Public Pay Equity Act Exposed

The Public Pay Equity Act was included in ALEC's 1995 Sourcebook of American State Legisltion. There is no adoption or approval information available. ALEC has attempted to distance itself from this piece of legislation after the launch of ALECexposed.org in 2011, but it has done nothing to get it repealed in the states where it previously pushed for it to be made into law.

ALEC Bill Text

Summary

This bill establishes an annual ceiling limiting public employee compensation to the same change as has occurred over the last year in the private sector. If private compensation has increased, average public compensation can increase by no more than that amount. Similarly, if private compensation has decreased, average public compensation must decrease by at least the same percentage.

Model Legislation

{Title, enacting clause, etc.}

Section 1. {Legislative Findings.}

The legislature hereby finds and declares that:

(A) State and local governments rely solely upon taxes and user fees collected from individuals and enterprises in the private sector to fund government functions and services.

(B) Continued funding of government functions and services requires a healthy and expanding private sector.

(C) In the competitive market, competitive forces operate to efficiently allocate resources, minimizing the prices of goods and services and benefiting society by broadening economic affluence.

(D) In non-competitive private markets, where competitive forces less effectively limit the prices of goods and services, government imposes economic regulation, seeking to reproduce the operation of the competitive market to obtain its benefits.

(E) In the competitive market, employee compensation is determined by the interplay of competitive forces, while in non-competitive private markets employee compensation is determined by regulation that seeks to reproduce competitive forces.

(F) Government is non-competitive, and as result is neither sufficiently subject to competitive forces nor to regulatory reproduction of competitive forces. Government employee compensation is therefore insufficiently subject to competitive forces.

(G) The insufficient influence of competitive forces has led to a situation whereby the rate of increase in state and local government employee compensation has exceeded that of private sector employees in the state.

(H) It is in the public interest for the compensation of government employees to be influenced by competitive forces, just as the compensation of private sector employees is influenced by competitive forces.

(I) To accomplish the purpose of applying competitive forces to the determination of government employee compensation, the state hereby establishes a program of public pay equity, which shall limit the annual percentage increase in average government employee compensation to that of private sector employees in the state.

Section 2. {Definitions.}

(A) “Compensation:” means wages, salaries, and employer-paid benefits.

(B) “Full time equivalent employees:” means a number of employees calculated by dividing the straight time hours for work or paid leave paid to employees divided by the number of hours constituting full time employment.

(C) “Employer paid non-wage benefits:” means any payment by a government entity to an employee, former employee, or dependent of an employee or former employee which would not have been made if the employee or former employee had not been employed by a government entity. Employer-paid benefits shall not include any payment from any insurance trust or fund which is offset by previous payments by a government entity or employees of a government entity.

(D) “Government entity:” means any of the following: The state, a local government, a special district, or any other public body authorized or established under the laws or authority of the state (this includes counties, cities, towns, townships, villages, special districts, government enterprises, publicly owned utilities, school districts, transit districts, etc.).

(E) “Public pay equity ceiling:” means an amount, annually calculated by each government entity, which shall represent the maximum average compensation for employees of the government entity.

(F) “Wages and salaries:” means gross cash amounts paid to employees, including pay for time worked, employer paid wage benefits (all paid leave, including holidays, vacations, sick time) and supplemental pay (shift differentials, overtime pay, etc.).

Section 3. {Establishing public pay equity.}

(A) Limitation of Public Compensation Rate of Change to that of the Private Sector: Notwithstanding any other provision of law, the year to year annual percentage increase in average annual compensation per full time equivalent employee of any government entity shall not exceed the annual percentage increase in average compensation per employee of the private sector in the state for the corresponding period. In the event that average compensation per employee of the private sector declines on a year-to-year basis, the average annual compensation per full time equivalent employee of any government entity shall decline by at least the same percentage.

Note: The intention is to establish an annual ceiling limiting public employee compensation to the same change as has occurred over the last year in the private sector. If private compensation has increased, average public compensation can increase by no more than that amount. Similarly, if private compensation has decreased, average public compensation must decrease by at least the same percentage.

(B) Annual Calculation of Public Pay Equity Ceiling: To comply with the provision immediately above, each government entity shall calculate, on an annual basis, a public pay equity ceiling using the formula specified in this act, according to the format supplied by the (state fiscal officer). The average annual employee compensation for any government entity in any year shall not exceed the public pay equity ceiling for the government entity.

(C) Ceiling not to be Construed as an Entitlement: The public pay equity ceiling should not be construed to create any economic right or entitlement for employees of a government entity.

Note: The intention of this provision is ensure the authority of a government entity to have average employee compensation at a level lower than the public pay equity ceiling.

(D) Calculation Method: The Act should specify the calculation method, indices, and data to be used (it should not be left to administrative determination or interpretation). The language would be developed from the calculation method in the Appendix, or specify an alternative approach.

(E) Full Time Equivalent Employee Assumption Fixed: For any government entity, the number of weekly hours used to define a full time equivalent employee in the first public pay equity ceiling calculation shall be used in all subsequent annual public pay equity ceiling calculations.

(F) State Fiscal Off leer to Provide Calculation Information: By (date) of each year, the (state fiscal officer) shall provide to each government entity a calculation form, which shall specify the numeric values necessary to calculate the amount by which the public pay equity ceiling shall change in relation to the previous year’s average employee compensation.

(G) Limitation on Arbitration Awards: Notwithstanding any other provision of law, no arbitrator or arbitration panel shall have the authority to impose any labor contract, labor contract provision, or any other order that would cause a government entity to become out of compliance with this Act.

Note: A similar provision should place the strongest possible limits on the courts as well (subject to constitutional limitations).

(H) Limitation on Government Entity Collective Bargaining Authority: Notwithstanding any other provision of law, no government entity shall have the authority to execute any labor contract, labor contract provision, or any other agreement that would cause a government entity to become out of compliance with this Act.

(I) Adjustments Required for Compliance: Notwithstanding any other provision of law, each government entity shall make such equitable adjustments to arbitration awards and labor contracts as are necessary to effect compliance with this Act. All arbitration awards and labor contracts shall contain a clause acknowledging the necessity of modification based upon this provision.

Note: The purpose of this provision is to ensure that no government entity is out of compliance with the Act as a result of the combined impact of individual labor negotiations or arbitration awards.

(J) Reorganization of Government Entities: In the event of any reorganization combining or dividing government entities, the annual public pay equity ceiling calculations shall be based upon employee compensation data as it would have been if the reorganized structure had been in place.

Section 4. {Reporting Requirements.}

(A) Annual Reporting by Government Entities: By (date) of each year, each government entity shall file a public pay equity report with the (state fiscal officer), in a format to be defined by the (state fiscal officer).

Such format shall include, at a minimum:

(1) For the fiscal year preceding imposition of public pay equity:

(a) Total employee compensation

(b) Percentage of total employee compensation paid in non-wage employer paid benefits.

(c) Number of full t ime equivalent employees

(d) Average annual employee compensation

(2) For the fiscal year previous to the fiscal year most recently ended:

(a) Total employee compensation

(b) Percentage of total employee compensation paid in non-wage employer paid benefits

(c) Number of full time equivalent employees

(d) Average annual employee compensation

(e) Percentage change from the fiscal year preceding imposition of public pay equity

(3) For the fiscal year most recently ended:

(a) Total employee compensation

(b) Percentage of total employee compensation paid in non-wage employer paid benefits

(c) Number of full time equivalent employees

(d) Average annual employee compensation

(e) Percentage change from the fiscal year preceding imposition of public pay equity

(f) Percentage change from the previous fiscal year

(B) Annual Reporting by the State Fiscal OfJicer: By (date) of each year, the (state fiscal officer) shall submit a report to the governor and to the legislature containing, at a minimum, all of the information reported by the government entities in the provision immediately above. Such report shall also include:

(1) For the fiscal year preceding imposition of public pay equity:

(a) With respect to state government employees

(i) Total employee compensation

(ii) Percentage of total employee compensation paid in non-wage employer paid benefits.

(iii) Number of full time equivalent employees

(iv) Average annual employee Compensation

(b) With respect to local government employees

(i) Total employee compensation

(ii) Percentage of total employee compensation paid in non-wage employer paid benefits

(iii) Number of full time equivalent employees

(iv) Average annual employee compensation

(c) With respect to private sector employees: Average statewide private sector employees wages and salaries

(2) For the fiscal year previous to the fiscal year most recently ended:

(a) With respect to state government employees

(i) Total employee compensation

(ii) Percentage of total employee compensation paid in non-wage employer paid benefits.

(iii) Number of full time equivalent employees

(iv) Average annual employee compensation (v) Percentage change from the fiscal year preceding imposition of public pay equity

(b) With respect to local government employees

(i) Total local government employee compensation

(ii) Percentage of total employee compensation paid in non-wage employer paid benefits.

(iii) Number of full time equivalent employees

(iv) Average annual employee compensation

(v) Percentage change from the fiscal year preceding imposition of public pay equity

(c) With respect to private sector employees

(i) Average statewide private sector employees wages and salaries

(ii) Percentage change from the fiscal year preceding imposition of public pay equity, with adjustment to account for the percentage change in non-wage employer paid benefits (see note).

(3) For the fiscal year most recently ended:

(a) With respect to state government employees

(i) Total employee compensation

(ii) Percentage of total employee compensation paid in non-wage employer paid benefits.

(iii) Number of full time equivalent employees

(iv) Average annual employee compensation

(v) Percentage change from the fiscal year preceding imposition of public pay equity

(vi) Percentage change from the previous fiscal year

(b) With respect to local government employees

(i) Total employee compensation

(ii) Percentage of total employee compensation paid in non-wage employer paid benefits.

(iii) Number of full time equivalent employees

(iv) Average annual employee compensation

(v) Percentage change from the fiscal year preceding imposition of public pay equity

(vi) Percentage change from the previous fiscal year

(c) With respect to private sector employees

(i) Average statewide private sector employees wages and salaries

(ii) Percentage change from the fiscal year preceding the imposition of public pay equity, with adjustment to account for the percentage change in non-wage employer paid benefits (see note).

(iii) Percentage change from the previous fiscal year, with adjustment to account for the percentage change in non-wage employer paid benefits (see note).

Note: The U.S. Department of Commerce does not maintain state by state data on employer paid non-wage benefits. An adjustment formula can be developed using the regional Employment Cost Index to account for the changes in employee benefits. If statewide employee benefits data is available for private employers, it should be used instead.

Section 5. {Severability clause.}

Section 6. {Repealer clause.}

Section 7. {Effective date.}

Appendix

Proposed Calculation Method. This is an example of one alternative for calculating the public pay equity ceiling. Each government entity would use this format to calculate its annual public pay equity ceiling. It assumes implementation in 1989, with base year of 1988.

1. Base Year: 1987-88 Calculation Base: Calculate base year average total wage, salary and benefit figure per full time equivalent employee, using actual data (it is assumed that each government entity will be responsible to ensure its own compliance with the Act, subject to state review. All government entities should be included; cities, counties, special districts, school districts, transit districts, etc.).

2. Calculation of First Year’s Average Pay Ceiling: Year 1988-89

a. A state fiscal officer (treasurer or appropriate) publishes the figures to be used in the calculations, and provides a format for calculations in a form (the indices and sources would be specified in law, leaving no need for- interpretation of the figures. The state fiscal officer’s role would merely be to ensure that all government entities use the same data).

b. The calculation base is adjusted for the estimated change in private wages and benefits since the base year (1987-88). The calculation is as follows:

Develop EC1 Adjustment Factor: Change in the Employment Cost Index (ECI) for Compensation (Wages, Salaries and Benefits) of Private Employees in the region (the U.S. Department of Labor, Bureau of Labor Statistics publishes this data quarterly, with year-end data published in January. Regional data is published for the Northeast, the Midwest, the South, and the West).

Modify the EC1 Adjustment Factor (above) to account for the experience in the state, using a State Factor developed as follows:

Determine the annualized lo-year rate of change in the regional EC1 for private sector workers for wages and salaries only (this calculation relies on wage and salary data, excluding benefits data, since the federal government does not publish benefit data in the private sector by state).

Determine the annualized 10 year rate of change for average private sector pay (wages and salaries) in the state.

Divide by the annualized state rate by the annualized regional EC1 Wage and salary rate, to determine the State Factor.

Multiply the State Factor by the EC1 Adjustment Factor to obtain the Annual Adjustment Factor.

Calculate the 1988-89 Public Pay Equity Ceiling by multiplying the 1987-88 average pay by the Annual Adjustment Factor.

3. Calculation of Second Year’s Average Pay Ceiling: Year 1989-90

a. Repeat #2-a, above

b. Late Data Adjustment: This adjustment corrects any the estimate made using the EC1 data in #2-b, above. Adjust the previous year’s Public Pay Equity Ceiling to account for actual data (reported too late to be used in last year’s calculation), as follows: Determine the percentage change in private employee pay (reported for calendar years each following August by the U.S. Department of Labor, Bureau of Labor Statistics). Divide by the State Factor that was calculated applied in the previous year.r Multiply by the Calculation Base from 2 years ago, which yields a Calculation Base for 1988-89 (beginning in the third year, the Calculation Base from two years ago is used instead).

c. Repeat #2-b above, using data for appropriate years

4. Calculation Of Subsequent Year’s Average Pay Ceiling

Repeat procedure for second year.