Get out of town: The Compensation Monster Devouring Cities

July 19, 2011 07:18

[T]he compensation monster is threatening local budgets [] and it has officials desperately fighting back. If they lose, cities, towns, and school districts across America face a much darker future.

By Steven Malanga at CITY Journal


In the typical city, town, or school district, by contrast, compensation costs generally range from 70 to 80 percent of the budget.

Those compensation costs have soared over the years, as politicians made overgenerous promises to local government workers—not just pay but also the right to retire on full pensions at age 50 or 55, annual cost-of-living increases to those pensions, and full health care for life. These concessions haven’t merely resulted in big deficits; they have pushed many localities to the edge of fiscal ruin.

Pension and health benefits account for 20 percent of the $500 billion that the nation’s nearly 14,000 public school districts spend annually. In a recent National League of Cities survey, nearly 80 percent of municipal finance officers listed rising pension payments as one of their most significant budgetary problems.

Years of fattening retirement privileges while blithely ignoring affordability have left some cities’ pension systems teetering on bankruptcy.

A state takeover is already an imminent possibility in Pittsburgh, whose pension system is only 33 percent funded.

Local governments also helped bring on their current budget nightmares by carelessly expanding hiring and wages in recent boom years.


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