Why Taxpayers Are Shelling Out More Money for Worse Service

In cities around Michigan – including those in severe financial trouble – taxpayers are paying large amounts of money in overtime and extra pay. In some cases, cities pay two or three times a typical salary for just one person to do a job.

Some recent stories from Michigan Capitol Confidential highlight the problem:

• The president of the union representing supervisors and managers in the Flint water department earned $161,000 in 2016 and $149,000 in 2017. In both years, his base salary was roughly one-third his gross pay. The rest came from overtime, “standby” time, and union release time.
• Several other employees in Flint had similar situations in 2017. One operator foreman earned $117,000, more than half from overtime. The other operators in the water department made $107,000, $96,000 and $82,000 . Their base salaries were between $56,000 and $60,000 that year.
• A maintenance worker for the Detroit People Mover elevated train collected nearly $175,000 – more than his general manager – in 2017. His base salary was $57,000. There were 11 employees paid six figures by the entity and nearly all of them had base salaries between $45,000 and $60,000, with the rest of their pay coming from overtime.
• In Ann Arbor, police officers earn one-third or more of their total pay as overtime. One detective spiked his pension payment by boosting his final year’s compensation by nearly $50,000. Other employees used payments for unused compensation, vacation and sick time to do the same.
• In Grand Rapids, 26 city employees made more than $20,000 in overtime last year. Through overtime, 378 employees were able to push their pay to more than $80,000. 

So why are public entities paying so much money to one person when they could hire an extra person instead? After all, they would save money on the overall pay and likely provide better service with two people instead of just one.

A key culprit is legacy costs, specifically, pensions and health care. An extra employee means more debt in these systems for cities that have been doing a poor job projecting the actual costs. (See Mackinac Center research on pension and retiree health care debt in Michigan’s largest cities.) One employee means just one pension – even if it is more generous.

This isn’t just a problem for Michigan cities. The state government has been shrinking, at least when it comes to the number of employees. Yet it is paying much more for them. Overall, since 2000, the state has 14,700 fewer employees but is spending $286 million more for them, adjusting for inflation. That’s a 38 percent spending increase on 24 percent fewer workers – not a good deal for the state, citizens or even the unions representing them.

The good news is that the state has begun getting a handle on its long-term debt. State employees, beginning in 1997, receive 401(k)-type plans, and most new school employees will do the same starting this year. Those two changes will help contain costs, provide stability for the future and mean a better bang for the buck for state residents. Municipalities need to look to do the same.