Benefits Backlash

For years, public-employee groups used their political muscle to win contracts granting them pension and health benefits often better than what many private-sector workers enjoyed. Now the exploding cost of those benefits is turning into a problem for government employees themselves, reducing pay increases and prompting ongoing job cuts, especially in states where these workers are unionized. Barring some unexpected national economic outburst that showers states and cities with new revenues, government-worker benefits will likely weigh down budgets for years.

Consider how rising pension and health-benefit costs have influenced public education spending. The Census Bureau data on public school finances for 2014 (the latest year available) show that school budgets grew by $141 billion over a ten-year period—a compound annual rate of about 3 percent. But a $47.5 billion increase in benefit costs gobbled up one-third of that growth. That’s a huge bill for a budget item that traditionally amounts to less than 20 percent of school spending. School districts responded by paying out less in wage hikes: salaries rose by just 2 percent a year, on average.

Benefits are taking a big bite out of school budgets in a number of states that have made lavish pension and retiree health-care promises to workers. Connecticut, with one of the worst-funded state pension systems, has seen the cost of supplying benefits to its school employees rocket by 123 percent over ten years, so that benefits alone now consume 27 percent of its public education budgets, up from 18 percent a decade ago. Similarly, the cost of benefits in Illinois schools more than doubled over ten years, while money allocated to salaries increased just 27 percent—or 2.5 percent annually—over the same period. Meantime, benefits in Pennsylvania now account for one-quarter of the spending in school budgets. By contrast, expenditures on school salaries in the Keystone State grew by just 16 percent, or 1.4 percent annually.

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