The Limits of Labor

Ann Marimow is a good reporter and I respect her work. But in her Sunday Post article, “Union Influence Sways Montgomery Budget Talks,” I believe she overstates her case. Montgomery County labor has power, but that power has its limits.

This may seem a curious statement coming from me. After all, my now-notorious 2006 guest post in which I christened the Montgomery County Education Association (MCEA) the county’s 800-pound gorilla has contributed to the image of labor power in Montgomery. The story behind that long-ago essay is that I was running a petition drive at my precinct and witnessed the extraordinary attention given by voters to MCEA’s Apple Ballot. I then calculated the 90% win percentage earned by Apple Ballot candidates in the Democratic primary and concluded that MCEA had played an important role in the election. That essay was originally intended only for my own union people and a few friends but found its way onto the Internet through third parties as a guest blog. And so began my descent into online infamy, an unhappy event lamented by many who have been spoofed here. While the point of that original post may be true, it presents only one side of the story.

Consider the following facts in assessing the limits of public union power:

1. Public employees in Montgomery County are not uniformly better paid than in other jurisdictions. I compared wages and benefits across jurisdictions in a post last month and found no systemic advantage for workers in Montgomery. In fact, firefighters and teachers lagged many other nearby counties, many Montgomery workers are not eligible for a defined benefit pension and even teachers with Masters degrees cannot afford to buy the average county townhouse. Is this a result you would expect from “Big Labor?”

2. In my 800-pound gorilla post, I wrote:

With property tax growth slowing down, the next county council will face tough budgetary decisions. Public schools account for half of the county’s budget and would be an obvious location for cuts. But don’t expect any action there: the county’s politicians have learned that those who cross the Teachers Union once are unlikely to be given a second opportunity.

How wrong can a man be and still be allowed to blog? The fact is that County Executive Leggett has not recommended full funding for the public schools’ budget request in either of his first two years in office. Last year, the County Executive proposed $19.7 million less for the school budget than requested by the Superintendent. The County Council ultimately approved $6 million less than the school request. This year, the County Executive recommended $51 million less than the Superintendent’s request, of which $26 million has so far been restored by the County Council. The school unions have performed well in defending their budget but they are hardly untouchable.

3. SEIU Local 500 has so far been unsuccessful in persuading Montgomery College to terminate its “union avoidance” attorney. If the unions were truly all-powerful, the college’s actions would have been unthinkable.

4. Union-backed candidates do not automatically win. Many have noted the losses of school board candidate Alies Muskin and County Council candidate Nancy Navarro. But look back on 2006. Progressive Maryland President Elbridge James and teacher Melodye Berry were badly outraised and finished next-to-last in their delegate races despite being Apple-approved. MCEA could not save Ida Ruben from Jamie Raskin in the District 20 Senate race. And Apple Republican incumbents Howard Denis (County Council) and Jean Cryor (State Delegate) fell to Democratic challengers. Apparently George W. Bush had more sway with MoCo voters than did MCEA!

Pure union-only candidates struggle. Labor tends to do best when it backs candidates in concert with others. For example, a combination of union and civic support helped to elect County Council Members Duchy Trachtenberg and Marc Elrich and resulted in the eviction of Mike Subin. The real genius of the county’s labor strategists has been to pick candidates who are strong on their own merits and (hopefully) agree on union priorities. But even union-supported candidates sometimes stray, as has Council Member Trachtenberg – further evidence of the limits of labor power.

I will bet that most of our readers are not union members. “Why should I care about this?” you ask. Montgomery has always been a “you-get-what-you-pay-for” county. Our citizens have been willing to pay higher taxes than in other jurisdictions in a belief that higher service quality would result. Many Montgomery residents are employees or contractors of the federal government and easily see the relationship between funding and performance. Sometimes residents make common cause with unions in seeking county funding, as PTA members occasionally do with MCEA. By pressing for good compensation and adequate budgets, the unions help the county maintain its service level and recruit superior talent. Without strong unions, Montgomery’s politics might resemble those of infighting, school-challenged, crony-infested Prince George’s, or perhaps developer-, business- and tax-activist-dominated Northern Virginia.


Look into the eyes of this woman and read her sign. Labor is at its best when it presents her message to both the politicians and the public at large. Labor has power. Labor has limits. But labor, and the rest of the county, can only succeed if our citizens agree with the woman above.

Disclosure: The author is the Assistant to the General President of the United Brotherhood of Carpenters, which does not represent government employees in Maryland.

Challenge to the Unions, Part Two

In Part One, we reported on County Council Member and Management and Fiscal Policy Chairwoman Duchy Trachtenberg’s letter to public employee union MCGEO offering a choice between layoffs and COLA reductions. Today we examine whether those measures are justified by the county’s dire budget situation.

Concerned over the county’s long-run finances, Council Member Trachtenberg asked council staff for an estimate of the future obligations to the county imposed by its public employee union contracts. Two weeks later, the County Council’s merit staff director responded with a 129-page memo outlining those costs. Page 2 of the memo contained this statement:

Councilmember Trachtenberg has requested information on agency compensation costs over time. One measure of these costs is the cumulative fiscal impact of the current or pending three-year negotiated agreements with the six County and MCPS unions, starting with the base year. See the fiscal impact statements on pages 37-39 and 111-113. The cumulative fiscal impacts are $117.9 million for MCGEO [government employees], $45.4 million for the FOP [police], $37.2 million for the IAFF [fire fighters], $61.9 million for non-represented employees in County Government, and $577.7 million for MCPS.

The total of these amounts, $840.1 million, does not include higher ongoing costs for health benefits for active and retired employees, nor does it include the $1.2 billion cost of the proposed eight-year pre-funding schedule for future retiree health benefits.

Are these marginal costs really accurate? We looked up the supporting data on pages 37-39 and 111-113, which correspond to pages 53-55 and 127-129 in the pdf document. Following is our tabulation of all marginal costs reported.

The marginal costs for each of the employee categories amount to $134 million in FY08, $176 million in FY09, $225 million in FY10 and $21 million in FY11 for a total of $557 million over the four years. (The estimate is low for FY11 because only the fire fighters’ agreements cover that year.) This total is much lower than the $840 million reported on the second page of the staff report, even though that summary refers to the pages tabulated above. There is simply no data in those pages to justify the $840 million estimate.

Furthermore, marginal cost data for FY08 should not be construed as a future obligation faced by the county. FY08, the current fiscal year, expires on 6/30/08. Those costs have mostly been paid already.

Finally, the analysis includes marginal costs due to fire and rescue management and non-represented employees. Why should the unions be held responsible for additional spending on employees they do not represent?

Subtracting out costs for the almost-expired FY08, the fire and rescue management and the non-represented employees, the remaining future obligations faced by the county total $154 million in FY09, $193 million in FY10 and $20 million in FY11, or a combined $368 million. This is a far cry from the $840 million cited at the beginning of the staff report.


Are added salary costs of $150-200 million per year sustainable? The answer depends on the county’s economic performance and the county government’s revenue collections. According to revenue statistics released by the County Executive, revenues collected by the county are projected to rise by $109 million in the current fiscal year (between 7/1/07 and 6/30/08). That overall rise in receipts occurred despite the facts that a) county receipts from the real property transfer tax dropped from $107 million to $80 million (down 25%), b) receipts from the recordation tax dropped from $73 million to $53 million (down 27%) and c) the county may have entered a recession. The above means that even in a really bad year, the county’s revenues continued to rise.

The County Executive’s proposal projects a further rise in receipts in FY09 of $301 million, partially due to his property tax increase. This would be more than enough to pay the $154 million in extra costs associated with the union contracts. At least for next year, the county should be able to meet its labor obligations if it adopts a budget similar to the County Executive’s recommendation.

As for the future, the most volatile components of the county’s revenues are the two tied to real estate sales: the real property transfer tax and the recordation tax. According to the county’s Department of Finance, residential real estate sales volume averaged over $500 million per month from 2006 through the first eight months of 2007. Since then, residential real estate sales volume has averaged between $200 and $300 million per month. It is this collapse in residential real estate transactions that has caused many of the county’s current budget problems. All policymakers – both inside the government and inside the unions – should watch this figure in the Finance Department’s monthly economic updates. If it rises back up to $400 million per month or more, the county’s real property transfer and recordation taxes will begin to recover. If it falls further, tougher times are ahead.

Are MoCo Public Employees Overpaid?

Yesterday, the Post reported on growing disagreements between Montgomery County leaders over compensation paid to county employees. Labor costs account for 80% of the county’s $4.3 billion budget and the county is facing a $297 million deficit. As a result, some county officials are scrutinizing employee contracts.

Council Member Phil Andrews told the Post that the county’s collective bargaining agreements were “unsustainable, unnecessary and unrelated to real-world economic conditions,” and said they should be rejected. Council Member Duchy Trachtenberg wants to know exactly what the county’s future obligations are under the contracts so the council can figure out how to pay for them. And the Post reported this tense exchange between Council President Mike Knapp and County Executive Ike Leggett:

Council President Michael Knapp (D-Upcounty) said Leggett's approval of the contracts appears to run counter to his message about the need to slow down spending.

“One would have thought that a more conservative approach would have been taken,” Knapp said. “It looks like we're trying to play both sides. Do we have bad economic times, or do we need to have generous increases in our contracts?”

In a prepared statement, Leggett called the contracts “consistent with agreements throughout the region” and said Knapp does not fully understand collective bargaining. Leggett said he has limited flexibility because of past decisions by the council and the school system and because of the possibility of binding arbitration in the event of an impasse. He cited the council's approval in 2006 of a $13 million enhancement to pensions for school system employees.

“I believe the Council President voted in favor of additional pension enhancements and every collective bargaining agreement that has ever been placed before him, thereby establishing less than favorable conditions in which future executives must negotiate,” he said in the statement.

So are Montgomery County’s public employees overpaid? Let’s examine a range of issues connected to their compensation.

Wages
The Post points out that many wage increases in the county’s contracts are actually intended to catch up to higher pay levels in other jurisdictions. As an example, the Post looks at fire fighters:

John Sparks, president of the Montgomery County Career Fire Fighters Association, said the county is playing catch-up for its 1,050 firefighters and paramedics. Rookie firefighters are paid $39,997, compared with $44,301 in the District, $40,784 in Prince George's County and $47,472 in Fairfax County. Among jurisdictions such as Montgomery with more than 500,000 people, the average salary nationally is $44,275 for starting firefighters.

Consider the county’s teachers. The Washington Area Boards of Education (WABE) estimates the total compensation cost of a teacher paid $60,000 in salary in nine of the metro area’s jurisdictions. Montgomery compensates such a teacher $81,792, above only Prince George’s County ($78,720). Montgomery trails Arlington County, the leader, by 7.1%.

WABE also reports the starting salary of a step 1 teacher with a bachelors degree in Montgomery as $44,200. The average sale price of an existing townhouse in the county was $364,000 a year ago. A simple analysis with a mortgage calculator and a spreadsheet generates some interesting revelations. If this starting teacher put down 10% of the townhouse’s value, took out a 30-year mortgage at a 6% fixed rate and paid $2,500 per year in property taxes, he or she would owe 59% of pre-tax salary per month to make the payments. A step 9 teacher with a masters degree makes $64,498 and would owe 40% of his or her pretax monthly salary for the mortgage and property tax payments on the same townhouse.

How can this be considered excessive pay?

You can view a breakdown of county salary schedules here.

Pensions
Government jobs used to be known for having modest salaries but great retirement benefits. This is not the case in Montgomery County. Since 1994, the county’s Employees’ Retirement System, its defined benefit plan, has been closed to new employees other than public safety workers. Currently only 5,294 of the county’s workers have county-funded defined benefit pensions. The county’s 11,486 teachers are covered by Maryland’s State Retirement and Pension System. This means that half of the county’s total workforce of 38,000 must rely only on a defined contribution pension plan for retirement. Most of Montgomery’s neighbors continue to grant their employees defined benefits.

Health Care
The county is projecting payments of $80.7 million for group health insurance premiums for its workforce next year (and that does not include school employees). It also projects $2.6 billion in future liabilities for retiree health benefits and is phasing in annual contributions towards those liabilities which will rise to $259 million after the next five years. Montgomery is not the only county facing a large liability for retiree health care: Howard reports a $477 million liability, Anne Arundel reports a $1.3 billion liability and Prince George’s reports a $2.7 billion liability. None of them approach Los Angeles County, California, which will have to deal with a $20 billion liability. This is clearly a lot of money so why not cut health coverage for county employees?

There are two problems with that. First, county employees already pay 20% of their health costs. Raising that percentage would be effectively a wage cut. Second, cutting health benefits will not decrease illness among public employees. They will continue to seek care in local hospitals. And in Maryland, state law provides that hospitals are reimbursed for their cost of uncompensated care (which totaled $734 million in 2006). Where does this money come from? About 90% is covered by allowing hospitals to charge higher rates that are determined partially by their uncompensated care experience. The remaining 10% comes from an assessment imposed on hospitals equaling 0.75% of their net patient revenues. Virtually all of this money comes back to taxpayers because government entities (like Medicare and Medicaid), premium-charging insurance companies and patients wind up ultimately paying the higher rates charged by the hospitals. In the end, if county employees get less health coverage, we will all pay for their health costs anyway. The only difference is that, with less coverage, county employees would be less likely to seek preventative care and more likely to use emergency rooms, thus driving up health care costs for everyone.

Recruitment and Retention
Consider the view of a talented prospective job applicant pondering whether to accept employment with the Montgomery County government. Unless that applicant is seeking a public safety or teacher job, he or she will not get a defined benefit pension. Unless the person is qualified for a top management job, he or she will be unlikely to afford a home in the county without assistance. He or she will be able to make more money in the District, Arlington County, Fairfax County or perhaps even Prince George’s County. For this applicant to commit to Montgomery, he or she will have to believe that Montgomery will one day pay at least as much as its neighbors and the applicant will someday be able to afford in-county housing. Otherwise, it makes little financial sense to work for Montgomery County and the best applicants will go elsewhere.

Competitiveness
Finally, an important part of the economic bedrock of Montgomery County is its superior level of government services – especially its public schools. When the county invests in its schools, it provides a powerful reason for businesses and residents to want to live here and create jobs here. Without top-grade public services, we will increasingly be seen as merely a high-cost jurisdiction in the metropolitan Washington area – and what happens to our economic competitiveness then?

It’s in the best interest of county taxpayers to attract and retain the best public employees to work for them. We do have to figure out how to pay for them. But spreading the mythology that county employees are overpaid will not get us there.