Public-sector pay should be changed to better reward productivity and efficiency, according to a report released Thursday by the Minnesota Chamber of Commerce and commercial real-estate trade association NAIOP Minnesota.

The report, “Minnesota Public Sector Compensation,” estimates that Minnesota's state and local governments spent at least $4 billion in 2009 on compensation features with “weak or no” relationships to public-sector outcomes.

The report is based on a study conducted by the Minnesota Taxpayers Association, and it will be the foundation for several recommendations that the Minnesota Chamber and NAIOP will make to the State Legislature.

“The challenging economy and changing demographics are placing great strains on the ability of state and local governments to deliver essential programs and services,” Minnesota Chamber President David Olson said in a statement. “Our recommendations are an effort to sustain the most essential services to preserve the quality of life for all Minnesotans while making the best possible use of tax revenues.”

Mark Haveman, executive director of the Minnesota Taxpayers Association, cautions that the $4 billion identified in the report shouldn't be viewed as potential savings to state and local governments. Instead, policy makers should use it to reform compensation practices and labor laws in ways that increase government flexibility and reward productivity.

The report consists of two parts-one that compares costs and trends among public-sector and private-sector pay and benefits, and another that includes research identifying opportunities to implement results-oriented workforce reform.

The report's specific recommendations include:

• Improve taxpayer understanding of public-sector compensation by creating more transparent key labor provisions and explaining their impact on government budgets and property taxes.
• Reform public pensions to reduce cost pressures on government operations and the current degree of taxpayer risk.
• Reform outdated compensation practices and statutes governing the ability of public human resource management to better reward performance and productivity.
• Reform Minnesota's prevailing wage law so the prevailing wage more closely reflects average wages.

“Our members work closely with local governments and recognize the value of a skilled public-sector workforce,” Kaye Rakow, director of public policy for NAIOP Minnesota, said in a statement. “We also recognize that labor cost structures play a very influential role in property-tax bills and that Minnesota's job-creating businesses heavily subsidize other property taxpayers. As a result, we are keenly interested in supporting workforce reforms built on principles of performance and productivity.”

The Minnesota Chamber, the state's largest, has approximately 2,400 members. NAIOP is a national trade association for commercial real estate developers, owners, and related professionals; it has about 15,000 members in North America, including more than 700 in Minnesota.