Commentary - March 2008

We’re Tightening Our Belts What About the Government?

One of the hardest things a business owner or CEO has to do is cut back on payroll expenses in economic downturns.

by Lyle Brennan

This can mean telling employees they aren’t getting a year-end bonus, or that they’ll have to pay more for health insurance premiums. If things get bad enough, it can mean lowering wages or laying off employees. Nobody likes to be the bad guy who has to deliver this news, but it may be necessary in order for the company to survive and produce income for its employees, as well as its owners.

But wait – what if there was a way to keep everybody on the payroll, to give them all a guaranteed annual cost of living increase, and to give most of them an annual raise of 5 percent just for staying at their current rank during the year? Add to that a retirement package that pays them until they die, and even subsidizes their healthcare premiums long after they leave the company. No, it’s not Fairyland. It’s government employment and we’re all paying for it.

The difference between private sector companies and the government is that the government doesn’t have to worry about going out of business. Like “death and taxes,” the government will always be with us. In addition, special interest groups like the Nevada State Education Association (Teachers’ Union) and the Nevada State Employees Association have full-time lobbyists who spend every waking hour telling voters, legislators and media how underpaid and overworked government employees are.

Look what happened when Gov. Gibbons proposed cutting the budgets of state agencies by 4.5 percent in order to make up about half of the anticipated $542 million budget shortfall in 2008-2009. Were the agency heads ready to tighten their belts for the common good? Far from it. They almost universally complained that they didn’t know how they were going to survive on the meager amount they were currently getting, and if that amount were reduced, the entire state would go swirling down the drain.

Let’s look at a few statistics, provided by the state itself (the Department of Employment, Training and Rehabilitation – DETR). Nevada’s unemployment rate at the end of 2007 was 5.8 percent, the highest it’s been since April 2002. During 2007, the construction industry lost nearly 8,000 jobs (a 5.6 percent decrease), financial services jobs were down 2.2 percent and the temporary help sector declined 24.1 percent. The economy hasn’t rebounded since then, meaning the next batch of numbers will probably be equally dismal. However, during this same period, government jobs increased by 3.7 percent and education jobs were up 10.3 percent. While private companies were cutting back to save money, the government kept spending.

The DETR Web site also contains useful information on the average wages in various industries. For 2005, the most recent year that’s summarized there, the average annual wage for all industries was $38,760. Private sector jobs averaged $37,879, while government jobs paid an average of $45,497, about 20 percent more.

What about benefits? Have you ever tried to contact a government agency on a Monday “holiday” you were only dimly aware of, because everybody at your company was hard at work on that day? And, while the rest of us are sweating about whether Social Security will be around when we retire, public employees have opted out of that system and set up their own retirement plan financed by Nevada taxpayers.  

The Public Employees Retirement System (PERS), like Social Security, is facing a deficit that is now estimated at about $6 billion. However, to make sure that people who retire from government service are permanently taken care of, we taxpayers are on the hook to fund the system if it goes broke. Public retirees are also entitled to a healthcare subsidy, a fund that’s in the red to the tune of about $4 billion. Very few private companies today can afford to offer a guaranteed-payout retirement plan, and fewer still offer healthcare benefits for retirees. It’s just too expensive. However, it’s possible if you have a way to legally obligate somebody else (the taxpayers) to fund it.

It’s time for government agencies to face the fact that this fairy-tale ride they have been on needs to come to an end. Their budgets and benefits must get a hair-cut like everyone else. Refusing to cut back on budgets and benefits will only push the burden onto the taxpayers to fund the resulting deficit. I say enough! It won’t be easy, but it has to be done.

Lyle Brennan Publisher
COMMENTS? email: lyle@nbj.com