NC government workers wonder where their pay raise is

RALEIGH - If state employees can't expect a substantial pay increase at a time when the national economy has been growing for seven years straight, when can they?

That's a question state workers and critics of recent tax cuts are asking after Gov. Pat McCrory's proposed 2016-17 budget calls for giving employees a one-time 3 percent bonus but keeping salaries the same.

"If the governor does not value employees, taxpayers will receive substandard service from unmotivated workers," said Ardis Watkins, government relations director for the State Employees Association of North Carolina. "In good times, the citizens of the state deserve better and the employees do as well."

Alexandra Fortner Sirota, head of the Budget and Tax Center at the left-leaning N.C. Justice Center, said the absence of a permanent pay increase for most workers in McCrory's budget proposal reflects decisions over recent years by McCrory and legislators to make tax cuts a higher priority than taking care of the people charged with keeping polluters from causing harm, issuing driver's licenses or teaching college students.

"It is confusing to people. In an economic expansion such as we are experiencing as a country, you would expect our state leaders to be reinvesting. They have not," she said.

One-time help

North Carolina's roughly 85,000 state employees would see some benefit from the proposal for adjusting the state's two-year budget that McCrory and his budget director, Andrew Heath, have laid out over the past couple of weeks.

Of the $22.3 billion McCrory proposes to spend in in fiscal year 2016-17, his plan allocates $196 million to give state workers a bonus that will average 3 percent per worker. In addition, it would spend about $52 million for permanent increases for prison guards, state troopers and other positions where the governor says pay increases are needed to keep compensation competitive with other employers.

The proposal comes after a seven-year period in which state workers have received two salary increases, a 1.2 percent raise in 2012-13 and a flat $1,000 increase in 2014-15. They also got a $750 bonus for the current fiscal year and one extra week of vacation during each of two years.

The bonuses are one-time events that would not be included in employees' paychecks in subsequent years, nor would they be counted when the state computes how large their pensions will be.

SEANC says state employees' pay has dropped nearly 9 percent since 2010, once the effects of inflation are taken into account. Pension checks to retired state employees buy 10.5 percent less now than they did at the beginning of the decade, the organization says.

That's a sharp difference from  compensation received by the people who ultimately pay state employees, North Carolina taxpayers. From 2010-14, average wages in the state rose an average of 2.5 percent a year, or 0.5 percent annually after inflation is considered, according to the U.S. Bureau of Labor Statistics.

If the state economy is experiencing a "Carolina comeback," to use the phrase McCrory often employs, Watkins wants to know where state workers' share is.

"It's common sense," she said. "If you run a business, the first thing you take care of if you have a profit ... is making sure your employees are at least keeping pace."

Republican and Democratic legislators raised similar concerns, although less pointedly, during and after a presentation Heath made last week to the House and Senate budget-writing committees.

“We want to make sure that our state employees are treated fairly and have an opportunity to begin to recover from a number of years in which there were very small increases or no increases” in pay, said Rep. Nelson Dollar, a Wake County Republican who chairs the House Appropriations Committee.

Who gets what

State employee pay may be an area of disagreement between the House and the Senate as they take on the job of adjusting the 2016-17 budget, one of the main jobs during the legislative session that began April 25. The next fiscal year begins July 1.

Senate Appropriations Committee Chairman Harry Brown, R-Onslow, said some state workers are underpaid and some overpaid and argued against across-the-board increases.

Some of the Senate's Republican leaders want to increase the standard deduction North Carolinians can take when computing their income taxes, a step legislative staffers say would cost the state $195 million-$205 million a year in lost tax revenue.

McCrory's budget proposal does not include that change, but Brown said he thinks there will be room for it in the 2016-17 budget. House leaders are much less enthusiastic.

Heath told legislators last week that McCrory's plan to get average teacher pay above $50,000 is the biggest priority in the governor's budget proposal. The plan calls for a 5 percent average pay increase for teachers plus a one-time 3.5 percent bonus for teachers and principals.

Heath said the plan includes a number of bonuses instead of permanent salary increases because they are paid for by one-time sources of extra money or reduced expenses that the state cannot rely on to recur every year.

In an interview Tuesday, he called the combined new spending of about $712 million in additional compensation for teachers and state employees "a pretty bold investment." Most of that money, $429 million, will go to teachers and other school workers.

Heath said it is difficult to say whether state employees' pay has become less competitive with the private sector overall, but the state does salary surveys to see what is being paid for various jobs at competing employers, and he noted the $52 million that McCrory has proposed for pay adjustments will go for increases to workers where there's an imbalance.

"You're moving away from a model of across-the-board, small percentage pay increases that some would argue are not a wise investment of taxpayer dollars to a more targeted approach," he said.

State workers who get promoted will also get raises as their responsibilities increase, he said.

The tax effect

Sirota, with the N.C. Justice Center, argues that the lack of permanent raises for state workers is another indication that tax cuts leave state government without enough money to do what it needs to do.

The state has been reducing personal and corporate income tax rates and increasing the number of items subject to sales tax since McCrory took office in 2013. The result is that the state will get about $1.8 billion less in revenue during the coming fiscal year than it would have otherwise, Sirota said, and the figure will grow as additional tax cuts are phased in.

"What has not been made clear is these (employee pay) choices have been forced because of the prioritization of tax cuts," she said. "I would argue that we don't in fact have good evidence that tax cuts are growing our economy."

Roy Cordato, head of research at the conservative John Locke Foundation, says he can understand state workers' unhappiness, especially when they see teachers in line for significant pay increases.

"I could see where somebody says, 'Wait a minute, I work 12 months a year and haven't seen a raise in how long?' " he said.

But he and Heath both say tax cuts have contributed to improved economic conditions in the state.

When the Justice Center says the cuts are causing problems for state government, "I think what they really mean is there's not enough revenue to do everything they want government to do," Cordato said.

Heath said they have contributed to tax collections that have been higher than expected. McCrory's budget plan says tax revenue for the current fiscal year will be $237 million more than first projected.

That number will be adjusted up or down within the next week or so based on how much money came into state coffers during tax filing season.

But Heath said the surplus so far "is symptomatic of a broad-based economic recovery that's reached all citizens."

Sirota said it has not reached enough state employees and that will have long-term consequences.

"We can't continue to delay these critical investments. The foundation is eroding," she said.

McCrory pay plan for state workers concerns legislators

McCrory budget basics

Total general fund spending: $22.3 billion

Increase from 2015-16: 2.8 percent

Proposed average teacher pay: $50,244

Proposed transfer to rainy day fund: $300 million

No raise for you

Below are changes in North Carolina state government employees' compensation by fiscal year. 

2005-06 Across the board increase of 2.5 percent of pay or $800, whichever is greater, plus a bonus of five extra vacation days

2006-07 5.5 percent across the board increase

2007-08 4 percent across the board increase

2008-09 Across the board increase of 2.75 percent or $1,100, whichever is greater. However, Gov. Bev Perdue later cut pay by 0.5 percent and directed employees to take 10 hours off without pay in the second half of 2009.

2009-10 No change

2010-11 No change

2011-12 No change

2012-13 1.2 percent across the board increase

2013-14 40 hours of extra vacation as a bonus

2014-15 $1,000 pay increase, 40 hours of extra vacation as a bonus

2015-16 $750 bonus

Source: N.C. Office of State Human Resources

Where they work

This chart shows the number of state employees in each Western North Carolina county.

Avery: 600

Buncombe: 2,248

Cherokee: 125

Clay: 27

Graham: 26

Haywood: 151

Henderson: 227

Jackson: 912

Macon: 68

Madison: 75

McDowell: 540

Mitchell: 42

Polk: 38

Rutherford: 218

Swain: 54

Transylvania: 57

Yancey: 59

Source: N.C. Office of State Human Resources