Poll: Cut benefits before tax hikes?

JUNE 22, 2012 12:00 AM

"Ladies and gentlemen, this is the Highland City Council speaking. Please shut up, sit down and fasten your seat belt. Your taxes are going up whether you like it or not."

Over the objections of two council members and a large number of residents, Highland passed a budget with a $900,000 tax increase for the coming year. The money is clearly needed for road reconstruction, maintenance and parks, but the way in which the city has decided to raise it certainly leaves something to be desired.

It's the same story in Orem, where the tax increase is $3.5 million. The money is needed there, too, mainly to pay for the UTOPIA broadband boondoggle. Other funds were desired for an across-the-board 2 percent pay raise, but the city is now talking about one-time bonuses that don't permanently raise the compensation base.

This is good if Orem is willing to hold the line on those employees with high (some say excessive) rates of compensation. There are a lot of them in Orem, compared to other cities.

But in both Highland and Orem, the councils have refused to touch one of the rich employee benefits often associated with government service: retirement accounts. Both plan to continue funding 401(k) savings plans with dollar-for-dollar matches.

Is this the right strategy? We think not, and here's why:

From the look of some of Highland's real estate, one might judge that there's some money in town. For those who have it, along with a large home, an increase of $300 or $400 a year can be taken in stride.

But a tax hike amounting to $132 per year on a $200,000 home is real money to people with average wages and families to support. It's not trivial. Cash flow can be critical for many.

Now think of a 401(k) savings plan. Many companies in the private sector that offer this benefit to employees have been forced by the recession to be less generous in matching employee contributions.

Some companies have chosen to reduce matches, for example, to 50 cents for every dollar contributed rather than dollar-for-dollar. Others have eliminated company matches altogether for a time, in order to save money, and then restored again them later on.

Why are dollar-for-dollar matches by city government sacrosanct in an economy like this? They shouldn't be. After all, a reduction to 50 cents on the dollars is still generous, and it's still a positive for the employee. The 401(k) account continues to grow, just not as fast as it would with a full dollar match.

A reduction in match does not affect any employee's cash flow for living expenses. He or she continues to save into the program and continues to pay for living expenses with remaining salary, just as they always did.

Where is the obligation of the city to maintain the fastest possible pace for funding an employee's retirement? Again, any match is still a positive benefit. Reducing a match affects no one's ability to live the lifestyle to which they have become accustomed.

Employees of businesses in the private sector have slowed their rate of 401(k) growth because their companies needed savings, so why can't public employees?

"I know all the employees would be upset about that," one Highland staffer said. "We understand the budget is very tight, and we understand why we haven't gotten cost of living increases. But to cut a benefit by taking away our 401(k) match would be like a kick in the teeth."

Not so. It's like telling kids at the birthday party to take two cookies instead of four. What is so horrible? Reducing the rate of growth a little for 401(k) accounts -- and temporarily at that-- is not a cut in wages. It's a good business decision.

We do not say that all the revenue Highland and Orem need should come on the backs of city employees. But we do say that government should play by some of the same rules as business, and government employees should have the same expectation on that score as anyone else in the workforce. The burden should be balanced. A full match for a 401(k) account is not an entitlement.

The savings derived could go a long way toward keeping any tax increase to a minimum.

Like their government counterparts, many in the private sector have received paltry raises, or none at all, for a long time. Many of these same individuals have seen reductions in benefits, including cuts in matching 401(k) money or increases in health premiums. Where is it written that government employees should be immune to such things in a recession? If it is written, it should be erased.

A good argument can be made that government employees do not pay taxes anyway: All of their pay and fringe benefits ARE taxes -- taxes taken from everybody else in the private sector. This is good to bear in mind when deciding how to spread the burden involved when new revenues are needed.

Highland and Orem are going to need to justify their decisions to their residents, and it's going to be an interesting show. Other cities or taxing districts should pay close attention.

What do you think?

Should full dollar-for-dollar 401(k) matches for government employees be reduced before a tax increase is imposed on the general public? Send your comments todhpolls@heraldextra.com or call (801) 344-2942. Please leave your name, hometown and phone number with your comments. E-mail comments should not exceed 100 words; voice-mail comments should be no longer than 30 seconds. Anonymous and unverifiable responses will not be published.

The Daily Herald will publish comments on July 1.

Poll Daily Herald