State Budgets and Employee Compensation

Today, Cato released a report on employee compensation in state and local governments. As states struggle to balance their budgets in coming months, they should look to find savings in employee compensation, which represents half of all state and local spending.


The particular issue of excessive state pensions is being probed by newspapers across the nation. Over at Reason, Nick Gillespie discusses the problem in his home state of Ohio. That state’s newspapers teamed up to pen a series of articles on government pensions, which are representative of the growing pension problems in many states.


There has been a parallel series of articles across the nation on “pay‐​to‐​play” state pension scandals. These scandals involve Wall Street firms bribing public officials to get a slice of the government’s financial business. There is pay‐​to‐​play corruption in California and pay‐​to‐​play corruption in New York and many other places.


The solution to both of these problems is the same: moving the nation’s 20 million state and local workers from defined‐​benefit to defined‐​contribution pension plans. That way, governments wouldn’t have to hold giant pools of pension investments, the benefit structure of government workers would be more transparent, and policymakers could more easily cut compensation to balance state budgets.