Wednesday, April 1, 2009

No fat at the top ranks of State government? Think again

Here's what I mean about the need for bloggers to do serious analysis and raise tough questions.

Governor Jack Markell responded to bloggers yesterday the same way he's responded to others who want a graduated State employee pay-cut: Nice idea, but there really aren't enough employees at the top ranks to cut the budget that way.


According to the WNJ, there are 330 non-Education State employees paid from the General Fund who make over $100k.

If, as the article said, that's about 2.5% of State employees, that means we have a universe of 13,200 State employees.

The article also said there are only 504 people who make over $75 k among the 6,200 merit employees.

Further down, the article tells us that if all of the $100K State employees took a 16% pay cut that would only yield $6 m additional, which means that a 16% pay cut for those 330 employees yields a total of $12m.

Here's the quote:

State records show that even doubling the pay cut to 16 percent for workers earning $100,000 or more would only yield about $6 million in additional revenue, or about 6 percent of the payroll savings goal. Most of the savings target, about $80 million, would still have to be spread among the bulk of the work force.

That means that these 330 individuals in total have a salary pool of $75 M; or a mean salary of $227 K.

That figure seems high, given what we know about the salaries of judges, college presidents, and cabinet members, but those are the numbers that the State provided.

But it also says that 2.5% of the State employees constitute 12% of the State payroll.

So question one for the Markell administration would be: when are you going to stop asserting that there is no fat at the top, and document the salaries for those 330 State workers making over $100K?

If you are going to require the 12,870 employees to take a 10% pay cut in the name of shared pain, let's find out about the selective largess of the State system as well.

With 13,200 State employees and a $91.7K cut equaling 8%, this means that the payroll they are considering is $573.125 M, which also converts to a mean State employee salary of $43,418.

Take out the top 330 State employees and you get a payroll of $498.125 M for 12,870 workers: the mean now drops to $38,704. In other words, those 330 highly paid state employees distort the mean upward by nearly $5,000 per worker.

Now, let's revisit that figure of 504 of 6,200 merit employees who make over $75 K. These are generally the unionized employees in service positions. You can rest assured that nobody on this list makes over $100K. So, only 8.1% of our merit employees make this list.

Let's make one fairly large (but ultimately statistically warranted) assumption that the percentage of State workers overall between $75-100K is roughly the same as the percentage of merit workers in that category.

That would mean that only 1,042 State workers make $75-100K with an expected mean of $87.5 K for that group. Take that as a single group and you get a payroll obligation of $91,175,000.

Deduct that figure from the overall State payroll (minus the highest 330 people) and you get an overall payroll of $406,950,000.

This works out to a mean salary of just $34,406 for the 11,828 State workers who make less than $75K.

If I'm in the ballpark, it means that the entire State non-education payroll breaks down roughly like this:

Top 2.5% (330 employees) $75M and a mean salary of $227K
Next 8.1% (1,042 employees) $91.2M and a mean salary of $87.5K
Bottom 89.4% (11,828 employees) $407M and a mean salary of $34.4K

Now let's look at what the proposed across-the-board cut would do:

Top 2.5% (330 employees) $69M and a mean salary of $208K
Next 8.1% (1,042 employees) $84M and a mean salary of $80,500K
Bottom 89.4% (11,828 employees) $374M and a mean salary of $31,648

It's fairly plain where the hits are here.

This comparison does not take into account the additional 2% in proposed health insurance savings which will be disproportionately distributed to the lowest paid employees.

Why? Because nobody pays more than the highest premium listed in the State employee handbook--which is $193.12 per month for the best BCBS Family plan. This is scheduled to go up to $289.68 as of 1 July 2009--an increase of $96.56 per month.

You pay the same $96.56 increase for this plan whether you make $31.6K or $208K.

Which means that for a State employee on the best BCBD family plan there will be an additional hit of $1,158.72 per year, driving that mean down from $31.6K to $30.4K. That employee at the top will see his/her pay decline to $207K.

Think of it this way: the health insurance premium increase at its most extreme will cost the average State employee in the top 2.5% of the payroll just .58%--that's just above half of one percent, while it wll cost the State employees in the lower range 3.5%!

In other words: if you are a head of household in the lower ranks of the State employees, and you have been scrimping to come up with the premiums to get your family the best health insurance possible, the actual pay cut you are going to be asked to take is not 8%, not 10%, but actually 11.5%

The wealthiest State workers, on the other hand, are being asked to take a hit of only 8.6%.

An 11.5% effective cut for the lowest paid State workers, while the highest paid only take 8.6%?

Some questions need to be answered here.

But if people just keep taking the figures that the media puts out, and the figures that the government reluctantly releases, you won't hear any of these questions being asked, will you?


Anonymous said...

Great work Steve. Were you invited to the blogger soire yesterday? If you couldnt go because of committments could you have sent another smart person in your place?

Just wonderin. The folks at Del Liberal seem to be all please with themselves, while Kent and Sussex were left out.

Wonder if it was Brian Seelander who put the list of "insider" bloggers together. Could it be they were democrats thefore no republicans or independents required?

Steven H. Newton said...

I was invited; Brian Selander's email unfortunately got stuck in my spam queue until way too late (besides, I had a class at that time anyway).

I have suggested Tyler Nixon the next time I cannot attend.

Anonymous said...

Steve, your analysis is superb, and hopefully will assist the General Assembly when the legislators consider the Markell budget. For the sake of the state workers being hit the hardest, I hope a more progressive approach will be used.

Did you see kavips' piece, indicating that a cut in wages at this time may not be quite the hit it seems on the surface, due to market forces in a recession that tend to pull prices down?

Perry Hood