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Montana Public Radio Commentary: Public vs. Private Pay

By Glenn Oppel, Policy Director, Montana Policy Institute

In a year when most state legislatures were engaged in budgetary belt-tightening, Montana Governor Brian Schweitzer and public employee union representatives agreed to a pay plan package that would make any private sector worker envious. According to the agreement, each of the next two years state workers would receive both a five percent raise in pay and a 10 percent increase in the state contribution toward health insurance premiums. The price tag is estimated at $138 million.

After the pay plan agreement was reached, a local representative of the American Federation of State, County, and Municipal Employees (AFSCME) argued that it was necessary to “bring us closer to being compensated fairly with those in the private sector.” Union representatives would have the public accept as conventional wisdom their caricature of the underpaid public employee, but the data suggest that public employees are actually compensated far more generously than their private sector counterparts.

Public sector unions have a vested interest in advancing the myth that they’re undercompensated, as it gives them more power at the bargaining table. But state analysts tasked with comparing public and private pay have been encouraging it as well. In June 2012, legislators on the Legislative Finance Committee received a report outlining the results of the State Human Resources Division’s biennial salary survey. Salary data culled for the survey is used to determine what the state calls the “market midpoint” of compensation for 750 occupations within state government. According to the salary survey, state workers are earning on average 13.3 percent less than the market midpoint.

The state analysts are far more likely to shoot straight than some union research shop, but their salary survey unfortunately suffers from a weakness in methodology. By relying on salary ranges for occupational categories, the state’s report has grossly oversimplified the compensation question. For instance, many positions in the public sector, such as correctional officers and fire fighters, have no private-sector equivalent. Additionally, employees within these categories are not interchangeable; some are more educated, some are older, some are more experienced. Comparing only occupational categories ignores all of this variation.

A final shortcoming in the salary survey is that it doesn’t include the value of employee benefits – health insurance, paid leave, pension, etc. – which make up a considerable portion of any worker’s compensation.

In sum, merely matching a state job to an occupational category will not yield apples-to-apples comparisons with private sector occupations and compensation. This is an argument that both conservative and liberal analysts have agreed upon when analyzing compensation in the public and private sector.

To facilitate a more accurate comparison, the Montana Policy Institute has released a report that uses the “human capital” approach to achieve apples-to-apples comparisons between public and private sector pay. Our report starts by using government data to compare public and private employees of similar personal and professional characteristics. For instance, instead of comparing pay in broad occupational categories, we compare public and private employees of similar work experience, education, gender, race, and disability status. Additionally, we calculate the annual compensation value of fringe benefits on top of annual wages, including pension, paid leave, and health insurance (including retiree health).

The results of the analysis are telling. Whereas the state’s salary survey concludes that that average state employee is earning 13.3 percent less than the market midpoint, our report shows that after adjusting for age, work experience, education, gender, race, and disability status, state and local public employees are in a statistical dead-heat with their private sector counterparts in terms of take-home pay. Where state and local public employees surpass private sector workers in total annual compensation is from their various fringe benefits. When compensation from fringe benefits is factored in, state and local public employees earn nearly 15.4 percent more in total annual compensation than comparable private sector workers.

Last session, lawmakers didn’t enact the previously-negotiated pay plan, citing concerns over revenue forecasts and challenges faced by private sector workers. With fiscal analysts projecting a $457 million surplus, union representatives will lobby vociferously this coming session for some follow through from legislators. Half a billion dollars seems like a lot of extra money, but our fiscal house is not exactly in order. As the Montana Policy Institute details in another study on Montana’s budget, there are long-term structural deficits that could break the bank in the near future, including unfunded liabilities of $3.8 billion in its pension programs for state workers and teachers.

This fiscal sleeping giant, and others, should be priority number one for lawmakers, and true solutions could easily consume whatever surplus materializes.

Thank you for listening. This is Glenn Oppel, Policy Director for the Montana Policy Institute.

Montana’s Education Funding: A Fiscal Roadmap for Montana (2012)

By Curt Nichols, MPI Fellow

Click here for full study. (PDF – 3.4MB)

Executive Summary

Montana’s school funding and administration system is complex, and disappointing student outcomes indicate room for improvement. Those who wish to improve the system will need a basic understanding of these systems or their arguments and ideas will fall on deaf ears. Yet few people do understand these systems, the incentives they create or the forces that have led to their complexity.

Schools are financed by a mixture of state, federal, and local funds. District budgets are regulated by state statute with restrictions on local control to meet state constitutional mandates as interpreted by the courts. Governance is shared by the elected local board of trustees, the governor-appointed state board of public education, the legislature, and the elected superintendent of public instruction.

Montana’s constitution guarantees equity and adequacy in our education system. School district have successfully challenged the state’s funding system based on both these guarantees in separate actions over the past two decades. In response to the Montana Supreme Court’s equity ruling, variations between districts’ budgets have been limited, state funding has been increased, state subsidies have been targeted at districts with smaller relative property tax bases, and district budgeting practices have been revised. The adequacy ruling has resulted in new entitlements and increases in state funding. The overall effect has been an increase in school spending and a reduction in district-to-district spending variation.

Districts have varying expenses and resources that are based on differences in demographics and economic bases. Districts enroll varying proportions of low income and handicapped students. These students require additional resources. Districts also vary widely in their tax and non-tax revenue bases. These widely varying revenue bases lead to large differences in property tax rates between districts spending at only modestly different levels and keep spending near statutory minimum levels in some districts.

Montana students perform well when compared to other states. However, this good performance is partly due to demographic attributes characteristic to Montana, including fewer low income, minority, and English language learners that place fewer burdens on our schools than in more populous states. The large numbers of small, rural districts, which perform well with these groups, aid the state’s overall performance record. In spite of Montana’s solid performance record, it is important to consider the relative weakness of the United States education system in international comparisons as well as the failure of our schools to meet our own expectations. Many Montana students are inadequately prepared for post-secondary education. In particular, high percentages of low income and Indian students graduate without proficiency in mathematics and science.

The impact of equity and adequacy lawsuits has been primarily to increase funding for districts. The district judge in the adequacy case specifically excluded considering student performance as an indicator of funding adequacy despite the fact that national studies demonstrate that the link between funding levels and student performance is weak. Performance incentive programs in other states and advocated by the some federal education programs are based on a belief that incentives matter and can be used to improve schools and student outcomes. Montana does not have voucher or charter school programs and only minimal performance incentive funding. Despite support in numerous other states, the rejection of these programs is partially attributable to comfort with Montana’s relatively good current student performance on standardized tests. Interestingly, other states that have adopted performance-focused programs have learned that incentives matter and actually boost student outcomes.

This paper endeavors to help parents and policymakers better understand a complex education funding system in order to more effectively evaluate education policy in the future. Our hope is that Montana’s primary and secondary education system is not only the best in the nation in terms of academic performance but also the most efficiently managed and administered in terms of dollars and cents. Our children and taxpayers deserve no less.

Montana Taxpayers Foot the Bill for the Public Sector Pay Premium

By Glenn Oppel, Policy Director, Montana Policy Institute

In a year when most state legislatures were engaged in budgetary belt-tightening, Montana Governor Brian Schweitzer and public employee union representatives agreed to a pay plan package that would make any private sector worker envious. According to the agreement, each of the next two years state workers would receive both a five percent raise in pay and a 10 percent increase in the state contribution toward health insurance premiums. The price tag is estimated at $138 million.

After the pay plan agreement was reached, a local representative of the American Federation of State, County, and Municipal Employees (AFSCME) argued that it was necessary to “bring us closer to being compensated fairly with those in the private sector.” Union representatives would have the public accept as conventional wisdom their caricature of the underpaid public employee, but the data suggest that public employees are actually compensated far more generously than their private sector counterparts.

Public sector unions have a vested interest in advancing the myth that they’re undercompensated, as it gives them more power at the bargaining table. But state analysts tasked with comparing public and private pay have been encouraging it, also. In June 2012, legislators on the Legislative Finance Committee received a report outlining the results of the State Human Resources Division’s biennial salary survey. Salary data culled for the survey is used to determine what the state calls the “market midpoint” of compensation for 750 occupations within state government. According to the salary survey, state workers are earning on average 13.3 percent less than the market midpoint.

The state analysts are far more likely to shoot straight than AFSCME’s research shop, but their salary survey unfortunately suffers from a weakness in methodology. By relying on salary ranges for occupational categories, the state’s report has grossly oversimplified the compensation question. For instance, many positions in the public sector, such as correctional officers and fire fighters, have no private-sector equivalent. Additionally, employees within these categories are not interchangeable; some are more educated, some are older, some are more experienced. Comparing only occupational categories ignores all of this variation.

A final shortcoming in the salary survey is that it doesn’t include the value of employee benefits – health insurance, paid leave, pension, etc. – which make up a considerable portion of any worker’s compensation.

In sum, merely matching a state job to an occupational category will not yield apples-to-apples comparisons with private sector occupations and compensation. This is an argument that both conservative and liberal analysts have agreed with when analyzing compensation in the public and private sector.

To facilitate a more accurate comparison, the Montana Policy Institute has released a report that uses the “human capital” approach to achieve apples-to-apples comparisons between public and private sector pay. Our report starts by using government data to compare public and private employees of similar personal and professional characteristics. For instance, instead of comparing pay in broad occupational categories, we compare public and private employees of similar work experience, education, gender, race, and disability status. Additionally, we calculate the annual compensation value of fringe benefits on top of annual wages, including pension, paid leave, and health insurance (including retiree health).

The results of the analysis are telling. Whereas the state’s salary survey concludes that that average state employee is earning 13.3 percent less than the market midpoint, our report shows that after adjusting for age, work experience, education, gender, race, and disability status, state and local public employees are in a statistical dead-heat with their private sector counterparts in terms of take-home pay. Where state and local public employees surpass private sector workers in total annual compensation is from their various fringe benefits. When compensation from fringe benefits is factored in, state and local public employees earn nearly 15.4 percent more in total annual compensation than comparable private sector workers.

Last session, lawmakers didn’t act on the previously-negotiated pay plan, citing concerns over revenue forecasts and challenges faced by private sector workers. With fiscal analysts projecting a $457 million surplus, union representatives will lobby vociferously this coming session for some follow through from legislators. Half a billion dollars seems like a lot of extra money, but our fiscal house is not exactly in order. As the Montana Policy Institute details in another study on Montana’s budget, there are long-term structural deficits that could break the bank in the near future, including unfunded liabilities of $3.8 billion in its pension programs for state workers and teachers.

This fiscal sleeping giant, and others, should be priority number one for lawmakers, and true solutions could easily consume whatever surplus materializes.

 

In the Media:

Great Falls Tribune: http://www.greatfallstribune.com/article/20121112/OPINION/311120020/Montana-s-public-employees-earning-more-than-private-sector-counterparts

Missoulian: http://missoulian.com/news/opinion/columnists/state-public-employees-earn-more-than-private-sector-workers/article_9704997e-2f34-11e2-9530-0019bb2963f4.html

Havre Daily News: http://www.havredailynews.com/news/montanapublicemployeesearnmorethanprivatecounterparts.html

KGVO Missoula: http://newstalkkgvo.com/montana-public-workers-earn-more-than-their-private-sector-counterparts/

MTPR Evening Edition Commentary: http://www.mtpr.org/podcasts/audio/mtee_newscasts/11-15-2012Newscast.mp3 (at 20:30)

Montana Watchdog: http://watchdog.org/61693/oppel-montana-public-employees/

Media Trackers: http://montana.mediatrackers.org/category/analysis/

UnionWatch.org: http://unionwatch.org/union-watch-highlights-102/

Public vs. Private Sector Compensation in Montana (2012)

By Glenn Oppel, MPI Policy Director

Click here for full study. (PDF – 4MB)

The State Human Resources Division (Division) of the Montana Department of Administration plays a key role in the adoption of a pay plan for state employees in Montana. It is for all intents and purposes the sole source of data on compensation used by policymakers and agency managers. Unfortunately, the data the Division produces is based on a flawed methodology and limited data.

The Division conducts a salary survey of Montana and surrounding states on a biennial basis to arrive at a private sector comparison for occupations and offices in state government. With the most recent survey, the Division determined that on average a majority of the public sector occupations studied have earnings that are 13.3 percent below what they call the “market midpoint.” The Division’s methodology is open to criticism on a number of points:

• Many positions in the public sector have no private-sector equivalent. Correctional officers and fire fighters, for instance, have no direct private sector equivalent. Comparing occupations like these to a “market midpoint” yields very little useful information.

• Comparing earnings among occupations does not account for the differences in age, education, and experience for the employees who work in these occupations.

• The Division’s analysis doesn’t include the value of employee benefits — health insurance, paid leave, pension, etc. — which make up a considerable portion of public employee compensation.

This new analysis from the Montana Policy Institute compares employees of similar personal and professional characteristics in both the public and private sectors of Montana. Instead of comparing pay in broad occupational categories, this report uses regression analysis to compare public and private employees of similar work experience, education, gender, race, and disability status. It also analyzes total compensation (which the state fails to do), including take-home pay as well as fringe benefits.

This report details the methodology and finds that public employees in Montana actually earn over 15 percent more than comparable employees in the state’s private sector.