The once-generous health insurance and retirement benefits enjoyed by state workers must be reconfigured to match post-recession fiscal realities. But how drastically and how quickly those benefits should be scaled back is a delicate matter. In his biennial budget proposal, Maine Gov. Paul LePage addresses the high cost of meeting state worker pension requirements by freezing cost-of-living adjustments to retirees for three years, then capping COLA hikes at 2 percent. He also wants to raise the retirement age for future retirees from 62 to 65.
A vigorous debate on those issues is likely to follow.
The next time the state employee union negotiates with the LePage administration, more concessions may be sought, such as higher employee contributions to the pension and health insurance. Considering such moves is a reasonable way to lower the cost of state government, but the governor must be responsible in the degree of change he can expect to effect in the short term. And he would do well to treat state employees as valued providers of services that Mainers have come to expect.
In Wisconsin, Republican Gov. Scott Walker has taken steps similar to Gov. LePage’s to close his state’s budget shortfall and has been met with the protests of 10,000 state workers at the Capitol. As many as 40 percent of teachers in some districts have called in sick. Some suggested the National Guard should respond to the demonstrations.
Gov. Walker wants state workers to pay 5.8 percent of their salary as a contribution to pensions and also wants them to contribute 12 percent of the cost of their health insurance. Both steps are reasonable and come, he said, in an effort to save 1,500 state jobs.
What may have pushed Wisconsin state workers to the point of demonstrating in the streets was Gov. Walker’s proposal to amend collective bargaining laws so the workers could no longer negotiate on matters of health insurance and pension contributions. The only negotiated element of a contract would be pay. And, under the governor’s proposal, pay increases would be capped.
The cost of benefits is no trifling matter. The U.S. Bureau of Labor Statistics reported that in September 2010, state and local governments spent an average of $26.25 per hour worked in wages. Benefits accounted an average of another $13.85. The bureau also reported that “wages and salaries for management, professional and related occupations, which represent approximately half of all state and local government employment, averaged $33.17 per hour worked.”
Of course, the biggest ticket item in the benefit package is health insurance. In September, state and local governments paid on average $4.65 per hour worked for health insurance, compared to $2.10 per hour in the private sector. Defined benefit retirement plans cost state and local governments $2.94 per hour worked, compared to 44 cents in the private sector.
It’s easy to see why Wisconsin’s governor no longer wants to negotiate benefit packages. Employees must be cognizant of the cost of those benefits, and negotiate with realistic expectations.