How California leads U.S. in pay giveaway

SACRAMENTO, Calif. — Nine years ago, California Democrat Gray Davis became the first governor in 82 years to be recalled by voters. The state’s 20 million taxpayers still bear the cost of his four years and 10 months on the job.

Davis escalated salaries and benefits for 164,000 state workers, including a 34 percent raise for prison guards, the first of a series of steps in which he and successors saddled California with a legacy of dysfunction. Today, the state’s highest-paid employees make far more than comparable workers elsewhere in almost all job and wage categories, from public safety to health care, base pay to overtime.

Payroll data compiled by Bloomberg on 1.4 million public employees in the 12 most-populous states show that California has set a pattern of lax management, inefficient operations and out-of-control costs. From coast to coast, states are cutting funding for schools, public safety and the poor as they struggle with fallout left by politicians who made pay-and-pension promises that taxpayers couldn’t afford.

“It was completely avoidable,” said David Crane, a public-policy lecturer at Stanford University.

“All it took was for political leaders to think more about the general population and the future, rather than their political futures,” said Crane, a Democrat who worked as an economic adviser to former Gov. Arnold Schwarzenegger. “Citizens should be mad as hell and they shouldn’t take it anymore.”

Nationwide, such compensation policies have contributed to state budget shortfalls of $500 billion in the past four years and prompted some governors, including Republican Scott Walker of Wisconsin, to strip most government employees of collective-bargaining rights and take other steps to limit payroll spending.

In California, Gov. Jerry Brown hasn’t curbed overtime expenses that lead the 12 largest states or limited payments for accumulated vacation time that allowed one employee to collect $609,000 at retirement in 2011. Brown has continued requiring workers to take an unpaid day off each month, which could burden the state with new costs in the future.

Last year, Brown waived a cap on accrued leave for prison guards while granting them additional paid days off. California’s liability for the unused leave of its state workers has more than doubled in eight years, to $3.9 billion in 2011, from $1.4 billion in 2003, according to the state’s annual financial reports.

“It’s outrageous what public employees in California receive in compensation and benefits,” said Lanny Ebenstein, who heads the California Center for Public Policy, a Santa Barbara-based research institution critical of public payrolls.

“Until public employee compensation and benefits are brought in line, there will be no answer to the fiscal shortfalls that California governments at every level face,” he said.

Among the largest states, almost every category of worker has participated in the pay bonanza. Britt Harris, chief investment officer at the Teacher Retirement System of Texas, last year collected $1 million -- including his $480,000 salary and two years of bonuses -- more than four times what Gov. Rick Perry, received. Pension managers in Ohio and Virginia made up to $678,000 and $660,000, respectively, according to the data, which Bloomberg obtained using public-record requests. In an interview, Harris said public pension pay must be competitive with the private sector to attract top investment talent.

Psychiatrists were among the highest-paid employees in Pennsylvania, Ohio, Michigan and New Jersey, with total compensation $270,000 to $327,000 for top earners. State police officers in Pennsylvania collected checks as large as $190,000 for unused vacation and personal leave as they retired young enough to start second careers, while Virginia paid active officers as much as $109,000 in overtime alone, the data show.

The numbers are even larger in California, where a state psychiatrist was paid $822,000, a highway patrol officer collected $484,000 in pay and pension benefits and 17 employees got checks of more than $200,000 for unused vacation and leave. The best-paid staff in other states earned far less for the same work, according to the data.

Rising employee expenses are crowding out other priorities for state and local governments and draining resources for college tuition, health care, public safety, schools and other services, Schwarzenegger said in an emailed response to questions.

“California spends most of its money on salaries, retirement payments, health care benefits for government workers, and other compensation,” said Schwarzenegger, 65, who replaced Davis as governor. “State revenues are up more than 50 percent over the past 10 years, but still we’ve had to cut spending on services because so much of that revenue increase went to increases in compensation and benefits.”

Brown, who granted state workers collective-bargaining rights during his first tenure as governor more than three decades ago, has reduced pension costs for new employees while leaving most retirement benefits for current workers intact.

Last year, to balance the budget, he used a policy set by Schwarzenegger, his predecessor, to save $400 million through the forced monthly day off. He persuaded voters to back a tax increase, imposed a hiring freeze as his predecessors did and told as many as 26,000 prison employees they might lose their jobs as thousands of criminals are shifted to county jails.

“Gov. Brown is busy fixing the many problems that he inherited from past administrations,” said Gareth Lacy, a spokesman. “California’s $26 billion budget deficit, and the decades-old structural imbalance, was eliminated in large part by cutting waste and slashing costs. The governor also achieved historic reforms to public pensions and workers’ compensation that will save the state billions of dollars.”

Former Gov. Davis, in a telephone interview, said he now believes state employee compensation is too high.

“I find it offensive that people who work for the state try to turn around and abuse the state through inflated overtime claims and lump-sum payouts,” Davis said. “We have high salaries, they have to come down. There was a time when we could afford them, but we can’t now.”

Brown, who took office in January 2011, had plenty of incentive to crack down. The per-worker costs of delivering services in California vastly exceed those even in New York, New Jersey, Illinois and Ohio, where unions have the same right to bargain collectively for the best pay packages, according to data compiled by Bloomberg.

The result isn’t only a heavier burden on California taxpayers. As higher expenses competed for fewer dollars, per- pupil funding of the state’s public schools dropped to 35th nationally in 2009-10 from 22nd in 2001-02. Californians have endured recurring budget deficits throughout the past decade and now face the country’s highest debt and Standard & Poor’s lowest credit rating for a U.S. state.

The story of one prison psychiatrist shows how pay largesse has spread.

Mohammad Safi, graduate of a medical school in Afghanistan, collected $822,302 last year, up from $90,682 when he started in 2006, the data show. Safi was placed on administrative leave in July and is under investigation by the Department of State Hospitals, formerly the Department of Mental Health.

The doctor was paid for an average of almost 17 hours each day, including on-call time and Saturdays and Sundays, although he did take time off, said David O’Brien, a spokesman for the department. In a brief interview outside his home in Newark, Calif., Safi said he’d been placed on leave for working too many hours and declined further comment. An increase in the number of beds at the facility where Safi worked forced him to cover more shifts, and he was allowed to do some of the work from home, said his lawyer, Ed Caden.

Safi and other psychiatrists employed by the state benefited from what amounted to a 2007 bidding war between California’s prisons and mental health departments, after a series of federal court orders forced the state to improve its inmate care. Higher pay in the prison system was matched by mental health, and as psychiatrists followed larger salaries, the state’s cost to provide the care soared.

Last year, 16 psychiatrists on California’s payroll, including Safi, made more than $400,000. Only one did in any other state in the data compiled by Bloomberg, a doctor in Texas. Safi earned more than twice as much as any state psychiatrist elsewhere, the data show.

The disparity with other states is also evident in payments for accumulated vacation time when employees leave public service. No other state covered by the data compiled by Bloomberg paid a worker more than $200,000 for accrued leave last year, while 17 people got such payments in California. There were 240 employees who received at least $100,000 in California, compared with 42 in the other 11 states, the data show. New Jersey Gov. Chris Christie calls such payments “boat checks” because they can be large enough to buy a yacht.

Topping the list was $608,821 paid to psychiatrist Gertrudis Agcaoili, 79, who retired last year from the Napa state mental hospital after a 30-year career. Agcaoili said in a telephone interview that it was her right to take the payment.

Other states have taken steps to limit vacation payouts. New Jersey caps checks for departing state employees at $15,000, and New York limits payment of accrued time to 30 vacation days. Most New York employees may accrue 200 sick days, which can be used to offset retiree health-care premiums.

California also leads in overtime expenses, data compiled by Bloomberg show. Last year, it paid $964 million in overtime to 110,000 workers, an average of $8,741 per employee. This was more than twice the $415 million New York paid in overtime to 80,000 staff members, for an average of $5,199, and almost as much as all the other states in the database combined. In Georgia, total overtime for 8,935 workers last year was $12.3 million, an average $1,378.

California employees generally make at least 1.5 times their regular pay to work overtime. The state’s overtime costs show mismanagement by the officials who run state departments, said former Georgia Gov. Roy E. Barnes.

“Government is no different from business; you have to have good leaders,” Barnes said in a telephone interview. “When you have somebody having that amount of overtime, then there’s not good management control, there’s not good leadership.”

While California’s cost of living and relatively high private-sector pay account for some of the disparities in public payrolls, special circumstances in the Golden State combined to drive wages and benefits to levels far beyond other states, data show.

Unions pressed for every perk they could squeeze out of governors and their department managers -- including “arduous- duty” pay for office workers and special bonuses for call- center employees “in recognition of the complex workload and level and knowledge required to receive and respond to consumer calls,” state documents show.

Most public employees aren’t overpaid, and differences in compensation can be tied to regional labor markets, whether some states prefer delivering services at the local level and whether they have adequate staffing, said Steven Kreisberg, director of collective bargaining for the American Federation of State, County and Municipal Employees.

“I don’t think there’s this kind of huge disparity as if somehow they’re being overpaid and taking advantage of the systems,” Kreisberg said in a telephone interview from Washington. “This is earned money.”

The California payroll totals reflected in the Bloomberg data have their roots in wage negotiations carried out during Davis’ time as governor.

One of the first goals of state employee unions when Davis took over in 1999 after 16 years of Republican governors was to unwind curbs on pensions put in place by Gov. Pete Wilson in 1991. Workers also wanted broad wage increases.

Unions persuaded the California Public Employees’ Retirement System to sponsor legislation called Senate Bill 400, which sweetened state and local pensions and gave retroactive increases for tens of thousands of retirees. Highway-patrol officers were granted the right to retire after 30 years of service with 90 percent of their top salaries, a benefit that was copied by police agencies across the state.

California’s annual payment toward pension obligations ballooned to $3.7 billion in the current fiscal year from $300 million when the bill was enacted. Some cities that adopted the highway-patrol pension plan later cited those costs for contributing to their bankruptcy filings.

Davis and the Legislature also agreed to labor contracts that gave 164,000 state workers pay increases of 4 percent in 1999 and again in 2000. Those contracts cost the state an extra $1.3 billion within a year, according to the state’s independent Legislative Analyst’s Office.

There were more to come.

After technology stocks plummeted in 2000, cutting tax revenue, Davis asked state workers to postpone additional raises.

In lieu of immediate increases, Davis and the California Legislature agreed to link highway patrol pay to an average of the five biggest law enforcement agencies in the state. The result: escalating raises that came due after Davis left office. Officers’ pay rose 2.7 percent in fiscal 2004, 12.1 percent in fiscal 2005 and 5.6 percent and 5.7 percent in the following years, according the Legislative Analyst’s Office.

The pay boosts were needed to help bring more officers to the agency at a time it couldn’t fill all its cadet positions, said Jon Hamm, chief executive officer of the California Association of Highway Patrolmen, the union for CHP officers.

The pay deal for the California Highway Patrol got the attention of the state’s politically potent prison guards’ union, which successfully lobbied to have its compensation tied to that of state troopers.

The result was a pay increase of more than 30 percent for members of the union over the five-year contract. The state’s auditor, Elaine Howle, in July 2002 estimated the contract cost taxpayers an extra $500 million a year.

The prison guards’ union gave Davis more than $3 million for his various elections, including $250,000 a few weeks after the pay increase was negotiated, campaign records show.

California had almost 11,000 workers in the Department of Corrections and Rehabilitation who made $100,000 or more in 2011, and about 900 prison employees earning more than $200,000 a year, data compiled by Bloomberg show. New York had none. Its top-paid officer is a sergeant at Sing Sing Correctional Facility who made $170,000 last year.

Davis had taken office in 1999 with a $12 billion budget surplus. Four years later, he began his second term by reporting a $35 billion budget deficit -- about $1,000 for every man, woman and child in the state.

Davis was recalled in October 2003 amid criticism of the deficit, his handling of an energy crisis that saw power prices soar and political contributions from public-employee unions, technology companies and others.

After Davis left, lawsuits over the quality of care for prison inmates and patients of state mental-health hospitals rapidly elevated pay for doctors, dentists, nurses and psychiatrists.