIAN so by the veyr definition they are NOT in the hands of the CM’s, Dept.”
    .

    The charts cite the “median” which is very accurate to show and compare levels where the few who get big $$ could throw the average off.

  3. BobA says:

    SeeSaw:

    Kudos to you for echoing an argument I made last week about public employees. In my mind, the best paid public workers should be those who put their lives on the line everyday, those who’s jobs are truly hazardous & dangerous to their health and those who’s jobs are critical to maintaining our cities, streets and infrastructure. Paper & pencil pushing kiss-asses and ass-wipes (managers, dept. heads, their go-fers, etc.) should be at the bottom of the compensation list.

    My issue with government salaries (and I suspect a great many others) is the higher ups in those professions (the administrators) that get the ginormous salaries and compensation for going to meetings, speaking at public events and so forth without doing anything of tangible or meaningful value to the tax payers.

    My grandmother used to say: “the workers grow, harvest and prepare the food to fill the bellies of privileged class and then have to wait for table scraps and leftovers to fill theirs.” That is essentially what’s wrong with they way government compensation works and why the rank & file will never be treated fairly.

  4. jimmydeeoc says:

    BobA…….

    and let’s analyze your middle paragraph a bit:

    “….the higher ups in those professions (the administrators) that get the ginormous salaries and compensation for going to meetings, speaking at public events and so forth…..”

    From my experience the same is true in the private sector….WITH ONE HUGE AND EXTREMELY IMPORTANT DIFFERENCE:

    In the private sector, when everything blows up, that “higher-up” is held accountable. More often than not, his/her a$$ is toast.

    …….while in the public sector…….

    I think we all know what goes on in the public sector.

  5. Douglas says:

    Not to be too picky, but in Table A: if the median income and average public pay are correct, it appears the percent of median should be 98.3, not 90.8.

    Which of these numbers is incorrect? And do we now need to check the math (and the data) in all the other tables?

  6. Douglas says:

    SeeSaw:The charts cite the “median” which is very accurate to show and compare levels where the few who get big $$ could throw the average off.

    Kind of like the “median” pension for those retiring in 2112, $3,000 a month. It’s only fair.

  7. BobA says:

    jimmydeeoc:

    Agreed. That’s what differentiates the private sector from the public sector. However, on the downside of that, in both cases the higher ups usually end getting promoted (the public sector) or gets a golden parachute (the private sector) and a chance to move on to some other unsuspecting company and screw it up also. I call it “failing upwards”.

    I know; because I’ve worked in the private sector all of my life and I’ve seen it again and again. And because my background is in engineering, I can name names of a few corporate officers in well known high-tech companies who I would hire to run a lemonade stand.

  8. BobA says:

    Douglas:

    When I graduated from college, I was told that the days of working for one company all your life and then retiring with a pension was a thing of the past. I took that advice to heart and a) never worked for one employer for more than a few years in the early part of my career and b) tended to my own retirement nest egg out of my own pocket.

    You’d be surprised at how much you can learn about money & investing and the amount you can accumulate when you take responsibility for your own future and not leave it up to others. That’s something I’ve encourage my own children to do and as many young people I have a chance to sit down and talk with

    I know, I know: most people don’t but that’s because up until recent years, they were, to a greater or lesser degree, discourage from doing so and left much of it up to their employer. But in these changing times, people can no longer afford to leave that up to their employers and I mean that with all sincerity.

    Companies come & go and people get hired and fired or laid off and there is no sure thing in life. Why leave your fate and future well being to luck or chance? Be the master of your own destiny.

  9. Rex the Wonder Dog! says:

    Douglas says:

    SeeSaw:The charts cite the “median” which is very accurate to show and compare levels where the few who get big $$ could throw the average off.

    Kind of like the “median” pension for those retiring in 2112, $3,000 a month. It’s only fair.

    No, they were using different numbers of years worked for the CALPERS pension numbers, including employees who only worked 5 years. If the years worked were consistent-which they are not- then, and only them would you be correct.

    I have had years of advanced statistics classes dougie, you wont fool me with your flim flam ;)

  10. SeeSaw says:

    Jimmy, no, you don’t know anything about the public sector or the people who make it up. I worked at a muni for 40 years and 8 mos. I saw several firings during that time–two dept. heads, a City Clerk, and a Building official among them.

    Bob, you remind me of the saying about the defendant who acts as his own lawyer–he has a fool for a client. I had a 457(b) at my job. I depended on the advisors for help in apportioning those investments. I have made and lost thousands along the way–at this time, being retired for five years, I am doing very well. If I had been left to my own resources, the balance in the account would be a lot less than it now is.

    It is really up to the individual to determine how they want to live their respective life, as far as where to seek work, for how long or short, and whether or not to commute, depending on family/child care needs. I took a part-time job in 1968 at the pay-rate of $1.85 hr. to help my family’s finances. It did not matter to me what job sector it was in. I stayed at that employer when I was made full-time, 11 years later, because it was in my area and I did not want to commute from more than five minutes away. My spouse was in construction and spent a day, every day, “working” in addition to the job that paid his wages.

  11. Ted Steele DD says:

    LOL– the Poodle never actually got her GED!

    That’s why, she remains…

    0 for 14 ™!

  12. SeeSaw says:

    No, Rex, the average $3065/mo is for all CalPERS workers who retired at the conclusion of the 2010-2011 Fiscal Year. You will probably not see anybody in that group with five years service credit–if you do, you can bet your boots that they are not getting anywhere near $3065/mo–more like $365.

  13. BobA says:

    Come on Ted, lay off SeeSaw. A degree may make you smart but it doesn’t make you wise. Life is and education that bestows wisdom. Something a piece of paper can never do.

    What she has to say has merit and deserves to be taken seriously no matter if you, I or anyone else agree or disagree with her opinion. She has earned that right and it must be respected and not superciliously ridiculed.

  14. BobA says:

    SeeSaw:

    I beg to differ. I retired 4 years ago ate age 52. I learned how play the stock market in the 80s and have been doing so since then. I was also the recipient of many stock options from my last employer and made a killing in the stock market during the dot.com boom. I also saw the 2008 financial meltdown coming and cashed out in late August that year and retire just before the “fit hit the shan.”

    At the time, I rolled my 401K savings into my IRA account and got whacked just like everyone else during the meltdown to the turn of almost $280k but my IRA account is a self directed account and I have since then made that back and then some via my own investment strategies. My retirement saving are substantial and secure.

    I am no amateur when it comes to investing and I make a pretty good living from investment income. My investment strategies is just as good if not better than most stock brokers. I invest only in things I understand and that’s technology and tech companies.

    However, I did making a bundle buying a few financial stocks during the market low in 2009 and unloading all of it this past summer. The capital gains tax is due to increase next year so it’s betting to take the gains this years at the current 15% long term capital gains tax rate. The only stocks I own now are those that pay quarterly dividends.

  15. SeeSaw says:

    Congrats that you are a successful investor. I do not earn a living as such. I had the 457(b) which was a retirement supplement made available by my employer–and it feeds us in retirement. The bulk of my pension goes to pay for medical insurance premiums.

  16. Rex the Wonder Dog! says:

    Teddy, my GED is mor ethna your 3rd grade education any day of the week!!!!!!!!!!

  17. BobA says:

    SeeSaw:

    Trust me, I lost a lot of money in the learning process but as the saying goes, what ever doesn’t kill you only makes you stronger.

    I’m a fiercely independent person and I don’t relying on anyone for anything.
    Now you understand why I’m opposed to big government and the government doing for people what the people should do for themselves.

    An addiction to government largess is worse than an addiction to crack or heroin in my humble opinion. Crack and heroin is a chance that you can always “un-choose”. Addiction to government largess renders you hopelessly dependent on it for life. It is no less than economic slavery.

  18. The Modified Ted Steele Methodologies (tm) says:

    BobA—- LOL—- Thanks for the authorized financial autobiography! It’s dreamy….mmmmmmmmmmmmm.

  19. SeeSaw says:

    Tell that to the 26,000,000 American workers who lost their jobs during the Bush years, Bob. Be careful–what goes around will come around, in the end.
    There were many millionaires who lost everything in the recent past.

    (I hate to break it to you, but you evidently need to understand–there are 300 million inhabitants in the USA, and it requires big government to provide services for them. Quality of life is an issue for some people. Why do you think people in places like Haiti have such miserable existences! It sure isn’t because they are getting government services!)

  20. Juan kopingj says:

    Maybe somebody already pointed this out? Median private FAMILY income is compared to median INDIVIDUAL government employee income.

  21. BobA says:

    You’re welcome Ted. Want to see the patches of my hide I had to sacrifice to get to this point? No risk, no reward. Besides, I never took a dime from anyone to play the stock market.

  22. The Modified Ted Steele Methodologies (tm) says:

    lol uh huh.

  23. Rex the Wonder Dog! says:

    Teddy takes all his dimes from the poor and middle class thru regressive sales taxes……

  24. The Modified Ted Steele Methodologies (tm) says:

    and this from ZERO the Poodle ™

    0 for 14 ™!

  25. BobA says:

    Rex:

    Teddy is obsessed with dogs and like a dog, he’ll take whatever handouts he can get from the government regardless of who they took it from. He licks the hand that feeds him and will bite anyone who threatens the hand that feeds him.

    Hey Teddy, sniff and lick that!!

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