Although Democratic Mayor John DeStefano has enjoyed a good relationship with the New Haven, Conn., municipal unions through most of his 17 years in office, lately those ties have frayed. He says that workers’ wages and benefits have become “the Pac-Man of our budget, consuming everything in sight,” and must be cut. His budget-trimming proposals, including calls to privatize some jobs, have brought angry city workers into the streets in protest, and celebrity protester Al Sharpton to agitate for their cause.

While the national media has focused on state budget face-offs between government unions and governors such as Wisconsin’s Scott Walker, municipal officials like Mr. DeStefano are engaged in their own budget warfare. Wages and benefits account for 30% of state general fund expenditures, according to data from the National Governors Association. But U.S. Census surveys show that in the typical town or school district, employee pay and benefits can consume from 70% to 80% of the budget.

Pensions are an enormous part of the problem. While pension payments now consume about 4% of state budgets, many municipalities are already spending 15% to 20% of their finances on pension costs. Earlier this year, California’s Little Hoover Commission, a government oversight agency, observed: “Barring a miraculous market advance and sustained economic expansion, no government entity—especially at the local level—will be able to absorb the blow [from rising pensions] without severe cuts to services.”

Costa Mesa, Calif. (population 110,000) made news earlier this year when it sent layoff notices to 43% of its employees. In 10 years, the city’s annual pension bill increased to $15 million from $5 million and now consumes 16% of the city’s $93 million budget. In nearby Anaheim, pensions already account for 22% of its $252 million budget. San Jose’s pension costs for police and firefighters have quadrupled in a past decade. Without reform, the city estimates that its yearly pension costs, $63 million in 2000, will swell to $650 million in 2015.

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