Public sector salaries matter. But not in the way that many employed by the state government think. State employees often complain their salaries do not match those in the private sector. But a quick search of the state’s labor statistics puts that lie to rest. And a new study from the Maryland Public Policy Institute shows that state government compensation in 2007 was 11.1 percent higher than the average private sector job and has been higher since 1981. That is nearly four times higher than the national compensation ratio of public sector jobs to private sector ones of 2.8 percent, according to the study.
The biggest contributor to the ratio is the generous benefits paid to Maryland state government workers in the form of health insurance and pension benefits. The study found that in 2007, state government benefits were $13,387 per job while private sector benefits were $8,604. In other words, state government workers received benefits worth 55.6 percent more than those in the private sector.
These costs are a huge reason Maryland faces a massive “structural deficit,” and they should be on the table for cutting when legislators return to session this month. As the study said, unlike other cuts, reducing benefits “would not only save taxpayers money today, but would also save money in the future via lower unfunded actuarial liabilities — think of it as paying off a credit card early.”
The state faces a $1 billion deficit in the coming year and cannot raise taxes in this economic environment to pay for promises it made to workers in boom times. Nor should raising taxes be an option. Taxes choke growth and hinder employment and investment in the state. The study noted that by adjusting Maryland’s employment and compensation ratio in 2007 to the national average the state could have saved about $650 million that year. That translates to tens of billions saved over time and could have erased the need for the recent $1.5 billion tax hike.
Besides, aligning benefits and salaries as well as the number of state government employees closer to the national average is only fair for taxpayers, who face rising unemployment and declining benefits as businesses struggle to stay afloat during this recession. And it is the only way to ensure Maryland will have the agility to compete for business in coming years and pay for roads, schools, public transportation and other core services competing for tax dollars.
Legislators should go through the budget with a fine-tooth comb on return to Annapolis to cut waste from this year’s budget, but they should focus their time on making Maryland solvent for decades to come.
