Government Agencies Run For Their Employee's Benefit

About 20 years ago I did a rail transit study for McKinsey & Company with a number of European state rail companies, like the SNCF in France.   With my American expectations, I was shocked to see how overstaffed these companies were.  At the time, the SNCF had more freight car maintenance personnel than they had freight cars.  This meant that they could assign a dedicated maintenance person to every car and still get rid of some people.

Later in my consulting career, I worked for Pemex in Mexico, where the over-staffing was even more incredible.  I realized that in countries like France and Mexico, state-run corporations were first and foremost employment vehicles run for the benefit of employees, and, as  distant second, value-delivery vehicles and productive enterprises.

Over the last 20 years, I have seen more and more of this approach to public agencies coming to the US.  If nothing else, the whole Wisconsin brouhaha hopefully opened the eyes of many Americans to the fact that public officials and heads of agencies feel a lot more loyalty to their employees than they do to taxpayers.

I see this all the time in my business, which is private operation of certain state-run activities (e.g. parks and recreation).  I constantly find myself in the midst of arguments that make no sense against privatization.   I finally realized that the reason for this is that they were reluctant to voice the real reason for opposition -- that I would get the job done paying people less money.  This is totally true -- I actually hire more people to staff the parks than the government does, but I don't pay folks $65,000 a year plus benefits and a pension to clean the bathrooms, and I don't pay them when the park is closed and there is not work to do.  I finally had one person in California State Parks be honest with me -- she said that the employees position was that they would rather see the parks close than run without government workers.

Of course, if this argument was made clear in public, that the reason for rising taxes and closing parks was to support pay and benefits of government employees, there might be a fight.  So the true facts need to be buried.  Like in this example from the Portland transit system, via the anti-planner.

In 2003, TriMet persuaded the Oregon legislature to allow it to increase the tax by 0.01 percent per year for ten years, starting in 2005. In 2009, TriMet went back and convinced the legislature to allow it to continue increasing the tax by 0.01 percent per year for another 10 years. Thus, the tax now stands at $69.18 per $10,000 in payroll, and will rise to $82.18 per $10,000 in 2025.

At the time, TriMet promised that all of this tax increase would be dedicated to increasing service, and as of 2010, TriMet CFO Beth deHamel claims this is being done. But according to John Charles of the Cascade Policy Institute, that’s not what is happening.

Poring over TriMet budgets and records, Charles found that, from 2004 (before the tax was first increased) and 2010, total payroll tax collections grew by 34 percent, more than a third of which was due to the tax increase. Thanks to fare increases, fares also grew by 68 percent, so overall operating income grew by about 50 percent, of which about 7 percent (almost $20 million) was due to the increased payroll tax.

So service must have grown by about 7 percent, right? Wrong. Due to service cuts made last September, says Charles, TriMet is now providing about 14 percent fewer vehicle miles and 12 percent fewer vehicle hours of transit service than it provided in 2004 (comparing December 2004 with December 2010). TriMet blamed the service cuts on the economy, but its 50 percent increase in revenues belie that explanation.

By 2030, according to TriMet’s financial forecast (not available on line), the agency will have collected $1.63 billion more payroll taxes thanks to the tax increase. Yet the agency itself projects that hours and miles of service in 2030 will be slightly less than in 2004.

Where did all the money go if not into service increases? Charles says some of it went into employee benefits. TriMet has the highest ratio of employee benefits to payroll of any transit agency. At latest report, it actually spends about 50 percent more on benefits than on pay, and is the only major transit agency in the country to spend more on benefits than pay. This doesn’t count the unfunded health care liabilities; by 2030, TriMet health care benefits alone are projected to be more than its payroll.


  1. NL:

    Sir Humphrey: "There has to be some way to measure success in the Civil Service. British Leyland can measure success by the size of their profits, or rather they measure their failure by the size of their losses. We don’t make profits or losses so we have to measure our success by the size of our staff and our budget. By definition, Bernard, a big department is more successful than a small one."

  2. IgotBupkis, President, United Anarchist Society:

    > by 2030, TriMet health care benefits alone are projected to be more than its payroll.

    OK, so, as usual, the other problem rears its head -- as a government agency, it doesn't HAVE to operate like a private business should, and establish a separate entity to reserve the funding for these benefits... that is, a trust fund or some sort whose obligation it is to manage these funds for the future -- the money in question stays in the general operating budget, burying the costs of benefits in the shoddy bookkeeping practices endemic to government organizations.


    As I commented on here or elsewhere (I forget) when a Balanced Budget Amendment was strongly suggested -- A BBA will do no good of any kind until we require that the government on ALL LEVELS -- state, local, and federal -- are absolutely REQUIRED to use GAAP -- Generally Accepted Accounting Principles.

    Absent that, any "balance" will be a paper-driven sham.

  3. IgotBupkis, President, United Anarchist Society:


    In other words, before we work on a BBA, or even on The Fair Tax idea, we need to close the GAAP loophole.


  4. Benjamin Cole:

    Agencies are in fact run for the benefit of the employees, or clientle groups (campaign backers, Congress etc).

    Check out these stats:
    By employment, largest federal departments:

    Defense: 3,000,000
    Veterans Affairs 235,000
    Homeland Security 208,000
    Treasury 115,000
    Justice 112,000
    Energy 109,000
    USDA 109,000

    We also have

    HUD 10,000
    Labor 17,000
    HHS 67,000

    We taxpayers will have to pay civilian pensions (fat) for most of thes employees, and militarty pensions (very fat) for many in the Department of Defense.

    We could reudce federal employment by three pain-free reductions.
    1. Wipe out USDA. Go to free markets, and eliminate 109,000 federal workers.
    2. Wipe out the VA; go to medical vouchers for veterans. 235,000 federal workers off the payroll. (This figure rising rapidly, btw--now at 279,000 I think).
    3. Eliminate Homeland Security, wipe out 208,000 jobs.

    RToght there, we hacve elimintaed more than 500,000 jobs, and I defy anyone to say one thing will change in America, except for the btter. These new unemployed will have to find jobs paying taxes, and working prodcutively as defined by the free market.

    Bad news: Ain't nobody in the Tea Party or Republican Party going ahead with these cuts or any cuts to the seven largest federal agencies. Those seven agencies (with exception of Treasury) are part and parcel of the Red State Socialist Empire.

    I won't even get started on the need to draw down our tax-eating overseas archipelago of military installations.

  5. Designer Wholesale Handbags:

    but when I was young stock investors had a saying — “your first loss is your best loss.” This was just another way of saying don’t throw good money after bad.

  6. Richard:

    I worked in the Ohio Department of Development in the 1990's, specifically in the office that administered the Community Development Block Grant program. There were 47 "professionals" and 5 clerical employees. Fresh into that job from Bank One, I soon realized that if Bank One had to administer that program, they would have done it (better) with 3 professionals and three clerks. I also have lots of not nice things to say about Bank One, but they would never waste money on what amounted to a sheltered workshop for lazy democrats (and even if they did, it would at least be their money. Sadly, years later, I have come to the conclusion that most of American government at every level operates as a sheltered workshop, operated solely for the benefit of goverment employees.

  7. tomw:

    Ummh, the post doesn't mention whether TriMet has to fund retirement for its employees. Is that also underfunded? Does it have the same 'features' as typical, basing retirement on the 'highest last x years', encouraging overtime and bloated pay for those specific years? Do they have the typical increase in 'disability' claims due to 'injuries' suffered whilst swabbing the decks of the garage or changing the trolley brake shoes that occur almost immediately after retiring, thus making all pay free from taxation [by some bodies, anyway]?
    I vote for ZERO public employees. All done by private firms that have the worries about retirement and health care benefits. Current governments pay no attention to that, they will not be in office when that rat slithers home to roost.