Budget Cuts - Part 2
Posted by Jeff Pruitt - 2/21/08 @ 5:20 pm - Filed Under City Council, Featured
In Part 1 I briefly talked about the out-of-control spending coming from the Redevelopment department and the mayor’s office over the last two years. I also pointed out that public safety makes up a majority of the budget and any attempt to cut $10+ Million will have to address that fact. In this post I want to show how a temporary cap on salary increases for city employees would help the bottom line.
The city like any business must adjust to their revenue base. When times are good then employees should see a better-than-average increase in their salaries but when times are tough (like they are now) then employees should expect to feel the pinch. With that thought in mind I looked at all the department’s salary increases and calculated how much money the city could save if they set the maximum increase at 3% (download the spreadsheet here).
It’s important to note that half of all city departments are already under the 3% mark and all but 5 are under 6%. The biggest increases were as follows:
- Redevelopment - 21.0%
- Mayor’s Office - 18.7%
- Neighborhood Code Enforcement - 14.6%
- Animal Care & Control - 8.6%
- Parks & Recreation - 6.8%
If the city were to cap wage increases at 3%, I calculate they could save $1.4 Million in this year’s budget. Remember this would not cut any services the city provides. It would simply leave the headcount flat from 2007 to 2008 and thus citizens would be getting the same services now as they were then. Also if the city opted for zero salary increases across the board then this would result in $3.5 Million in savings. Now I think that’s too harsh but I wanted to let everyone know what the impact would be.
Remember this cap would be placed on each department and not each employee. In other words some employees could still see raises above 3% as long as the department average didn’t go above the 3% cap.
Thoughts?
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12 Responses to “Budget Cuts - Part 2”
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One area that may hold tremendous cost savings potential is the City’s implementation of a self-insured health program. At one time, the health insurance cost for County employees was about 50% of the City’s rates, simply by implementing this type of program. It would seem prudent for the City to explore this issue if they haven’t already.
Say it isn’t so! Won’t that be holding down the man by limiting his income??
(tongue in cheek….read sarcasm here…)
Seriously, though, Jeff that is a great start. I am just suprised to see spending caps/cuts targeting simple employees from a Democrat. A union would never stand for it. Yes, as you say it’s a department limit but STILL…
Jennifer,
I don’t see this decision as political. The fact is we need to cut the budget and in times like this everyone has to be asked to sacrifice. Better to lose some of your raise than your job…
Dave, the City has been self-insured for employee health insurance for something like 20 years - I remember it happening around the time I started with the City which was 1986. I can’t say why the County’s plan costs less, but I would assume it has more to do with plan benefits/design, utilization, and cost experience, rather than the self-insurance part.
The City has a really really good health insurance plan. “Back in the day” when employees earned less than they could have made in the private sector, perhaps it made sense. However, city wages are extremely competitive for most positions, and I think it is time to rethink the city’s health plan to reduce costs while still being fair to employees.
Jeff, I agree with you that we need to look at raises as a place to save money. One mathematical point I would mention, however, is that putting a cap by department can result in very weird things happening. Positions mysteriously shift, for instance, from one department to another. Very small departments (Redevelopment, for instance) could have a position adjustment that results in higher than a 3% raise (which may be what has happened this year, but I will check into that). You end up with more gamesmanship than management, in my opinion. However, your larger point is very well taken.
Karen,
Thanks for the clarification. I appreciate your point about reevaluating the City’s rich benefit plan. From my perspective as an insurance agent, Health Savings Accounts (HSA’s) can be structured to maximize benefits to employees while still saving money for all.
The employer contributes an amount into the employee’s savings account from which the small bills (office visits, prescriptions, dental, vision, etc.) are paid. This account can also offset the employee’s deductible for the large stuff (hospitalizations, surgeries). Depending upon the program, amounts remaining in the account at the end of the year can rollover to the next until retirement, or may be taken as a distribution like a savings account for Christmas spending (taxes and penalties may apply for non-qualified distributions). It behooves the employee to get the best deal when they visit their doctor - money saved is theirs to keep. Better still, if they leave their employer the account goes with them.
Case in point: I have an individual HSA. I’m away from the office this week with a case of Bronchitis. I went to RediMed and received $176.00 worth of medical treatment. Asking for the “cash” price, I received a 20% discount and wrote a check for $140.80 from my health savings account.
I’m happy - I saved $35.20. The provider was happy - they received payment at the time of the visit and don’t need to file insurance paperwork. My insurance company is happy - they don’t need to get involved and handle paperwork until my medical expenses exceed the deductible. Everybody’s happy. Best of all, my annual premium increases are far less than the average because the insurance company doesn’t pay until I’ve exceeded my deductible. Only once has this happened in seven years I’ve had my HSA.
With the increasing availability of free or $4.00 prescription drugs, co-pay drug cards are less beneficial than they were several years ago. Perhaps it’s just been my experience, but health care professionals seem more willing to provide free samples of prescription medications when they see that I’m a “cash payor” with no drug card.
As an agent, my toughest job has been educating the public about the benefits of HSA’s. Most are familiar with the existing copay plans and it takes several conversations for the information to sink in. No doubt City employees must be well educated about the benefits before more will be willing to accept such a plan.
Dave and Karen,
I must disagree with a few of your statements. I must be honest in saying I am not an expert in the insurance field but I believe reality sometimes trumps theory. I disagree with the following statements as a matter of experience from the “employees” perspective. I would love to hear anything you may offer in response to the current perception and/or reality of the current city employee health plan.
“One area that may hold tremendous cost savings potential is the City’s implementation of a self-insured health program.”- Dave MacDonald
If memory serves, in the late 90’s the city moved all the employees from the very well liked PHP plan to a plan that eliminated choice, services and significantly increased the cost to the employees. (Not in premiums but in annual costs) The employees with families whom received a 3% raise in that year ended the year with a net loss.(and every year since)The financial gains that were promised by the city controller were never realized and fell short of the projections by more than 1 million dollars. So, forgive me if I do not share the same opinion of any potential cost savings. I am not sure the average city employee can afford any more “cost savings”.
“I appreciate your point about reevaluating the City’s rich benefit plan.” - Dave MacDonald
I am not sure what city you are talking about Dave. When our employees have a major illness or injury I always end up at private fundraisers to help our fellow city employees pay their uncovered, unpaid medical costs. So whatever city’s “rich benefit plan” you are speaking about I wish we could bring that to Fort Wayne. If you would like to see an example, there is just one of those fundraisers this Friday (Feb. 29th) at O’s. It starts at 6:00 PM, maybe you can be there to better explain the city’s rich plan, or just make a financial contribution. What is “rich” is that city employees are willing to come together when another employee is in need. (Special thanks to O’s for stepping up to help)
“The City has a really really good health insurance plan. “Back in the day” when employees earned less than they could have made in the private sector, perhaps it made sense. However, city wages are extremely competitive for most positions, and I think it is time to rethink the city’s health plan to reduce costs while still being fair to employees.” - Karen Goldner
I simply cannot agree with this opinion with regard to the city’s health insurance plan. When we analyze the annual increase in health care costs in comparison to the average wage increase (3%) and then factor in the cost of living, employees in “most positions” end the year moving backwards. If an employee currently encounters a major health problem, they are usually financially crippled. Perhaps we could rethink the enormous pay increases we are handing out to our “upper tier” employees as a way to reduce costs. If we are going to get our house in financial order, we should not sweep the entire burden onto the backs of the average employees. What if we have all employees pay the same percentage of their wages and not use a flat premium? (Just an idea) If the average employee were to receive a 6-21% annual pay increase they might better understand your position. Currently I do not.
In closing, I hope that no one takes offence with any of these comments. These are real thoughts and real concerns, intended to increase understanding and inspire real solutions.
I do hope that everyone can attend the above-mentioned fundraiser; it is my understanding that this employee is a younger person with a young family.
C. Johnson,
Thank you for taking the time to share your perspective.
I’m not familiar with the benefits package currently provided to City employees. My comment “I appreciate your point about reevaluating the City’s rich benefit plan,” was directed to Ms. Goldner who advised “the City has a really really good health insurance plan.” I assumed this to be the case in comparison to what an average employee could obtain on their own or with a group HSA. I tried to explain how an HSA works for those unfamiliar with such plans. If cost savings can be realized in a mutually-beneficial way, it seems prudent to explore such options.
I certainly was not offended by your remarks and greatly appreciate the insight you provided. I applaud your efforts to assist fellow employees with their financial burdens and wish you well.
Dave
I do not know the details of the situations that C. Johnson describes. Catastrophic illnesses often result in all sorts of financial problems including time off from work for the employee or family member (which is usually unpaid). This can have financially devastating consequences - but it doesn’t necessarily mean that your insurance is bad.
I stand by my statement that the City’s health insurance plan is very rich compared to that of many, many, many people in Fort Wayne. I appreciate your comments, Dave, about HSA’s - and an HSA is certainly better than nothing. However, most people would rather have a $250 or $500 deductible plan than an $1,100 deductible where they put the same amount of money tax-free into an HSA. No one is at the 100% federal income tax level! In my personal experience, the difference in premiums is not so substantial as to make up the fact that you can buy aspirin tax-free.
We clearly have a national health insurance crisis. That isn’t going to be fixed by anything the City of Fort Wayne does or doesn’t do. And perhaps the City’s insurance plan isn’t good enough if one presumes that a devastating illness should be household revenue-neutral. But I don’t think that I as a City Councilmember, or that City employees, should have among the best health insurance plans in our community. That statement will offend some folks but it is simply true. There are thousands of taxpayers in Fort Wayne who would love to have the City’s healthcare plan. Those people PAY OUR SALARIES and it just seems to me that we owe it to them to take a closer look at how we can be responsible to our employees while still being fair to the taxpayers.
It’s all about balance, right?
Well said, Karen.
The reality is that health insurance costs increase at a rate four times greater than inflation. While this employer-paid benefit may not be felt by the employee, it is an increased benefit nonetheless. Someone has to pay these costs which compound annually. Often this burden falls to the employer, or in the case of the City, the Fort Wayne taxpayer.
Karen,
I would love to hear your thoughts about the rest of the concerns I had posted.
…….If memory serves, in the late 90’s the city moved all the employees from the very well liked PHP plan to a plan that eliminated choice, services and significantly increased the cost to the employees. (Not in premiums but in annual costs) The employees with families whom received a 3% raise in that year ended the year with a net loss.(and every year since)The financial gains that were promised by the city controller were never realized and fell short of the projections by more than 1 million dollars. So, forgive me if I do not share the same opinion of any potential cost savings. I am not sure the average city employee can afford any more “cost savings”.
Perhaps we could stop spending millions of dollars on unwanted taxpayer funded projects. I hope they find oil in that big hole we are digging downtown. Every four or five years we dig a big hole downtown and all of our tax money falls into it, never to be seen again. The only good thing about all this wasted money is that maybe the city will be forced into considering a riverboat to pay for all the bad politics. Finally, something I could support.
Ok, that was a little off the subject, but I would like to hear your thoughts on the previous post.
Health costs have risen far faster than nearly every other consumer item (not oil, perhaps, but that is a different topic). The failure of a previous effort at cost control to cut spending is no reason not to try another way to do so. (And I do not know that your numbers are right, C., but I do not have immediate access to them so I can’t really disagree.)
The same health increases that have eaten up public employees’ salary increases are eating up those of a large number of other citizens/taxpayers. That is a macro issue that the City cannot address.
But what the City CAN and SHOULD address is balance between what it pays employees and what is being paid by the people who pay those employees.
Okay, that was clumsy. But I think you get my point.
Thank you karen for your response. Clumsy or not, at least you are willing to share your thoughts.