Wednesday, March 10, 2010

Public sector spending- eventually this must come down

We can expect that the concern over public sector spending will continue to escalate, as more attention turns to budget concerns at federal, state and local levels.  A few facts help to put this spending in perspective:  (1) average wages in state and local governement at $26.24 per hour are well in excess of their private sector counterparts at $19.45 /hour (include benefits and this advantage becomes $39.60/hr versus $27.52);  (2) much of the public sector advantage comes from more generous health and retirement benefits, much of which is unfunded;  (3) many public sector employees (particularly those in public safety) can retire with full benefits after 20 or 25 years of service (it is said that 1/4 of New York City police retirees are under the age of 50).

The average citizen can expect that his own retirement benefits under Social Security will continue to be pushed out (already age 66 is full benefit age for average baby boomer), and his medicare benefits may be cut/taxed or otherwise reduced.  Expect the generous public sector benefit packages to generate more scrutiny as budget pressures rise.  Also, head counts in all levels of public sector employment will likely be under pressure as demands increase for less costly government.  The efficiencies and cost cutting that the private sector has been forced to incorporate must begin to find their way into the public sector in order to get budget deficits to come down.