City personnel costs gradually climbing

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Nebraska’s unique method of determining public employee salaries has kept Lincoln’s personnel costs steadily growing. And with the city facing a projected $6.8 million budget gap, some say it’s time the city take a serious look at ways to reduce personnel costs.

By DEENA WINTER | Lincoln Journal Star

When Dave Engler was hired to fight fires for the city of Lincoln 10 years ago, he was paid about $18,000 annually.

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Dave Engler, a Lincoln firefighter, began his career making $18,000 but now makes $54,000 annually, including overtime and his work as a paramedic. (Dior Azcuy)

Dave Engler, a Lincoln firefighter, began his career making $18,000 but now makes $54,000 annually, including overtime and his work as a paramedic. (Dior Azcuy)

“We compared it to Amigos wages,” he said, “because Amigos was actually paying more at the time.”

After a long contract dispute and an unsuccessful appeal by the city to the state Supreme Court in 1998, firefighters’ salaries increased. Now they start at nearly $36,000, Engler said. Veteran firefighters can earn as much as $51,030.

Engler, who makes additional pay as a paramedic, earned about $54,000 last year, counting overtime. That’s three times his starting salary.

Nebraska law governs the process of setting public employees’ salaries, dictating that they be comparable to their counterparts elsewhere. That’s why the firefighters were awarded pay increases.

That process also has led to average city employee salaries of $46,546 — almost $10,000 more than the average full-time Lincoln worker earns, according to a federal wage survey. That’s also higher than the average state employee paycheck.

City employees apparently like their jobs: The annual turnover rate is 5.6 percent, and the average employee has been on the job for 14 years.

However, Nebraska’s one-of-a-kind method of determining public employee salaries has kept Lincoln’s personnel costs growing at a rate that some fear is unsustainable.

And with the city facing a projected $6.8 million budget gap and unable to build streets and sewers fast enough to keep up with growth, some say it’s time the city takes a serious look at reducing personnel costs, which account for 70 percent of spending.

Craig Mason, an attorney and Lincoln Independent Business Association member who has studied city salaries for about a year, said public employees’ salaries weren’t that great in the past, but their benefits made up for it.

Now, he said, both often exceed the private sector.

“I think at some point ... you risk creating a ruling class of people (with) serfs providing them with their means of living. It’s supposed to be the other way around where the city supports the people. ... There really is a point where the people who work in city hall, not only are they not poor, they are the wealthiest people in our society.”

But City Councilman Jonathan Cook said city employees are asked to do more with less every year, and Lincoln citizens get a lot for every dollar they pay in property taxes — of which the city gets less than 15 cents.

“No organization does more to make the day-to-day lives of citizens possible than city government — every time you turn on the tap, flush the toilet, turn on a light switch, drive down the street, call for help if you are the victim of a crime or accident or fire, go to a park, visit a library, and on and on, the city makes it happen,” Cook said.

“If all other levels of government provided as much for as little, the country would be in great shape.”

Spending on city employee pay up 42 percent since 1997

The city employs about 1,940 people full time to keep things running smoothly. They sweep streets, fix potholes, fight fires and keep peace. It costs a lot to run a city — the current tax-funded budget is $131 million — and the vast majority of tax dollars that flow into the city’s piggy bank are spent on salaries and benefits.

When a city needs to make budget cuts, personnel costs are a logical place to look for savings. But Nebraska’s mandated method of determining salaries and benefits doesn’t give city leaders a whole lot of leeway.

The city spent $76 million on compensation (not including benefits) in 1997 and $108 million last year, a 42 percent increase. Spending on benefits per full-time employee nearly doubled, from $7,573 to $14,189.

During that time the number of full- and part-time city employees increased 7 percent, from 2,092 to 2,242.

Meanwhile, the average salary of a full-time employee increased 39 percent, from $33,463 in 1997 to $46,546 now.

City Councilman Dan Marvin has studied personnel costs in Lincoln, and said over the past five years they’ve outpaced the employment cost index, which measures U.S. labor costs.

“It raises questions to me,” Marvin said, although he notes personnel costs have increased at a slower rate over the past three years.

City Councilman Jon Camp said it’s time to confront personnel costs when the city has $135 million in unfunded road needs.

“These personnel costs are driving so much of our budget,” Camp said. “You can only withstand so much.”

However, it’s not an easy issue for the council to delve into.

“Personnel is a very difficult thing to deal with,” Camp said. “You’ve got people there; you’ve got faces that look at you.”

Do city employees make more than private sector?

When City Councilman Glenn Friendt left office last year, he said his one regret was his inability to reduce personnel costs.

“It’s the place to go,” he said. “You can try to knock a couple hundred bucks off everyone’s copying budget and you save one one-hundredth (of a percent).”

While it’s difficult to compare public and private jobs because every job is unique, a U.S. Bureau of Labor Statistics report released in January said full-time employees in the Lincoln metropolitan area earned an average of $17.87 per hour last year.

That’s less than the $22.38 per hour Lincoln’s full-time city employees averaged last year.

In the report, private-sector employees earned less than state and local government workers in every category surveyed, except secretaries. Paul LaPorte, economist for the bureau, said that’s not unusual because the private sector has more lower-paid employees on the bottom end, with more jobs in food service, for example.

Gary Meier, president of the largest city employee union, said some city employees are underpaid and some are overpaid, but most are fairly paid.

City employees appear to earn more, on average, than state workers. According to city and state personnel offices, the average state employee earned $34,808 in 2004, $11,000 less than the average city employee the same year. The state average includes about 580 part-time employees, however, the city’s includes none.

Still, there’s no doubt in Terry Beek’s mind that Lincoln’s employees often earn more than state employees, based on salary surveys he coordinates for the state personnel division and the number of state employees who leave to work for the city.

However, the state’s average is dragged down by the fact it has more lower-paid maintenance workers because it has more buildings to maintain.

Rigid process guides salary-setting

Asked how much money the average city employee earns, all but one of the Lincoln City Council members guessed too low — although Councilman Cook was darn close with his guess of $45,000.

Some were surprised to hear the correct answer.

Robin Eschliman guessed $35,000.

“This has me greatly, greatly concerned,” she said.

But it’s not like the council can start slashing salaries, most of which have been set through negotiations with five labor unions that represent 91 percent of city employees. And unlike the private sector, the city can’t just freeze salaries if it has a bad year. Layoffs can be made, but they aren’t popular. More often, positions are left vacant to save money.

The city’s hands are somewhat tied by a 1947 Nebraska law that dictates a process of setting salaries that is precise and unique among the 50 states.

Public employees aren’t allowed to strike in Nebraska, but they can take labor disputes to the Commission of Industrial Relations, which is comprised of five people appointed by the governor.

In a nutshell, the state requires public employees’ compensation to be comparable to employees who do the same or similar work.

In small Nebraska cities, that usually means comparing salaries to other small Nebraska cities.

But in Lincoln, salaries are compared to similar-sized cities, such as Topeka and Wichita, Kan., Omaha, Springfield, Mo., Rockford, Ill., or Minneapolis. The cities can be one-half to twice as big as Lincoln.

The statute doesn’t consider city’s financial picture. Even if the city didn’t have a dollar or was $10 million in the hole, it would have to pony up if the salary survey showed employees needed a 6 percent pay raise, City-county personnel director Don Taute said.

“It’s not something we can get out of,” he said. “Ability to pay is not in the picture.”

Public employee salaries can be compared to the private sector — as long as the two have the same or similar working conditions — but Lincoln has gotten away from that practice.

Lincoln attorney Bill Harding has spent 37 years representing public and private employers on labor issues. He said the system of setting salaries works fairly well, but is subject to swings in political philosophies because Commission of Industrial Relations judges are appointed by governors.

In the 1970s, he said, Lincoln officials compared public employee pay to the private sector — a practice that today could cut personnel costs.

“You could certainly return to that,” he said.

Taute said that’s permissible, but the comparisons may not be accepted by the Commission of Industrial Relations or state Supreme Court.

Back in the 1970s and 1980s, public employees’ wages weren’t as good as those in the private sector, Harding said. Public wages have caught up with benefits, which he attributes to competition to retain skilled employees. Benefits are looked at by the Commission of Industrial Relations, but cities aren’t awarded any “dollar-for-dollar credit” for having great health insurance benefits, for example. So in a way, it doesn’t pay to have exceptional fringe benefits.

Harding suggests Lincoln could cut costs by “damping down” benefits to make them more comparable to the market.

The city offers what Taute calls “a hell of a retirement plan,” with the city matching civilian employees’ contributions 2-to-1 up to 12 percent.

City Council members occasionally grouse about the fact they don’t get much credit for great benefits, but Camp also believes the whole salary-setting system results in a continual “ratcheting” up of salaries.

Since 1994, city employees have averaged raises of nearly 4 percent.

“I think that we’ve come to a point where it would be helpful if the state Legislature would have the courage to confront the situation and modify the situation,” he said.

The Lincoln Independent Business Association is considering recommending changes to the system.

City employees shouldn’t have to take a vow of poverty, Mason said, but they shouldn’t be paid substantially more than the private sector.

City Councilwoman Patte Newman pointed out workloads vary from city to city. For example, she said, Lincoln has fewer police per capita than other cities. And while the population has grown 23 percent since 1990, the number of city employees has only grown about 11 percent.

Engler, recently elected president of the firefighters’ union, said the system that guides negotiations ensures that firefighters’ salaries aren’t out of line. His predecessor, Mark Munger, agreed.

“We’re in the middle of the field, and that’s where we want to be,” Munger said.

So are there any ways to cut costs?

The city’s former personnel director, Georgia Glass, said city employees are “certainly well compensated” but not overpaid, with “damn good benefits.”

About 21 percent of the city’s full-time employees are eligible to retire, but long-time employees often don’t because “they don’t know how to pay for their insurance,” she said.

One way to reduce personnel costs, Glass said, is to encourage veteran employees to retire by making a contribution to their post-employment health plan, a tax-free investment account employees use for health care costs after they retire. Such incentives were given under her tenure, she said, and enough employees took the offer to save the city about a half-million dollars.

Lancaster County is offering such an incentive to about 40 eligible employees.

Taute said that may be worth exploring, but he said the city would have to come up with enough of an inducement — say $10,000 to $20,000 per employee — to entice people. And city leaders may not be willing to front that much money with the hope of future savings.

Several council members also said it’s time the city give merit raises only to employees who truly deserve them. Now, about 94 percent of eligible employees get merit raises. Employees are eligible for merit raises until they reach the top of their pay range.

Newman said the council has repeatedly stressed that merit raises should go to employees with “extraordinary performance,” and not be handed out automatically.

Overall, she said, the city needs a mix of new employees and more experienced employees with institutional knowledge.

“I think we have that,” she said.

Camp said salaries can’t be reduced, but “maybe they coast for a while.”

Lincoln’s salary-setting system sounds similar to that of Pittsburgh, which nearly went bankrupt in 2004, made massive layoffs, closed rec centers and swimming pools and now has its finances overseen by the state of Pennsylvania.

One of the primary budget-busters cited by city officials there was lucrative police and fire union contracts, which were driven by a state law similar to Nebraska’s.

In exchange for a ban on strikes, unions can go to a binding arbitration panel over contract disputes, according to CFO magazine. The key difference between Pittsburgh and Lincoln: Their panel was heavily influenced by unions, and Nebraska’s Commission of Industrial Relations is comprised of governor appointees.

As is the case here, Pittsburgh’s ability to pay wasn’t taken into account. The city eventually forced concessions from the unions, according to CFO, including a 17 percent cut in firefighters’ pay.

But while Lincoln isn’t in dire straits — the city still has strong financial reserves and an excellent bond rating — Camp worries about the future.

“There are quite a few bankrupt cities out there, and it’s only going to get worse,” he said. “I think nationally we’re going to see more Pittsburghs evolve.”

Reach Deena Winter at 473-2642 or dwinter@journalstar.com.

Average city employee

* Has worked 14 years for the city.

* is 45.

* Makes $46,546 a year.

* is probably a man; nearly 69 percent of city employees are.

* is most likely to be a police officer, who make up the largest group of city employees.

Topped out in pay range

Percentage of city employees who are “topped out” or at the maximum of their pay range:

41 percent of employees in the Lincoln City Employees Association (LCEA), the largest union representing about 650 middle management, frontline supervisors, skilled people and professional employees in virtually every department.

44 percent of employees in the National Association of Government Employees (NAGE), which represents about 500 mostly blue-collar employees.

50 percent of employees in the Lincoln Police Union, which represents about 300 officers and sergeants.

63 percent of employees in the Lincoln Firefighters Association, which represents about 300 fire department employees.

87 percent of employees in the bus union, otherwise known as the Amalgamated Transit Union, which represents about 90 bus drivers, mechanics and other bus employees.

0 percent of employees in the “M class,” about 140 managers and professionals such as engineers, police captains and attorneys. Nobody is “topped out” because new pay ranges were adopted last year, increasing the maximum possible salaries. Under the previous pay plan, nearly 53 percent of these employees were at the maximum salary. The City Council is considering altering this pay plan.