It’s become the $64,000 question: How can municipalities and other public sector agencies address increasing budget gaps and, at the same time, continue to provide essential public services?

According to a recently released study by the Nelson A. Rockefeller Institute of Government, New York taxpayers could save $1 billion per year if local-government and school-district employees were required to increase the percentage they contribute to health care insurance premiums.

Calling it “the kind of action that New York needs in order to avoid a destructive spiral of long-term economic decline,” Lieutenant Governor Richard Ravitch says in a Rockefeller Institute press release that having municipal employees contribute to their health insurance costs in the same way that state employees do could help localities cope with decreased state funding.

The report, “Health Insurance Cost Sharing: New York State’s Model for Localities,” lays out the landscape of the current situation and suggests specific steps that the state might take, according to Robert Ward, Deputy Director of the Rockefeller Institute. But it will be up to elected officials and legislators to implement any changes.

While the Rockefeller study was specific to municipalities and school districts in New York, its findings and recommendations could apply to many – if not most – states around the country, as public sector benefits have come under heightened scrutiny in today’s economy.

Todd Berry, President of the Wisconsin Taxpayers Association, says that there is a growing gulf between the public and private sector when it comes to benefits. The average public sector employee receives far greater benefits at a lower cost than the average private sector employee.

This growing gap is starting to create quite a bit of tension in politics, he says. It becomes a “harder sell” for a school district with a referendum seeking approval to spend more money on the ballot when there is such a difference between salary and benefits paid to private sector employees in the community, according to Berry.

Another issue is the difference in vantage point – even among employees in the same school district.

Like many public school districts around the country, the Milwaukee Public School District had to make a choice between laying off teachers or making changes to benefits. Berry says that when the teachers union didn’t want to consider a reduction in benefits, the district cut staff instead – an unwelcome outcome for many younger teachers, many of whom would have traded in the generous benefits in order to keep their job.

Whether lawmakers in New York or any other state around the country enact changes to the way in which public employee health insurance premiums are covered remains to be seen. But the dialogue is one we’ll likely be hearing more and more about as local governments and school districts struggle to cope with budget gaps.