Of debt and deadbeats — Education Pensions in Illinois Video — Teacher Retiree Class of 2008: One School District, 13 Retirees = $50 Million in Pensions — The pay system, not just salaries, is the problem — Nearly 100 City of Miami employees made more than $200,000 last year — Living at others’ expense
The Economist (Illustration by KAL)
“A government big enough to give you everything you want is big enough to take everything you have”?
Paul Harvey (1952) Remember These Things
From The Economist print edition, Oct 8th 2009
A new culture war is brewing over capitalism
SEVENTEEN Uncle Sams were seen begging on the streets of Washington, DC, this week. They were a sad sight, with their slightly bedraggled red, white and blue hats and their cardboard signs with the hand-scrawled plea: “I want YOU to give me $12 trillion.” It was a publicity stunt, of course, staged by DefeatTheDebt.com, a fiscally hawkish pressure group. But it captured something important about the national mood.
Unemployment is nearly in double digits. Most Americans think the economy will recover next year, but only 2% think it will make a complete recovery. And many are worried about Uncle Sam’s ongoing borrowing binge. Has all that money averted disaster and eased the pain of the recession, as Barack Obama insists? Or did it merely postpone the pain? DefeatTheDebt.com’s television commercials leave no room for doubt. A classroom full of children stand as if to recite the pledge of allegiance, but the words are different: “I pledge allegiance to America’s debt, and to the Chinese government that lends us money, and to the interest, for which we pay, compoundable, with higher taxes and lower pay, until the day we die.”
Many Americans think much of this money might as well have been tied up in bundles and burned. On average, according to Gallup, Americans believe that 50 cents of every dollar the federal government spends is wasted. This is an outlandish figure. Not even the Department of Agriculture is that profligate. Yet even Democrats, who are supposed to believe in big government, guess that 41 cents of every federal dollar is wasted. Republicans think it is 54 cents, and independents, whose votes Democrats will sorely need at the mid-terms next year, are if anything slightly more cynical, putting the number at 55 cents in the dollar.
The hyperkinetic Mr Obama is trying to fix everything from car firms and banks to Chicago’s Olympic bid. Yet a poll last month found that most Americans would rather their government did less. Some 57% said it was doing too many things that were better left to individuals and businesses…
… Meanwhile, they can see that one group of Americans has been practically unaffected by the recession: government employees. Their hours have not been cut, their benefits are gold-plated and they are almost impossible to sack. In good times, few Americans notice these things, but in bad times, the disparity grates. Cops and firefighters can retire in their 40s and draw defined-benefit pensions for life. With overtime, one tenth of the police in Massachusetts made more than the governor’s annual salary in 2006, according to the Boston Globe. Including benefits, the average employee of New York City makes more than $100,000, according to Forbes, while some Californian prison guards “sock away $300,000 a year”.
And what do taxpayers get for their generosity? The bad bargains get all the publicity. Union contracts force the postal service to pay thousands of unneeded workers to do nothing. In New York, public-school teachers who can’t be trusted to teach but can’t be sacked either are paid to sit and do crosswords.
One should not overstate the rage of taxpayers against public servants. Most Americans admire firemen, teachers and cops. They like receiving government benefits, too. And roughly half of them will pay no federal income tax at all this year. The problem is that this is not sustainable. During his election campaign, Mr Obama promised not to raise taxes on anyone except the rich, but with the deficit so vast, the question is not whether he will break this promise but when.
By Bill Zettler, Posted: September 17, 2009
The Social Security Administration recently announced the average Social Security benefit for 2008: $13,500/yr. More recently I received via a Freedom of Information Act the names of all the retirees from Consolidated school District 211 in Palatine, Illinois. The average for those 13 retirees was $96,000/yr at an average age of 58 versus Social Security’s age 63.
Using the Champion News Teacher Salary Database I determined that none of the 13 had had a salary less than $103,500 over the period July 1, 2004 thru June 30, 2008. Using those 4 years to determine the estimated beginning pensions gave starting pensions from $89,000 to $119,000 per year. The formula for the beginning pension is as follows: Take the average of the four highest salaries and multiply by 75% to determine beginning pension.
To determine the ending pension compound the beginning pension by the annual 3% COLA for 27 years which is the life expectancy at age 58. We use age 58 because that is the average age of retirement for members of the teachers Retirement System (TRS). The same calculation for each year determines the total pension payout ($50,563,534) assuming a normal life expectancy. The total pension payout by individual ranges from $3.5 million to $4.8 million.
Finally we determine what I call the “Cash Annuity Value” of the pensions. This is the amount of cash a person in the private sector would have to give to an insurance company or mutual fund (in this case Vanguard Mutual Fund) to obtain the pension payout guaranteed by TRS. As you can see the cash value of these pensions is in the millions of dollars.
This exercise once again highlights the excessive total compensation being paid to many public workers especially teachers. When we add in the shorter work year, value of tenure, gold-plated fringe benefits on top of lavish early pension benefits we end up with a very privileged, very expensive class of workers.
Keep in mind these 13 millionaires are not outliers but are indeed the vanguard for 900 more certified District 211 employees who will follow them to multi-millionaire status year after tenured year.
If the purpose of taxation is to provide for the common good, we may ask what common good is provided by making public employees multi-millionaires in their fifties? None that I can think of.
By JACKIE BUENO SOUSA
What is fair pay?
It’s a simple question that often yields complex responses. Social scientists have developed theories. Researchers have gathered countless data. Companies have formed, books written, dissertations defended, debates organized and speeches delivered, all in an effort to answer this simple question.
Some county leaders believe there is an equally simple answer: imitate what other county departments are paying for similar positions. Well, that’s one approach, but perhaps not the most enlightened one.
Yet how we determine fair pay could mark the difference in our ability to provide many of the programs and services now in danger of losing public funding. During last week’s Miami-Dade County commission meeting, in which most commissioners voted to keep taxes flat, others lamented that the county won’t have a few hundred million dollars for many of the programs and services they deem most essential.
Apparently, they’ve forgotten that they have about $7 billion for just that purpose. It’s time to make some tough decisions about how the money is spent and, almost certainly, that decision will require us to consider the compensation of county employees.
The focus, however, should be less on the pay of particular people and more on the overall process that has created the current compensation structure: too-lenient or nonexistent salary guidelines; detrimental agreements with unions, and overly generous fringe benefits.
While the recently revealed double-digit raises to a handful of upper managers anger the public, it’s the systemic pouring of public dollars to the rank-and-file that most rapidly empties our coffers. It’s a problem not only at the county but at many local governments.
In Coral Gables, Vice Mayor Bill Kerdyk recently told The Miami Herald he was surprised when he heard about a police sergeant who made $81,000 a year, but comp time and annual leave boosted the pay to $164,000 a year before the officer retired. The higher salary was factored into the sergeant’s pension, allowing him to get $125,000 a year for the rest of his life.
A police sergeant is a valuable public servant, no doubt, but is he that valuable?
In the private sector, historically the answer has been that if we can find an equally capable person to do the same job for less money, the answer is “no.”
But in the public sector that premise is complicated by other realities.
Too often, local-government hiring is insular and prone to cronyism. Furthermore, government-employee turnover, according to the Bureau of Labor Statistics, is about a third that of the private sector. Generally, losing many employees is bad; but too little turnover is equally problematic, as it prevents the replacement of stale workers and trite ideas.
And fresh approaches, after all, may be what we now need most. That means not bluntly cutting pay across the board, as some have proposed, but requiring a holistic review of the entire pay structure, ensuring that compensation — wages, pensions and benefits — is in line with current and prevailing open-market rates.
It’s one step toward going beyond temporarily resolving this year’s budget problems, but also toward helping alleviate the fiscal hurdles we’re sure to face in years to come.
By Erol Bojnasky
Miami had only recently shed its notorious distinction as the nation’s poorest municipality, thanks to the buoying effects of the real estate boom, just in time to get clobbered by the nationwide recession/depression rooted in the collapse of that very boom. Now the good times are over, and the city faces declining revenues across the board.
Yet even with an 8.2 percent unemployment rate for Miami-Dade and Broward counties, and shrinking tax revenues, Miami, with a population of 404,048 and a median income just over $26,000 per year, continues to compensate dozens of employees at pay rates far greater than comparable cities. Much of the expense is related to the city’s lax management of its fi re department, where salaries negotiated by the fi refi ghters’ union are generous, and where vacancies and strict staffing rules have pushed overtime pay through the roof.
In calendar year 2008, a total of 97 city employees received more than $200,000 in compensation, costing taxpayers more than $22.76 million, according to documents prepared by the city’s budget office and department of employee relations. Interestingly, 84 percent of those individuals were middle-to high level supervisors at the fire department.
Obtaining this information was not easy, even though under Florida’s public records law it must be made available to anyone requesting it. In this case, a BT representative, frustrated in his efforts to acquire the data on his own, turned to a city commissioner for help. City bureaucrats did act on the commissioner’s request and produced two spreadsheets listing every city employee whose total
compensation in 2008 came to $200,000 or more. The commissioner, however, has since asked not to be identified.
Other city officials, among them budget director Michael Boudreaux, city manager Pete Hernandez, and chief financial officer Larry Spring, all declined comment, didn’t respond to e-mails (or in one case an office visit), and didn’t return phone calls. No one, it seems, wants to discuss, or even be associated with, questions about how the city can continue paying such high salaries and balance the budget when property and resort taxes are plummeting. Even Mayor Manny Diaz, never at a loss for comment when talking about pet projects like a taxpayer-subsidized Marlins baseball stadium, was tight-lipped about the salaries. His spokeswoman, Helena Poleo, would only say this: “He does not have any comment.”
Why the reluctance? Because the issue of overpaying city employees is a public relations minefield — especially when it involves the politically active fire union, known for its ability to mobilize during elections. As BT contributor Frank Rollason, a former Miami firefighter and assistant city manager, put it in a March column analyzing a proposal to freeze the salaries of the city’s nonunion employees: “Union families vote in great numbers and are very active in supporting candidates who protect their salaries and benefits. Nonunion employees serve at the will of the manager and are safer targets….”
Obviously this is not a subject that Miami officials like to talk about. Compare that attitude to the City of Fort Lauderdale, which for the past two decades has annually released the names of its highest-paid employees. Headlines in the Miami Herald and Sun-Sentinel expressed alarm that 300 of Fort Lauderdale’s 2500 employees made more than $100,000 in 2008. Yet only 25 topped the $200,000 mark, at a cost of $5.4 million.
A more revealing city-to-city comparison is Miami and Atlanta. In terms of population, Atlanta (519,000) is substantially bigger than Miami (404,000), but the two cities are very close when it comes to cost of living and wage levels. Despite the need to serve 115,000 more residents, Atlanta has just 500 more city workers than Miami — 4500 vs. 4000. Plus the City of Atlanta is responsible for running Hartsfield International Airport, which is big and busy and comparable to Miami International Airport. But down here, the county operates the airport, not the city.
Somehow Atlanta manages to get everything done with just six city employees who make $200,000 per year or more. Six. Of those, two are airport executives, meaning they have no equivalent in the City of Miami and shouldn’t be counted. So a mere four City of Atlanta employees have salaries in the $200,000 range, compared to 97 for Miami. (For more details, see accompanying charts.)
Atlanta’s Big Six: Police Chief Richard Pennington, chief financial officer Margaret Crenshaw, chief operating officer Greg Giornelli, city attorney Elizabeth Chandler, aviation general manager Benjamin R. DeCosta, and aviation deputy general manager Arnaldo Ruiz. Total annual salary costs: $1.33 million.
Miami may not have an aviation department, but it does have a fi re department, officially known as the Department of Fire-Rescue. The department’s current budget is $80.1 million. Of its 685 employees, 81 received more than $200,000 in total compensation in 2008. Capt. Jon Hart was the highest-paid person among that elite crew. In fact he brought home more money last year than anyone employed by the City of Miami: $308,317.88.
Robert Suarez, president of the Miami Association of Fire Fighters union, says Hart, a rescue supervisor, and several other supervisors work marathon hours, sometimes as many as 100 per week, to offset vacancies that plague the department. “The only way someone could have gotten that amount is an enormous amount of overtime,” Suarez says. “That’s not anyone’s regular salary.”
Also inflating firefighter salaries are three years’ worth of retroactive pay raises doled out to lieutenants, captains, and chief fire officers after the Miami City Commission ratified the fire union’s contract in 2007, Suarez says. Some of those payments were issued in 2008. As a result, several workers in the fire department were paid more than their bosses.
In addition to Hart, five who held ranks of captain and chief fire officer were paid more than city manager Hernandez, Miami’s tenth-highest-paid employee, who received $274,980.88. Eleven supervisors are listed as receiving more than fire Chief William “Shorty” Bryson, who pulled in $260,557.76. Among them is Thomas Flores, who retired as an assistant chief and payroll division boss in 2008 but was brought back briefly as a consultant to assist the city’s payment of retroactive pay raises. Flores banked $267,704.93, according to city documents, which would make him the 15th-highest-paid city employee.
Commissioner Joe Sanchez, a candidate for mayor, was unavailable for comment at deadline. But his commission aide pointed out that Sanchez was the lone vote against this year’s budget because it raised residents’ garbage fees — though garbage fees are not directly affected by employee salaries.
Sanchez’s opponent for mayor, Commissioner Tomas Regalado, worries the City of Miami will soon face a huge deficit owing to declining property and resort tax revenues, which may lead to the fi ring of low-level, low-paid workers. “I think that there is a total divorce between reality and city business,” Regalado says. “The administration has not figured out that we are in an economic crisis. My fear is that, come budget process, the little people will be the ones affected and the big salaries will not be touched. To me that is not only wrong but also immoral.”
As Regalado understands it, there are plenty of employees among Miami’s 4000-plus workforce who make more than six figures annually. “There are more than 700 employees who make $100,000,” he says. “That is a very accurate figure. I have heard that from people who ought to know.”
Yet Regalado doesn’t want to criticize firefighters’ salaries, instead directing his ire toward “the suits,” upper management. “I think that probably they will try to shift the focus on uniform people, but there are a lot of suits who make a lot of money,” he says, adding that several city departments are top-heavy with three or four assistant directors.
But even without overtime, firefighters make a decent amount of money. According to Lt. Ignatius “Iggy” Carroll, Jr., spokesman for the fire department, the salary range for rank-and-file firefighters is between $44,685 and $67,993 per year. Officers make more. A fire lieutenant’s salary range is between $51,823 and $81,191. A fi re captain’s is from $59,956 to $93,934. Chief fire officers are paid between $69,351 and $108,653. Assistant fire chiefs, deputy fi re chiefs, and fire chiefs earn salaries between $133,134 and $223,391.
Union president Suarez points out that fire-rescue responds to 90,000 emergency incidents a year, with 80 percent having to do with medical emergencies and 20 percent dealing with fires. Suarez also insists that the city would not have to add so much overtime on top of firefighters’ base salaries if the city were more adept at filling vacant positions and issuing promotions. Right now there are eight captain vacancies and ten lieutenant vacancies within the fire department, Suarez says. Since the fire-union contract requires fire fighters attached to a station, a fire truck, or a rescue vehicle to be supervised, supervisors such as Hart must work far beyond their normal 48-hour shifts. “I know one of the reasons [Hart’s] salary was high is the city’s delay in promoting captains,” he says.
Suarez, a lieutenant, claims he is actually frustrated that so much money is going to overtime. He fears that equipment needs may suffer. “It kills me because it all comes out of the fire department’s budget,” he says.
Firefighters, administrators, and department heads were not the only employees who received more than $200,000 in 2008, according to the city’s spreadsheets. Number two on the list was Fernando Acosta, a Miami police officer and sergeantat-arms for the Miami Commission. Acosta earned $295,075.22 in 2008, according to the city’s spreadsheet. Reached at the mayor’s office, Acosta had this to say: “I wish I made that much money.” Then he referred all questions to police Chief John Timoney. (Timoney is number four on the city’s list, at $290,532.66.)
The Miami Police Department’s public information office did not reply to e-mailed questions about Acosta’s responsibilities as sergeant-at-arms. “He drives the mayor around — that’s it,” says Tomas Regalado dismissively.
With memories still fresh of a recent sergeant-at-arms controversy at Miami-Dade County, where sworn officers chauffeured county commissioners last year at a cost of $743,845, BT attempted to ask Mayor Diaz how Acosta managed to be paid more than Timoney in 2008, as well as what duties he performs. In response, mayoral spokeswoman Poleo suggested that BT “look up” the sergeantat-arms job description.
The city’s Employee Relations Department describes a sergeant-at-arms as “an executive-level position” filed by a sworn police officer “responsible for maintaining order and providing security during any official assembly of the city commission.” The officer also provides “protective coverage” to city commissioners and is responsible for “coordinating necessary transportation for city commissioners to meetings and special events.”
In other words, chauffer city commissioners around town and make sure nobody gets out of hand at city hall.
Top 20% earns 53% of the income but pays 91% of the taxes.
OC Register: John Stossel
“The government who robs Peter to pay Paul can always depend on the support of Paul,” George Bernard Shaw once said.
For a socialist, Shaw demonstrated good sense with that quotation. Unfortunately, America has become a laboratory in which his hypothesis is being tested.
The theory of government I was taught says that government provides benefits, primarily security, to the entire population. In return we pay taxes. But lately the government has been a distributor of special privileges, taking money from some and giving it to others. America is now about evenly split between those who pay income taxes and those who consume them.
The Urban-Brookings Tax Policy Center recently disclosed that close to half of all households will pay no income tax this year (http://tinyurl.com/nzm59k). Some will pay less than zero – that is, they’ll get money from those of us who do pay taxes.
The Tax Policy Center adds that this year the average income-tax rate for the bottom 40 percent of earners will be negative and that their cash subsidy will equal 10 percent of the total amount the income tax brings in, thanks to the Earned Income Tax Credit and President Obama’s “Making Work Pay” program.
The view from the top also shows the lopsidedness of the tax system. The top 20 percent of earners makes about 53 percent of the income in America but pays 91 percent of the income tax. The top 1 percent pays 36 percent (http://tinyurl.com/ycogl6x). The IRS says the bottom half of earners pays less than 3 percent.
This presents a serious problem because government has such vast powers to dispense favors. As Shaw suggested, people who pay no tax will not hesitate to vote for politicians who promise big spending. Why not? They will get stuff without having to pay for it.
Yes, working people who pay no income tax still pay taxes: sales tax and payroll (Social Security and Medicare) taxes. But the income tax is big and visible, so it’s a problem that a growing number of people don’t pay, but get benefits from those who do.
Frederic Bastiat, the great 19th-century French economist, defined the state as “that great fiction by which everyone tries to live at the expense of everyone else.” I don’t know if he envisioned one half of the population living off the other half.
It’s important not to confuse the interests of the taxpayers with the interests of the politicians and other tax consumers. Yet that is done all the time. When the government bought toxic assets (of zero market value) from the banks, it said taxpayers would profit when the economy recovered and the assets once again commanded a positive price in the market. Even if we make the dubious assumption that the government is savvy enough to buy low and sell high, it’s not the taxpayers who would benefit from any profits. The politicians will spend every penny, rather than cutting taxes.
To put it bluntly, we are not the government.
The built-in unfairness of the tax system has prompted a range of tax-reform proposals, such as a flat tax and replacing the income tax with a sales tax. These alternatives are better, but they have their drawbacks, too. For that reason, there is something more urgent than tax reform: spending reform.
The true burden of government, the late Milton Friedman said, is not the tax level but the spending level. Taxation is just one way for the government to get money. The other ways – borrowing and inflation – are also burdens on the people. The best way to lighten the tax burden is to lessen the spending burden. If government spends less, it takes less. And if it takes less, the tax system will weigh less heavily on us all.
Once again, we find wisdom in Adam Smith: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.”
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