The relationship between local government and its workforce is an important indicator of the strength of a municipality’s credit, Fitch Ratings said in a report to be released on Thursday.
Government labor costs and state laws that govern employees are in sharp focus since the economic crises. Labor costs are the biggest component of local government spending and have received a lot of attention from politicians, public sector workers, and taxpayers.
According to Fitch Managing Director Amy Laskey, newly enacted and proposed laws are changing the nature of the local government employee-worker dynamic.
“‘The formal bargaining relationship between labor and management provides insight into the level of flexibility management has to adjust this key area of spending,” Laskey said in a press release. “Contractual agreements are also important indicators of how quickly spending will grow and how quickly a local government will respond should a change in the broader economy require shifts in spending.”
Fitch said the level of cooperation between government and employees and how committed both parties are to maintaining financial stability is one of its main indicators of a local government’s ability to make adjustments necessary to keep its budget in balance.
“As such, it is an important piece of Fitch’s methodology for local governments, currently in the form of an exposure draft for comment through Nov. 20,” Fitch said. “In short, a consistently applied workforce evaluation is key to assessing the flexibility of main expenditure items.”
