How was 2014 for state and local public-sector employees? Depends on how you look at it.
It certainly wasn’t marred by hiring and salary freezes. In fact, both the state and local sectors gained jobs throughout the year, and some governments (like Louisiana) offered pay raises to qualified employees. This appears in the free Management e-newsletter. Click to subscribe. But on the other hand, the modest-at-best gains in hiring and salaries across the country aren’t what most had hoped for. In Tennessee, Gov. Bill Haslam had to cancel anticipated raises because of lower-than-predicted tax revenues, although employees didn’t have to make increased contributions to their insurance premiums. No matter how you look at it, there were three major issues facing state and local government employees across the country in 2014: pensions, health care and jobs. We outline how employees fared in each arena. Depending on who you ask, states have a combined unfunded pension liability somewhere between $1 trillion (Pew Charitable Trusts) and upwards of $4 trillion (State Budget Solutions). According to State Budget Solutions, Illinois leads the nation as the worst funded pension at only 22 percent, closely followed by Connecticut (23 percent), Kentucky (24 percent), Alaska (25 percent) and Mississippi (27 percent). According to the National Association of State Retirement Administrators, in 2011 -- the most recent year for which complete data is available -- 3.7 percent of all state and local spending went toward pension benefits. To shore up these funds, most states have sought to increase employee contributions and decrease or eliminate cost-of-living adjustments. Such moves are unpopular with employees, and 2014 marked a continuation of individuals, unions and pension funds fighting back against chronic government underfunding.
Back in 2012, New Jersey Gov. Chris Christie struck a deal with the legislature to make employees pay more, raise the retirement age and eliminate cost-of-living increases in return for more payments into the pension fund from the state. Two years later, Christie has not paid the $2.4 billion into the fund that he promised, arguing that the money was needed to prevent cuts in other programs, so earlier this month, the state’s largest pension fund sued Christie.
In New Hampshire, an ongoing lawsuit over a 2011 decision by the legislature to require employees to pay more toward their pensions was finally settled. Earlier this month, the state Supreme Court handed the state a victory and overturned a lower court ruling that the legislature violated the contract between the state and those already vested in the plan. The case now goes back to the lower court for review, but it appears that the state will get the go-ahead to require increased contributions from employees.
Just this week, former city workers and four unions in Chicago filed suit to block Mayor Rahm Emanuel's pension changes from taking effect on Jan. 1. The city faces a $19.4 billion shortfall in its pension fund. Without increasing employees' contributions and reducing cost-of-living increases, the mayor argues the pension fund will go bankrupt, and the 61,000 current city workers and retirees will stop getting payments altogether. If the changes are implemented, Emanuel promises to pay more into the fund.
And in Illinois, the state Supreme Court announced last week that it will speed up its review of the state's appeal of a lower court ruling that its Dec. 2013 pension changes were unconstitutional.
A report by the Pew Charitable Trusts found that states pay around $25 billion a year in employee health care, which is approximately 3.4 percent of states' spending, and these costs have risen about 7 percent over the past five years. States and localities tackled the issue this year in a variety of ways -- from instituting wellness programs (which many argue are ineffective) to making their employees pay more for health insurance. A Center for State and Local Government Excellence (SLGE) survey released this month found that 57 percent of respondents made employees pay more for their premiums, 19 percent moved to a high-deductible plan with a health savings account, and 14 percent set up a health reimbursement program, which pays employees for out-of-pocket medical expenses and premiums.
Some respondents reported decreased costs as a result of dependent-care audits and on-site clinics. Corpus Christi, Texas, for example, has saved $1.84 million in health-care costs by starting an on-site clinic for its 3,000 employees and running an eligibility audit on all dependents covered by city health insurance plans, which helped to remove ineligible participants.
Other cities are targeting retirees in their quest to reduce health-care costs. Detroit and Chicago, drastically cut how much they paid for retirees’ health care, while Sheboygan County, Wis., opted to stop covering retirees altogether.
While the private sector has been gaining, the public sector continues to drag down U.S. job creation. It’s unsurprising that job growth has been slower in government since it began shedding jobs at a quick pace at the same time the private sector was beginning to improve.
Overall, the year was a mixed bag on the job front. In January, state and local governments shed 19,000 jobs; in September, they added 22,000; and in November, they only added 2,000 jobs. Most of the hiring is happening in public safety and education; in fact, a majority of the November jobs are seasonal education employees. According to a September report by the Hamilton Project, an economic policy initiative at the Brookings Institute, the public sector (including the federal sector) needs to add 1.6 million jobs to reach pre-recession employment levels. But, excluding December, state and local governments added barely over 100,000 jobs in 2014.