Thursday, January 8, 2009

The Real World and the World of Government

A couple weeks ago I blogged about City spending and asked how Eden Prairie can just move forward- status quo- with staff salaries and regular raises while other companies like Best Buy are offering severance packages to their entire corporate office.

Now Eden Prairie based company, Value Vision (Shop NBC) has hit the Strib annoucing a layoff of 60 people- 11% of its workforce and salary and bonus freezes for the rest of its employees.

Another business- with it's large corporate offices in Eden Prairie- has annouced thi week that it's freezing base salaries for all employees in 2009 instead of resorting to layoffs.

The City Government- and County, and State, and Federal- don't have to make these tough decisions because they have a guaranteed revenue stream- our tax dollars. It's infuriating.

How hard is it? How hard is it to freeze city employees' salaries? If we have such a low attrition rate of city staff then this seems like a "no brainer" to me. Are people going to quit if they don't get a raise? Well good- then consolidate job responsibilities as is being done in the private sector.

Companies- property tax paying companies- in Eden Prairie have to tighten their belts- they're consolidating job responsibilties, they're not hiring any new staff, they're immediately freezing pay, but our City Government just keeps on spending and spending. It makes no sense.


phil said...

How much government spends, which services it provides and the wages paid to government employees are always fair subjects for comment. What Eden Prairie will do during this budget cycle on compensation hasn't been discussed; but, i'm sure the Council is going to look hard at the issue.

But, to be fair, I think it should be pointed out that those private employers who are laying off or freezing compensation(what percentage of all private sector employers are doing either/both i don't know) are reacting because the marketplace is consuming less of the products they sell. So, if less people are buying consumer electronics from Best Buy and Best Buy is buying less product from manufacturers, it stands to reason that Best Buy will need less employees.

But, with few exceptions there aren't less people consuming the services which the City provides. We are seeing less construction activity and the city has reduced its census accordingly in the areas of engineering and planning. But, we aren't seeing less demand in the departments which have high census to begin with-- public works (water and snow plowing), or public safety (cops and fire), or parks.

Now it may be that the City can provide its services more efficiently and it certainly may be that the City is providing some services which some residents don't think the City should provide. But, those are different issues and, indeed, are issues which the City needs to assess irrespective of market conditions.

If the City decides to further reduce the number of its employees or freeze compensation we need to make the decision thoughtfully.

Jim said...

Obama is going to "create" hundreds of thousands of new government jobs with his plan, and probably bail out states so they can continue to keep their government employees in tax dollars (and in turn bail out cities, I suppose... except EP :)

Anyway, this was an amusing post about Pawlenty's fees and taxes:

If I had to rank them, I'd take gov't spending cuts first, then user fees for government services, then general taxes, so it's good (but not ideal) that he's moving in this direction, but nevertheless, it's an entertaining mullet mocking.

Sheila said...

Why can't salaries be frozen as an act of responsible government during tough economic times?

Even if you didn't freeze them for snow removal staff, police, fire- you could freeze them for the administration.

You seem to say- "because we don't need to, because the market doesn't dictate it"-- wrong. There is no free market for government- the City has a monopoly on services so we don't have a choice who provides parks, police, water, etc. We don't even have a choice where to buy booze in EP.

We certainly don't have a say in what taxes we pay to the city.

The continual comparisions between the private sector and public sector (as if it's apples to apples) used for justification of growing government spending is wrong. Especially for a Republican.

Jim said...

I always enjoy reading comments from Phil, but in this case I think Sheila makes an excellent point regarding unfair comparisons between public and private spending.

It seems to me that the level of city service use (plows, police, fire, parks) will be roughly the same if the city employees are overpaid, underpaid, or paid just right. Beyond a certain point, the quality of service would perhaps vary with city employee pay, but the use should stay roughly the same (or so I think based on no real evidence). Assuming the same quality of city services, there is no price/performance feedback as there is in a private service industry. If Joe the Plumber (sorry) does a good job for $200 and Fred the Plumber does an equally good job for $100, the market sorts that out (hehe, unless Union goons come and hit Fred in the knee with a pipe). If the city does a good job plowing, it's hard to tell if you could have gotten the same good plowing for less money without a market comparison (and comparing to the salary of other cities isn't a fair comparison since they might all be too high). Elections take years to provide indirect feedback. I suppose City Council meetings and Budget Advisory groups offer some feedback, too, but it's not really the same as the direct feedback as seen in the private sector.

Phil, however, makes a great point that the city's role in certain services should always be examined no matter how the overall economy is performing. I'm not saying the city should turn to a private plow service (I have no idea if that would be cheaper), but there are plenty of odd things the city does that it probably shouldn't be doing.

phil said...


I think you misunderstood my comments. I wasn't suggesting that the City should take no action on wages this year. And, my market discussion was merely a response to what I thought (perhaps incorrectly) was your point--that the City should lay-off or freeze wages based on what certain private sector employers are doing as reported in the paper. Those employers are making market-based decisions and something tells me that every single one of them would much rather keep their employees and give raises this year. Those are hard decisions which are having powerful impacts on people.

I agree that the City is a monopoly provider of services. And, I also agree that public/private comparisons have extreme limitations. I don't think i've ever suggested to the contrary.

Further your comments address precisely how i've already phrased the issue which i think the Council needs to address this year--what is the obligation of a City (beyond avoiding waste, etc.) in times such as these? Does the fact that we have a stable source of revenue mean that we should be distant from current economic conditions? I think the answer is clear--of course not. But, the real debate, and it will be a hard one, is what actions we should take, keeping in mind that any actions we take on compensation will have impacts beyond the balance sheet.

But, as i said in my first post, whatever action the City takes needs to be the result of a thoughtful process. To me, compiled empirical data of wages and other economic data will be far more impactful than what the STrib reports Best Buy is doing.

I don't know how to fully respond to Jim's "overpaid/underpaid" comment. I can tell you that for positions which have private sector comparables, such as civil engineers and planners, that we pay less than the private sector. But, there is no real helpful measurement tool for police officers or snow plow drivers. Our evaluation of comparables for those types of jobs tends to be other governmental employers.

Sheila said...

Great- I'll look forward to watching the analysis...but I have a real, sneaking suspicion that we'll end up with a big pat on the back for EP (as usual) for how great we're managing things and how we're right in line with where we need to be.

My simplistic notions are why I'm not an elected official I suppose.

"Thoughtful processes" are wonderful and they sound good- it would be great to think that liberals (and moderates) would respect fiscal conservatives and work with us to reduce spending because we're so thoughtful- but they don't and they won't.

And do such processes ever achieve meaningful reform of government (specific to reigning in spending)? I can't come up with too many examples. What process is required to say- freeze salaries at 2008 levels for one year?

Goose said...

My familiarity and experience with big, for profit businesses in times like these is that they actually give their top people raises, and in addtion, reduce workforce to match market conditions of supply and demand. The reason for raises is that you still need to retain and reward at least your top performers, even in recessionary periods. And, you reduce workforce to match revised staffing needs for production of products or delivery of services.

In the public sector, I suppose it is a bit more complex. I can imagine given that if you have a growing population and in turn increased services demand, it is more dificult to reduce workforce. I think the option there is to define what services are essential to deliver in these economic times, and match workforce to those.

phil said...

Sheila, I don't know what the outcome of our budget discussions will be this year. All I'm trying to say is that if we freeze comp it will depend on a broad set of economic data. I do not begin with the assumption that things are broken in Eden Prairie and wouldn't support a compensation action which seemed arbitrary.

Jim said...

That was pretty much all I was trying to say with my over/under paid comment.

Since the city is providing monopoly services, it's harder for the city than the private sector to determine if its employees are over/under paid (especially in the cases where there is no real private sector comparison, like large plows and police).

It's rather pointless and obvious to say that now that we all agree that public & private comparisons are "limited."

Sheila makes a great point that all the conservative thought and consideration is wasted if it is ignored in the end and spending continues to increase.

Since we are in a deep and long recession, and many/most economists expect price deflation for a while as the credit bubble continues to unwind, unemployment goes up, and economic activity slows, I don't think it's at all unreasonable to have an across-the-board pay freeze to 2008 levels (which were probably set up under far different economic assumptions).

Ignoring public/private supply and demand comparisons, if EP residents are worried about keeping their jobs and generally not getting pay increases this year, it seems entirely reasonable for the city employees (who enjoy far more job security) to "suffer" a freeze in pay for the year. This freeze even ignores the difficult-to-answer over/underpaid question because it's not a pay cut (or increase), it's a freeze. It's not a layoff, either, so the same demand for city service should be able to be met.

Also, does EP do a 401(k) or have a fixed pension for its employees? If it's a pension system, city employees have most likely not lost (on paper) a large chunk of their retirement plans like many working EP residents, and this proposed spending freeze still leaves them with a very nice job. I don't expect hourly or seasonal workers to have retirement plans, but what about the full time city workers? 401(k) or pension?

The only reason not to do a salary freeze would be if it violated previous contracts, I suppose. That would imply that people should be more careful when they are making the contracts.

In summary, I think it would be entirely reasonable to advocate for a salary freeze during the upcoming compensation discussions.

Jim said...

Hehe, Goose, don't the top people usually get raises all the time, even if they run the company into the ground? ;)

Sheila said...

The 0% budget increase was proposed in 2007 by Jon Duckstad- so I don't see this as an arbitrary or impulsive idea.

I don't think there's anything arbitrary about saving taxpayer money--most especially in very uncertain economic times.

And Goose- EP spending has gone up by 23% in 5 years- by 41% in 10 years- population has gone up approx 10% in 10 years- way out of line with growth. Our property taxes are higher than neighboring Edina, but our property values are lower- and falling.

So perhaps there's nothing broken, but maybe there's a crack or two in the foundation.

Mary said...

Off topic but a question...Have you ever heard of a "regular" city mayor ever giving a property tax rebate to citizens? I'm talking about your average suburb like EP or Alpharetta, GA or Lakeville, MN. It's funny, if you Google you only find the NYC/Bloomberg/Property Tax debacle. Is it something only huge metropolitan areas can do? The first person to pull that off will be a media star (not to mention re-elected)