Proposed Budget and $15/Hour Pay Issue

Proposed Budget and $15/Hour Pay Issue

On Tuesday, City Manager Debra Campbell presented her first budget to City Council.

In just her first year, she presented a budget that includes significant investments in the City’s priorities such as transit, development services, sustainability and other core city services.  Using good management and smart prioritization, she did not need to propose a property tax increase.  This is a huge accomplishment – one that Asheville residents should be proud of - and it should be the budget story coming out of this meeting. 

Instead, unfortunately, it looks as if our heated discussion over a feel-good proposal that, if implemented in this budget cycle will cause serious problems to our employee pay system, is what is being reported.  That’s a shame and, while I realize that I am prolonging this story with this newsletter, it’s out there now and we have to deal with it.  In this newsletter, I’ll explain my actions at the Council meeting and why implementing this proposal now doesn’t make any sense.

Today, the Citizen-Times ran an article on our discussion on Council Member Keith Young’s proposal to raise the hourly rate for all City employees to at least $15/hour.  I help governments design pay plans for their employees, so I have a background in employee compensation.  Since getting elected, I’ve also been advocating for compensation improvements because of the problems we have recruiting and retaining city employees so generally I would look favorably at increasing employee pay.  But both at the discussion and in my subsequent comments to the Citizen-Times, I supported our City Manager Debra Campbell’s plea not to implement this now, but rather to look at it after the City completes a comprehensive employee classification and compensation study later this year.

During the discussion, I did something that I normally don’t do, which was to call out another council member on their motivation for bringing up an issue.  But in this case, I think that it’s warranted and here’s why.

Several days before our meeting, Ms. Campbell notified council members individually that the Buncombe County manager recommended paying all County employees a minimum hourly rate of $15.  For the County, she explained, the proposed change would only affect 15 employees and would cost around $26,000 more per year.  For the City, however, such a change would impact 146 employees and cost at least $462,324 additional per year even without addressing compression problems (I’ll have more on this later, but compression in compensation basically means that if you increase one group of employee wages and not others, you end up paying employees the same even though they have different levels of experience which defeats the purpose of a good pay plan).  This should not surprise anyone since the City provides different types of services than the County and, at least for trash pick-up, the County outsources that work to a private company.

Ms. Campbell told us that implementing this proposal now would raise some complications that weren’t readily apparent such as salary compression and as a result of that (and the fact that we don’t have the money for it), she was not going to include it in her proposed budget.  Rather, she said she would look at it as part of the comprehensive compensation study planned for later this year.  Despite this reasonable request from our City Manager, who is responsible for managing our 1,200 full time equivalent employees, Mr. Young continued to press her – even at the meeting – to implement this proposal in this budget cycle.

We hired Ms. Campbell unanimously to manage City operations.  Our role as Council is to set policy and provide oversight.  If our City Manager, who is eminently qualified, recommends that we not change employee compensation in a certain way and provides us with a clear and compelling reason, then council members should not presume that they know better and try to micromanage her decision.  It’s disrespectful to put Ms. Campbell in this position after she clearly explained her concerns.  Continuing to press this issue for implementation this year wastes staff time, causes a distraction and is simply grandstanding.

I was also a bit puzzled by Council Member Young’s insistence on this proposal in light of previous statements he has made.  At a budget workshop last year, Council discussed a 3% wage increase for employees rather than a 2.5% wage increase.  During that workshop, Mr. Young argued that employees should not get any wage increase and seemed incredulous that city employees had been receiving annual wage increases since 2012 (there were no across the board wage increases in the prior three years).  While any council member has the right to change his or her mind, it’s a pretty big jump to go from calling for wage freezes in one year to championing employee raises in the next.

Furthermore, Mr. Young’s proposal also seems to fly in the face of his comments at our retreat in March where, after seeing the City’s five-year budget projections showing deficits in the coming years, he said (as reported by the Mountain Xpress),  “This may hurt some feelings, but you can no longer operate the city of Asheville like it’s the Oprah Winfrey talk show, where you get a car and you get a car,” [...] “As much as we love all these programs and trying to help the public good … this is the time to close the bank.” 

Let’s move from politics to substance.  Why is implementing a $15/hour minimum prior to doing a comprehensive compensation study a really bad idea?  For those not familiar with public sector pay plans, here’s some relevant background.  Generally in the public sector, employees are hired at a certain minimum salary level and they either receive across the board wage increases or they move up on what is known as a step scale.  In either of those cases, as a practical matter, an employee who has served a city longer will earn more than one doing the same job but with fewer years of service.  You can criticize that approach, but that’s how most compensation systems work in the public sector.

What happens if you increase the compensation floor to $15/hour without increasing anyone else?  The compensation term again is called “compression.”  Let’s use a made-up example to illustrate (and let me be clear that these are made up numbers).  Assume that a starting firefighter has an effective starting hourly rate of $12/hour and a firefighter with five years of service has an effective hourly rate of $15.10 per hour.  Right now, there is a $3.10 hourly differential between those employees.  Now, move the starting salary to $15/hour and the differential goes from $3.10 to $0.10.  How valued do you think the firefighter with five years of experience is going to feel?  In some cases, you might end up with supervisors earning the same or very close to the employees they supervise even though they have more responsibilities.  Additionally, some firefighters have already filed grievances alleging compression in the current system.

At the Council meeting, when confronted with the very real compression problem this proposal would create, several council members said that we could just deal with that problem next year.  No compensation advisor or manager would ever do that.  Compression has to be dealt with immediately because you have effectively completely changed your pay plan.  Ignoring compression for a year would just kick the can down the road and make an already bad problem much worse.  Remember, the cost to implement now without dealing with compression is already $462,324 a year more, so dealing with compression is obviously going to be higher.

In the article, Council Member Young proposed paying for the additional costs of implementing the proposal by reducing the wage increases for higher paid employees.   This sounds politically great because you’re taking from the rich to give to the poor.  But in reality this is more like saying that we’re going to build a wall and have Mexico pay for it.

Even if you agree philosophically with this approach, you run into an inconvenient truth – math.  In the article, Council Member Young seems to suggest that he can fund this proposal by taking it from department head increases.  He noted that a 2.5% wage increase for someone making $160,000 would be $4,000.  The concept is that this additional $4,000 is much more than the dollar increase for someone earning less, so you can use this money to fund bigger dollar increases for those people.  He says in the article, "I want everyone to get 2.5%, but not at the expense of the least among us."

Let’s see if that’s possible.  Assume that we have 10 department heads and they earn $200,000 each (just so we’re clear – the City does NOT have 10 department heads earning $200,000 each).  A 2.5% wage increase on $200,000 is $5,000.  If we don’t give those 10 department heads wage increases, that’s 10 times $5,000 or $50,000 saved.  But the cost of just moving 146 employees to $15/hour is $462,324 – over nine times more than the savings from the department heads!  While I haven’t done the full math, you would need to have many more employees other than department heads take wage freezes to pay for the proposal because there are very few of them– and remember that this will have to happen every year.

As I said earlier, I don’t necessarily oppose the concept of eventually moving to a $15/hour floor, but we have to do the compensation study first.  While calling for all City employees to earn $15/hour is a good political sound bite, and would probably look great on a campaign mailer, actually implementing it is much more complicated.  The compensation study will look at employee pay and will tell us where we are deficient.  That’s how we should approach this – just like our City Manager recommended.