Fixing the Pension Problem: The Latest Public Scrutiny of Public Sector Wage and Benefit Packages

March 9, 2011 , Public Law Journal

Amidst high-profile scandals and a lagging economy, public sector wage and benefit packages are coming under ever-increasing scrutiny. Overly-optimistic investment forecasts and questionable planning led to long term labor contract commitments that have become unsustainable. Some jurisdictions estimate unfunded liabilities in the hundreds of millions of dollars.

The wage and benefit structures in many local governments are in dire need of reform. Absent substantial change, many local jurisdictions will see their general fund balances decline to dangerously low or negative levels, as many agencies are relying on their reserves to cover ongoing operating costs. Bankruptcy is one solution, but it is costly and has long-term consequences. Across the state, mayors, city managers, city councils and boards of directors are searching for ways to fix the pension problem.

Invariably, the first approach must be to attempt to renegotiate labor agreements. Unfortunately – but predictably – local governments are often unable to achieve the necessary modifications through negotiations. Accordingly, officials are using other methods, such as ballot measures, to make the changes necessary to create a sustainable compensation system.

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