Marin union votes to strike

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.

Despite wages that rank in the top 1% nationwide, Marin union considers striking

The average wage for Marin County local government workers is richer than what their peers in 99.8 percent of counties nationwide receive, according to new wage data released from the federal Bureau of Labor Statistics (BLS) last week.

In 2017, local government workers in Marin County received an average annual wage of $76,138 — which ranked 6th out of the 2,867 counties surveyed nationwide, and was 53 percent higher than the $49,712 received by local government workers nationally.

Remarkably, even after accounting for regional cost differences among the 50 states, Marin County local government workers’ average wage still ranked firmly within the top 1 percent of counties nationwide, placing 8th out of the 2,867 counties surveyed.

Accounting for regional cost differences was achieved by adjusting the nominal wages received by each state’s 2016 Regional Price Parity, as calculated and reported by the Bureau of Economic Analysis.

For example, Marin County’s average was of $76,138 was reduced to $66,554 to account for average prices in California that were 14.4 percent above the national average, according to the BEA.

As indicated above, after a similar adjustment was made for all 2,867 counties nationwide, Marin County’s RPP-adjusted average wage for local government workers ranked 8th highest nationwide.

Government wages as % of private

In addition to outranking their local government peers in over 99 percent of counties nationwide, Marin County local government workers’ wages were significantly above average when measured against private-sector earnings.

Nationwide, average local government wages were 10 percent below private-sector workers. In Marin County, however, local government received an average wage that was 13 percent above what Marin County private-sector workers earned:

GovtvsPrivateNat.png

Similarly, while Marin County private-sector wages were 6 percent above private-sector wages nationally, Marin County local government workers’ wages were 34 percent higher than local government wages nationally:

GovtvsPrivateNat2

Why government pay matters

Because employee compensation is by far the single largest category of government expenditures — accounting for nearly 70 percent of Marin County’s general fund budget — it is critical that taxpayers have complete and accurate information regarding the government pay packages that they are required to fund.

While the BLS data reflects all local government workers in Marin County and not just those employed by the County of Marin, it is nonetheless a strong indication that county wages are already at very competitive levels.

This is particularly true given the average $86,629 wage[1] received by County of Marin employees — excluding police and fire officers — was significantly above the $76,138 reported by the BLS for all local government workers in Marin County.

Beyond Wages

In addition to wages, compensation for Marin County employees includes employer-paid health and retirement benefits, paid leave, job security and retiree health benefits.

Because the terms of benefits vary by collective bargaining group, this analysis will focus solely on the Marin Association of Public Employees (MAPE) General Bargaining Unit, sometimes referred to as “rank-and-file” workers.

In addition to being Marin County’s largest bargaining group, an assessment of these workers overall compensation is particularly relevant given the union has called for a strike vote over allegedly insufficient pay.

Like all government workers, Marin County employees receive significantly greater levels of job security than their private-sector counterparts. Academic research has estimated the job security premium for California local government workers to be worth between 5 and 15 percent of wages.[2]

Marin County government workers also receive significantly richer amounts of all non-wage benefits than the average private-sector worker[3], as shown below:

Type of Compensation

Average Private Sector

Marin County Government

Marin County Government vs Private

Employer-Paid Retirement, as a Percent of Wages

5%

22%

+320%

Employer-Paid Share of Employee Medical Premium

$5,310

$12,011

+126%

Employer-Paid Share of Family Medical Premium

$12,840

$18,843

+47%

Paid Holidays

7

14

+100%

Annual Paid Sick Leave for 10+ year employees

8

12

+50%

Annual Paid Vacation Leave for 10-20 year employees

17

20

+18%

Annual Paid Vacation Leave for 20-30 year employees

20

25

+25%

The cause

Such outsized pay packages for California’s local government workers — and the burden they impose on the taxpayers who, on average, earn much less themselves — are the inevitable result of the state’s mandatory collective bargaining laws.

Because California state law forces local governments to bargain with a single government union, the union is able to wield this monopoly power to push labor costs well above market prices — a cost that is then passed on to captive taxpayers.

Adding insult to injury is the fact that these negotiations are done entirely in secret — ensuring that the taxpaying public is shut out of the process entirely.

Unsurprisingly, this arrangement has resulted in about $10 to $20 billion annually in added costs to California taxpayers, according to the most comprehensive study ever conducted on this issue by scholars at the Heritage Foundation.[4]

The current landscape is a result of the profound differences between unionization in the public and private sectors — which is why, historically, the idea of government unions was widely opposed by economists, policymakers and politicians on all sides of the ideological debate.

In addition to well documented opposition from traditionally pro-union policymakers such as President Franklin Delano Roosevelt, even labor unions themselves historically opposed the concept of unionizing government workers.[5]

For example, in 1955, AFL-CIO President George Meany said, “It is impossible to bargain collectively with the government.” Four years later, the AFL-CIO executive council passed a resolution declaring that, “In terms of accepted collective bargaining procedures, government workers have no right beyond the authority to petition Congress — a right available to every citizen.”[6]

So what changed?

As Geoffrey Lawrence and Cameron Belt document in The Rise of Government Unions: A review of public-sector unions and their impact on public policy, the shift towards favoring government unions didn’t occur because of any change in logic or analysis, but was simply the result of union bosses scrambling to find new dues-paying members in response to declining private-sector membership:

The American Federation of State, County, and Municipal Employees (AFSCME) was the first labor organization to explicitly acknowledge these points and to begin a systematic effort to bring compulsory collective bargaining to state and local governments. “Industrial unions seem to be at the end of a line…as more and more plants are automated,” and craft union membership “is growing only slowly,” the organization observed. “In public employment, however, there is an expanding reservoir of workers.”

While the original labor movement was created to prevent the exploitation of workers by profit-hungry corporations, no such justification exists for unionization in the public sector, which has neither owners nor profits over which to negotiate.

And because the government is funded via taxation, it faces none of the cost restraints found in the for-profit private sector. Private employers, on the other hand, are only able to generate revenue to the extent that consumers voluntarily purchase their goods or services.

Governments, by contrast, can finance above-market compensation by simply taxing the public. Most problematic is that the elected officials who approve these labor contracts bear none of the cost. In fact, these elected officials are routinely rewarded for doing so, as the concentrated political support bestowed upon them by appreciative government unions far outweighs the cost of taxpayers’ dispersed frustration.

On this point, Lawrence and Belt observe that:

Instead of resisting union demands, politician-employers have a keen interest in encouraging unionization among government employees because they can use government unions as political machines to secure election.

Thus, mandatory collective bargaining in the public sector has led to the very one-sided, exploitative arrangement that private-sector unions were originally designed to prevent — albeit with organized labor wielding the power, and the taxpaying public at large left largely powerless.

Given such a lop-sided power dynamic, it is little surprise that California’s public unions continue to push for more, despite already receiving compensation packages that, on average, significantly exceed market levels.

Illustrating the point

Despite belonging to the top 1 percent of counties with the highest-paid local government workers nationwide, in addition to receiving benefits that dwarf private-sector levels, the Marin County union (MAPE) recently rejected an across-the-board 7 percent pay raise over the next three years, and is demanding 11 percent instead (3.5 percent in FY19, 4 percent in FY20 and 3.5 percent in FY21).

It is worth mentioning that these across-the-board raises are on top of average yearly step increases of nearly 5 percent, which are available to employees who receive a “meets standards” or above assessment in their annual performance review and have not already reached the fifth step maximum.

So an employee still working their way up the step pay ladder would receive annual wage increases of roughly 7 percent under the county’s offer, and 8 to 9 percent under MAPE’s counter-offer.

As this example shows, government unions are not in the business of securing fair wages for workers who are being underpaid by profit-hungry employers. Instead, the incentives are such that most unions have one simple, unchanging goal: More.

Indeed, this approach is precisely what drove public compensation so far above market levels to begin with.

This is why, despite already having one of the highest tax burdens in the nation, municipalities across the state are seeking to raise that burden even further. And because the vast majority of these tax hikes — sales tax and fees for public services — are regressive in nature, it is precisely California’s lower- and middle-income residents who will fare the worst.


[1] Marin County Employees’ Retirement Association
Actuarial Valuation Report as of June 30, 2017.

[2] Jason Richwine and Andrew Biggs, “Are California Public Employees Overpaid?” The Heritage Center for Data Analysis, March 17, 2011.

[3] Employee benefits data for private-sector workers in not available on a state level, and thus this analysis uses national data for private-sector workers’ paid leave data and Pacific regional data for retirement and health benefits.

[4] How Government Unions Affect State and Local Finances: An Empirical 50-State Review, The Heritage Foundation, April 26, 2016.

[5] Cameron Belt and Geoffrey Lawrence, The Rise of Government Unions: A review of public-sector unions and their impact on public policy, Nevada Policy Research Institute.

[6] Ibid.

2018 a decisive year for reining in pensions

A great column by Jody Morales on the impact court rulings in 2018 might have for public pensions:

Many noted reporters and columnists proclaim that every new tax is a pension tax. We of Citizens for Sustainable Pension Plans agree.

The city of San Rafael is struggling to continue services without new taxes, but it seems both unlikely and impossible that they can do so.

The Transportation Authority of Marin is revving up to once again raise the sales tax cap.

The Marin Municipal Water District initiated rate increases to occur over the next few years, shifting pension costs onto its customers.

These are but a few local agencies turning to taxpayers to pay more to maintain an unsustainable system.

Whether or not our local agencies, including city councils and the Board of Supervisors, have the courage to put an end to ever-increasing taxes, rates and fees, coupled with reduction or elimination of services, is yet to be seen.

Read the rest at the MarinIJ.com website.

 

Unfunded liabilities in Marin County top $1 billion

Update 8/22/16: We have learned that the City of Larkspur adopted OPEB reforms earlier this year which were not reflected in the most recent annual financial statements used for this analysis. As such, they would no longer fall under the “room for improvement” category and, instead, move into the “best actors” category.

The combined debt of Marin County’s municipal governments is just over $1 billion, according to the most recent financial and actuarial reports provided by each Marin city and the County of Marin.

While clearly a tremendous burden, that number would have likely been even higher, were it not for the 2012/2013 Marin County Civil Grand Jury report, Marin’s Retirement Health Care Benefits: The Money isn’t Therethat thrust this issue into the public spotlight.

In compiling 2014 and 2015 figures to provide an updated assessment on the fiscal health of Marin governments, it was clear that several Marin governments had begun taking their retirement health care liabilities, or “OPEB” as they are often called, more seriously.

This analysis only focuses on the city and county levels of government, with the one exception of the Novato Fire District, which is also included. As such, the per capita unfunded liability numbers are much lower than they would be if the Marin school districts, special districts and other state governments were also included.

The below table provides a snapshot of where each Marin government stands as of their most recent financial report for the year ending June 30, 2015. The unfunded actuarial liabilities (UAL) reflects data from the most recent actuarial valuation, which was June 30, 2014 for the Marin cities enrolled in CalPERS and 2015 for the MCERA agencies. As the Novato Fire District primarily serves the city of Novato, despite being an independent agency, their figures were added to the City of Novato’s numbers.

Unfunded Pension and OPEB liabilities of Marin County governments

City Pension UAL OPEB UAL Pension Bonds Cont rate (FY17) Debt/Pop Debt/Tax Revenue
Mill Valley $21,571,747 $20,156,488 $4,730,000 24% $3,342 207%
Sausalito $17,240,592 $4,014,799 $0 38% $3,010 210%
San Rafael $140,800,000 $21,044,000 $4,490,000 61% $2,882 269%
Marin County $243,600,000 $294,375,000 $103,195,000 27% $2,540 284%
Corte Madera $12,648,198 $9,704,000 $0 40% $2,416 128%
Larkspur $8,958,418 $12,308,419 $0 27% $1,783 148%
Novato plus NFD $45,516,118 $15,940,690 $19,052,218 23, 49% $1,551 141%
Belvedere $2,440,678 $656,924 $0 19% $1,498 59%
Ross $3,009,265 $311,000 $0 26% $1,375 71%
San Anselmo $9,359,478 $1,628,827 $2,629,000 40% $1,104 101%
Fairfax $6,223,179 $835,400 $0 41% $949 97%
Tiburon $4,584,236 $3,470,787 $0 21% $899 124%

Glossary of Terms

  • Pension UAL: The unfunded liability as of the most recent valuation available (2015 for MCERA agencies and 2014 for CalPERS agencies.)
  • OPEB UAL: The unfunded liability for other post employment benefits (OPEB) — mainly retiree healthcare — as of the most recent valuation.
  • Pension Bonds: The amount outstanding on any pension bonds taken out by the respective government to pay down their pension debt.
  • Cont rate (FY) The aggregate contribution rate spent on pension costs for the current fiscal year ending June 2017. For example, an agency with total payroll of $100,000 and a 50% contribution rate must pay an additional $50,000 on pension costs to either CalPERS or MCERA.
  • Debt/Pop: The sum of the first three columns divided by the agency’s population, also known as a “per capita unfunded liability.”
  • Debt/Tax Revenue: The sum of the first three columns divided by the agency’s tax revenue.

Notable findings

Transparency: It was refreshing to find that all Marin cities make a tremendous amount of financial information readily available on their site. Given how small many Marin cities are, this is even more noteworthy, as many of their similarly sized peers statewide lag behind in this area.

A growing problem: Many Marin governments explicitly mentioned pension or OPEB liabilities as a growing strain in their annual financial statements, which is unsurprising given the size of these liabilities. Unfortunately, pension liabilities are set to climb higher, the result of both the Marin County Employees’ Retirement Association (MCERA) and the California Public Employees’ Retirement System (CalPERS) significantly missing their investment target last year.

Reforms tend to occur only when the problem becomes massive, increasing total cost: The Marin governments that took the largest steps towards addressing their liabilities were those with the largest amounts of debt. Naturally, this results in higher overall costs, as compared to if reforms were implemented earlier.

While most governments historically operated under a “pay as you go” system for their OPEB liabilities — this is similar to paying only the minimum amount due on a credit card debt — many have recently adopted a pre-funded approach, like what is required for traditional pension debt.

Best Actors

The two best actors in adopting these reforms were Sausalito and Corte Madera.

Sausalito spent $400,000 on a trust dedicated to paying down their OPEB debt, which immediately  dropped their UAL from $5.7M to $4.0M. Equally as important was the significant reforms to OPEB benefits by adopting a defined contribution plan for many employees.

Corte Madera also created a trust dedicated to funding OPEB liabilities, immediately dropping their UAL from $14.7M to $9.7M. Historic reforms implemented by the Town reduced costs for current members, while adopting a Health Savings Account plan for new members — an extremely efficient approach that other governments should seek to emulate, with both employees and employers likely to benefit from the switch.

The County of Marin also began pre-funded their OPEB debt and made reforms towards reducing the cost of promised benefits. Their use of a 27-year amortization period for OPEB liabilities is far too long, however, and encourages the practice of increasing overall cost while backloading that cost onto future generations.

San Rafael employs a 21-year amortization period for their OPEB debt and has been making the required payments over the past 3 years.

Mill Valley just began transitioning to a pre-funded approach, but failed to make the minimum required payment in earlier year. On 6/30/15 Mill Valley adopted a pre-funded approach with a payment of $867,000, which will significantly reduce their OPEB UAL when an updated actuarial report is released.

Fairfax has been paying over 100% of the ARC towards OPEB, a practice that will yield significant savings in the long-term, while Novato and the NFD have been consistently paying the full 100% as well.

Room for improvement

The remaining Marin cities — Tiburon, Larkspur, San Anselmo and Belvedere — are either still under a “pay as you go” plan or have not been paying anything close to the full ARC. More specifically, the contributions amount being made are either just the bare minimum required to pay that year’s promises, or when above, are significantly less than the growth in interest on the existing liability.

Of the four, Larkspur should move towards pre-funded as soon as possible, given the size of its current debt in relation both to population served and total tax revenue. By design, the “pay as you go” approach guarantees an increase in debt going forward.

Concluding Thoughts

There are several important takeaways to consider:

1. The single biggest driver of this debt is the excessive generosity of the benefits promised. Paying the full cost of health insurance for retirees and, in some instances, their spouse, without any explicit plan to fund this promise was extraordinarily reckless.

Indeed, Marin governments themselves readily acknowledge this as many adopted reforms that involved reducing the generosity of benefits provided to new hires. With pension costs alone costing Marin cities an extra 19 to 61 percent of pay (as compared to the 3% the median private employer pays) it should come as no surprise that exceptionally generous benefits, eventually, come at an exceptionally high price. Accordingly, those cities with comparatively less generous benefits, like Belvedere, find themselves in much better shape.

2. Political nature of governments makes them ill-equipped to provide defined benefit plans. The emphasis on the short-term at the expense of the long-term that is inherent to governments largely explains why reforms have only occurred in those areas worse off, while those cities in comparatively better shape delay reform — despite the multiple examples of what their future will look like presented to them by their neighboring cities.

3. Transparency makes governments more efficient. The combination of increased attention brought to these issues by improved reporting standards from the Governmental Accounting Standards Board (GASB 45, 67 and 68, specifically) and the Marin County Grand Jury Report directly resulted in most Marin governments improving their financial standing as it pertained to OPEB liabilities.


Appendix: A note on U.S. Public Pensions

U.S. public pension plans operate under a broken regulatory framework that masks the true size of liabilities and pushes these costs onto future generations. This is not a controversial observation. This view is shared by the regulatory bodies governing private U.S. pension plans and both public and private pension plans in Canada and Europe. Said differently, U.S. pension plans are alone in their approach.

The rejection of U.S. public pension plans’ approach is also shared by 98 percent of professional economists, Nobel Laureate William F. Sharpe, Warren Buffet, experts at the Federal Bureau of Economic Analysis, the Federal Reserve Bank of Cleveland, the Federal Reserve Board, the Congressional Budget Office, the Rockefeller Institute of Government at SUNY, the Stanford Institute for Economic Policy Research and Moody’s Investors Services, to name a few. It is also an area of agreement within think tanks on opposite ends of the political spectrum, with scholars at the left-leaning Brookings Institution and the right-leaning American Enterprise Institute both agreeing with the near-universal consensus.

Recently, even experts within the U.S. public pension community acknowledged this — as a joint task-force of the industry’s top experts argued that U.S. public pension plans should adopt the standards used by the rest of the world. Unfortunately, the governing bodies that created the task-force chose to bury the paper and disband the group, instead.

Accordingly, U.S. governments must endeavor to adopt sensible reforms. California governments within CalPERS are, for the most part, handcuffed. While CalPERS uses a 7.5% discount rate to calculate their liabilities in general, when a participating agency tries to leave CalPERS, it imposes the appropriate discount rate of 2-3%, functionally tripling the cost to do so.

Still, it couldn’t hurt for cities like Belvedere, who are small enough and in relatively strong financial shape, to explore the possibility of exiting the system.

If Marin governments used personal retirement-account plans, like what the Contra Costa cities of Danville, Lafayette and Orinda use, they would have never accumulated the combined $515,000,000 in unfunded pension liabilities they are currently burdened with, given that defined contribution plans are incapable of generating unfunded liabilities.

Said differently, the current pension system cost Marin governments and their taxpayers at least $515 million that could have otherwise been used for vital public services or to lower taxes.

 

Robert Fellner is the Director of Transparency Research at the Nevada Policy Research Institute, where he runs the TransparentNevada.com and TransparentCalifornia.com public pay databases.

85% of Marin County’s special district workers collected over $100,000

Today, Transparent California released 2014 compensation data for Marin County’s 20 largest special districts.

The top 5 earners were:

  1. Southern Marin Fire Chief James Irving: $374,456
  2. Novato Fire Chief Mark Heine: $370,145
  3. Sonoma-Marin Area Rail Transit general manager Farhad Mansourian: $352,262
  4. Novato Fire Deputy Chief Adam Brolan: $340,874
  5. Central Marin Sanitation general manager Jason Dow: $333,590

For all 20 special districts, the average full-time employee received $153,204 in total compensation. 85 percent of all full-time employees received at least $100,000 in total compensation. The table below reports these values, and additional information, for each district.

Average compensation for Marin County’s 20 largest special districtsMarinSDs2

The far right column displays the district’s unfunded liability for their respective retirement plans, per resident served. This data comes from the Stanford Institute for Economic Policy Research’s Pension Tracker website.

To download the original Excel file, click here.

To view a specific district’s 2014 compensation report, simply click their name in the list below:

Belvedere-Tiburon Library Agency
Central Marin Police Authority
Central Marin Sanitation Agency
Kentfield Fire Protection District
Las Gallinas Valley Sanitary District (Marin)
Marin/Sonoma Mosquito and Vector Control District
Marin Clean Energy
Marin Municipal Water
Marinwood Community Services District
North Marin Water District
Novato Fire Protection District
Novato Sanitary District (Marin)
Ross Valley Fire Service
Sanitary District No. 1 (Marin)
Sanitary District No. 5 (Marin)
Sausalito-Marin City Sanitary (Marin)
Sonoma-Marin Area Rail Transit District
Southern Marin Fire Protection District
Tamalpais Community Services District
Tiburon Fire Protection District

Compensation is defined as total wages plus the employer cost of retirement and health benefits. Full-time employees are defined as those receiving a salary equal or greater to the “annual salary minimum” reported for their position.

To view the entire dataset in a searchable and downloadable format, visit TransparentCalifornia.com.

For more information or to schedule an interview with Transparent California, 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 the Nevada Policy Research Institute, a nonpartisan, free-market think tank. Learn more at TransparentCalifornia.com.