Nevada’s governments cannot seriously tackle their growing revenue shortfalls and budget deficits without addressing public employee compensation. Proposals to freeze wages, alter existing contracts with bargaining units or lay workers off are not rooted in resentment. Salaries and benefits consume the lion’s share of the public sector’s general fund resources, and those expenses have been growing faster than tax collections, faster than the population, faster than the economy for the better part of two decades.
The recession has moved up Nevada’s fiscal judgment day. State and local politicians cannot justify asking pummeled taxpayers to fund uninterrupted pay raises and generous retirement benefits that aren’t available in the private sector.
A reasonable approach is grounded in fairness. What kind of compensation is offered by the state’s largest employers? What do workers fortunate enough to still have jobs pay for their benefits? What factors do they have to account for in planning for retirement?
This is the philosophy members of Nevada’s Spending and Government Efficiency Commission are following in trying to tighten up the state’s finances. The commission’s members want to make state government function more like a business, from the way it delivers services to the way it pays its workers.
Right now, state workers enjoy superior health benefits — in employment and retirement. The average state employee pays almost nothing for medical insurance, and no more than $194 per month for full coverage for a family of four. Upon retirement — often before age 60 — the worker receives a health care subsidy of between $396 and $696 per month for continued coverage and out-of-pocket expenses. And when retired state workers turn 65 and become eligible for Medicare, the subsidy can be used to purchase supplemental coverage and cover prescriptions and other bills.
The typical private-sector worker can’t retire before age 65 because of the cost of health care, then must save enough to account for bills not covered by Medicare.
Nevada’s existing revenue structure can’t cover the future costs of retirement health care subsidy. The unfunded liabilities are estimated at about $4 billion, but the state clearly can’t afford the benefits today — revenues for the current budget have come in about $1.5 billion short of projections, and next year’s budget will be about $1.2 billion smaller than the two-year spending plan approved in 2007.
The recommendations approved by the SAGE Commission on Thursday would move the state leaps and bounds toward long-term stability and parity with the private sector.
The most dramatic proposal called for eliminating the health care subsidy, promised to all current state workers, for anyone who retires after July 1. Current retirees would see the allowance cut by 50 percent over the next two years, then eliminated upon enrollment in Medicare. Current employees would have their contributions toward health care premiums increased to within 5 percent of what private-sector workers pay (surveys would determine the exact figure).
The plan, which would have to clear the Democrat-controlled Legislature, would save the state $44 million this year and virtually erase the $4 billion unfunded liability in one fell swoop.
SAGE Commission Chairman Bruce James, the former chief executive officer of the U.S. Government Printing Office, is no stranger to politics. He knows some of the commission’s recommendations will be unpopular, and that some will be dead on arrival at the Capitol. But he correctly pointed out Thursday that continuing benefits unavailable in the business world ultimately will cost untold numbers of state workers their jobs.
It is reasonable to make state employees — who pay no Social Security withholding — pay more for their health insurance because medical premiums rise every year in the private sector. It is reasonable to make state employees who wish to retire in their 50s and early 60s apply some of their generous pensions toward health care costs. It is reasonable to break retirees from state taxpayer subsidies when they become eligible for Medicare.
Especially today, it is reasonable to make them live with the same burdens as everyone else.