Don't blame state employees

by Tom Campbell, Executive Producer and Moderator, NC SPIN, August 6, 2015.

It is understandable how public employees may feel like punching bags. They are subject to jabs that there are too many of them on the public dole, that they don’t work hard, don’t get much done and are overpaid. While Assistant State Treasurer, I encountered a number of state employees and those perceptions were not the reality I experienced in the majority of cases.

In every instance elected officials created these public jobs. Faced with the age-old conundrum of how to get and keep a good workforce, our legislators, most of whom are no longer in office, opted for a tradeoff that looked attractive at the time but now threatens our state’s financial viability.

North Carolina decided that they would save current dollars by not paying teachers and state employees market wages, instead enticing them with better than market benefits, especially retirement and health insurance benefits. Some in the private sector made that same bargain with employees but ultimately the bill comes due when employees retire. Perhaps, like GM management, lawmakers in the day figured this would be someone else’s problem to solve because they wouldn’t be on the job.

One of those promised benefits was that any employee that worked 5 years or more for the state would receive free health insurance for the rest of his or her life when they reached age 60. A few years ago lawmakers recognized the unsustainability of this promise and modified it to say only those employees hired after a certain date that worked a minimum of 20 years and reached a certain age would get free health insurance. Those who worked between 10 and 20 years before retiring would pay half the cost of the insurance when they retired.

Even this promise is unsustainable. Actuaries now say North Carolina has an unfunded financial liability of $25.5 billion resulting from this benefit. Even worse, projections show the liability will grow to $37.5 billion by 2020. Understandably, our current legislature wants to change this situation but the solution they are considering isn’t better. The Senate budget would do away with the retiree health insurance benefit altogether.

State employees, who were not being paid market wages to begin with, have had very few pay increases since The Great Recession. Making matters worse, their health insurance premiums, deductibles and co-payments have increased significantly. Working for the state is no longer as attractive as it once was and managers report having a hard time finding qualified technical and specialized skills employees. If North Carolina reduces employee benefits further employee recruitment will be even more difficult and those who are hired might not be as desirable.

Lawmakers need to reconsider the solution by rethinking basic compensation metrics. Like the old Fram Oil Filter Commercial we need to decide whether to pay now or pay later. We can attract the workforce we want by paying market wages and offering benefits more in line with those in the private sector or we can continue to pay less than market wages by offering more generous benefits. Doing neither could be disastrous. One way or another we, the taxpayers, will foot the bill.

Our elected officials need to decide which trade-off they want but they cannot choose to blame state employees for a situation they didn’t create.