| Position Paper on Salary and Wage Increases | January 2004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Summary. In granting general salary and wage increases since Proposition 2 1/2 went into effect, the Town appears to have placed undue emphasis on how much money happened to be available, and insufficient emphasis on how much was justified by actual changes in the cost of living and what was sustainable given the up and down nature of our economy. Since Proposition 2 1/2 went into effect, the general increases in salaries and wages (often referred to as cost of living adjustments, or COLA's) granted to our employees have exceeded the increase in the Consumer Price Index (CPI) by more than 14 percentage points on a cumulative basis. The cumulative dollar value of the amount by which COLA's have exceeded the increase in the CPI since 1981 is on the order of tens of millions of dollars. The Town has policies in place that, if used effectively, should allow us to manage general salary and wage increases more carefully. However, these policies have not been utilized effectively, a situation which must be corrected quickly. Details. Perhaps more than any other single factor, the amount of salaries and wages that we pay the Town's employees impacts the Town's expenditures, fiscal stability and service levels. Salaries and wages now represent roughly 55 % of total general fund expenditures, far larger than any other component of spending. When presented with the need to reduce payroll costs, the Town's unions have consistently demonstrated a preference for layoffs instead of reductions in pay rates. From the unions' standpoint it is preferable for a relatively small number of employees to lose their entire pay (i.e. through layoffs) rather than for a large number of employees to lose a small amount of their pay through a general wage and salary reduction. However, from the citizens' standpoint layoffs are generally less desirable because a reduction in headcount usually leads to reductions in service levels somewhere. This negative impact is invariably amplified by the union seniority system, which dictates that the most junior (and therefore typically the lowest paid) employees must be laid off first. Since the lower paid employees are the ones laid off, more of them must be let go than if the layoffs were spread across the whole range of pay levels. All of this argues for very careful management of salary and wage levels, particularly in an economy that experiences repeated cycles of boom and recession. During the boom years, as revenues surge and more funds become available, there is a strong tendency for the unions to ask for as much of this added revenue as they can get. This is not a criticism of the unions. In this they are just doing their job. It is up to all those responsible for the management of the Town's finances to insure that sound criteria are used in determining what level of pay increases can be agreed to. These criteria should include not only how much money happens to be available, but also how much is needed to maintain competitive levels of compensation, what is needed to keep pace with changes in the cost of living, and what level of pay is sustainable in view of the inevitable ups and downs of the economy. With respect to the first of these criteria, the fact that the balance in the Town's Stabilization Fund is so low and that we needed an override in 2002 speaks convincingly to the idea that we've spent the money that was available (and then some). With respect to maintaining competitive wages and salaries, the Town's management has regularly presented information to Town Meeting comparing the Town's pay levels to those of other area cities and towns, with the aim of maintaining competitive salary levels. Unfortunately there has been too little emphasis on the last two criteria. Regarding the question of what is needed to keep pace with changes in the cost of living, FTPA compared the general increases in wages and salaries received by the Town's employees to changes in the Consumer Price Index (CPI) for the greater Boston area. We analyzed two consecutive periods of time - July 1, 1981 (the date that Proposition 2 1/2 went into effect) through December 31, 1990 and December 31, 1990 through December 31, 2001). Table 1 presents the details of our analysis. In summary, in each of the two periods of time that we examined, the actual COLA's granted to the Town's employees exceeded the change in the CPI by more than 6 percentage points. Since Proposition 2 1/2 went into effect, the COLA's granted to our employees have exceeded the increase in the CPI by more than 14 percentage points on a cumulative basis. The cumulative dollar value of the amount by which COLA's have exceeded the increase in the CPI since 1981 is on the order of tens of millions of dollars. Keep in mind that COLA's represent only one component of pay raises, and are in addition to promotions to higher pay grades, automatic step raises, new higher steps added for some bargaining units, and reclassifications of literally dozens of non-union positions to new, higher pay grades during the last twenty years. Finally there is the issue of maintaining a level of salaries and wages that is sustainable in view of the inevitable ups and downs of the economy. The FTPA believes that the Town has established the necessary policies to deal with this issue, but these policies have only been in place for a few years and have not been properly adhered to. There are two key policies here. The first is the policy requiring the Town's Chief Financial Officer (CFO) to prepare and maintain long-term financial forecasts. Only once, in 1998, has this policy been properly fulfilled, with the development of a five-year projection of general fund revenues and expenditures. Unfortunately the implications of this projection were virtually ignored in subsequent budget approvals and contract negotiations. As we have previously pointed out, if, in the last round of contract settlements, COLA's had been held to 1 1/2 % per year instead of 3% per year, the need for the override in 2002 would have been virtually eliminated and our employees would have still been well ahead of inflation on a cumulative basis. It is the FTPA's recommendation and position that the policy of developing and maintaining long-range financial forecasts should be adhered to, beginning with the current budget cycle. Financial projections of revenues and expenses should be prepared for a minimum of three, and preferrably five, years. These projections should be updated annually and integrated with the development and presentation of the annual budget. The second policy is one that the Board of Selectmen adopted in May of 2000 and states that "It shall be the goal of the Town of Framingham to have an amount in the stabilization fund at least equal to 5% of the operating budget of the town. When the balance in the stabilization fund is less than the 5% level, no appropriations will be considered unless in case of extreme fiscal emergency." (sic) In our view this is a sound policy, and is an ideal tool for mitigating the havoc that economic downturns can wreak on municipal budgets. Unfortunately this policy was adopted right near the end of the last economic boom. Since it is during the boom phase of an economic cycle that funds are most available to fulfill this policy, the timing of establishing this policy was a little like closing the barn door after the horses have all escaped. As a result we were unable to utilize this policy effectively to help us weather the current downturn. The balance in the stabilization fund never exceeded $3 million in usable funds, less than 2% of the current operating budget. However as the economy recovers, and a recovery now seems on track, it is the FTPA's position and recommendation that the fulfillment of this policy goal should receive high priority. While there are many fiscal challenges that confront us, some driven by factors beyond our control, there is still much that we can do to manage our way through the current, and future, downturns. In this paper we have touched on some of the things we can control. We hope that the analysis and recommendations we have presented here will serve useful in the discussions that lie ahead.
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| Note 1. Historical salary/wage data, except for the teachers, was obtained from the salary and wage schedules that are contained in past Annual Town Reports. The historical schedules for teacher pay were obtained from the Framingham School Department. Each schedule is a matrix. The row and column headings of each matrix represent pay grades and steps, and each "cell" of the matrix contains the salary or wage amount for the corresponding pay grade and step. The schedules that were included in this analysis were those that appeared in the annual reports for both the beginning and ending years of the period examined (not all schedules are published every year). Even though not all schedules are included here, the schedules that are included represent a substantial majority of the town's employees. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Every tax is a pay cut. Every tax cut is a pay raise.
Citizens for Limited Taxation |