The missing budget-saving option: civic salaries

In a useful exercise courtesy of Mayor Naheed Nenshi and published in the last Sunday’s Herald, Calgarians were asked to help decide how the city should close a 2011 budget shortfall of $47 million. Listed options included everything from a $33,000 cut in the mayor’s office expenses, to a $990,000 reduction in road repairs, to fewer transit hours at a savings of $3.6 million.

The effort is useful, but those are limited nickel-and-dime possibilities in an almost $2.3 billion tax-supported operating budget (almost $2.7 billion if utilities are included). What was strikingly absent from the list was this option: a freeze or cut in the city’s bill for wages and benefits.

In budget consultation documents provided by the city (a 66-page paper on budget adjustments and a seven-page administration document on further options), neither provided this simple statistic: salaries, benefits and pension liabilities as ”X” per cent of the operating budget. Has it been there, Calgarians would have another choice in closing the $47-million gap.

To find such figures, one has to dig online into backgrounders in supplemental budget analyses. There, one will find the bill for salaries, wages and overtime benefits under Approved Business Plans and Budgets 2009-2011.

The cost for roughly 13,400 salaries/wages overtime and benefits in 2011 is forecast at $1.268 billion; that’s about 55 per cent of the $2.312 billion tax-supported operating budget. (I’m excluding utility expenditures, their job numbers and utility-related employment costs from all these calculations; the latter number was not readily available from the city by press time.)  

That such numbers are not in the consultation documents is no surprise and not because city employees are devious; the reason is more mundane. Few inside government would think a pay cut for the public sector, even temporary, as a natural option. As someone once quipped, don’t expect the turkey to offer itself up at Thanksgiving.

That doesn’t mean it should be a non-starter. After all, those in the public service are in the employ of the public which pays the bill.

In 2010, the city will ante up $1.207 billion for wages and the like. If the bill for that was frozen, next year’s budget would be ahead by $61-million—and poof, no shortfall. (Take $1.268 billion forecast for 2011 minus the predicted $1.207 billion wage bill in 2010; the difference is $61 million.)

I grant that an occasional public sector freeze requires a change in government thinking. But that’s what needed if all Calgarians—private, non-profit and public sector—are to be on equal footing. The private sector rolls with the economic punches all the time.  According to one media report, rig workers took an average 12 per cent cut in pay during the 2009 recession; they’ve gained back only three-percent this year. It’s an example of a private sector that faces up to real-world constraints. Also, I’d guess newspaper staff can also inform us all about budget cuts, frozen pay and layoffs over the last ten years in their industry. And such realities also apply to the non-profit sector; the recent recession whacked charities hard and layoffs occurred there. So there’s no reason municipal employees shouldn’t share the same adjustments to reality.

Looking ahead beyond just the immediate budget crunch, governments ought to permanently align the interests of all sectors on wages, benefits and pensions. Here’s one example of where they’re not: Many government employees are still in line for guaranteed pension benefits upon retirement.

That’s unwise for taxpayers who guarantee such liabilities but also for public servants.  Insofar as governments gamely guarantee something 40 years out, they’re gambling on the economy, the willingness of taxpayers to fund such benefits, or bondholders to lend money (which only defers the bill to taxpayers). That’s risky. Such assumptions no longer work in Greece, Ireland and the United Kingdom, where wage freezes, cuts or even changes to pensions have either been enacted or are on the table; ditto for some American states such as New Jersey.

Far preferable is the now common private sector practice where one’s employer matches or doubles the employee contribution to an RRSP or some other retirement vehicle. That way, long-term liabilities are not created, and a government won’t one day renege on a promise it never should have made.  

On all of this, the public is already way ahead of the politicians.  In March, a Nanos-Policy Options poll asked Canadians about the most effective way to balance the federal budget: Only 3.4 per cent said increase personal income taxes and just 7.9 per cent chose an increase to the GST. Over 20 per cent said cut program spending. Fully 36 per cent chose a freeze in public sector wages to balance the books.