I wrote this a while back regarding furloughs the during last go around with the University. Now we are here again, and sure enough, our Union is arguing AGAINST furloughs. WHY? It is financially better for us to take them - in fact, the majority of folks can simply cash out vacation, and only lose ONE day's pay if they are desperate, or wait and make money on what is essentially a 'loan to the state at ~5%'. I cannot believe that our Union doesn't understand this; more amazing, I cannot believe that OUS is foolish enough to ask this of us again. Can no one do math???
I think there has been a mistake. A financial one, a bit obscure, but real dollars. In full disclosure, I am a classified state employee and a finance student (now graduate) at Oregon State University.
Quick background, in early fall 2009 the State reached an agreement with the OPEU regarding a contract for OUS employees similar to DAS. In the contract, the Union agreed to a specific number of furlough days in the next two years, and a one year wage freeze. This concession was in order to save the state much needed dollars over that time and prevent layoffs.
This could have in fact saved the University System money… but here is where the mistake came in. Thus far, academic employees and managers, not represented by the Union, haven’t agreed to match these wage reductions or furloughs. Immaterial to the argument except in one specific way: it allowed a mistake in how the furloughs were administered. This is key.
Currently, employees, based on pay levels, are required to take a fixed number of furlough days (days off unpaid) each fiscal year for the next two years. However, they are being allowed to take them WHENEVER THEY WANT. As such, employees are allowed to essentially substitute furlough time for time when they would have taken vacation. Full time employees earn a day of vacation each month, so the lowest and highest paid union employee will earn and typically use more vacation days a year than required furlough days (4 required for the lowest paid full time and 7 for the highest). As such, at the end of the two-year period, at minimum the employee will have an extra 8 vacation days on the books.
This is critical and where the mistake lies: vacation days are a paid benefit. They represent either paid effort not received, or cash back to an employee upon leaving. They do not depreciate as wages increase – 8 hours earned while making $10/hr is still 8 hours years later when making $20/hr. Thus, in essence, vacation time becomes MORE valuable to the employee AND a higher cost to the state.
So, why is this important – by allowing employees to use furlough days instead of vacation days, employees can bank those vacation hours. This is in effect allowing employees to BUY vacation days at current wage cost, i.e. if one makes $15/hr, and loses 4 days wages, they give up that wage for 4 days. However, in a year, they will have four extra days vacation saved, which will then reflect their newer salary.
How does that add up? Lets say a daily wage is $200 ($25/hr). I am required to sacrifice 5 days this next year, or $1000 in savings to the state. However, I use it in place of vacation days, so I now have 5 extra days of vacation (earned at $25/hr). Once the wage freeze is lifted, I will again receive my negotiated step increase of 4.75% a year. So, now my salary, and hence those vacation days are worth 4.75% more than previously. We can ignore inflation, as it affects each group equally as well as OPE (overhead), the state will have to have MADE 4.75% on the investment of my salary savings to break even (given how the state has been doing recently, not likely). Over two years, one employee at this rate will have 10 days set aside, and the state needing to average again 4.75% per year to make the savings worthwhile. Some quick math shows that at the end of two years, that $1000 of vacation time each year is worth $2047.50, and the third year, $2144.75 – as long as they do not reach the top end of their wage scale, these dollars will continue to grow.
Since the state is in the hole, this represents savings on borrowing – which means the state will have ONLY made money if they would have had to borrow money at OVER 4.75%. Considering I can get a 15 yr home loan for about that, I would expect the state sees a better loan rate. Thus, the State of Oregon would have been better off borrowing money to pay for salaries and forgoing furloughs.
This is the mistake – the state has essentially borrowed the money from the employee at 4.75%. It will end up being paid back – in lost effort, or in payments to the employee upon leaving.
The Chancellor’s office can fix this – right now, make the decision to close the University or institute mandatory furlough days… and NOT, though convenient, on days which people would normally take vacation (i.e. not around xmas). By minimizing the effect on operations, OUS has prevented any real savings – and it will cost the State… only swift action can prevent the employee's intention of sacrifice from becoming another boondoggle of government mixup.