HUDSON | With their salaries stalled, Colorado state employees jump ship
Author: Miller Hudson - June 6, 2018 - Updated: June 5, 2018
Now that the governor and legislature have guaranteed regular checks will be forwarded to stave off any imminent collapse of Colorado’s Public Employees Retirement Association (PERA), perhaps it is time to examine another unfunded liability that lurks in the state budget. As ominous as the term sounds, an unfunded liability is merely a debt – a promise to pay. In our personal lives we live with many such obligations in the form of mortgage payments, car loans and credit card balances. Banks trust (some of us more than others) that we will hold on to our jobs and punctually manage these debts.
Government assumes fiscal responsibilities on behalf of taxpayers. Among the state’s numerous commitments spelled out in statute, courts can enforce levies for the expansion of prisons, uniform funding of schools and the cleanup of polluted sites. All of which brings us to “salary compression,” and the legislative promise to provide a prevailing wage to state employees. Aside from members of the Joint Budget Committee (JBC) and a handful of staff with Legislative Council and the Office of State Planning and Budget, you would be hard pressed to find legislators who could explain the nature and implications of salary compression.
Let’s start with the obligation to conduct a regular salary survey and fund a pay system that provides comparable compensation to civil servants with workers performing similar tasks in the private sector. That sounds straightforward. In fact the most recent salary survey and subsequent adjustment of annual pay scales reported state employees were lagging private sector salaries by an average of 8 percent. Considering the economic collapse in 2007, it would seem state salaries could catch up to the private sector in a matter of a few years with modest adjustments.
This comparison is premised, however, on the notion of a normal or standard distribution of salaries across each pay scale. In other words, it is assumed that if there is a $6,000 gap between the starting wage and the top pay for a specific job there will be a few recently hired individuals near the bottom of the scale and a few at the top, with the median salaries clumped around the mid-range – this is what is known as a classic “Bell curve.” The average 8 percent gap recently cited by the state represents the difference between the median salaries in each curve. Routine pay raises are expected to move a satisfactory employee from the bottom to the top of his or her pay scale over a 10-12 year period. Further increases can only then be offered through promotion or an adjustment in the pay scale itself.
State salaries fail to approximate a Bell curve distribution. Since the dot.com collapse at the turn of the century and the budget travails of recovery from the Great Recession, state pay has remained essentially frozen for 15 years. In some years paychecks have actually shrunk as employees have made ever-larger contributions to PERA and medical insurance premiums. Consequently, salaries are bunched up, or compressed, close to starting salaries even for employees with 15 and 20 years of service. In lieu of “pay for performance” bonuses that should move employees through their pay scales, the JBC has generally settled for minimal, across-the-board raises to all employees. Relative positions remain unchanged.
The median pay in these compressed distributions often runs 20-25 percent behind the private sector, nowhere close to the comparable pay offered in the marketplace. The last time the state salary survey attempted to estimate the size of this unfunded liability was in 2009 and priced the shortfall at $190 million. Since this obligation compounds each year, it would not be surprising if it now approached $400-500 million. That’s a fiscal hole that cannot be filled with modest adjustments. Now that Colorado’s economy is recovering state workers are fleeing their jobs, with reported turnover rates as high as 30 percent in several departments. Standing in the doorway of a state office building risks being trampled by departing workers.
The failure to adequately fund salaries produces other negative outcomes. Performance evaluations have been virtually abandoned in many work units. After all, what is the point of noting outstanding results when they will not be rewarded? In certain hard-to-fill positions, 10 percent bonuses are offered to workers willing to remain on the job for a full year. These newly hired employees then earn more than the veterans who train them. That’s hardly a recipe for robust morale. Colorado taxpayers are now funding a training program for private employers and local governments happy to offer experienced state workers better pay and benefits.
This pattern is ultimately self-defeating as workers pay less into PERA than would actuarially be projected, remaining stuck near starting salaries for decades. This is a contributor to the plan’s underfunding. Those so-called golden handcuffs are beginning to look a lot more like brass.