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WeHo city workers paid 47-62% above market, but council says that’s not enough!

Robert Fellner Blog

The West Hollywood City Council formally abandoned even the pretense of representing taxpayers when it recently voted 4-1 to “add a student loan forgiveness program” to the list of benefits available to WeHo city employees.

In explaining her lone vote against the proposal, Councilmember Lauren Meister gave voice to reason, when she reportedly told WEHOville that:

“I don’t think we should be negotiating for the union… I think we should be looking out for our residents.”

Kudos to Ms. Meister for her willingness to put residents ahead of the city’s most powerful special-interest group.

In an excellent op-ed penned after the proposal was first announced, area resident Alan Strasburg questioned why the council felt the need to further inflate city workers’ compensation packages, which were already among the richest in the area.

Strasburg observed that the median earnings for WeHo city government workers were above those in comparable cities, while city executives earned some of the highest base salaries in the state — with the WeHo’s director of communications making more than her counterpart in the White House!

A review of compensation for other city employees reveals that the excess extends beyond just top executives.

Analysis

The Bureau of Labor Statistics reports average wage data by occupation and region, making it is possible to compare the compensation received by certain WeHo city workers to the market as a whole, not merely other governments.

The BLS wage data for the greater LA-area[1]had four occupations that matched perfectly with the job classifications of WeHo city workers: Accountants, Civil Engineers, HR Specialists, and HR Managers.

The chart below reflects the average wages[2]of these four occupations, for both the greater LA-area and for those employed by WeHo City Hall:

Average wages, WeHo vs market (2017)
 Job Title LA-Area WeHo City Hall WeHo above Market (%)
Civil Engineer $106,750 $123,352 16%
Accountant $82,670 $98,044 19%
HR Specialists $73,180 $93,540 28%
HR Manager $133,630 $171,034 28%

In addition to receiving wages that are significantly above the market average, West Hollywood city workers also receive benefits that are dramatically greater than what the average private-sector worker receives.

For example, while the average private-sector worker receives a combined 30 days worth of paid holiday, sick, vacation and personal leave annually[3],West Hollywood city workers receive 41.5 days of paid leave annually.[4]

Government workers also receive significantly greater levels of job security than private workers, which has previously estimated to be worth between 3-10% of wages. This analysis will omit that variable, which means the findings here understate the compensation premium received by WeHo city workers.

Employer-paid health benefits for WeHo city government workers are about 50 percent richer than what the average private-sector worker receives[5],while retirement benefits are many multiples greater, and can as much as 5 times richer than what a comparable private-sector worker receives.[6]

When wages, paid leave, and health and retirement benefits are all considered, the average compensation for the four WeHo city job classifications 62% above the market average:

Average value of total compensation package, WeHo vs market (2017)
Job Title    LA-Area    WeHo City HallWeHo above Market (%)
Civil Engineer$137,950$202,659                  47%
Accountant$108,874$164,362                  51%
HR Specialists$97,418$157,547                  62%
HR Manager$170,405$274,814                  61%
Job Title Wages Total Compensation Civil Engineer 16% 47% Accountant 19% 51% HR Manager 28% 61% HR Specialist 28% 62%

The below charts look at the breakdown of each compensation variable and total dollar amount of compensation by each job title:

Conclusion

Wages and benefits for WeHo city government workers are significantly above market levels. The City Council’s desire to further inflate that gap — at the expense of city residents who earn far less themselves — cannot be attributed to a legitimate public policy interest. Instead, it appears likely that the council is simply using other people’s money to curry favor with the government union or otherwise signal their progressive bona fides. 

Yet, there is little that is genuinely progressive about taking from those with less in order to give to those with more. 

One of the most compelling arguments for limiting the size and scope of government is the recognition that elected officials are actually  rewarded for furthering the inequity described above.

This is because the cost can be spread over many taxpayers — who might only have to pay an extra $100 or so in annual taxes — while the benefits are bestowed on a concentrated minority. 

It’s easy to see why the much smaller group — which receives compensation packages around 50% above market levels — would be much more politically invested than the much larger, dispersed group who may never even realize why their taxes are going up.

Add government unions to the mix, and you get a scenario exactly like what is playing out all across California today: lawmakers raising taxes on those earning less, just so they can further inflate government pay packages that are already well above market levels. 

[1]Specifically, the Los Angeles-Long Beach-Anaheim metropolitan area.

[2] Average wages reflect full-time, year-round workers.

[3] Bureau of Labor Statistics’ Employee Benefits Survey, March 2017

[4] Job classification, salary and compensation section of the West Hollywood website

[5] Ibid.

[6] The value of WeHo city workers’ retirement benefits were calculated using the method employed by the Congressional Budget Office, as explained here, and will thus differ slightly from the actual cost.

Inglewood police chief gets an extra $61,000 annually for taking a 2-week course

Robert Fellner Blog

Median earnings for Inglewood residents was around $30,000 last year. Those same residents are required to pay for a police chief’s $524,000 pay package, which includes an ongoing, $61,000 annual bonus for completing a two-week training course. 

Here are the opening and closing paragraphs from the Southern California News Group’s just-released story on this absurd perk:

Inglewood Police Chief Mark Fronterotta collected an extra $61,000 last year that was not authorized by the city’s charter, the City Council or his employment agreement, according to an investigation by the Southern California News Group.

…

“I don’t think there’s anyone who would believe there’s a substantive reason to pay someone $60,000 a year extra for a two-week course,” Fellner said. “All these wrinkles just amplify the fact that when a City Council wants to be generous with other people’s money, they’ll find a way.”

Be sure to read the full story here. 

Why is the media treating CalPERS with kid gloves?

Robert Fellner Blog

Yves Smith of the Naked Capitalism blog has presented irrefutable evidence that CalPERS CEO Marcie Frost submitted false information to the pension fund when applying for the job she now holds.

For example, despite only taking writing courses at Evergreen College for two semesters in 2010, Ms. Frost claimed (up through at least the end of 2016) to be actively enrolled in a dual degree program — a program which simply never existed, according to the college.

This is very similar to what happened with CalPERS CFO Charles Asubonten, who was recently fired for severely misrepresenting his work and earnings history.

When those reports first surfaced, CalPERS dismissed them as nothing more than as an attempted “character assassination,” according to the Los Angeles Times.

But when CalPERS own investigators confirmed what Yves had reported, the fund elected to terminate Asubonten’s employment. The fund never publicly explained its dramatic turnaround from blindly defending Asubonten, to moving to fire him.

Likewise, when Bloomberg asked CalPERS about the gross falsehoods and misrepresentations on Marcie Frost’s job application materials, CalPERS Board President Priya Mathur and Vice President Rob Feckner issued a statement declaring that:

The board’s confidence in Marcie Frost and her leadership is unwavering. These continued efforts to tear down Calpers and discredit Marcie and the broader leadership team at the system are nothing more than a spiteful attempt to attack retirees, beneficiaries and the promised benefits of public employees.

This actually reminds me of the culture I’ve observed at some small homeowners associations, where the board is comprised of people who don’t have a solid understanding of the issues they assumed responsibility for, and thus are reflexively and comically defensive when faced with any sort of criticism.

Mathur and Feckner’s claim that reporting on Ms. Frost’s misrepresentations is “a spiteful attempt to attack retirees” is obviously asinine and idiotic.

But their continued willingness to blindly defend those with a documented pattern of misrepresentation — the facts of which they don’t dispute! — suggests that the board’s primary factor in evaluating the fitness of an employee, or chief executive in this case, is their personal relationship with that person.

The relatively sparse coverage over this scandal is also a good example of how the media tends to be much more deferential to government agencies than private actors.

Imagine that California decided to outsource the role of CalPERS to a private business, say Koch Investments, just for the sake of argument.

This private firm is now managing nearly $400 billion in public monies to provide for the secure retirement of California’s nearly 1.9 million public workers and retirees.

Reports then surface that its CEO made demonstrably false statements in the job application process, before ultimately obtaining the position as head of the fund and the nearly $500,000 taxpayer-funded pay package that comes with it.

The media coverage would be relentless — and rightfully so.

Also, I can’t imagine any private firm being as arrogant and dismissive in response to these allegations as CalPERS has been. Remember, there is no dispute that the representations made by Ms. Frost to the recruiting firm were blatantly false, as discussed above.

Even if the owners of the private firm didn’t care about their CEO’s misrepresentations and were just as arrogant and dismissive as Mathur and Feckner are, their public response would at least pay lip service to the idea that it was a problem, with some PR statement about how they want to ensure all of their staff acts with the utmost integrity…etc.

CalPERS instead attacks the messenger and the intelligence of the public at large with its tried-and-true “those who report on serious ethical issues of our top executives are ATTACKING RETIREES!” nonsense.

That willingness to be so publically dismissive stems from the very different incentives facing public and private institutions. Namely, CalPERS knows it’s immune from accountability, as those tax dollars ain’t going anywhere.

While a private firm would fear losing their customers/contract, possible legal actions stemming from fiduciary violations, etc, CalPERS just needs to avoid a public outcry — which makes the media’s silence on this issue all the more troubling.

Ignoring risk hides pension costs from policymakers

Robert Fellner Blog , ,

A new rule currently being considered by the Actuarial Standards Board would finally require public pensions to meaningfully account for risk. In a commentary for the Voice of San Diego, I explain how this would benefit all stakeholders.

Future Taxpayers and Public Employees Are Paying for Past Pension Mistakes

As San Diego County sues its own pension fund for the right to slash benefits for new hires, and while taxpayer costs continue their ascent to record-high levels, understanding the true cause of the county’s pension crisis is more important than ever.

While some blame the stock market crash of 2008-09, the real culprit was an explosive growth in the size of promised pension benefits, and the flawed accounting practices that encouraged such recklessness.

Over the past 30 years, the accrued liabilities of the San Diego County pension fund, SDCERA, increased by nearly 1,300 percent — almost four times more than the growth in the county’s total personal income over that same time period.

The willingness to make such large pension promises stems from accounting practices that understate their cost by ignoring risk entirely.

Specifically, by treating assumed future stock market returns as certain — despite acknowledging their investments will underperform expectations roughly 50 percent of the time — SDCERA can “discount,” or minimize, the estimated cost associated with safely funded employees’ future pension benefits.

Of course, ignoring risk on your balance sheet doesn’t make it go away in the real world, which is why this approach is outlawed in the private sector and rejected by public pension plans in more than 100 countries worldwide, with U.S. state and local public pension plans being the only exception from that consensus.

This also reveals why blaming San Diego County’s soaring pension costs on the Great Recession is so misleading. The cost was created when the promises were made, as indicated by SDCERA’s nearly 1,300 percent increase in accrued liabilities, not when they were exposed by a market downturn.

But because defraying costs to future generations is so politically attractive, there has been little interest in reform, despite the urgings of those like Warren Buffet, Nobel Laureate William F. Sharpe and what seems like the entirety of the economics profession.

Thankfully, after years of fierce criticism by prominent actuaries worried about the harm that would befall their profession as a result of its continued silence, the Actuarial Standards Board proposed a new rule that would finally require pension plans to meaningfully account for risk.

While the proposal would simply require plans to disclose the level of risk associated with their funding strategy, government unions are nonetheless howling in displeasure at the idea, terrified at the consequences of making the full cost of their pensions known.

But this reflexive opposition to honest accounting is short-sighted and destructive. As the experience of San Diego County so aptly demonstrates, the damage caused by overpromising is often borne by government workers themselves, particularly future hires.

After having been lulled into a false sense of security by numbers that overstated the health of the fund while understating the cost of increasing benefits, the County Board of Supervisors in 2002 passed a 50 percent benefit enhancement for all county employees.

But when the inevitable market downturn hit — a certainty for any long-term investor like SDCERA — paying the full cost of the 2002 enhancement fell to today’s taxpayers and public employees, who never received any of the benefits they are now being required to pay for.

In addition to forcing both groups to pay more, while getting less, the county also repeatedly cut the benefits offered to new hires to get its soaring retirement costs under control.

After reducing the retirement benefits offered to new hires in 2009 and again in 2013, the county earlier this year approved a plan to cut new employees’ benefits to the lowest level allowable under law, which are worth roughly half as much as those received by pre-2009 employees.

The current lawsuit that has delayed the implementation of this new, bare-bones retirement plan focuses only on how and when that plan will be implemented, not if.

This makes clear that all groups — including government employees — are harmed by the status quo.

Had the Board of Supervisors been informed of the true cost of the excessive and unnecessary 2002 benefit enhancement — and the degree of risk associated with relying on stock market returns to pay for it — this whole mess could have been avoided.

Requiring public pension funds like SDCERA to meaningfully account for risk will make it much harder for policymakers to force future generations to pay for their past funding failures.

And that’s good news for everyone concerned with the fiscal health of the county and the fair treatment of all its citizens — taxpayers and public employees alike.

Robert Fellner is executive director of Transparent California. This commentary was first published by the Voice of San Diego.

DMV supervisor unaware that sleeping on the job for 4 years straight requires disciplinary action

Robert Fellner Blog ,

The most robust study ever conducted on the topic found that the average California state government worker earned 23 percent more in total compensation than their similarly skilled and educated private-sector counterpart.

That number rose to 33 percent above their private-sector counterpart, when the value of California state government workers’ legendary job security was included. But a recent report by the California State Auditor leaves one with the impression that the study vastly underestimated the true value of job security for government workers.

In February of 2014, a DMV employee was documented by her supervisors for sleeping at work. According to four separate witnesses, the employee continued to sleep at her desk for a minimum of three hours a day, for nearly 4 years straight.

The most mind-boggling part of this story is that there is no dispute that this employee was sleeping on the job, every day, for nearly 4 years.

In addition to the four witnesses, her daily sleeping was also documented by her supervisors in written, periodic performance evaluations, which the employee signed off on without disputing any of the factual allegations contained within.

When the state auditor got involved midway through 2017, the employee’s supervisor defended her failure to perform her core duty by claiming that “because she woke up the employee three to four times each day, she believed the employee missed only 20 to 30 minutes of work time daily.”

The auditor rejected the obvious falsehood that an employee who needed to be woken up “three to four times each day” somehow missed only 20 to 30 minutes of work.

The auditor instead found that the employee slept for at least 3 hours a day from February 2014 through December 2017 — a finding consistent with the statements provided by four separate witnesses and the fact that the employee’s work output was only 35 percent of the amount expected.

That 35 percent figure just reflects the number of reports the employee turned in, compared to what was expected. If we’re measuring productivity or value, it’s possible the employee was actually a net negative to the department, given what her colleagues and supervisors had to say about the few reports she did turn in:

Further, the employee’s evaluations mention that she made mistakes when entering data. In fact, during the investigation, a witness explained that the employee’s work was often so inaccurate that the witness would not trust the employee to accurately enter the witness’s own address or vehicle ownership change. Thus, the employee’s behavior may have prevented DMV from providing the public with an appropriate level of service.

So what was the final outcome? Despite sleeping on the job everyday and producing error-filled work for 4 years, the employee received no disciplinary action of any kind, and continues to collect her full salary and benefits.

What’s much worse, in my opinion, is the gross negligence of the supervisor. The DMV is a large employer. There will be some bad apples. Moreover, if an employee who is sleeping at their desk everyday receives no penalty of any kind, it’s not terribly surprising they never change their own behavior.

So what happened to the DMV supervisor who, by her own admission, did not take any disciplinary action against an employee that she needed to wake up three to four times a day, every day, for 4 years?

Nothing.

While the auditor recommended that the DMV take disciplinary action against the supervisors, the DMV countered that because they had no prior issues, they would instead only require that the supervisors undergo training to ensure they understand that employees who sleep on the job every day for four years should be disciplined, should such a situation arise in the future.

And that is why so many are critical of government. It’s not because this story is reflective of government employees generally — it’s not. The audit only occured because of the employee’s coworkers who blew the whistle.

The continually justified criticism of government, however, is that it is a grossly negligent and irresponsible steward of taxpayer dollars — something perfectly reflected in the DMV’s response to the auditor’s findings.

Marin County promised pension benefits up nearly 1000%, dwarfing rate of economic growth

Robert Fellner Blog ,

The total pension benefits promised by Marin County increased 982 percent from 1986-2016 — a rate 58 times greater than the cumulative increase in the county’s population, according to a just-released analysis from Transparent California.

Last week, Transparent California released Nearly 900% increase in CalPERS benefits dwarfs economic growth, taxpayers’ ability to pay, which analyzed the state pension fund.

Marin County, however, belongs to the Marin County Employees’ Retirement Association (MCERA), and is thus separate from CalPERS.

Applying the same methodology as used in the CalPERS analysis reveals that promised Marin County benefits grew even faster than CalPERS, as shown in the chart below:

MCPensionGrowth2

The below chart reflects the cumulative growth in Marin County’s promised pension benefits (accrued liabilities) alongside a variety of Marin County economic metrics:

Marin County Indicators Growth from 1986-2016
Promised Pension Benefits 982%
Personal Income 377%
Median Household Income 167%
Inflation 139%
Population 17%

Data sources:

  • Promised pension benefits reflects the growth in accrued liabilities for the County of Marin and related Special Districts, as reported by the Marin County Employees’ Retirement Association (MCERA).
  • Marin County personal income “is the income that is received by all persons from all sources,” calculated and reported by the U.S. Bureau of Economic Analysis.
  • Median Household Income data was provided by the U.S. Census Bureau. The Excel Trend function was used to fill in years in which data was unavailable.
  • Inflation is derived by calculating the growth in the Consumer Price Index for All Urban Consumers: All items in the San Francisco-Oakland-Hayward, CA region.
  • Population data was provided by the U.S. Census Bureau.

For more information, please contact Robert Fellner at 559-462-0122 or Robert@TransparentCalifornia.com.

Transparent California is California’s largest and most comprehensive database of public sector compensation and is a project of the Nevada Policy Research Institute, a nonpartisan, free-market think tank. The website is used by millions of Californians each year, including elected officials and lawmakers, government employees and their unions, government agencies themselves, university researchers, the media, and concerned citizens alike. Learn more at TransparentCalifornia.com.

Marin union votes to strike

Robert Fellner Blog ,

Despite the fact that local government workers in Marin County receive wages higher than local government workers in over 99 percent of counties nationwide — even after adjusting for regional cost differences among the 50 states — the largest government union in Marin has formally authorized a strike, according to the Marin Independent Journal.

The dispute centers over the size of pay raises that will be provided over the next 3 years, as well as other unknown conditions. The unknown conditions reflect the fact that state law shrouds government union negotiations in secrecy, ensuring the taxpayers responsible for paying the entire cost of the eventual contract are kept in the dark.

The Marin IJ also reported that a salary survey revealed that Marin County workers are paid, on average, 7.8 percent higher more than their government peers in the Bay Area.

And this is on top of non-wage benefits (like job security, number of paid leave days, retirement benefits and health insurance) that are all significantly greater than what the average private-sector worker receives.

It is an uncontroversial fact that one of the defining features of a monopoly is its ability to obtain excess wages/profits, at the expense of social welfare.

This is true even when the monopoly in question is a labor union.

Thus, a willingness to strike despite receiving pay and benefits that are already significantly above market levels — even when that market is restricted to only other Bay Area governments — is an entirely predictable, and even rational action from the perspective of the monopoly union.

Absent a change to the state laws that grant government unions coercive, monopolistic powers, it is likely that Californians will continue to see their taxes raised in order to fund the demands of government unions.