A smaller slice of the government pie

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When Rep. King Banaian (R-St. Cloud) was campaigning last year, he thought voters would appreciate knowing that he, as a professor at a state university, had taken a two-year pay freeze. He was wrong.

“As it turns out, I got no sympathy for that whatsoever,” Banaian said. “I learned to shut up about my wage freeze.”

Banaian said he encountered many voters who had seen their wages cut, not frozen. So too did Rep. Denny McNamara (R-Hastings), who found that many of his constituents felt the public sector wasn’t sharing in their private pain.

“As I was out door-knocking, talking to my neighbors last fall, they kept saying, ‘Will you please live within your means? We can’t give you any more,'” he said.

The Republicans who seized the majority in the House and Senate this year campaigned on a platform of smaller government. Now that they’re in charge, many hope to scale back not only the amount of money the state spends, but also the number of people it employs. Bills are already working their way through the House that would freeze state worker pay, cut the number of state employees, and establish a commission to eliminate or combine state agencies.

As lawmakers prepare to solve a projected $6.2 billion budget deficit, many say a cut to the workforce is inevitable. But just how many state employees are there, exactly? And how much do they cost the taxpayers?

The state’s payroll

The State of Minnesota, with more than 38,000 workers in its three branches of government, employs more Minnesotans than any private company. Add in employees of the University of Minnesota, the Minnesota State Colleges and Universities system and a handful of other state-level entities, and the state’s payroll swells to a total of nearly 76,000 people. That’s roughly 3 percent of all working people in Minnesota.

To some, 3 percent might sound like a lot; to others, a little. It should be noted that on a per-capita basis, Minnesota actually has the 10th smallest state workforce in the nation. Either way, some lawmakers question whether the state needs that many workers.

“People are asking the question, ‘Why is state government still the one place where we’re growing and expanding?’ And obviously, the workforce is a fairly large component of that,” said Rep. Keith Downey (R-Edina).

Breaking down the numbers

It’s true that state spending has increased in recent years – nearly 38 percent since 2001, according to Minnesota Management & Budget. It’s also true that state employees collectively received pay increases in each biennium during that time period – as high as 6.4 percent in fiscal years 2002-03, and as low as 0.6 percent in the current biennium. And in two of the last five biennia, the increases exceeded the rate of inflation, according to MMB.

But overall, state employees account for only a small fraction of the total cost of state government. In the last full two-year budget cycle (fiscal years 2008-2009), the state spent $4.5 billion to compensate its roughly 34,000 executive-branch workers. That figure includes everything – salaries, health insurance, pensions, federal payroll tax, etc. During that same biennium, the state had a total budget of $55.1 billion. Do the math, and you’ll find employee compensation accounted for only 8 percent of the state’s budget.

Where does the rest of the money go? By and large, state dollars go to fund programs like K-12 education and health and human services, where the state provides money but others -school districts, counties and nursing homes, to name a few – provide the services.

This calls into question whether downsizing the state’s workforce would make much of an impact on the budget. Rep. Ryan Winkler (DFL-Golden Valley) said it wouldn’t, and he said efforts to cut the number of state employees are borne out of public misconceptions about state government.

“It’s creating this myth of the public sector running out of control,” Winkler said, calling it “nonsense” that state employees haven’t shared the pain.

In fact, MMB documents show while state spending has grown since 2001, the size of the state workforce has remained essentially flat, and even dipped slightly during the middle of the last decade. With employee salaries accounting for such a small portion of the budget, and with the size of the workforce largely unchanged, Winkler suspects talk of cutting state employees is motivated by politics.

“The Republican message is that government is bad,” Winkler said. “As long as they can get the public thinking that government can’t do anything right, then they have a better chance of enacting their broader business and corporate agenda.”

A changing workforce

At the forefront of the debate is HF4, which would require a 15 percent reduction (roughly 5,100 employees) in the number of executive-branch workers by 2015. Downey, who sponsors the bill, said that it is not part of a campaign to stigmatize state workers. Rather, he argues it’s an opportunity to innovate and streamline government services.

“To get better, and to deliver more for less thinking we can go forward with the same workforce is just impossible,” Downey said.

He points out that Minnesota has an aging state workforce. As of 2010, the median age of executive-branch employees was approaching 51. With an average retirement age of 61, Downey said a wave of retirements is looming. He worries that if the state hires all new workers to replace the old ones, it will cement its current employee cost structure for decades.

“If we’re ever really going to have a chance to reinvent the basic model of government employment, I think we ought to take a look at it seriously now, and do things today so that we’re not locking ourselves into our current model for the future,” he said.

Rather than relying on layoffs, the bill would seek to downsize the executive branch through mostly attrition. It would establish an early retirement incentive program to reduce the number of workers, and then leave the details to Gov. Mark Dayton about which agencies would retain how many jobs.

But regardless of how reductions are done or who makes the decisions, Winkler said cutting workers can have unintended consequences. Among the jobs terminated when the executive branch downsized briefly in the early 2000s were MMB auditors. Winkler draws a direct line between their absence and a flurry of high-profile financial fraud and waste cases at state agencies in the latter part of the decade.

“When the agency that was supposed to be doing all this oversight and financial management had all these people disappear … money started to disappear from big agencies,” he said.

In 2009, Winkler and Downey teamed up to pass legislation that boosted financial accountability at state agencies. But Winkler said it goes to show that lawmakers should carefully consider the potential impact of cuts before they make them.

“If it’s a government reform effort, then you should take the time to figure out what the effect of your reform will be,” he said.