by Stephen D. Eide
October 22, 2013
Much recent debate over the health of state and local budgets has been dominated by concerns about how spending on employee benefits is “crowding out” funds for basic services. The economy is growing, and spending is up—but taxpayers are seeing little benefit. Crowd-out finds its roots in a problem of simple math. Cities can’t run deficits, so when growth in revenues fails to keep pace with any major spending category, some other category or categories must be reduced. The effect is most clearly discerned in local workforces, which are still down by over 500,000 employees since the recession, as well as salaries. Almost unintentionally, increases in benefit costs are reducing funds available to provide for salary increases for a workforce which is shrinking overall. Crowd-out is felt in cities in blue states (Los Angeles) and red states (Houston) alike.