The untenable nature of NV state employee pay raises

The ongoing recession has drawn attention recently to the lavish pay raises enjoyed by Nevada's state government workers.  However, what has been lost on many observers is that the pay structure for state workers suffers from a systemic problem.  Pay raises for state workers are far out of line with what workers in the private sector earn even during periods of robust economic growth.  Hence, while the recession has hastened the attention that is paid to state employee raises, the issue has been problematic for some time.

There are generally two types of state employee pay raises in Nevada.  First, most state employees receive an annual 4.5 percent "step increase" for each of their first 10 years.  Because this raise is percentage-based, it compounds over time, meaning that a typical state employee with 10 years' experience receives 155.3 percent of the pay he received in his first year.  This increase is performance-neutral.  It is granted to employees simply based on time served and provides little incentive for state employees to improve government efficiency.

Additionally, state employees often receive annual, across-the-board "cost-of-living adjustments."  These pay increases are in addition to the annual 4.5 percent increase that many state employees get.  As with the step increases, they are also percentage-based, meaning they compound over time. 

It is curious that COLAs only ever adjust upward.  In the current fiscal year, for example, state employees are receiving a 4 percent COLA despite the fact that the prices of rents, land and gasoline are all in decline in Nevada.

There is apparently widespread misunderstanding as to how these pay raises add up in Nevada.  Even Gov. Jim Gibbons recently said, "We worked to get everyone a 6 percent pay increase this biennium when a lot of companies in the private sector did not give employees any increases in salaries."  It appears that even he does not correctly understand the size of these increases.  The "6 percent" he refers to is simply an addition of the 2 and 4 percent COLAs that were given in FY08 and FY09, respectively.  It ignores the 4.5 percent step increases that state employees received concurrently.  It further ignores the fact that percentage-based increases are compounding – they cannot simply be added together.  In total, state employees are receiving as much as a 15.6 percent pay increase in the 2007-2009 biennium.  They have received as much as a 25.4 percent pay increase in just the last three years and as much as a 74.9 percent pay increase in the last seven years.

This rate of pay increase has not been realized in the private sector even during the best of times.  It is particularly egregious that state workers continue to receive such high pay raises even during a deepening recession.  There was always a day of reckoning coming for state employees. The recession has simply accelerated its arrival.