Fat Paychecks Got States And Cities Deep In Hock...

Most Americans are acutely aware that the nation's states and cities are wrestling with their worst fiscal crisis in at least a decade. With their aggregate operating budgets running some $37 billion in the red over the past 12 months (compared with a surplus of $5.6 billion as recently as 1986), governors and mayors have been busy raising taxes and cutting services, exerting painful pressure on people's pocketbooks and quality of life in the process.

Government officials blame the fiscal squeeze on a number of developments, including the depressing impact of the recession itself on tax revenues, cutbacks in federal support at a time when local needs have been multiplying, and huge increases in federally mandated expenditures for programs such as medicaid. But the real sleeper, according to economist Robert L. Marks of New York's som Economics Inc., is to be found in civil service pay patterns. "A good part of state and local governments' current financial problems," he says, "relates to years of overgenerous employee compensation trends."

As the chart shows, throughout the past decade, average annual increases in wages and benefits awarded to state and local government workers have consistently outstripped those won by workers in private industry. As a result, notes Marks, average compensation per state and local government employee rose by 82% in the 10 years ended June, 1991-far faster than the 53% rise in consumer prices and the 61% increase in average total compensation garnered by private-sector employees.

Since employee compensation totaled $424 billion in the second quarter, or over half of state and local government expenditures, this difference translates into big bucks. Indeed, Marks calculates that the state and local payroll tab would now be some $50 billion a year lower than its present level if total compensation per employee had risen at the same rate as in the private sector. In other words, state and local budgets would now be in the black rather than deeply in the red.

All this might be less disquieting if state and local government employees earned less than their private-sector counterparts, as they did in the early postwar period. But according to the Bureau of Labor Statistics, total compensation per full-time employee was about the same in the private and the state and local government sectors at the start of the 1980s, with the latter group now enjoying premium pay and benefit status.

The big question, of course, is whether fiscal constraints will now trim government workers' compensation gains to those awarded to private-sector workers. It hasn't happened so far, but if it doesn't start happening soon, Marks predicts, "the difference in compensation trends will become a major focus of taxpayer discontent."

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