Friday, April 29, 2011

Expenditures on Public Employees

The topic of compensation for government workers has been getting a lot of media attention lately, with people all along the political spectrum weighing in on whether public sector workers are underpaid, overcompensated, under-appreciated, or some combination. My goal in writing this blog is not to take a side on that issue, and I certainly don’t have the capacity to decide who’s right or wrong in a short blog post. If you’d like to learn more about the issue, a quick internet search will provide you with an overwhelming amount of information and a lot of heated debate.

We know that there are many criteria for expenditure decisions in state and local government units. In my paper, I chose to focus on municipal spending on employee costs, including wages and fringe benefits like health insurance and legally mandated payroll fringes. If you’re interested in a broad overview of employer spending compensation costs in both the private and public sectors, check out the Bureau of Labor Statistics news release. In terms of how Minnesota stacks up, check out this MPR article about the study comparing Minnesota private and public workers.

There’s also a lot of really interesting city-level data available by looking at budget documents for individual cities. For example, Minneapolis and Saint Paul both have budget documents available online, where you can learn that as a percentage of total budget, Minneapolis spends about 30%, Saint Paul spends about 49%, and Bloomington spends about 46% on employee-related costs.

One of the major factors involved in expenditure decisions related to employee compensation is a variety of constraints. There are major political, administrative, and intergovernmental constraints on workforce costs, as well as some unique features that make salaries and fringe benefits different from other spending decisions made by local governments. Public opinion often constrains decisions about public employee salaries, while in other cases a different level of government specifically limits spending on employee compensation. This article from KSTP presents an interesting discussion of political constraints generally, or check out this MPR article for more detail on a proposal that would limit local authority to set teacher salaries in a clear example of intergovernmental constraints on local school boards.

While there are many elements of employee compensation that are inflexible and challenging to state and local governments during tight budget times, there are also some innovative ideas. While this isn’t solely related to employee costs, I found this example from Oregon to be a really interesting idea of public employees organizing ideas to try to save money and improve government - basically, SEIU (a union) got ideas from public workers about redesigning government. In Massachusetts, cities are seeking ways to limit increases in health insurance costs, something that’s driving some of the biggest increases. In California, proposals include increasing employee contributions to pensions, but as this article points out, “in order to get full savings, you need the entire workforce to turnover.” This is one of the major problems with employee compensation issues: they are extremely costly in large units that are difficult to break up, and changes take time due to lack of flexibility. Also in California, furloughs instituted several years ago were challenged in court and the ramifications are still unclear. There is no clear or obvious solution, but local governments will likely have to work with the many stakeholders and think about the long-term options.

(Cited: U.S. Bureau of Labor Statistics; Minnesota Public Radio; Minneapolis, St. Paul, and Bloomington budget documents; KSTP, SEIU Local 503, WBUR, and the Sacramento Bee "State Worker" blog. See links in blog post for more detail.)

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