Nevada Public Employee Unions and Compensation

This is the fifth in a series of columns summarizing my Controller’s Annual Report (CAR) for fiscal year 2018 (FY18).

The first two columns showed that since FY06 state spending has grown faster than Nevada’s economy, thus imposing an ever-larger real burden on Nevada families and businesses, whose real per-capita incomes are lower now than in FY06.  The other two analyses reviewed spending on health and social services and on K-12 education, the two largest budget items by far and the only major areas on which spending has grown faster than Nevada’s economy.

This column is the first of two on public employee compensation for state and local-government employees.  I also discuss retirement benefits for each group from Nevada’s Public Employment Retirement System (PERS).

The next column will discuss a particular PERS problem: risks to all employees, retirees and taxpayers from PERS’s unreasonably high estimates of future returns on its investments and employee head-count growth.

Current compensation for Nevada state employees (not including those in higher education) is comparable to private-sector levels in our state and below average for that of other states.  State pay scales are flatter than those in private enterprise, with entry-level jobs paying more and executive and upper-level professional jobs and some specialties paying less.  So, reform may be needed, but it’s not clear it would have net fiscal impacts.

Employee current compensation paid by Nevada local governments and higher education is greatly higher than that for Nevada state and private-sector employees.  In fact, Nevada local government compensation is among the highest in the nation, especially when its extremely generous benefits are recognized.  This problem is most extreme for public-safety employees – police and firefighters – and in Clark and Washoe counties, not the other 15 counties.

State statutes require all PERS contributions to be split equally between employees and the government employers (and thus the taxpayers).  However, the great majority of local governments and their employee unions have long exploited a loop-hole to shift the burden almost completely to the local governments.

The loophole is this: If the responsible fiscal officer of a local government signs a statement that the governmental unit is unable to give its employees the direct compensation (raises) that market studies support, then it can pay from that time on a compensatory portion of the employees’ PERS contributions in addition to the employer’s contributions.  When this mechanism is used a few times, as it has been, the employee contribution is reduced to zero and the local government’s taxpayers are paying the full PERS contributions.

Abuse results because state statute allows local government employees, but not those of the state, to unionize for collective bargaining on compensation and benefits.  Thus, local public employee unions have such a large stake in local elections that they spend enough money and effort to dominate local elections.  And most elected officials and the appointees who work for them have become dominated by the unions.

Hence, the local officials are willing to affirm that direct compensation levels are below market rates even when they are not.  That the direct compensation levels are in fact well above market and equitable levels is demonstrated by the fact Nevada local-government direct pay is among the highest in the nation and well above state and private-sector levels in our state.

This continuing major scam and the damage it continues to cause demonstrates one of many reasons public-employee unionization for collective bargaining on compensation and benefits is predatory on taxpayers and contrary to the public interest in economic growth and fairness.

It also shows one of many reasons proposals currently pending in the legislature to allow state employees to unionize for such collective bargaining should be rejected.

The CAR does not address detailed local-government fiscal matters, but does note that the extreme practices of local governments redound to the disbenefit of the state and to state employees and taxpayers.  So, reforms in local government and higher education pay would not only be fairer to state employees and taxpayers, but would also help the state manage its fiscal problems.

In sum, Nevada local government compensation is among the highest in the nation and continues to require increases in taxes that are already unduly high.