Public pensions’ positive financial impact rose 30.6 percent from the $137.3 billion level notched in 2016, according to the study, “Unintended Consequences: How Scaling Back Public Pensions Puts Government Revenues at Risk.” The 2020 edition of the study builds on NCPERS’ 2018 landmark analysis of how investment and spending connected to pension funds impact state and local economies and revenues.
“The positive economic effects of public pensions increased significantly over the course of two years,” said Michael Kahn, NCPERS’s research director and the study’s architect. “This means that if public pensions didn’t exist, policy makers would need to increase taxes on their constituents to sustain the current level of public services.” Kahn noted that the study also found that in 40 states, pensions were net contributors to revenue in 2018, an increase from 38 states in 2016.
The original Unintended Consequences study in 2018 broke ground by examining how state economies and tax revenues are affected when pension funds invest their assets and retirees spend their pension checks, and how taxpayer contributions compare to revenues, said Hank H. Kim, executive director and counsel of NCPERS.
“Pensions are the quintessential long-term investment, yet they are often cast as a pawn in political dramas over short-term spending,” Kim added. “This study underscores that breaking faith with public pensions is actually a costly strategy for state and local government. In the long-term, diminishing public pensions will backfire.”
NCPERS’s analysis of the data also showed:
- The economy grows by $1,372 for each $1,000 of pension fund assets. While the figure sounds small on the surface, the size of pension fund assets—$4.3 trillion in 2018—means that the impact of this growth is greatly magnified, the study found.
- Investment of public pension fund assets and spending of pension checks by retirees in their local communities contributed $1.7 trillion to the U.S. economy
- Economic growth attributable to public pensions in turn generated approximately $341.4 billion in state and local revenues. Adjusting this figure for taxpayer contribution $162 billion yields pensions’ net positive impact of $179.4 billion.