Public Employee Pensions in 2007: Data from the Census of Governments

The U.S. Census Bureau has released 2007 data on the financial status of state and local government pension plans in the U.S. The data is at the state level, and is at present separate from data from the rest of the finance phase of the 2007 Census of Governments, so only limited conclusions may be drawn from it, but I’ve calculated some ratios to see how New York compares. What the data shows is that New York State’s pension plans, and in particular New York City’s pension plans, tend to be on the extreme end compared with other states by a variety of measures. There are more retirees relative to the number of workers in New York. Public employees contribute less to their own pensions here. For New York City, payments to pensioners and others are draining existing assets at an above-average rate. And, perhaps in an attempt to get out of the hole, New York’s plans were among the most highly invested in risky stocks in fiscal 2007.

On June 29th 2007, the last trading day of that fiscal year, the S&P 500 was at 1,505.70, while as I write this it is at about 925, a loss of 38.6%. Based on the assumption that the pension funds earn 8 percent per year, it should be at 1,756 by now starting at June 2007. Then again, starting at June 2000, when that assumption was made by state law, it should be at 2,960, or triple its actual level. It’s based on assumptions like those that all those pension enhancements over the past decade were described as “free.”

The data that has been released is on the pension plans themselves, not the state and local governments whose retirees are paid by them. While most government workers are employed by local governments, most pension plans are operated by states, and state plans account for 83.5% of all state and local government pension assets according to the Census Bureau. Thus, what is an “expenditure” for taxpayers – a contribution to a pension plan – is “revenue” in the data, because the pension plans receive it as revenue. Only payments to beneficiaries and others are expenditures.

In New York State, New York City has its own pension plans, which also includes New York City Transit, while New York State’s pension plans cover not only state workers but also local government employees in other parts of the state. Thus, the row with data for New York’s “local” plans as described in the attached table may be assumed to roughly match New York City’s pension situation, while the “state” row more or less matches the situation of local governments in the rest of the state. Other data is provided for all pension plans in each state and the District of Columbia, with a rank out of 51 (where the city and the rest of the state would rank if they were separate), and the U.S. total.

The data show that most public employees contribute far more to their own retirement than New York’s public employees do. Nationally, about 32 percent of all the contributions from employees and employers came from the employees, compared with just 10.9% for New York City and 9.9% for the rest of the state. As public employee pension plans collapse, that ought to inform future bankruptcy judges as to where the majority of the blame lies. In New Jersey, for example, the employees were responsible for nearly 40% of the contributions in FY 2007; in many years the taxpayer contribution was zero. In Massachusetts the employees put up 44.3% of the money; in Pennsylvania 48.9%. In North Carolina, where many New Yorkers and New York businesses move when seeking lower taxes and better public services, the employees made 62% of the contributions. Even in California, where pension enhancements a decade ago are a major factor in a fiscal collapse, the employees were making 34% of the contributions, with the taxpayers kicking in the rest.

Speaking of California, in 1999 according to this article the state passed the sort of massive pension enrichment New York passed in 2000, also assuming that forever soaring stock market returns would pay for it all. “It revised sharply upward the formula under which retirement benefits were calculated for state and public school workers; it based the benefits on the final year of pay (normally the highest), not an average of the final three years; it erased a previous money-saving reform by ending a tier system under which new hires received smaller pensions; and it conferred a vast array of pension sweeteners on retirees and their survivors. It also paved the way for local governments throughout the state to offer similar retroactive gifts of public funds to their employees and retirees.”

Now that the state is bankrupt and pension obligations have soared CAlPERs, the state pension agency, is proposing to put off paying by spreading the cost over 30 years, ensuring higher taxes and diminished public services for two generations of Californians to pay the past benefits of those who cashed in. “By deferring pension contributions,” Governor Schwarzenegger said, “CalPERS would not only be gambling that its investment earnings in this economy would grow faster than its pension obligations, but it would also be using our kids' money to do so because they would be the ones stuck footing the bill.” The Democratic state Treasurer is also opposed. Evidently, not everyone in California is prepared to accept that their generation will leave younger generations permanently and irrevocably worse off. Unlike in New York, where that is the goal of the state legislature.

California’s pension plans paid out 4.3% of their assets in 2007 in benefits and other paymets, or somewhat less that average. New York’s state plans paid out 4.4%. But New York’s local plans (aka New York City) paid out 7.0% of their assets, which would have place the city 44th if it was a separate state. Knock one-third off the value of those assets, which seems par for the course among pension plans the past couple of years, and increase the rate of payments, and the city might be paying out well more than 10.0% of its pension assets this year. Which means if the city stops paying in, as most of its employees with seniority have (and the state of New Jersey frequently has), the pension plans could have no assets in less than a decade.

In New Jersey bankruptcy will come even faster. That state’s plans paid out 9.5% of their assets in FY 2007, and in response to a fiscal crisis New Jersey (as is proposed in California) is cutting the amount paid into the plans. One of the state’s newspapers actually has an independent actuary covering its pensions as a reporter, and predicting disaster. “Reforms affecting only new hires won't save a penny for decades, long after this plan is broke. With the need for liquidity to pay that $7 billion, and rising, annually to retirees investment returns won't bail the plan out. If meaningful benefit curbs are not enacted each new valuation will see escalating deficits that eventually will wipe out the fund until it won't even have the integrity of a ponzi scheme. Without a radical change in course on benefit promises, there is no solution other than pumping maybe $10 billion a year into the plan instead of the current $4 billion* (if the state feels like it).” The plan will go broke and, as mentioned, unlike New York where only younger generations of employees contribute anything to their pensions, in New Jersey the employees contribute 3.0% to 8.0% of their pay.

I’ll be able to say what share of payroll New York’s public employees and taxpayers contribute to the pension plans, relative to other places, when the rest of the finance phase of the 2007 Census of Governments is released, including data on payroll.

Other states where payments were a high percent of assets in 2007 include Massachusetts (6.6%), Rhode Island (8.3%) – now approaching bankruptcy, and Connecticut (8.0%). These are states with population stagnation or losses, particularly among the young, perhaps because young people want to move away rather than get stuck holding the pension bag. Or the debt bag. We’ll also be able to measure the latter when additional finance data comes out.

The 51.7% of assets in stocks in the New York City plan in FY 2007, and the 48.8% for the New York State plan, would each have placed 6th among 51 states and the District of Columbia. The national average is 36.5%. California was about average in 2007; New Jersey, Massachusetts, and Pennsylvania were below average.

The remaining data is only available for New York State as a whole, not separately for the state and city. There are 1.58 public employees for each retiree in New York State, meaning that the average public employee works 1.6 years for each year they are paid to stay home. (No public employee would shop at a business where the price and quality of what they were buying reflected the need to pay for such a ratio). The national average is 1.93. New York’s ratio of workers to retirees is the ninth lowest. Among those lower are economically stagnant states such as Michigan (1.42), Rhode Island (1.45), Pennsylvania (1.46), Connecticut (1.53), Louisiana (1.55), and Maine (1.55).

In theory it shouldn’t matter how many retirees there are, because enough money should be set aside for their pensions while they are working. In practice, all politicians and unions have to do is assume a high future rate of return and the retirees can grab more while less is paid in. Disaster comes later, which is now sooner. You can follow the action here. In fast growing Texas there are nearly three current government workers for every retiree. That means in Texas your taxes go for public services not people who work a lot fewer years of your life than you will. For now. Because Texas isn’t setting aside enough money for those retirees either, shifting costs to tomorrow when it is assumed that there will be more people in the state to take the burden. An assumption California made until recently. In fast-growing Fort Worth, taxes are rising and services are being cut because prior generations gave themselves a sweet deal by assuming a 10.5% rate of return. Taxes on natural gas deposits under the city might bail them out.

It is unlikely that 100 percent of all public employee pension recipients vote, and many of them move to other states. Still in New York it is likely that many of those who move to other states vote (or at least contribute money) in New York, to ensure that state legislators will keep voting for richer and richer pensions for older generations even as they debate lower pay and benefits for new hires.

So how does the number of public employment retirees compare with the number of people who vote? New York’s 750,000 state and local government retirees were the equivalent of 13.9% of the total number of people who voted in the state in 2006 election. That ratio is the second highest among states, behind Alaska. California, long considered a growth state, was fourth. New York’s retirees plus current workers, a total of 1.9 million people, were equivalent to 35.8% of those who voted in 2006. New York State ranks number one according to that ratio.