Thursday, August 16, 2012

Governor of Guam's spending cut plan

Governor Eddie Calvo has announced a package of spending cuts to address the government of Guam's structural budget deficit.  Currently, they are just discussion items, since the Governor has not yet introduced a bill that lays out all the cuts.  Here's a list of the proposals, which are said to total somewhere in the neighborhood of $52.7 to $72.7 million, with each proposal's presumed cost savings:

  • Extension of the payment period for the government of Guam Defined Benefit Retirement Fund Unfunded Liability by ten years (from 2031 to 2041), saving $28.1 million.
  • Implementation of an early retirement program, removing up to 500 "non-critical" government of Guam workers, saving $15 to 35 million.
  • Reduction of the rate of pay for government of Guam workers who work during official holidays from 2 to 1.5 times their normal hourly salary, saving $4,478,367.
  • Elimination of annual leave cash-out, except for retiring workers, saving $1.597,106.
  • Elimination of Guam Fire Department firefighter "non-productive" pay, saving $1,624,038.
  • Reduction of Guam Fire Department firefighter regular overtime to from 14 to 6 hours, saving $1,390,725 million.
  • Elimination of GFD incentive pay, saving $454,211.
  • Reduction of paternity leave to "industry standard" (from 20 days to 10 days), saving $135,283.
  • Cap on leave sharing to 480 hours per occasion and limiting leave sharing to medical reasons, saving "some money" (unspecified).
Before I get into any analysis at all, what is a common theme in all of these methods of cost savings?  The correct answer is that the burden is limited to government of Guam workers and their retirement system.  Where did these proposals come from?  Governor Calvo's Spending Cuts Taskforce, presumably a panel of experts decided that these were the best ways to cut spending without affecting operations.  I know of at least a few cost-reducing policies which could be adopted which could save as much, if not more than some of these methods, which also would not affect operations adversely and do not require pay cuts or undermining the funding of the Defined Benefit Plan.

So far, I have a few basic thoughts about each of these cuts.  I'm not sure of the impact of the extension of the repayment period of the government of Guam to the GovGuam retirement fund and whether that could threaten the capital position of the retirement fund or what the distributional effects would be of such a move and I think the whole issue demands more study and a lot more transparency.  To be done properly, I do not think October 1st is a reasonable deadline legislative action and it should be done with the utmost transparency, since this policy may affect retirees and enrolled GovGuam workers for both retirement plans and even the general public, who have to pick up the unfunded liability.  I'll address some pertinent facts of the transition from a defined benefit to a defined contribution plan in a future post.

I'm concerned about the idea of an early retirement program.  GovGuam had such a program in the 1990s, which was badly botched and may have actually cost the government more than if it hadn't done it at all (I have heard some comments to that effect).  I can think of a few major issues.  First, I'm not sure that the management of the government of Guam is really prepared to make an accurate assessment of what positions are needed now and in the medium term, so that GovGuam wouldn't be in the position of having a shortage of qualified workers and have to do more limited term hiring in the future.  Second, I really doubt that proper safeguards will actually be in place to keep really critical workers employed by the government of Guam.

I'm receptive to the idea of reducing holiday premium pay to "time-and-a-half".  That being said, I have doubts on whether the taskforce actually made a review of what the "industry standard" is for holiday premium pay in state or local government.  To me, this phrase "industry standard" seems like a public relations term to make cuts to workers' compensation more palatable.

The leave cash-out, to me, does not necessarily represent much savings and I wonder whether the number presented is accurate and under what assumptions.  The fact is that leave is something that is essentially "owed" to government worker.  If it is unused, then it will be cashed out when the worker leaves government service, but otherwise, the worker is entitled to use it, with reasonable restrictions, any time after they accumulate it.  So the money is going to be paid at some point and the only question is whether it will be sooner or later and at what real wage rate the worker is paid when he expends his leave or cashes it out.

Clearly the firefighters are the biggest losers in the Governor's plan.  Every other provision applies to more or less all government of Guam workers, but three provisions cut pay for firefighters, specifically.  I have to look into what "non-productive pay" is a euphemism for, but the others are pretty obvious.  I feel that it would be good if there were enough firefighters so that those who work in the Guam Fire Department could have less overtime.  Time-and-a-half is a high rate of pay for about 12% of a worker's hourly employment.  The sticker price for savings seems like it might be inflated, since there are manpower needs to be met by the Fire Department.  Reducing the hours worked by firefighters in a two-week period by 8 hours apiece could impact coverage and may just require additional firefighters to pick up the slack, which doesn't seem to be accounted for.  Finally, the "differential pay" is to encourage firefighters to be certified Emergency Medical Technicians (EMTs).  It might be possible to argue that a 15% bonus is not needed to encourage firefighters to get certified, but just eliminating it might not be the best idea either, since it may mean many firefighters would let their certifications lapse (which makes sense) if they aren't getting compensated for it and it isn't a requirement to serve as a firefighter (and if it was, they would probably need to have still higher base pay).

The paternity leave issue seems a bit tight-fisted, since presumably most male government of Guam workers would only have a few children in the course of their service to the government.  That being said, it saves money.  Allowing almost a month of bonding between a father and his new son or daughter seems like a worthy purpose, although I suppose some could argue that it is not worth the price to the government and, if a father wanted time off, he could expend personal leave, instead.

The proposed change to the leave sharing policy is probably the most shocking and inhuman policy of the bunch.  While, I support restricting leave sharing to medical reasons, I am too aware of medical conditions that can cause long hospitalizations or recovery periods to countenance the idea of restricting leave sharing for those in dire need of a continued income stream while they are undergoing treatment for serious medical conditions to a few months.

Generally, I am not elated by the administration's list of proposed "painless" cuts, aimed directly at those who serve or have served their community through employment in the government of Guam.

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