Real World Benefit Plans and Workforces

I spent five years of my working life teaching in a classroom. During those years, I had a benefit plan unlike any I’ve ever experienced in the real world (read: every other job). There has been a lot of discussion at times about how public sector employees have a lower pay/higher benefits package scenario.

An annual scorecard on benefits shows that public employees continue to have richer benefits than their private-sector counterparts, but squeezed state and local budgets could push governments to start cutting back.

As of March, 88% of state and local government workers had access to employer-sponsored medical plans, compared with 71% of private-sector workers, according to a Labor Department report released Tuesday.

Governments also picked up a larger share of the health-care tab. Public employers paid 89% of the premiums for policies covering individual workers as of March, compared with 80% at private-sector companies.

As people live longer and longer and demand more and more “free” healthcare, this deferred approach to compensation is proving unsustainable. It is built on the false premise that each new year will bring more revenues than the year before. However, as we have all been painfully reminded economic cycles are just that – cyclical. As Newton pointed out, what goes up must come down. This doesn’t just apply to gravity.

To complicate matters even more, in the Land of Enchantment public sector employment has been crowding out private sector growth to the detriment of our state for generations.

Of course, this is not a new phenomena, the crowding out of the private sector has been going on for a very long time. Based on the BEA data, in 1929 (the first year of available data), New Mexico’s private sector accounted for 87.2 percent of all personal income earned in the state. Eighty years later in 2009, the private sector share had fallen by nearly one-third to an all-time low of 58.9 percent of personal income – the fifth-smallest private sector in the country.

The full impact of this continual move away from wealth creation to wealth distribution is finally being felt. We are facing budget short-fall after budget short fall at the state and local level. We’d be feeling it at the national level as well, but they just keep printing money and increasing the debt ceiling. Of course, eventually that strategy is going to come back to bite us.

Over the next few weeks, we’re going to hear a lot about the need for our new Governor and the state legislature to deal with the $260 million budget shortfall. That may seem like a lot of money, but it’s not. State government has been grown to a ridiculously large size. It’s time to cut it back a heck of a lot more than $260 million, and the good news, is that it’s not as hard as it seems.

New Mexico’s bloated government workforce plays a significant role in crowding out the private sector. In 2009, New Mexico’s state and local governments spent $8.7 billion in payroll (wages and salaries and benefits) which amounts to 12.4 percent of all personal income earned in the state – the 2nd highest in the country. The national average was a much lower 8.9 percent.

If New Mexico’s payroll for the state and local government workforce was trimmed to the national average, it would save taxpayers a whopping $2.8 billion dropping to $5.9 billion from $8.7 billion. Those savings from reducing the government workforce would amount to $3,731 for every household in New Mexico.

It’s time to make a correction. We need to trim state and local government workforce, and bring public sector benefits packages in line with private sector benefits packages.