Total Employee Compensation Costs

Writing about compensation is a dangerous business, particularly when the writer is one of the higher paid people in the organization. My decision to write about the subject was inspired by a report I received this week from Portland State University (PSU) that confirms what I have known and talked about for many years. Oregon’s constitutional limits on a city’s or county’s ability to raise revenue with no corresponding limit on costs dictate that there will be fewer Oregon public employees in the future.

We have already seen this problem in Albany, where our workforce was cut by more than ten percent between 2009 and 2012 when property tax revenues could not keep pace with costs. The primary driver of increasing city costs is employee compensation, much of which we do not necessarily see reflected in our paychecks. Retirement contributions and health insurance, according to PSU, are among the biggest factors contributing to the problem. Retirement payments to the Public Employee Retirement System (PERS) could soon amount to 40 percent of salary costs, meaning that for every $10 cities pay out in salary, they will pay an additional $4 for retirement. Given that I will be completely retired in a few months, I am grateful for PERS, which will provide a pension of about 50 percent of my annual salary. Coupled with my wife’s small pension; my personal retirement savings; and, eventually, Social Security, I should have a reasonably comfortable income. The problem is that many people in the system, including my wife, were able to retire with incomes in excess of 100 percent of what they earned when they were working. No system can sustainably support that level of benefits. Changes to PERS in 2003 cut benefits, and I’m sure we will see additional attempts at reform in the current legislative session. I do not believe anything that will pass legal muster will really solve the problem.

We are likely to see heavier workloads for employees as our population increases at a faster rate than our financial ability to hire new workers. Albany is growing and property tax revenues are increasing, but not at a rate that will support many new employees. The few positions we added last year and are proposing for the year ahead will still leave us well below our 2009 levels.

The good news in an otherwise difficult forecast is that the City has maintained a reasonably healthy financial condition despite some serious challenges. We did it by making hard decisions to not fill vacancies and shuffling responsibilities while also reducing the size of our financial reserves or savings. As we all know from our personal budgets, you can’t rely on a savings account as income for the long-term. We have been able to stabilize reserves in the General Fund over the past three years, but they remain lower than they need to be.

Anyone interested in reading a summary of the PSU report can find it at the following link: http://www.oregonlive.com/politics/index.ssf/2017/02/employee_compensation_costs_cr.html#incart_river_home. I can also send an electronic copy of the complete study upon request. I think it’s important to acknowledge challenges and consider strategies for getting past them, rather than ignoring them in hopes they will go away. Albany has been a resilient community, and I’m confident we will work through this issue with a commitment to fairness for residents and employees alike.