While salary increases for local government employes in the Washington area lagged behind the inflation rate during the past six years, the skyrocketing costs of pension programs and fringe benefits has created a major financial problem for the six largest jurisdictions, according to a study released yesterday.
The Greater Washington Research Center report suggests that growing costs will force local governments to seek ways to hold down or reduce these benefits in the future. The problem is expected to become much worse between now and 1987, when the overall cost of fringe benefits, including workers' health and dental insurance, will increase by 64 percent.
Fringe benefit costs will increase by150 percent in the city of Alexandria and will double in Montgomery and Fairfax counties, the report predicted. In Arlington County, fringe benefit costs will go up 76 percent; in the District of Columbia, 48 percent, and in Prince George's County,44 percent.
During that same period, expenditures for salaries will increase37 percent to 75 percent in those jurisdictions.
"Local government officials seeking to reduce total employe compensation will probably focus their attention on fringe benefits, especially in the health area," said John Byrne, a vice chairman of a research center task force that recently completed a comprehensive review of local government finances.
Byrne, who is chairman of the Government Employees Insurance Co. (Geico), warned that finding ways to reduce those costs will not be easy.
"Many of those fringe benefits are contractual, and hyper-inflation in health care costs is a problem both locally and nationally," he said.
Byrne said that some local governments had underestimated the cost of some of the fringe benefits they granted to their employes in recent years, especially new dental insurance programs.
"Only two or three years later do you learn the real cost of the new add-ons," he said.
The study -- the sixth in a series of nine reports to be issued by the task force headed by former World Bank president Robert S. McNamara -- stressed the need for more careful management of labor and pension costs, which make up 65 percent of local governments' total budgets.
Philip Dearborn, a vice president of the research center who supervised the gathering of data for the study, said the task force members were surprised to learn that increases in expenditures for fringe benefits and pensions far overshadowed the growth in salaries.
Between 1976 and 1982, the Washington-area consumer price index increased by an annual average of 8.1 percent. At the same time, the annual average pay increase for local government employes ranged from a low of 5.3 percent in Prince George's County to 5.6 percent in the District and a high of 6.4 percent in Fairfax County and Alexandria.
Federal employes, meanwhile, received an average increase of 6.2 percent.
Local governments' contributions to employe pension funds will increase by 44 percent during the next five years, from a total of $388 million in 1982 to $558 million in 1987, according to the report.
The task force report warned local governments of the dangers they face in operating pay-as-you-go pension programs, but conceded that many governments currently cannot afford to set aside additional funds to cover unfunded liabilities, the benefit payments that will be owed in the future but for which no money has been set aside.
Unfunded liabilities range from less than $200 per employe to several hundred thousand dollars per employe, according to the study. The District, with its unique history of being closely tied to the federal government, only recently has begun to build up a substantial pension fund and carries more than $4 billion of unfunded liabilities.
"In essence, what we are saying is, don't let pension funding problems get any worse than they already are, and move in an orderly fashion to pay for the unfunded commitments of the past," said Byrne.
Yesterday's report also urged Metro officials to improve their collective bargaining procedures and to seek changes in current law and contracts that the task force claims have contributed to the system's high labor costs.
"At present, high labor costs of Metro are partially responsible for operating deficits of Metro that have grown intolerable," Byrne said. "Local governments are increasingly turning to locally provided bus services, such as Montgomery County's 'ride-on' service."