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Wednesday, September 30, 2009

Charles M. Arlinghaus: State employees are not shortchanged


The biggest issue in state government right now is the struggle between state employees and the governor. The details about state employee compensation and its impact on the state budget are not often discussed, and this leads people to make assumptions that may or may not be accurate.

We must do something about the cost of state employees because they are the lion's share of the cost of having state government, we're told. The exact cost is hard to track down, but in 2008 the state employed about 12,000 people who make an average of $42,000, for about $504 million in salary cost. Add to that some additional people not included in the list of 12,000, a raise in 2009, increased pay step levels, and salaries still total less than $600 million.

The largest other employee cost is medical insurance. In New Hampshire, medical insurance had been growing rapidly. From 1999 to 2004, premiums paid for state employee medical benefits increased by about 20 percent a year -- from $49 million to $117 million. During the Benson administration, the state switched to self-insurance to try to better control costs, as many large companies do. As a result, premium growth slowed dramatically to about 7 percent each year. Medical coverage cost $156 million in 2008. At the old rate of growth, it would have been $80 million higher.

If we add together salary costs, health insurance and a few other items such as retirement contributions and retiree health costs, the total is around $800 million in an annual budget of around $5.7 billion -- about 14 percent of the total. Mind you, it may be a smaller percentage than people often think, but $800 million is nothing to sneeze at.

While its growth is not nearly as fast as state government itself, the state employee work force is still growing. Between 1998 and 2008, the number of filled permanent positions increased by 16.7 percent -- about 1,600 additional employees. The state budget in the same time period increased by 85 percent -- about $2.3 billion.

It is true that at one time the average state employee made less than the average citizen. That's no longer the case. From 2003 to 2008, state employee average pay increased from $33,600 to $42,500 -- about 4.8 percent per year. The Bureau of Labor Statistics reports that average pay in 2008 in all occupations in the state was $42,600. In 2009, a pay raise sent state employee pay past the state average.

So salaries are almost exactly average, but benefits are much higher. Private sector insurance is much less generous and involves higher co-pays than the typical state government plan. Even among state government plans, New Hampshire's is among the most generous. According the National Conference of State Legislatures' annual survey, only one state has a higher total cost, and it has significantly higher cost-sharing.

Family coverage costs about $20,800 for a state employee here compared to the national average of $12,700. The NCSL also estimates that average cost-sharing is 18 percent of that total, but only 2 percent in New Hampshire. So it costs taxpayers about $10,000 more per state employee than average.

In New Hampshire, this is a conscious decision. State employees have chosen to forgo higher pay in exchange for a more generous health insurance policy. Even so, an employee with family coverage has salary and medical benefits that are a good 20 percent higher than the average worker in the state.

There is much consternation over the possible layoff of 750 state workers. Yet history suggests that most of those workers could be rehired relatively quickly. Despite attractive pay and benefits, state government is not an unchanging monolith. Each year an average of 1,100 employees leave state service. Combined with the regular growth in the total number of employees and the creation of temporary positions, it means about 210 new employees are hired each month.

The state has been in the middle of a nominal hiring freeze for more than a year, but that doesn't stop positions from being filled. The freeze only applies to general funds, which cover fewer than half the employees. Even then, exceptions are granted. For example, during the four months of 2008 covered by the freeze, 71 exceptions were granted. In addition, another 100 or so other positions were filled. Combined with temporary and seasonal positions, about 1,000 people were hired in those four months.

Government has to be mindful of state employees both to ensure it attracts a dedicated work force and to make sure it isn't overcharging taxpayers. A look under the hood of state government suggests that we certainly aren't shortchanging the workers. But it also shows that 86 percent of the cost of government lies elsewhere and needs the same tough scrutiny that contracts are undergoing.

Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.

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