Thom Reilly

The ex-county manager on the public-employee compensation crisis, how to fix it and the one job he’ll never have

cmyk-reilly-8939.jpgDuring Thom Reilly’s tenure as Clark County’s CEO from 2001-06, local unemployment was low, spirits were high and government coffers were overflowing with cash. But as the economic train was cruising down the tracks, Reilly was the lone passenger who could see a red light at the end of the tunnel. In particular, he was alarmed by the way politicians, public managers and public-employee unions at the state and local levels were negotiating billion-dollar contracts that included, among other perks, pensions for life and endless retiree health benefits—without ever considering the need for a safety net in case the financial bubble burst.

Which, of course, it did. And today, municipalities across the land are trying to figure out how to turn copper pennies into 100-pound bars of gold to pay off a bill that will come due sooner rather than later.

Sitting in his ranch-style home just off West Desert Inn Road, Reilly stops short of uttering an “I told you so.” Rather than dwell on what could’ve been, the 51-year-old executive director of the Caesars Foundation and full-time San Diego State professor prefers to focus on solutions, which he details in his recently released book, Rethinking Public Sector Compensation: Whatever Happened to the Public Interest? (M.E. Sharpe, $70).

What’s at the crux of the public-employee compensation crisis?

In a nutshell, we kind of manage and reward public employees in all the wrong ways. The system is too heavily skewed toward time-served and longevity and not on performance, entrepreneur [endeavors] and innovation. So we tell employees, “If you stay with us for 30 years, you’re going to get the prize when you leave, because you’re going to have a guaranteed pension for life that’s indexed.” Most public employees also have access to retiree health care with little co-payment, which has disappeared in the private sector. And in the public sector, we basically penalize individuals who leave because their pension system is not portable. And that is the main issue: We force people to stay in public agencies for a long period of time, whether they want to or not.

Your book talks a lot about the difficulty of funding pensions and retiree heath-care benefits. How bad is it, especially in Nevada?

Some estimates [suggest] the unfunded liability on [pensions] is approaching $3 trillion in the United States. That’s leading to bankruptcies. And make no mistake: That crowds out services to citizens.

The last check in Nevada for retiree health care, the unfunded liability was well over $1 billion. And there’s no plan in the state for even dealing with that.

The reason Nevada has retiree health care is because public employees can retire earlier than private employees. So there’s a gap from when they retire to when they can get Medicare at age 62. But why do we give it for life? Why not just give it until age 62? … Or why not raise the retirement age? That public employees can retire at age 50 or 55 without penalty, when people are living to 85 or 90, it’s nonsensical. Raising the retirement age because people are living longer is something that has to occur—both in the public and private sector.

These huge public-employee contracts are negotiated behind close doors, and you argue that’s a big part of the problem, right?

Exactly. When we make decisions about benefits and salaries, they haven’t been done in a transparent manner. There are too many conflicts in the system. For example, after a local government contract is successfully negotiated, usually all that’s mentioned in the paper is the cost-of-living increase. And I would argue that that is peanuts when you look at the total cost of the package.

You also have this “iron triangle” that I address in the book, where you have elected officials, union representatives and public managers involved in a closed, nontransparent way of adopting benefits. They’re adopting benefits sometimes for themselves without the public having any idea what happens—and with the bill coming due long after they leave office.

A book like yours is bound to have its share of detractors, particularly from the pro-union side. Have you had any push-back yet?

Yeah, I have. I try to be balanced. The book doesn’t bash unions, nor does it suggest that unions are culpable for the whole problem. In fact, I pointed out that there are pension crises in states that don’t have unionization, so it’s kind of hard to blame unions for that. But the research is clear that unionization escalates wages and benefits—that’s a given; that’s their job. What we’ve seen is this dramatic decrease in unionization in the private sector—we’re down to an all-time low of less than 7 percent. But they’re moving over to the public sector—they’re just changing from airlines and car dealerships to public employees.

What was your salary as Clark County manager? Were you underpaid, overpaid or adequately paid?

I think I made close to $200,000, and I would say I was adequately paid. When you look at it locally, it was less than the city of Henderson city manager—although my scope of responsibilities for my budget and for employees was tenfold. It was less than regional bodies of the Regional Transportation Commission and the Water Authority. Nationally, it was probably very comparable. But I felt I was very fairly compensated.

In fact, at one point the commission gave me a 10 percent increase, and I worked out with our finance office to decrease that to what the employees got. It was more an issue of walk the walk, talk the talk. If you say you’re going to make changes, to take [a bigger raise] than employees got I thought was problematic.

What do you miss most about being county manager?

To be honest, I can’t say I miss it. I found it rewarding, I’m glad I did it, and I wouldn’t trade it for anything. But I have no desire to be another city or county manager! I definitely aged, no question about it.

So another stint as a public manager doesn’t appeal to you, but what about politics?

Definitely not! I can say with 100 percent certainty that I would not ever run for office. That is not even a remote possibility.

You wrote about the controversial ways in which the governors of both New Jersey and Wisconsin attempted to solve budget deficits by eradicating public-employee unions. Was there any merit to their madness?

They assisted in bringing this issue to the national attention, not only through media coverage but also public-policy debate. Though how the Wisconsin governor chose to go about it, I took some issues with. Namely, it was convenient that he left out public safety. And he left out public safety because they were loyal foot soldiers for the Republican Party.

In fact, in my book, I suggest that public safety is one area that definitely needs more scrutiny. The fact we leave them out of the debate because they’re heroes is a real problem.

Speaking of public safety, there was a recent benefits/sick pay scandal involving the Clark County Fire Department. What was your reaction?

It wasn’t shock. The way the contracts [had been negotiated] and the way the system had been working for such a long period of time really lent itself to that type of abuse.

One thing about collective-bargaining agreements is when they are negotiated, it’s not like … you start from zero. They’re cumulative—so whatever you negotiated last time is built upon. So once you negotiate a benefit then attempt to take it away, arbitrators are loathe to deal with takeaways. If you want to wade through the firefighters’ contract, your eyes will be crossed because of all the lengthy and numerous consecutive add-ons that you have.

So a couple of things happened. One is there was that nontransparent way of adopting it that accumulated over the years. And for a long period of time, firefighters were a tremendous force for elected officials to get their endorsement. I mean, who doesn’t like firefighters? They only help you. So their positive image in the community had been parlayed into a political machine in which elected officials, definitely at the local level, coveted their endorsements. And the payback was that the scrutiny didn’t occur or they were able to accumulate large amounts of benefits over a period of time.

You mention that the book is aimed at a wide variety of individuals and groups. But what segment of society, above any other, should be first in line to buy it?

It’s an academic book … and I was directing it obviously toward public administrators. But it’s also for the citizen or taxpayer who is paying the bill.

The book is not about me having some great foresight. But I can say, and I think it’s well validated by the news stories, that I was probably out there alone in this discussion. We weren’t in a recession, and I took quite a beating from unions and other groups when I brought this issue up. And there wasn’t any city manager who came to my defense at the time. And that’s actually when I started writing about it. I made a prediction in an article I published when I was county manager that came out in 2005 or 2006, that if local governments don’t address this issue, citizens will.

And I’ll tell you, when citizens take this, they’re going to be a lot more draconian than if government had responsibly addressed this. Because all they see is the media highlighting the disparities—sometimes rightly, sometimes not so correct. When [the public’s] 401(k) took a beating—30 percent—and then they see public employees with benefits indexed for life and access to retiree health care, uh, something’s wrong.

How difficult was it to address a topic like employee compensation, knowing you’re going to alienate so many potential readers?

When you start talking about people’s wages and benefits, particularly people who work very hard, and then you throw in the recession, it’s a tough issue to write about. But I tend to argue that the public interest in public employment is the delivery of efficient and effective services—that’s what it’s all about. And people rely on government in so many different ways. So when we start having an inability to provide core services and we get into a system where sometimes one-third of a city’s budget is spent just making payments into the pension system, something has gone wrong.

There’s plenty of blame to go around for that, so what I tried to do was focus more on solutions—how do we get out of this, how do we move forward? But part of it is talking about it. … Because if we don’t talk about solutions, we’re going to see more [municipality] bankruptcies, there’s no question about it. We’re just pushing that off to future generations of taxpayers, elected officials and public officials, and that’s unfair.