Public Pensions Pressure Local Governments

The Wall Street Journal has an excellent piece discussing the on-going budgetary problems facing America’s cities and municipalities and their cause:

While the national media has focused on state budget face-offs between government unions and governors such as Wisconsin’s Scott Walker, municipal officials like Mr. DeStefano are engaged in their own budget warfare. Wages and benefits account for 30% of state general fund expenditures, according to data from the National Governors Association. But U.S. Census surveys show that in the typical town or school district, employee pay and benefits can consume from 70% to 80% of the budget.

Pensions are an enormous part of the problem. While pension payments now consume about 4% of state budgets, many municipalities are already spending 15% to 20% of their finances on pension costs. Earlier this year, California’s Little Hoover Commission, a government oversight agency, observed: “Barring a miraculous market advance and sustained economic expansion, no government entity—especially at the local level—will be able to absorb the blow [from rising pensions] without severe cuts to services.”

Back in February I posted about Prichard, Alabama – a town that has defaulted on it’s public employee pension with deadly consequences. In that piece I said this unfortunate situation would be repeated around the country if changes were not made soon an, indeed, other cities and towns are now facing a similar situation. Public employee unions have collectively bargained for these benefits and elected officials agreed to this unsustainable fiscal mess. When 70 to 80 percent of a town’s budget goes to wages and benefits, that leaves little money for things like road repair. When a school district spends most of its budget on wages and benefits, that leaves little money for school books. Something has to give, and more likely than not it won’t be pretty when all is said and done.

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