Report that lauds pension contributions to local economies ignores massive liabilities
A report by an advocacy group for public pension systems says that scaling back defined benefit pensions could put government revenues at risk.'
The National Conference on Public Employee Retirement Systems released the report that says the governments of 38 states collect more in tax revenue generated by public pensions than taxpayers pay in the form of employer contributions.
Mississippi is one of those states, as the study says the Public Employees' Retirement System of Mississippi added more than $468 million into the state's coffers for state and local taxes in 2016. PERS serves most state, county and municipal employees in Mississippi and it's unfunded liability now tops $16.6 billion. To fill this gap would require all of the state's tax revenues for the next three budget cycles.
Mississippi taxpayers will be forking over more to help get PERS back on secure financial footing. The PERS board voted in June to increase the amount of employer contributions from worker salaries for the pension fund from 15.75 to 17.4 percent, starting July 1, 2019. The increase, using 2017 numbers, could add up to about $87 million annually for state government and $27 million for local governments, which municipalities, counties and school districts.
The NCPERS study used data from the U.S. Census Bureau, the Bureau of Economic Analysis and the Bureau of Labor Statistics to program a model that estimated how much pensions affect local economies and thus state and local tax revenues. Investment of pension fund assets added $587.5 billion to the nation's economy, which yielded $125.7 billion in state and local revenues.
The 12 states that had pensions that were net drains on state and local tax revenues include Connecticut, Hawaii, Indiana, Kansas, Louisiana, Maryland, Nevada, New Hampshire, Oklahoma, Rhode Island, Utah and West Virginia
Th report doesn't take into account the fiscal positions of any of these pensions, many of whom are facing massive unfunded liabilities. According to a recent report by credit ratings firm Moody's, adjusted net pension liabilities increased to $1.6 trillion or 147.4 percent of state revenues in 2017.
In 2016, those liabilities nationally were $1.3 trillion or 122 percent of state revenues. The NCPERS study said Illinois enjoyed more than $3.35 billion in additional tax revenue due to its pension system.
According to Moody's, the Land of Lincoln's adjusted net pension liabilities are now up to $250 billion or 601 percent of the state's revenues.
That isn't the only data available on the financial decline of public systems, which was worsened by the 2009 recession that resulted in some pension funds losing position from their investments.
Using 2016 data from a report by the Pew Charitable Trusts, New Jersey has the largest unfunded liability when expressed as a percentage of the state's annual general fund budget. It would take the state's entire tax revenues for 4.85 years to cover $168 billion in unfunded pension liabilities. The NCPERS report says that the Garden State enjoyed more than $1.19 billion in additional state and local tax revenue because of its pension system.
PERS is also facing a series of demographic issues related to an aging workforce and that has fewer employees supporting each retiree.
The number of retirees receiving benefits has grown 40.6 percent since 2007, with 3,145 new retirees leaving the government workforce in fiscal 2016. The number of employees who contribute to the plan also fell from more than 157,000 in fiscal 2015 to about 154,000 in fiscal 2016.
The 3 percent annual cost of living adjustment — which is paid out to most retirees in the form of a "13th check" in December — is getting bigger every year. In 2010, the fund paid more than $330 million to retirees. By 2016, that figure has increased to more than $559 million, an increase of 69 percent in only six years.