RP Downing: Deferred Compensation Preferable to Furloughs

RP Downing: Deferred Compensation Preferable to Furloughs

Guest Opinion

Deferred compensation preferable to furloughs By Ted Downing

Special to the Arizona Daily Star

Tucson, Arizona | Published: 02.10.2009

The state has a revenue shortfall and it is time for innovative solutions that do not permanently cripple our state. Unlike the federal government, the Arizona Constitution requires a balanced budget every year. This forces the Legislature to cut spending somewhere.

As a former ranking Democrat in the state House’s Education Committee, I strongly agree that the Legislature’s majority has mistakenly singled out education for budget cuts. But protesting and beating on our chests does not balance the budget. Nor do threats by universities to cut popular public programs.

Administrators, not legislators, set priorities and the lawmakers know that. Something (read “someone”) must lose.

Both Arizona State University and the University of Arizona have mandated employee furloughs. Furloughs cut employee paychecks, but not their salaries. State agencies are considering the same.

You don’t get paid for the days you don’t work. The employee loses pay for good. However, the state institution or agency suffers a disruption in work or services as employees are not there.

As an alternative, I suggest deferred compensation. The employee gets an IOU, a promise to pay in the future after the economy recovers or upon termination. The employees save their income and defer paying taxes.

The highly paid executives, including the overpaid bankers who got us into this mess, use this method all the time. In the aggregate, the institution operates with a lower budget and the employees wait to be paid rather than lose their pay.

A deferred compensation plan keeps all hands on deck. It avoids unintended economic consequences. It is not good for an economic recovery if some of our lower-paid employees fall behind on their mortgage payments and put another house of a bloated market.

Either plan, of course, is better than layoffs and salary cuts (permanent reductions), which decapitalize our economy.

While ASU has not yet adopted a deferred-compensation plan, they are scaling their furloughs so that those who make more take more unpaid days off. ASU administrators are being furloughed for 15 days, faculty and academic professionals up to 12 days, and other employees up to 10 days. This may save $24 million.

The UA is planning across-the-board five-day furloughs during fiscal 2009-2010, regardless of rank or current salary.

A better option would be to forget the furloughs altogether and use deferred compensation on a sliding scale. Depending on their salaries, employees defer (save) different amounts.

The legislators, who make $24,000 a year, are aware that some of our university administrators make more than President Barack Obama. With Congress contemplating capping executive pay on Wall Street, how long before six-figure public-employee incomes come under scrutiny.

The public remembers the moral leadership of Lee Iacocca, the former CEO of Chrysler who gained national acclaim when he agreed to work for $1 a year during a previous crisis.

Of course, it would be nice to go without furloughs, layoffs or deferred compensation, but this is not an alternative.

Write to Ted Downing at downing@cox.net