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Analyst: Don’t cut Las Vegas city jobs

City Council seeks advice for its upcoming May 18 budget hearing

Updated Wednesday, May 5, 2010 | 2:31 p.m.

Don't follow the lead of the private sector and lay off your employees — it just contributes to the economic problem.

But do follow their lead in freezing employees' cost of living allowances, longevity pay increases or step increases in salaries -- those also contribute to the problem.

That was the clear message local economic guru Jeremy Aguero gave to the Las Vegas City Council this morning after the council heard how the private sector has been dealing with the recession during the last 29 months.

The "worst-case scenario" for the council to take "would be to lay employees off, and simply allow an escalation of wages and benefits for the employees that remain," Aguero said.

However, Mayor Oscar Goodman pointed out "it takes two to tango" -- the city must deal with the contracts it has negotiated with the unions. And if the unions won't budge, then the city has no other recourse but to lay off employees, Goodman said.

"Unless our employees who are members of these collective bargaining units come to the table and recognize what we've heard this morning and accept it as the truth and change their mindset, we are at a loss of doing anything other than laying people off," Goodman said.

"Because unless they're ready to open up their contracts, unless they're ready to make the concessions, which apparently are necessary -- maybe necessary evils, but necessary -- then we have no alternative but to lay people off," Goodman told Aguero. "And that, once again, as you say, contributes to the problem. That's where our dilemma is."

Aguero, a principal analyst with Applied Analysis, a local financial advisory and economic consulting and research firm, was part of an hour-and-45 minute presentation the council heard this morning about how the local private sector has been dealing with the recession.

The council, which is trying to handle an estimated $80 million revenue shortfall, wanted the information as a prelude to its May 18 final hearing on the city's 2011 fiscal year budget.

The council approved a tentative budget in March that would cut 141 city employees and eliminate and scale back some services in the fiscal year that begins July 1.

Since that time, Mayor Oscar Goodman and the council have been trying to get the city's four unions to make concessions to help balance the budget.

But the unions have not conceded to the city's request they take an 8 percent salary cut this year and next year, plus freeze cost of living increases.

Private sector salaries fall 7.6 percent

Aguero told the council that when the current recession began in December of 2007, Southern Nevada's unemployment rate was 5.6 percent. Today, the unemployment rate stands at 13.8 percent.

During that same period, private sector employment has fallen from 834,000 to 697,000 jobs, or 137,100 positions, he said.

"We have given back better than six years of employment growth," he said. "Roughly one out of every six private sector employees have been displaced since this recession."

Those who remain in the workforce have seen their pay rates reduced, he said. In August 2007, the average private sector worker was working 37.4 hours per week. As of March 2010, that has fallen 8 percent to 34.4 hours per week, he said.

The result is an effective "underemployment" rate in the community now approaching 21 percent, he said.

The U.S. Bureau of Economic Analysis reported total private sector earnings in the fourth quarter of 2007 for Nevada of $68.5 billion. In the fourth quarter of 2009, that dropped to $58.3 billion, a reduction of $10.2 billion in wages and salaries going to private sector employees, or decline of 14.8 percent, he said.

"The average private sector employee is also earning significantly less than they did when the recession began," Aguero said.

In the fourth quarter of 2007, the average private sector employee reported earnings of $720 per week, or $37,400 per year. As of March, that has fallen by 7.6 percent to $665 per week or $34,590 per year, he said.

Although there aren't any reports about cuts made to benefits, national trends indicate there have also been cuts made to retirement, health care and other benefits, he said.

"The current economic downturn has required private sector employers to cut nearly 140,000 jobs," Aguero said. "At the same time, concurrently, reducing hours, wages and benefits for their remaining employees. There is no precedent in Southern Nevada's modern history for the changes that we've seen since this recession began."

Demand increasing for city services

In terms of looking forward, Aguero said the city, like other local governments, lives on commission.

"The economy that generates your revenue is 20 percent smaller than it was a couple of years ago," he said.

And the revenue sources, which come from construction-related activities, local consumption and tourism, he said.

While there have been some signs of life in the tourism industry, wages and salaries are down nearly 15 percent, meaning consumption will be limited, he said.

In the construction industry,"there is no next project, not in the foreseeable future," he said.

Aguero said the city gets some of its revenue from property taxes. But the state created property tax caps that have limited the amount of taxes that can be collected, if property values rebound, he said.

"The expectation that it's going to be better in the next 12 months to 18 months seems to be inconsistent with the evidence available to us today," he said.

Aguero said that the plight that faces a local government is different than what the private sector has faced.

"They are laying people off and reducing revenue as a result of less demand," he said. "Exactly the opposite thing happens to you. Your demand is not lower than it was before.... Overall the demand for city services, police, fire and the like, is not less than they were and as a matter of fact, are probably greater than they were."

Also, Southern Nevada has fewer public employees compared to almost anywhere else in the country — and are also among the highest paid, he said.

"It seems to me to almost defy any reasonable logic that we would even consider reducing the workforce," Aguero said. "We have an economic problem first. We have a fiscal problem second. So my response to the question of what we do is 'Don't add to the problem.' You should try to keep as many people working as possible for as long as possible."

Aguero said he understood that some of those matters are subject to negotiation and outside the city council's hands.

"In reality, the worse-case scenario, other than continuing the status quo and the current course, would be to lay employees off, and simply allow an escalation of wages and benefits for the employees that remain," he said.

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