Legislators Considing Pay Raise Proposals

The Star's Mary Beth Schneider provides an excellent analysis today of legislative pay in Indiana, along with an overview of some ideas floating to tinker with the system. It demonstrates how the lack of transparency in how we compensate our state lawmakers complicates any consideration of a pay raise. At first blush, it can be said Indiana's state legislators are among the lowest compensated legislators in the country, earning but $11,600 without a pay raise since 1985. In reality, Indiana legislators are highly compensated for a part-time job, earning on average $40,350 per year, plus a generous retirement benefit which provides a $4 state match for every $1 kicked in by a lawmaker. Schneider notes in a sidebar to her story that taxpayers paid $8.8 million into their retirement fund during the past 10 years alone, which amounts to 20% of a lawmaker's salary. Unlike other state employees, legislators are allowed to borrow money from their retirement plans. They also have health care benefits, which legislators agreed to trim last year to prevent life-time benefits for retired legislators and their spouses and dependent.

One of the interesting aspects of Schneider's analysis is the two-tier pay system that has evolved based upon the geographic location of a legislator. All lawmakers collect a generous per diem pay of $137 weekly while the legislature is in session and $54.80 for other days on which they claim to perform legislative work. In addition, legislative leaders earn up to $6,500 in additional pay. To demonstrate how much the per diem pay boosts a legislator's annual pay, Sen. Tom Wyss (R-Fort Wayne), who is not a member of leadership, earned more than any other lawmaker last year at $52,175. Rep. Bill Friend, while serving as House Majority Leader, earned $49,413 last year, making him the highest paid member in the House. Under IRS rules, lawmakers who live more than 50 miles from the State House are not taxed on their per diem allowance, while those living within the 50-mile radius are taxed on their per diem allowance. As a consequence, the per diem allowance has the effect of boosting the pension benefit for legislators who live within the 50-mile radius dramatically over those living outside the radius.

Legislators have no one to blame for the two-tier system but themselves. They've abused the per diem pay to boost their real pay. Those who must find lodging while they're performing their legislative work are at a distinct disadvantage, although they are compensated more than adequately for the additional costs they incur. To demonstrate, while the legislature is in session, a legislator will require lodging about 4 nights a week on average. However, he is paid the per diem as if he required overnight lodging 7 nights a week. Also, many legislators are treated to free meals from lobbyists at some of Indianapolis' finest restaurants while they are in session, substantially reducing their out-of-pocket expenses. That's also a tax-free benefit.

Any legislative pay proposal needs to reform the per diem pay aspect of lawmakers' story. Legislators should receive per diem compensation only for those days when they are actually in session or attending a legislative meeting. Lawmakers who live within the 50-mile radius should receive no per diem allowance. Under that approach, the base pay paid to lawmakers would truly represent their actual pay and a significant increase in the $11,600 base pay could be justified. Based upon the legislative ideas floating around this session, that approach is not likely to be given consideration. I'm betting they take the politically expedient approach like many other states and set up a commission to determine legislative pay, which would allow for annual cost-of-living allowances, thereby removing the need for legislators to take the heat for raising their own pay. Lawmakers should also trim their ridiculous $4 to $1 retirement match. In the real world, they would be getting no more than a $1 for $1 match.