Deficits

State Workers Run for the Exits


Last year, Teri Essex, an elementary school teacher in Elk Grove, Calif., had a choice to make. Work for another year—which, after state budget cuts, meant a lower salary, larger class size, and less money for supplies—or accept $56,000 from the district to retire a year ahead of schedule. Essex, 60, took the money. "The financial buyout was a no-brainer," says Essex, who estimates she will give up about $300 in monthly pension benefits by forgoing the extra year of work.

California is one of many states seeing double-digit increases in retirement applications from public employees like Essex. States across the U.S. are grappling with budget deficits totaling more than $540 billion since 2009, according to the Center on Budget and Policy Priorities, and many legislatures have passed or are considering bills that would cut the pay of public workers, raise the amount they contribute to their benefits, or require furloughs. Some states, including New York, are offering inducements for their employees to quit.

The increase in retirements has exacerbated a problem that has developed over decades: the lack of qualified replacements for an aging state workforce, says Elizabeth K. Kellar, president of the Center for State and Local Government Excellence, a research nonprofit. One-third of state and local workers with special skills, such as teachers, nurses, legal staff, engineers, and managers, will be eligible to retire within five years, she says.

Because of the recession, many workers postponed retirement in 2008 and 2009. That and demographics explain some of the recent increase in retirements. Politics is also a factor, as budget-tightening officials take on the unions they say are driving up costs. New Jersey Governor Chris Christie has likened his state's teachers union to "political thugs." Retirements there jumped 60 percent between 2009 and 2010. In Wisconsin, where Governor Scott Walker has signed a law limiting collective-bargaining rights, retirements are up 79 percent in the first quarter of 2011 over the same period last year. "These people are electing to retire because they're worried," says Jeffrey Keefe, who teaches labor and employment relations at Rutgers University in New Jersey. "They are demoralized by the current public-employee condemnations."

Impending pay and benefit cuts prompt others to quit. Florida Governor Rick Scott has proposed that workers pay 5 percent of their salaries to help cover pension contributions and health-insurance premiums as the state tries to trim a $3.8 billion deficit this year. Florida's retirement numbers are already 23 percent higher in the first seven months of the 2011 fiscal year than in all of 2010. Texas legislators may require state employees to pay for 10 percent of their health-insurance premiums, and the state expects retirements to climb 54 percent this fiscal year over last.

Mike Dennis, 61, has spent 16 years teaching first-graders in Willows, Calif., 140 miles north of San Francisco. He plans to retire in June. Growing class sizes, cuts to student programs, and "combative" salary and benefits negotiations are the reasons he cites. "It's the political environment," he says. "I don't even know that I'm considered a valuable person anymore."

The bottom line: Many states are seeing double-digit increases in retirement applications as legislators trim pay and benefits.

Baribeau is a reporter for Bloomberg News.

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