This commentary originally appeared in The Monitor on August 17, 2015.
Hidalgo County officials are proposing to give county employees a 3 percent across-the-board pay raise and use the county’s savings to help cover the cost in fiscal 2016. That’s not just bad fiscal policy, it’s also terrible economics.
Generally speaking, across-the-board pay raises are not a good idea since it is expensive and does nothing to reward productive employees. In this case, it’s a particularly bad idea since the county doesn’t have the estimated $3.5 million it needs to follow through with a salary bump for non-elected staff in the first place — at least not without dipping into the county’s reserve fund. And that should be a non-starter.
Spending one-time monies — like those in the reserve fund, on recurring expenses — like salaries, is never a good approach because your supply of money will run out in short order but your expenses will remain over the long term.
Even if Hidalgo County had a surplus in its general fund to provide pay hikes, other areas of the county’s public finances should take a higher priority, such as dealing with its local debt.
The latest data from the Texas Bond Review Board shows that county taxpayers were on the hook for more than $190 million in fiscal 2014. Should the county have extra money — and to be clear, it doesn’t — then it would be wise to accelerate debt payments where possible and get rid of its obligations.
There are many problems with an across-the-board pay raise from a fiscal policy perspective, but from an economics standpoint, a proposal like this looks even worse.
Basic economics tells us that more government spending means less money is available for the private sector to invest and create jobs, reducing opportunities for all to prosper while benefitting only a select few in the public sector in this case.
It’s true that private sector employees in Hidalgo County received an average weekly wage increase of 3.1 percent last year according to the Bureau of Labor Statistics. However, this is an average of more than 185,000 employees who usually don’t see the same pay increase by each employer. These workers are paid their value to the employer based on their productivity, experience and other factors.
If these employers and employees in the private sector must pay more to fund a larger county budget, then there will be less opportunity to earn a higher wage and find a job. Citizens are already hurting as the county’s unemployment rate in June was a relatively high 7.8 percent, compared with Texas’ average of 4.2 percent.
It’s bad enough that higher county employee wages may cost taxpayers more, but it’s salt in the wound when those county employees don’t provide the same value of public goods and services. It’s even worse when there’s no attempt to determine this value and the contribution by each employee.
This is not to say that county employees, and other public sector employees, shouldn’t receive periodic pay increases. But these salary increases should be based on a capitalistic merit-based system instead of a one-size-fits-all policy that is costly, rewards the unproductive and strains the local economy.
With the right compensation policies in place, Hidalgo County can do better by its employees and its taxpayers.
Dr. Vance Ginn is an economist in the Center for Fiscal Policy at the Texas Public Policy Foundation, a nonprofit, free-market research institute based in Austin. He may be reached at firstname.lastname@example.org.
James Quintero is the director of the Center for Local Governance at the Texas Public Policy Foundation. He may be reached at email@example.com.