President Obama has ordered a pay freeze for federal workers, an idea we applaud. We note, however, that while the projected savings of $5 Billion over two years is significant, it does not begin to address the Trillion Dollar Deficits run up by the Obama administration. More work is needed, more sacrifices must be made. The New York Times  has more .

Our own John LaPlante has noted in the Detroit News that it is not a true pay freeze if federal employees still get “step increases” and that the problem is not just that salaries are too high (though some may be)–it is that there are too many federal workers.

We encourage Minnesota’s new governor (?) and the legislature in 2011 to take even bolder  steps to bring the size, scope and cost of state government down. While we would carefully avoid under-funding the core services provided by the state, an across the board cut in non-essential functions (a target rich environment) combined with a pay freeze would be a welcome tonic to our state economy and taxpayers. Public employees should not get pay raises when many taxpayers have lost their jobs, taken pay cuts or at best, seen small raises.

In addition to a budget deficit at current spending estimated at $6 Billion, Minnesota has a significant unfunded pension liability for public employees; the state estimates, which use an actuarial valuation method, puts the number at $12-15 Billion. If you use a market valuation method (much more accurate), the number is more like $24 Billion. (This does not include the health benefits, which tend to be “Cadillac Plans,” for existing and retired public employees. That is yet another funding problem.) You can read more about the outrage of  government valuation methods versus market valuation methods in a paper by Andrew Biggs, a resident scholar at American Enterprise Institute, written for The Free Enterprise Nation.

Our obligations to retired employees (contractual and constitutional in nature at the state level) are crowding out government services that we all expect local and state government to perform. For decades, politicians have been giving away future taxpayer funds by kicking this can down the road–but we are now facing a dead end.

You can see all the Minnesota pension details at our Pension Reform Project website . We are drafting our Recommendations for the new Legislature, which convenes in January 2011. We will release them for you and other thought leaders in the state to review later this winter. Please support this reform by contributing to the Minnesota Free Market Institute and by contacting your state legislator! Thank You!