Another Expensive Lesson

This month brought another bitter reminder of what happens when a government goes bankrupt and must surrender control of its fiscal affairs: Orange County will have to give retroactive raises to about 600 of its managers and more than 16,000 workers represented by unions.

As a matter of equity, the money was owed to those who will receive it. After all, county officials promised the pay raises before the county declared bankruptcy in December 1994.

It also turns out that, as a matter of law, the money must be paid. So ruled the county’s own attorneys and the U.S. Bankruptcy Court. It was the court that oversaw the county’s payment of what it owed and helped decide who was first in line to collect. It was the court that decided the county’s workers also were its creditors, just like individuals who bought county bonds and companies that sold furniture to the county.

All told, the payments to the county’s workers will come to nearly $25 million, which includes salaries and money withheld for taxes and other charges. That is not a large amount when set against the staggering loss of $1.64 billion by the county’s investment pool. But it is a worthwhile figure to remember when the county next negotiates with its managers and employees.

Determining salaries in government and in private firms is complex. Experience, talent, productivity, the ability to bargain well, all play a part. So does comparable worth, an argument used by some county officials in determining that an individual deserved so many dollars because her counterpart elsewhere in government was getting that much. It also takes good salaries to hang on to professionals, the doctors and lawyers working for Orange County.

But as the much-publicized wave of “downsizing” and layoffs of recent years have made clear, the working life can be brutal. Private companies facing declining profits or losses sometimes ask their workers who manage to hang on to their jobs to forgo raises or take pay cuts. Government workers should not be exempt in extraordinary circumstances.

Those who studied the workings of Orange County’s government after the bankruptcy concluded that the employees were very good. They earned their pay. To balance the budget, hundreds of workers were fired.

But even without a bankruptcy, government has to keep a close eye on its employees’ salaries. After the bankruptcy, that becomes even more important. The next time county officials sit down at the bargaining table, they must require compelling reasons from workers and especially from managers, the higher-paid staff, for raises.