But, how does this square with Obama's recent assertion that the primary thing undermining our recovery is widespread reductions in employment in state and local governments? Josh Barro points out why the public sector isn't "doing fine":
San Jose had an average of 7.5 employees per 1,000 residents from 1986 to 2005, and never dropped below 7.0. But in the last two years, that ratio has cratered -- to 5.6 per thousand this year, with further cuts expected next year.
This is partly because revenue has risen only modestly, with general fund receipts rising 19 percent in a decade. But the main reason is that costs for a full-time equivalent employee are astronomical and skyrocketing. San Jose spends $142,000 per FTE on wages and benefits, up 85 percent from 10 years ago. As a result, the city shed 28 percent of its workforce over that period, even as its population was rising.
A lot of that increase is due to rising required pension payments, as the assets in the city’s pension funds have lost value. But much also had to do with what Mayor Chuck Reed, a Democrat, describes as “irresponsible policy actions” over the last 15 years. Here’s his list:
He also notes that “the City Council and outside arbitrators also significantly enhanced retirement benefits. The maximum benefit for public safety employees grew from 75 percent of final salary to 90 percent, and a guaranteed 3 percent cost-of-living adjustment was awarded to all employees.”
- Giving out raises faster than revenues were growing.
- Giving out raises and increasing benefits when revenues were falling.
- Giving out raises and benefits retroactively.
- Allowing employees to cash out unlimited amounts of sick leave when they retire.
- Providing lifetime health care for retirees.