This comparison shows the inequity between public sector and private-sector employees for overall
There’s a way to save Michigan taxpayers $5.7
billion without cutting a single program, eliminating any government job or
touching public wages. That’s more than enough to balance the state’s budget,
repeal the Michigan Business Tax, fix Michigan’s roads and still have money
left over. Michigan can do all this through government employee perks parity.
Compensation comes from wages and benefits
like paid leave, employer-paid retirement contributions, health insurance and
other benefits. In recent years, the cost of these benefits in the public
sector has exploded while the private sector has been getting them under
Michigan's taxpayers can no longer afford to pay for public-sector benefits that far outpace their own.
The average amount paid for government
employees’ wages and benefits in Michigan surpassed the private sector in 2005.
Since then, public-sector workers’ compensation has grown while private sector
compensation fell, including a drastic dip during the 2008 recession.
Public-sector growth has been driven largely by benefits.
Government workers at all levels — whether
they’re state bureaucrats or public school teachers — tend to receive a more
costly benefits package than private-sector workers. State and local
governments simply don’t face the same competitive pressures that are necessary
to control their labor costs. Government also has high rates of unionization —
60 percent in the public sector compared to just 13 percent in Michigan’s
private sector — that press governments to spend all they can on employee
Some benefits, like pensions for state and
school employees, are protected under state law, making them even more
challenging to reform.
But Michigan’s taxpayers can no longer afford
to pay for public-sector benefits that far outpace their own. The state should
pass a law mandating that state and local government benefits do not exceed
private-sector averages. In order to enforce this, the Legislature should
create a special commission that is given the power to alter public-sector
employee benefits. The commission would offer its services to any municipality
or school district that requests its services. This, by itself, is likely to
stave off the possibility of municipal bankruptcy since employment costs are
responsible for driving municipalities to the brink of insolvency. While it’s
possible for municipal governments to offer services by their employees at fair
rates for taxpayers, a panel like this would offer local leaders another tool
to control their finances.
The state should be the first to turn to this
commission for assistance. The
overall benefits package for state civil servants cost taxpayers approximately
$1.7 billion in the previous fiscal year. The state should be able to save
roughly $708 million per year if that package was adjusted to private-sector
Government schools and local municipalities
contain the rest of the potential savings from benefits parity. Public school
employee benefits are $2.5 billion above the private sector. Through
revenue sharing, the school aid fund, or direct appropriations, local
governments have relied on the state to help pay for this disparity.
As the savings materialize, Michigan can start
using them to make some important policy changes. The state should first
balance its budget, as required by the state Constitution. Benefits parity will
also pay off in future budgets by providing large savings as they are
accomplished and through smaller annual increases in subsequent years.
Next, the state should eliminate the Michigan
Business Tax. By saving money on benefits, the state would not require the $2
billion in revenue from this tax. Eliminating it would make Michigan a more
attractive place to do business.
Finally, it’s no secret that Michigan’s roads
are in bad shape. Michigan should spend the remainder of this savings on
improving roads and highways, instead of increasing the gas tax. Spending the
accumulated savings of benefits reforms on the roads allows Michigan to fill up
potholes without dinging taxpayers at the pump.
These three items will help the state balance
its books, make it attractive to economic growth and produce much-needed
repairs to state infrastructure. This can be accomplished without furloughs,
layoffs, or cutting back on state programs and entitlements. It only requires
bringing public benefits into balance.
James Hohman is a fiscal policy analyst at the Mackinac Center for Public
Policy, a research and
educational institute headquartered in Midland, Mich. Permission to reprint
in whole or in part is hereby granted, provided that the author and the Center
are properly cited.