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Archive for October 25th, 2013

I posted a video back in 2010 that used biting humor to complain about overpaid firefighters.

That video stirred a hornet’s nest, generating some spirited debate in the comments section. But there was no resolution, in part because you can’t make sweeping judgements when firefighter pay is determined locally.

Some firefighters may be underpaid and some almost certainly are overpaid.

And you can find a jaw-dropping example of the latter category in southern California.

Andrew Biggs at the American Enterprise Institute looks into a controversy about compensation levels for firefighters in Orange County and says the critics are wrong – but also right – about excessive pay and benefits for the firefighting bureaucracy.

UnionWatch.org reports that the average firefighter in Orange County, California pulls in total pay and benefits of $234,000 per year, making them among the best-paid public employees – and, for that matter, among the best-paid of any kind of employees – in the country. But is this true? No. But yes. UnionWatch relies on compensation data provided by Orange County itself, which appears to buttress their claims. Average salaries for firefighters top $91,000, on top of which they typically receive another $65,000 in overtime and other supplementary pay. Firefighters then receive an employer pension employer contribution of around $61,000 and health insurance benefits of about $15,000, for a total of over $234,000.

Here’s why UnionWatch.org is incorrect.

…why is this not right? Because in Orange County and most other cities and states, much of the employer’s pension contribution is to pay off unfunded liabilities from prior years, which is different from pension benefits earned by employees in the current year. Only the latter is truly compensation. The “normal cost” of Orange County Fire pension benefits accruing this year is about 23.49 percent of salaries, or around $37,685. So, average annual compensation would be around $23,000 less, so make that total compensation of about $211,000. Still not shabby, but less than the headline.

But it seems that the group also is right. Indeed, they understated the cost of employing a firefighter.

But here’s the bad news: total compensation is actually a lot higher than $211,000, and even higher than UnionWatch’s $234,000 figure. The reason is that Orange County calculates its pension contribution based on the assumption the plan’s investments will 7.75% investment returns every year. …If we assume a 4% interest rate – something above the riskless Treasury yield, but lower than the pensions’ own risky investment return – the normal cost of Orange County Fire pensions rises a lot – to about 75 percent of salaries. (…the Congressional Budget Office applied the same risk-adjustment in valuing pensions for federal government employees.) In other words, in an average year an Orange County firefighter accrues future pension benefits worth over $118,000. So total annual compensation for an average Orange County firefighter is somewhere in the neighborhood of $290,000 per year.

That’s a nice pile of cash. Not as good as the city manager in one California town who raked in more than $787,000 per year, but definitely not shabby.

But the real issue is whether $290,000 is too much or too little. Being a firefighter is a risky profession, after all, and higher compensation is an efficient way of compensating for danger. And I assume there are fitness requirements that restrict the pool of eligible applicants.

Unfortunately, the article doesn’t give us the information needed to specifically assess whether Orange County firefighters are overpaid.

For what it’s worth, though, I think the answer is yes. We have data from the Department of Labor showing that state and local government bureaucrats are far less likely to voluntarily leave their jobs compared to workers in the private sector.

That’s a very strong indication that they’re receiving above-market wages. And since firefighters are paid a lot more than the average state or local bureaucrat, we can make some educated assumptions about their relative compensation.

To put this issue in context, here’s a video I narrated from the Center for Freedom and Prosperity on the issue of bureaucratic compensation.

If I had to simplify this video into a couple of short messages, one of them would be that a lot of bureaucrats are grossly overpaid for the simple reason that their jobs shouldn’t exist. I’m sure there are some very nice and wonderfully conscientious people working at places such as the Department of Agriculture and the Department of Housing and Urban Development, but their jobs should be phased out as those departments are eliminated.

The other message is that we should use market indicators to determine compensation for government jobs that would still exist. Whether we’re talking about military pay at the federal level or compensation for cops at the local level, it makes sense to pay enough to get the right people but not so much that taxpayers are getting the short end of the stick.

In Orange County, California, taxpayers are left with a twig.

P.S. I already mentioned the fat-cat city manager from Bell, California. Here are some other bureaucrats who are living on Easy Street courtesy of taxpayers.

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