I'm not even sure about that. This is all anecdotal, but, the going rate for public jobs in my city is still quite low, and this does seem to have an impact on the quality of candidates they receive.

Since they can't attract candidates as effectively (frankly, that nice pension plan isn't nearly enough to make up for the crummy salary relative to what I can earn elsewhere), they aren't getting as many opportunities to hire really ambitious people. This has repercussions that play out in all sorts of ways, but, being a tech guy, the one I am most aware of is that acquaintances complain that the city often relies overmuch on low-tech and highly manual procedures for accomplishing basic tasks, because nobody is really motivated to streamline them. That results in lower per-employee productivity, which, in turn, increases the headcount requirements. Which, I'm guessing, increases overall labor costs relative to what they could be otherwise.

So it's not that the state's salary and pension costs are high because employees are well-compensated, it's actually something of the opposite.