Budget Busting Compensation Packages Plague States

There are two distinct sectors in the economy: the private sector and the government sector. The private sector is the productive part of the economy. Competition in the private sector promotes greater efficiency, productivity and innovation than the public, or government, sector is capable of. Yet it is government employees who are the highest paid and have the most job security. This helps explain why so many states are facing acute, budgetary crises.

A new report by Chris Edwards of the Cato Institute highlights the sharp disparity between public and private compensation. Despite producing very little compared to their private counterparts, public sector employees of state and local governments averaged 45 percent more per hour in wages and benefits. And because government never shrinks, public employees are “rarely terminated for cost-cutting or job performance reasons.”

Unionization appears to be a factor in public sector pay. With a few exceptions, Edwards shows that the states with the highest public pay advantage also have the highest share of union workers. But whatever the cause may be, the excessive pension plans provided by states has placed taxpayers in a virtual stranglehold. Unless cuts are made, they are the ones who will have to pony up to provide for public sector workers.

Rather than make the hard choices necessary to reduce these costs and alleviate the burden on taxpayers, states are increasingly turning to the federal government to bail them out. “The federal government is part of our budget problem,” California Governor Arnold Schwarzenegger complained while making a pitch for federal dollars in his recent State of the State address. While it’s true that unfunded mandates can be burdensome for state budgets, they are ultimately just a scapegoat for reckless state spending.

Rather than heed the Governor’s call from California – and it is hardly the only state looking to Washington D.C. for aid – the federal government should make it clear that states must clean their own houses. Only when the spigot of federal dollars is turned off will state lawmakers find the political will to make drastic changes. A good place to start will be to reign in the excessive pay and pension plans of public employees.