Sold Out Futures By State: Public Employee Pensions in FY 2016

There was a time when a soaring stock market and zero percent interest rates, leading to soaring values of existing fixed-income investments, would have been enough to pull state and local government public employee pension funds out of the hole, at least by the (in my view false) measures used.  Today, however, that hole is so deep that for all state and local government pension funds in the U.S. combined, according to my estimate, later-born generations face a $3.5 trillion debt to pay for public employee pensions as of FY 2016, or 21.8% of the personal income of everyone in the United States.  Over and above any pension benefits that are being earned today. That exceeded the $3 trillion in formal state and local government bonded debt at the time.

More and more, various organizations are coming up with estimates of this combined debt burden, trying to predict which states and localities will be headed for bankruptcy, public service insolvency, or both.   Having pioneered this way of thinking nearly a decade ago with the first “Sold Out Future” ranking, let’s continue the analysis with regard to public employee pensions.

This is the third of four posts on the extent to which each state’s future has been sold out by state and local government debts, inadequate past infrastructure construction, and underfunded and retroactively enriched public employee pensions.

The first post, which takes a national perspective and describes the analysis, is here.

https://larrylittlefield.wordpress.com/2018/12/06/sold-out-futures-a-state-by-state-comparison-of-state-and-local-government-debts-past-infrastructure-investment-and-unfunded-pension-liabilities/

A very large spreadsheet with the data used in this analysis, a series of tables and charts is, once again, here.

SoldOutFuture-72-16

The prior post was on state and local debt and past infrastructure and education building capital construction.

https://larrylittlefield.wordpress.com/2018/12/12/sold-out-futures-by-state-in-2016-debt-and-infrastructure/

This one is on state and local government public employee pensions.

In order to have enough money to fund the extremely long and well compensated retirements most public employees receive, I argue that their pension funds ought to have enough in assets that benefit payments are only 4.0% of those assets.  That, or at least something close to it, is what the ratio should be for “mature” pension funds in stable, built-out states and places where the population is growing slowly, if at all.  Places where the ratio of retired to active public employees fully reflects the richness of the pension benefit in terms of the ratio of life expectancy in retirement to required years worked.

In fast growing states and places, on the other hand, with relatively few retirees from a less populated past but many current employees earning future benefits, the ratio of today’s benefit payments to current assets should be even lower.  Since those assets should be being accumulated to provide for the retirement of the much larger number of current workers, not the smaller number of past workers.

Moreover, 4.0% is what the ratio should be in a typical economic year, not at the peak of one of our repeated bubbles, where the asset values of the pension funds far exceed what is justified by the investment income those assets are likely to produce over time.  FY 2016 was close to one such bubble peak, though asset values bubbled up a little more after Donald Trump was elected.  Pension funds ought to have reduced their expectation of future investment returns as a result, as I noted here.

https://larrylittlefield.wordpress.com/2013/11/29/pensions-the-nature-of-the-lie/

Just because stock prices have bubbled up doesn’t mean pension funding can be cut, or benefits can be retroactively increased, because those will eventually fall back to normal.  Besides, if one sells off stock and bonds to pay pension benefits today, regardless of how high a price is received, what assets will be used to pay the pension benefits of future retirees tomorrow?  Public employee pension plans may sell some assets to buy others, but in reality they should never be net sellers unless the number of retired public employees is going to go down in the future.  The assets have to keep increasing.

What is needed to pay pension benefits is income, not unrealized paper gains.  But just as most stocks today don’t have enough earnings, or pay enough in dividends, to support current inflated stock prices, so most pension plans don’t have enough cash investment income to pay benefits.

In FY 2016, according to Census Bureau “individual unit” public employee pension data, the New York City Teachers’ Retirement System had just $1.76 billion in actual cash income – interest and dividends – but it had $4 billion in pension benefit payments, and another $1.35 billion in money taken from the pension fund to pay a guaranteed return on the teachers’ own 401K plans, for a total of $5.35 billion in money out.  To my mind that means that NYCTRS was about one third funded, with two thirds of the assets needed to pay that $5.35 billion and rising per year for past work coming from future schoolchildren and taxpayers.  But how does New York City compare with other places?

Pension Benefits 8a

As noted in the first post in this series, nationwide pension benefit payments have never been less than 4.3% of public employee pension fund assets for all the years that Census Bureau summary data on state and local government pension plans is readily accessible.  And benefit payments were only below 5.0% of those assets during the late 1990s stock market bubble. This shows the long-term overpromising and underfunding that has led to today’s pension crisis across the country.  Public employee pension benefits equaled 7.9% of pension plan assets in FY 2012, meaning little more than half the assets required had been set aside.   And despite taxes raised and services cut to increase pension funding in the intervening years, and another stock market bubble, pension benefit payments were still 7.9% of pension fund assets in FY 2016.

Chart9aBenefitsAssets

The worst off state when I did this analysis for FY 2012 was Rhode Island, where FY benefit payments equaled 13.3% of pension assets that year. In FY 2016 that had increased to an even worse 13.6% in Rhode Island, but that state was nonetheless only the second worst off state.  The worst off state in FY 2016 was New Jersey, where pension benefit payments equaled 13.8% of pension fund assets in FY 2016, up from just 11.8% in FY 2012. New Jersey only had enough pension fund assets to pay for 7.2 years of benefits.  The third worst off was Kentucky, with benefit payments equal to 13.5% of pension fund assets, followed by Alaska at 13.4%, Pennsylvania at 12.2%, Illinois at 11.8%, Connecticut at 11.7%, South Carolina at 10.8%, Massachusetts at 10.5%, and Michigan at 10.4%.   Pension benefit payments were a smaller share of assets in FY 2016 than in FY 2012 in Michigan, but a higher share in all these other states else.

chart9a2BenefitsAssets

As was the case four years ago, I found the only state or equivalent with public pension funds that had a benefits-to-assets ratio close to what it should be was the District of Columbia.  The District’s pension benefit payments equaled just 4.2% of its pension plan assets in FY 2016, but only because it got a federal bailout and was put under a financial control board in the early 1990s, just before the wave of retroactive pension increases and public employee pension underfunding hit.  So those political deals didn’t happen in DC.

https://www.washingtonpost.com/blogs/mike-debonis/wp/2013/03/11/d-c-s-pensions-are-looking-pretty/?utm_term=.6c8ab8183d91

Other states with relatively low ratios of pension benefit payments to pension plan assets were South Dakota (4.8%), Wisconsin (5.4%), Idaho (5.7%), Nebraska (6.0%), Tennessee (6.2%), Utah (6.2%), Nevada (6.3%), North Carolina (6.3%), and Washington (6.3%).

California is better than one might expect at 6.8%, given (or perhaps because of) all the public service cuts and tax increases to pay for pensions over the past decade.  Fast growing Florida (6.5%) and Texas (6.7%) are not nearly as low as they ought to be, given that the number of retired public employees will be much larger there in the future than it is today.

Chart9a-3BenefitsAssets

For the City of New York pension funds, soaring taxpayer contributions and another stock market bubble increased pension fund assets to the point where benefit payments were 9.1% of assets in FY 2016, up from 8.8% in 2015 but down from 11.8% in 2009.  That is still less than half the assets those pension funds required, and the funds for the city workers who get the richest pensions – police, fire, teachers – are in more trouble than NYCERS, the pension fund for other city workers.  NYC’s benefit payments to pension assets ratio is currently worse than it was in 1977, when the stock market was in a perpetual bear market, the Bronx was burning, the infrastructure was collapsing, and old women (the Bag Ladies) were left to die in the street.  The ratio was 8.5% that year.

NYC has, since the late 1960s, invested a large share of its pension assets in high-risk assets.  That makes things look a little better when asset prices bubble up, but makes things far more dire when they drop, especially given deals to “guarantee” 401K returns for public employees at above market rates.    NYC pension benefit payments have been at least 5.7% of pension assets every year since the retroactive pension increases of the late 1960s and 1970s, which were then repeated in the 1990s and 2000s.  NYC pension benefit payments equaled 6.8% of benefit payments in 1995, when a big pension increase passed the New York State legislature, 6.8% in 2000, when another massive benefit increase passed, and 7.7% in 2008, when another huge pension benefit increase passed for teachers.

Those first two pension benefit increases also affected the State of New York, whose pension plans (which also cover local government workers in the rest of the state) have always been better funded than the NYC pension plans. But things have gotten much worse lately.  Up until FY 2009, benefit payments by the NY State pension plans never exceeded 5.1% of pension plan assets.  Despite stock market bubble number three of recent years, the state’s pension benefit payments were up to 6.7% of pension plan assets in FY 2016.  The State Comptroller is claiming close to 100 percent funding for the state pension plans, but I don’t buy it.   My guess is they are once again assuming average to above average future investment returns from temporarily inflated stock and bond prices, in a bubble that may be deflating back to normal as we speak.

Looking at the past, one can’t find a single year when the public employee pension funds of New Jersey, Connecticut, or Massachusetts or Pennsylvania were fully funded, based on the 4.0% standard.   I don’t have any particular expertise on Massachusetts, but it would appear that state’s public pension system was in worse shape in the early 1980s that any state is today.

Chart9a4BenefitsAssets

The same may be said of the Indiana in the Midwest, where public employee pension benefits equaled 14.8% of pension plan assets in FY 1979, compared with a typically terrible 8.1% in FY 2016.  With the exception of Minnesota, at 7.7%, all the big Midwestern states have lower public pension funding levels, and thus a worse future with regard to tax increases and service cuts, than the U.S. average of at 7.9%.  With Ohio at 9.4%, Michigan at 10.4%, and Illinois at 11.8%.   Of these, only Illinois seems to have reached the point where the problem isn’t being swept under the rug anymore, because it can’t be.

Chart9a5BenefitsAssets

While not low enough, pension benefit payments were a relatively low share assets in booming states such as California, Colorado, Texas, Florida, Georgia and North Carolina through the mid-1990s.  But then Generation Greed took over and decided to cash in, either by cutting taxes by cutting taxpayer pension contributions, increasing benefits for those cashing in, or both.  By FY 2016, pension benefit payments had risen to 6.8% of assets in California, 9.3% in Colorado, 6.7% in Texas, 6.5% in Florida, 7.3% in Georgia and 6.3% in North Carolina.

GovWorker1986-2016

Fast growing states, which still have relatively few retired public employees relative to the larger number currently on the job, should have current pension benefit payments that are far lower, relative to what should be their soaring pension assets for that larger number of future retirees.  Most of the public employees receiving retirement benefits today were on the job in 1986.  Between then and 2016, the number of state and local government employees in slow-growth New York State increased by 1.8% in New York City and 13.4% in the Rest of the State.  But it increased by 54.8% in California, 60.4% in Georgia, 60.7% in Florida, 70.3% in North Carolina, 79.6% in Texas, and 87.5% in Colorado. Not because these are “big government” states – all have state and local tax burdens that are lower, as a percent of state residents’ personal income than the U.S. average — but simply because there is now a much larger total population for government workers to service.  So in the future, there will be a much larger number of retired government workers drawing benefits.

Pension Benefits 8b

Even in these “new” growth states, pension benefit payments are rising compared with the total payroll of workers still on the job. Nationally, as noted in the first post in this series, the ratio tripled from pension benefit payments equaling just 9.5% of payroll in FY 1986 to 30.7% of payroll in FY 2016.

Chart9x4BenefitsPayroll

The increase was from 12.3% to 35.6% in California, from 7.4% to 28.9% Colorado, from 5.8% to 21.2% in Texas, from 5.1% to 24.8% in Florida, from 6.4% to 29.3% in Georgia, and from 7.1% to 20.8% in North Carolina. That ratio will go even higher in the future before if fully reflects the promised years and dollars in retirement relative to years and dollars worked.   One can see that in California, where population growth slowed after 1990s and the ratio of benefit payments for retired state and local government employees to wage and salaries of active workers soared, and is only now starting to level off.

What will happen in Texas when its growth slows?  Will we find that state and local government pension funds were responsibly pre-funded?  Or instead that rapid population and tax base growth covered up the impact of underfunding and retroactive pension increases?   What has happened to Texas cities, where a generation after the same things happened in Northeastern and Midwestern cities the land became built out, annexation of developing areas stopped, population growth stalled, and the public employees moved out to the suburbs, where most of the growth and development now takes place?

Fort Worth is broke.

https://texasmonitor.org/fort-worth-takes-another-bond-rating-hit-due-to-pension-liabilities/

Dallas is broke.

https://www.economist.com/finance-and-economics/2016/12/08/a-dallas-public-pension-fund-suffers-a-run

With big cuts to the pay and benefits of newly hired (and mostly minority) police officers and firefighters to pay for a big pension increase for the (mostly White) retired officers and firefighters living in the suburbs.  A pension increase imposed on the city by the state.  To the point where the city is having trouble hiring police officers. Its poverty rate is 27.0%, higher than New York City’s ever was.

Houston is broke.

https://www.citylab.com/solutions/2017/01/the-great-texas-pension-fix/512060/

There, as well, the city’s former demographic groups voted themselves richer benefits than they had been promised when hired, and benefited from low taxes due to underfunding, and then scuttled to the suburbs leaving their poorer successors to face the consequences.  Right on time, just like New York City in the 1960s.  When the White politicians slither away and you get that Black Mayor/ Governor/ President, you know things have either hit the fan or are just about to.

We finally made it!  And now were going to…wait a minute! What do you mean all the money is gone, and now we’re supposed to hand out the pain?

Based on what is happening in Texas cities today, what can we expected with regard to the pension plans of now-booming suburban Plano, Carrolton, W. Richland Hills, and The Woodlands in Texas – or the entire state of Texas — 20 or 30 years from now?

Chart9xBenefitsPayroll

Statewide, the pension benefit payments to retired state and local government workers are already a much higher percentage of the wages and salaries of those still working in the Midwest.  Recall that if everyone worked two years for each year of life expectancy in retirement, and received a benefit equal to half their average pay, then pension benefits would equal 25.0% of the wages of those still on the job.   But for state and local government workers in Ohio, that ratio is up to 49.2%, which would be a half average pay pension with one year worked for each year retired, or a 100 percent of average pay pension with two years worked for each year retired. But Ohio public employees do not also get Social Security, saving both taxpayers and the employees themselves 6.2% of their pay.

https://www.strsoh.org/aboutus/impact/social-security.html

Other states where state and local government pension benefit payments are a high share of the wages and salaries of workers still on the job include Illinois at 46.1%, Oregon at 40.3%, Rhode Island at 37.8%, Pennsylvania at 37.6%, Connecticut at 37.2%, Louisiana at 36.3%, California at 35.6%, and Kentucky at 35.5%.  Many of these are slow growth states, where the ratio of retired to working state and local government employees has matched or come close to matching the richness of the pension benefit.

Older and past public employees in Oregon, meanwhile, got a massive unfunded retroactive pension benefit increase followed by cuts in pay and benefits for new public employees.  That explains the high ratio there.

https://www.opb.org/news/article/oregon-pers-pension-system-cost-increases/

Chart9x3BenefitsPayroll

In Illinois, public employee pension benefit payments nearly doubled as a percent of the wages and salaries of working public employees in little more than a decade, as those one employed by aging Chicago suburbs and downstate cities retired in droves, and their local governments could not afford to hire their replacements. The pension benefit payments of retired public employees equaled 34.4% of the wages and salaries of those on the job in Michigan, 27.2% in Minnesota, and 34.4% in Wisconsin.

9x2BenefitsPayroll

In New York City, all public employees do get Social Security in addition to their pensions, and the number of working public employees, with some variation, has been about the same for decades.  And yet pension benefit payments continue to soar as a percent of the wages and salaries of those still on the job.  Because the public unions control state and local governments here, and continue to receive more and more retroactive pension increases that “cost nothing,” followed by lower pay and benefits for new hires. Who then do less work because public employees are “underpaid.”

Large numbers of NYC public employees were retroactively allowed to retire earlier than they had been promised, by seven or so years with retiree health insurance provided for all those years, by deals in 1995, in 2008 (for teachers), and in repeated early retirement incentives from the 1980s right down to the present.  And benefit payments to all already retired state and local government workers in New York State were drastically increased by a 2000 deal that provided a retroactive cost of living increase for years going back to the 1970s, and increases going forward. I’ve written extensively on New York City’s pensions, and charted the impact of the major pension increases, over the years.

https://larrylittlefield.wordpress.com/2017/07/29/long-term-pension-data-for-new-york-and-new-jersey-to-2016-teacher-pensions/

Nationwide, pension benefit payments equaled 30.7% of the wages and salaries of state and local government workers still on the job.  New Jersey was about average at 30.1%, with the Rest of New York State at 35.4%, and New York City at 41.1%, which would have been the second highest if NYC were a separate state.

When PBS Frontline decided to explain what has caused pension crisis across the country, it chose Kentucky as an example.  Frontline chose not to report the fact that any retroactive pension increases had taken place, there or anywhere else.  By their silence and presentation implying that all retired public employees have been getting, and will be getting, is what they were promised.  It was all Wall Street’s fault, or politician’s fault for not putting enough taxpayer dollars in.

http://www.kentuckynewera.com/news/ap/article_02abd712-abe1-11e8-817d-8b0ecce901b1.html

A quick look around the internet shows that there were in fact retroactive pension increases in Kentucky, but not they were not nearly big enough to explain the pension disaster in that state.   While Frontline wants to deceive people by pretending retroactive pension increases to benefit unionized public workers don’t exist, a business group seeks to blame that state’s entire pension problem on a benefit increase from 1.97% percent of wages for each year worked to 2.0%, based on the last three years worked rather than the last five.  But one doesn’t’ see the massive one-to-three year increase in inflation-adjusted benefit increases in Kentucky that one finds in New York City after its pension increases. Just a smooth increase in payouts year after year.

Chart9a6KentuckyBenefits

Still, Frontline chose Kentucky rather than New York City as the national example of what caused the pension problem for a reason.  Meanwhile, New York Magazine, echoing what appears to be a propaganda campaign, discusses the pension disaster in California and (by its silence – the Unsaid, the title of my blog) makes the far less plausible case that there was no retroactive pension increase there.

http://nymag.com/intelligencer/amp/2018/12/what-is-calpers-new-private-equity-business-model.html

CalPERS has never recovered from this scandal and the impact of the financial crisis that unfolded around the same time. CalPERS was only 71 percent funded before the recent market wobbles, and that was after a $6 billion mini-bailout by the state of California via a pre-funding. In addition to some poor investment calls, CalPERS, similarly to many other public pension funds, did not assess high enough employer contributions due to overly-optimistic assumptions about investment returns during the dot-com era and since the 2008 financial crisis.

Only not high enough employer (actually taxpayer) contributions? Did anything else happen? Apparently not. Fortunately, this sort of Omerta only seems to work in New York.

https://www.latimes.com/projects/la-me-pension-crisis-davis-deal/

In Illinois, what stands out is how much of the pension problem on the benefits side is caused by deals and spiking for those at the top – the politicians and their cronies in management and political positions.   Rather than rank and file workers.  The big retroactive pension increase for all state and local government workers in Illinois was an automatic fixed cost of living increase at 3.0% compounded starting in 1991, up from 2.0% not compounded.  Is that an unaffordable benefit?  That depends – on the overall rate of inflation.

Chart9a7

High inflation benefits the young, and when the 1960s generation was young they found their mortgage debts – and their parents’ pension benefits – inflated away.  Now that the 1960s generation is old itself, it is benefiting from lower inflation – at the expense of its children.   Thanks to that lower inflation level, from 1991 to 2016 the consumer price index increased just 76.2%.  The average U.S. worker saw their wage increase by far less, falling behind inflation.  But an Illinois public worker who retired in 1991 and became a “senior on fixed income,” in the oft repeated phrase, saw their pension increase by 109.4% due to 3.0% percent compounded growth.

The outgoing Mayor has also proposed reducing the cost of living increase to the increase in the cost of living.

https://www.chicagobusiness.com/greg-hinz-politics/colas-pot-and-gambling-its-not-party-its-emanuels-pension-rx

“Think about it. What kind of progressive, sustainable system guarantees retirees 3 percent annual compounded pay increases when inflation has been at basically zero and current employees have at times been furloughed, laid off, or received 1 percent raises?”

That sound like a situation New York City’s “progressives” would be in favor of, based on the pension increases they have voted for over the years, and Generation Greed couldn’t care less if something is sustainable if they are unaffected.  The Trump tax cuts, the Reagan and Bush II tax cuts during the high earning years of Generation Greed’s careers, and Generation Greed’s Social Security and Medicare benefits aren’t sustainable either.  And the generations to follow have been forced to pay more in and will get far less out, facing poverty an ill health in old age, as a result.  In Illinois, pension benefits for new teachers have been cut, and their contributions have increased, to the point where taxpayer contributions on their behalf are close to zero. Unless the federal government is paying, and the money is supposed to go to help poor children.

https://herald-review.com/news/local/education/unfunded-pension-debt-costs-school-districts-federal-money/article_d2276d3f-3e7b-528f-b86f-fd3de32cabad.html

When a school district uses federal funds to hire teachers, to reduce class sizes or add extra support in reading, for example, the state of Illinois takes up to 45 percent of those federal funds to pay off pension debt.  When a school district hires a teacher using locally raised funds such as property tax, it pays only 0.58 percent toward pensions.

High 1970s inflation, which cut the cost (and value) of the City of New York’s massive pension costs and debts in half in a decade, is really the only reason the city survived.  It was as if those debts and pensions had been cut by half in bankruptcy. Bankruptcy may be the only way out this time around.

Retroactive pension increases are devastating because they are not pre-funded.  Suddenly extra money goes flying out of the pension fund, and the pension fund is put in the hole not only by those payments, but also by all the future investment returns that will not take place on the extra money that is gone.  The future rate of return on zero is zero.  That is one side of the pension disaster.

Taxpayer underfunding of the pensions state and local government workers were promised to start with is the other part.  The distribution of the guilt varies from place to place.

Tax Pension Contribution 8c

As noted in the first post in this series, for the nation as a whole, taxpayer pension contributions averaged 9.8% of payroll from FY 1987 to FY 2016, a 30-year period when most members of Generation Greed were working and paying taxes.  When I calculated it out, I found that a 50 percent pension at age 62 after 30 years of work, based on the last three years salary, for the salary schedule of a NYC teacher, with no one dropping out and receiving no retirement benefit, but no late career promotion or spiking either and no retroactive pension increases, would be conservatively financed at 11.8% of payroll.  So with a 2.0% employee contribution, the national average for taxpayer contributions would have been enough to honestly fund that level of benefit.

Chart9cTaxpayerPayroll

It’s one thing for a state or city’s taxpayers to suddenly face a huge pension bill after decades of shorting their pension promises.  It’s another for taxpayers to pay enough to provide public employees with far richer retirement benefits than most of them will receive, and still find themselves on the hook for $billions more due to retroactive pension increases in 3 am deals in the state legislature, in the absence of any public debate.

That is the situation current and future residents of the New York City find themselves in.  NYC taxpayer pension contributions averaged 17.0% of the wages and salaries of active public employees from FY 1987 to 2016.  Compare that with your employer’s contribution to your 401K.  Only Nevada taxpayers kicked in more at 17.8%.  But in Nevada public employees do not also get Social Security.

https://nvpers.org/public/publications/040714-LVRJ%20Editorial-Response-ExecutiveOfficer%20Message.pdf

So for a fair comparison, one would have to say that NYC taxpayers kicked in 23.2% of payroll for cash retirement benefits, including the 6.2% FICA tax.  More than anywhere else.  Far more. Enough to pay for a very rich pension with even a modest contribution by the employees themselves.

And yet the NYC pension funds are in a deep hole, meaning taxpayers and service recipients will be hurt even more, and even worse, in the future. And the public unions are up in Albany negotiating even more pension increases, and special tax exemptions for public employees, right down to this day – with more and more certain to be enacted.

https://cbcny.org/sites/default/files/media/files/Benefit%20Scorecard%202018_6_1.pdf

Other states where taxpayers have contributed much more than the U.S. average to public employee pension funds, on average, over the years from FY 1987 to FY 2016 are West Virginia at 14.1%, Connecticut at 13.8%, Massachusetts at 13.8%, Illinois at 13.8%, Alaska at 13.8%, Louisiana at 13.6%, Ohio at 13.5%, Rhode Island at 13.3%, Maine at 13.0%, and California at 12.0%.  In some of these states taxpayers paid a great deal for public employee pensions, but did not always have to pay for Social Security, which many those retirees do not and will not get.  That is a big difference from New York City. Teachers do not get Social Security in California, Connecticut and Illinois.  No state and local government workers do in Ohio.

The taxpayer contributions to New York State pension funds, which also cover local government employees in the portion of the state outside New York City, averaged just 8.4% of payroll from FY 1987 to FY 2016, vastly lower than what New York City taxpayers paid.  And yet the New York State pension plans are among the best funded, while the New York City plans are among the worst funded.  Even though the same New York State legislature has set the rules for both for decades – decades during which many of the best off City of New York workers – police, fire, teachers, transit – have tended to live in the suburbs.  How this has happened is a mystery no one has tried to explain.

New Jersey’s taxpayer pension contributions averaged just 6.7% of total state and local government wages and salaries from FY 1987 to FY 2016, thirteenth least among the states.  (Retired New Jersey public employees also get Social Security, for another 6.2%).  That is nowhere near enough money to pay for the kind of pension benefits New Jersey’s public employees were promised, even without any retroactive pension increases, spiking and fraud, and there has been some of that as well n New Jersey.  Rapid suburban population growth, as the middle class moved out from New York City and Philadelphia, located in entirely separate states, is what allowed New Jersey to get away with underfunding is public pensions without a crisis for so long.  But that’s state’s rapid population growth ended after 1990.

Other states were taxpayers have kicked in relatively little over 30 years are Nebraska (at an average of 4.5% of payroll), North Dakota (4.8%), New Hampshire (4.9%), Vermont (5.1%), South Dakota (5.2%), North Carolina (5.3%), Iowa (5.5%), Kansas (5.6%), Arizona (5.9%), and Wyoming (6.2%).  These low taxpayer contribution rates, and the low taxes that go with them, could be indicative of relatively low pension benefit levels relative to wages and salaries, something more like a private sector compensation package.  Or they could be indicative of current taxpayers paying less in taxes by shifting the cost of their public services to future taxpayers.

Chart9dTaxpayersPayroll

Many of the states where taxpayers paid the most over the 30 years from FY 1987 to FY 2016 are also among the states where taxpayers have been forced to increase their pension contributions the most over the past few years.  New York City’s taxpayer pension contributions soared to 33.2% of public employee wages and salaries in FY 2016.  Taxpayer contribution levels are much higher than that for the separate pension plans for police officers, firefighters and teachers, who have used their unchallenged political clout to grab one benefit increase after another over three decades.   And worse, it is not enough.  With another stock market bubble pushing up asset values, NYC taxpayer pension contributions have temporarily stopped going up, but they aren’t enough to get the city’s pension funds out of the hole.   There will be another huge increase in the next recession, just in time for another fiscal crisis.

If NYC were a separate state its taxpayers would have paid in the most among states in FY 2016, as they had during the FY entire FY 1987 to 2016 period.  For the New York State pension plans, the 2016 contribution level was 21.9%, and would have ranked 46th, fifth from the most.

Other states with notably high FY 2016 taxpayer pension contributions as a percent of the payroll were Illinois at 29.1%, Connecticut at 26.0%, Nevada at 23.1%, Louisiana at 23.1%, Rhode Island at 20.4%, California at 20.0%, Kansas at 19.8%, West Virginia at 19.8%, Pennsylvania at 18.6%, Michigan at 18.4% and Missouri at 17.7%.  Many of these states will be facing even greater contributions as a percent of payroll in the future.

Chart9d3Taxpayers

New York City taxpayers are being hit hard now despite consistently putting more into the city’s public employee pension funds as percent of public employee wages and salaries, than the U.S. average, taxpayers paying for the New York State pension funds (which also cover local government employees in the part of NY State outside NYC), or New Jersey taxpayers. NYC did cut its taxpayer pension contributions for a few years around the year 2000, as part of the irresponsible Mayor Giuliani for Senate, State Comptroller McCall for Governor, and Governor Pataki for President pension deals that also drastically increased pension benefits.

Whatever NYC taxpayers should have put in 15 years ago, however, they have long since paid back many times over.   In New York City the taxpayers are not to blame for the pension disaster.  The public unions and the politicians they control are completely out of solidarity with all other workers, and have cheated them in secret deal after secret deal between themselves.  It is collective bargaining with the same side on both sides of the table, with both political parties.

https://www.nysun.com/new-york/teachers-get-big-gift-from-gop/71371/

The same cannot be said of New Jersey.   That state’s taxpayer pension contributions averaged just 6.7% of payroll from FY 1987 to FY 2016, and were still at just 9.3% of payroll in the latter year.   New Jersey notoriously cut its pension contributions in the mid-1990s to cut taxes, in the administration of then-Governor Christie Whitman, and substituted a payment from a “pension bond” instead.  Later, Governor Christie cut a deal with the unions to start fully funding New Jersey’s pensions in exchange for the unions accepting the reversal of some of the retroactive pension increases they had scored. But then Christie reneged on his share of the deal, saying the state could not afford it.  And yet that state’s taxpayer pension contributions were below the U.S. average in FY 2016.

Connecticut floated a huge pension bond in 2008, but nonetheless has been forced to drastically increase its taxpayer pension contributions in the years since.  That state later cut another deal to defer $billions in additional pension contributions until after 2034, allowing more Generation Greed members to sell their homes and move away, and it is considering yet another pension bond. Future taxpayers will be forced to make bond payments to make up for the pension fund payments past taxpayers – today’s seniors — should have made, and higher pension contributions of their own besides.

https://ctmirror.org/2016/06/20/ct-faces-legal-roadblock-to-easing-rising-teacher-pension-costs/

Chart9d4Taxpayers

Illinois floated a pension bond in 2005.

https://www.civicfed.org/iifs/blog/pension-bonds-lessons-state-illinois

But that didn’t stop pension costs from soaring after that.  The previously low level of pension contributions before 2005 allowed Illinois to have a below average state and local tax burden over the decades, but just as in that state pension pillaging was concentrated a the top, so was the benefit of low taxes.  Property and sales taxes levels were substantial, but the state income tax was a flat 3.0%.  Now some reports put the level of pension debt just for Illinois state plans at $130 billion.

http://www.news-gazette.com/opinion/columns/2018-12-12/jim-dey-states-huge-public-pension-problem-growing-larger.html

For Chicago’s separate pension system, all kinds of easy fixes are proposed after huge the huge property tax increases that have already taken place to increase pension funding.  Pension bonds.  Casinos.  Marijuana.  Anything but forcing members of Generation Greed to put more in or take less out while they are still around.

https://www.chicagotribune.com/news/local/politics/ct-met-rahm-emanuel-casino-legal-weed-amendment-pensions-20181212-story,amp.html

Among the other Midwestern states charted, only Michigan had a taxpayer pension contribution level as a percent of payroll in excess of the U.S. average in FY 2016.  Reaping the benefit of past responsibility?  Perhaps in Wisconsin, but otherwise that’s not the way to bet.

Chart9d5Taxpayers

That’s not the way to bet in the Sunbelt either, where in many cases in FY 2016 taxpayer contributions to public employee pensions were a lower share of payroll in FY 2016 than they had been in the 1980s or 1990s.  Including Colorado at 10.2%, compared with 11.2% in 1983.  Texas at 8.2%, compared with 8.9% in 1981, Florida at 9.4%, compared with more than 10.0% every year from 1983 to 2000, and North Carolina at just 6.6%, compared with more than 7.0% or more every year but one from 1977 to 1990.  It is almost as if the politicians in these states look at the disaster befalling New York City, New Jersey, Connecticut, Rhode Island, Illinois, and California not with fear, but with envy.  Thereby making a repeat of those disasters inevitable when their current workers retire and their benefit costs explode as a share of payroll.

Chart9x1BenefitPaymentsPayroll

Public employees also contribute to their own pensions. Nationally, the average for the years from FY 1987 to FY 2016 had been 4.5% of their wages and salaries, but in recent years as the pension crisis has been revealed the employees – particularly new public employees – have been forced to pay in more.  Their contributions equaled 5.5% of payroll in FY 2016.

Chart9fEmployees

While New Jersey taxpayers have put in less than average in pension contributions, New Jersey’s public employees have put in more than average, at 5.1% of payroll on average from FY 1987 to FY 2016.   That ranks 10thhighest among states.  Even there, however, public employee pension contributions are less than taxpayer pension contributions for the period.

In fact there is not one state where, on average, public employees themselves contributed half the amount contributed by employees and taxpayers combined over the FY 1987 to 2016 period.  The states where the employees kicked in the largest share were South Dakota (49.9% of employee plus taxpayer contributions), New Hampshire (49.4%), North Carolina (48.5%), Arizona (46.7%), Texas (45.0%), Montana (44.5%), New Mexico (43.7%), and New Jersey (43.1%).

States where public employees didn’t contribute very much of their pay for their own pensions, as a percent of payroll, include Utah at 1.2%, Nevada at 1.4%, Virginia at 1.4%, the District of Columbia at 1.9%, Delaware at 2.0%, Arkansas at 2.1%, Tennessee at 2.3%, and Indiana at 2.4%.

Chart9f1

NYC public employees contributed an average of 3.8% of their pay to their own pensions from FY 1987 to 2016 according to Census Bureau data, well below the U.S. average.  That would have ranked 41stamong states.  And even this is misleading.

For one thing, for decades NYC taxpayers paid for what was reported as the “employee” contributions to the NYC police and fire pension funds.  Apparently, based on “individual unit” data from the Census Bureau, sometimes this was reported as a taxpayer contribution, and sometimes as an employee contribution.

In addition a large, one-time contribution to NYCERS in 1991, presumably the proceeds of a pension bond, were recorded by the Bureau as an employee contribution. It was correctly recorded for the NYC Teacher pension fund as a taxpayer contribution.

Moreover, under a 1995 deal members of the general NYC pension fund (NYCERS) were allowed to retire years earlier (age 55 instead of 62) after “buying” additional pension benefits at 1.85% of their pay.   Not only for future years worked, but also for past years worked.  The added years of retirement cost the city far more than the added employee pension payments, and the added cost of retiree health insurance for eight to ten years before Medicare picked up most of the bill rather than three, was on top of that.  But employee contributions did rise.   The 1995 deal accounts for the higher employee contribution rate for the NYC pension system from that year to 2000.

After 2000, the 3.0% of pay employee pension contribution was eliminated for all public employees in New York City who had more than 10 years seniority, as part of the massive retroactive pension increase that year.  Those who took advantage of the 1995 early retirement deal had their contributions reduced from 4.85% to 1.85%, others from 3.0% to zero.   Since public union contracts typically have very low pay for newer and younger workers, to reduce the qualifications and motivation of those hired, and high pay levels for those about to retire, to increase the final salaries on which their pensions will be based, employee pension contributions plunged as a result of having them limited to the early, low-paid years.

In reality, NYC public employees, aside from those in Tier V and VI, have paid less for their own pensions than those just about anywhere.  In addition to taking more out.

In the NY State pension system, employee pension contributions equaled just 1.2% of payroll on average from FY 1987 to FY 2016, which would have been the second lowest among states behind Florida at 1.0%.  Why the New York State pension system isn’t in even more trouble remains a mystery.

Chart9kEmployeePayroll

On the other hand, in many of the states with big pension underfunding crises public employees contributed a great deal of their own pay to the pension plans over the FY 1987 to FY 2016 period. These include number one Ohio at 9.3%, Massachusetts at 7.8%, Illinois at 7.1%, Kentucky at 6.4%, and California at 6.3%.  Bear in mind, however, that in some of these states, some or all of the employees may not have to pay their 6.2% share of Social Security taxes (but also will not get Social Security).  And in some cases what is reported as employee contributions may actually be paid by taxpayers, as in NYC.  That also happens a great deal in California.

While the general trend in pubic employee pension contributions is up, moreover, often that is the result of politician-union deals to jack up the contributions of younger and newer public employees, while those older and with more seniority don’t contribute anything extra at all.   All part of the “screw the newbie, flee to Florida” cycle that has gone on in NYC for half a century.

Chart9bPensionIncome

It isn’t just how underfunded a state’s pension public employee pension funds are, but also how much personal income state residents have to pay the taxes needed to get out of the hole.   As noted previously, the additional pension assets all the state and local governments in the U.S. would need to get benefit payments down to 4.0% of those assets equaled 21.8% of the personal income of everyone residing in the United States.

If the City of New York, with its huge number of well-off retired public employees, were a separate state, its off the books FY 2016 “pension debt” would have equaled 38.5% of the personal income of all city residents, or $219.6 billion.  That would have been sixth worst of off 50 states plus the District of Columbia, a ranking of 45th.  While the debt total had been lower the prior time I did this analysis in FY 2012, its percent of the income of city residents had been higher.  The huge influx of young workers and jobs moving into NYC to inherit this burden, and another bubble on Wall Street, lightened the load a little, at least for now.

The same may be said of California, where another IT bubble and the resulting income increases have reduced its huge pension debt of $500 billion, about one seventh that national total, to just 22.1% of state residents’ personal income, ranked 31stand only slightly worse than the U.S. average.   People are very worried about the pension burden in California, and rightfully so, but it is small compared with what has happened and will happen to the residents of New York City.  At least so far.

The portion of New York State outside New York City had a pension debt of $146 billion in FY 2016, or 22.9% of the personal income of the residents of the Rest of NY State.  That would have ranked 31st.  Both the total debt and its share of personal income are higher than in FY 2012 for the Rest of New York State, which has not had the kind of population and employment increase seen in New York City.   Instead, the burdens of the past are being shifted to an older and poorer suburban population, and a stagnant to shifting Rustbelt population Upstate. Despite this residents of these areas, including lots of New York City government workers, are still better off, in a Sold Out Future sense, than residents of New York City.

The $179 billion in pension underfunding in New Jersey in FY 2016 was 32.2% of the personal income of that state’s residents, which would have ranked 45th.  That’s bad, but consider how little New Jersey taxpayers have contributed to that state’s public pension funds over the years, compared with New York City’s taxpayers.  And yet New York City’s pension debt is even higher as a share of its residents’ personal income, in the best-case scenario of an economic boom.

The young workers flooding into New York City and California are coming from somewhere, and often leaving public employee pension underfunding behind.

The worst off state for pension debt was Alaska, where the state and local government pension asset shortage equaled 51.4% of state residents’ personal income in FY 2016.   Rich benefits in this most government-intensive state outside DC, underfunding, and falling income due to falling oil prices, have created a bad situation that was considerably worse than in FY 2012.  Most Alaskans pay little or nothing in state and local taxes.  Instead, the public services of that state’s small population is supported by taxes on the oil and gas industry, and other extractive industries.  Alaska’s state and local tax collections had soared to 23.8% of the personal income of state residents in FY 2012, highest among the states, but then plunged to just 6.8% of personal income in FY 2016, the lowest.

The rest of the worst off were, in order, Illinois with a pension debt of 43.2% of state residents personal income, Ohio at 40.8%, Rhode Island at 39.1%, Kentucky at 38.5%, Mississippi at 33.3%, Connecticut at 31.2%, Pennsylvania at 31.0%, Louisiana at 30.8%, and New Mexico at 30.3%.   In every one of those states, the pension funding deficit was a higher share of state residents’ personal income in FY 2016 than it had been when I calculated it the exact same way for FY 2012. Despite an economic boom and another stock market bubble.   As bad as they are now, things are going to get a whole lot worse.

Chart9e

What would be worse in most of the country is what we already have in New York City.  A vastly higher tax burden, constant demands for more revenues, and constricted public services that are likely to decline further in the next recession.

In FY 2016 taxpayer contributions to NYC pension funds, plus the city’s share of state contributions to state pension funds, equaled 2.13% of city residents’ total personal income.  That was not much lower that the 2.49% of their incomes city residents paid in taxes for pension contributions in FY 1977, when the Bronx was burning. The majority of NYC residents are likely paying for of their incomes for public employee pensions (in taxes or services forgone) than they are saving for their own retirement.

New York City residents paid vastly more for public employee pensions than residents of any other state (ranked 51st).  They paid more than double the U.S. average of 0.87% of personal income, the 0.95% for the Rest of New York State, ranked 38th, and the mere 0.56% for New Jersey, far lower than the U.S. average and ranked just 17th .  New Jersey politicians have been unwilling to force taxpayers to pay in even as much of their incomes in taxes for pensions as the U.S. average. Confronted with the tax increases and service cuts that would be required, that state continues to refuse to fully fund its public employee pensions.

The state proper where state residents were most burdened by taxpayer contributions to public employee pension funds in FY 2016 was Illinois, at 1.65% of that state residents’ personal income, ranked 51st.  That burden is high, but not even close to New York City.  Next was Louisiana at 1.34%, Connecticut at 1.32%, Kansas at 1.31%, West Virginia at 1.30%, California at 1.21%, Nevada at 1.21%, Rhode Island at 1.20%, and Alaska at 1.14%.

Chart9hTaxpayerIncome

States where, for now, taxpayer pension contributions are a low share of the personal income of all state residents are South Dakota at 0.31%, ranked first, Wisconsin at 0.40%, ranked second, North Carolina at 0.40%, Florida at 0.43%, Minnesota at 0.45%, Texas at 0.48%, District of Columbia at 0.48%, Tennessee at 0.48%, Vermont at 0.49%, and Nebraska at 0.49%, ranked 10th.

Chart9iTaxpayer86-16

What is disgusting, as Generation Greed heads off into the longest and richest retirement of any group of people in the history of the world and a public employee pension and entitlement crisis explodes on its children, is in how many states they were paying a lower share of their personal income in taxes for public employee pensions in FY 2016 than their parents had paid 30 years earlier in FY 1986.  Including New Jersey.   This shows the Generation Greed mentality in its fullness – pay less in, take more out, shout anyone down who talks about it, or blame someone or something else.

Once they are retired, many will benefit from the extensive tax rates for seniors that were enacted at a time when the generations in old age were poorer than the generations that followed them, not richer.  Including the exclusion of all retirement income from the (now higher) state income tax in Illinois, and the full exclusion of all retirement income for public employees only in New York State.  And they are seeking more such exemptions.

In Michigan

http://wbckfm.com/repeal-michigans-pension-tax/

In Rhode Island

http://content.ersri.org/ri-budget-includes-new-tax-exemption-for-retirees/#gsc.tab=0

In New York State, with both political parties in favor.

https://larrylittlefield.wordpress.com/2013/11/23/new-york-government-of-by-and-exclusively-for-todays-seniors-leaving-nothing-for-those-coming-after/

That is the reason that regardless of their ideological perspective, no one who is issuing press releases and reports and propaganda with regard to the public employee pension crisis wants to talk about who benefitted, and to what extent, from the past policies that brought us here.

The public unions might want to say that taxpayers didn’t pay enough in, and therefore taxpayers should be made to sacrifice now.  But the reality is only past taxpayers benefitted from lower taxes for more services, not anyone working and paying taxes today.   Current and future taxpayers would rightfully object and resent that assertion.

Anti-tax business groups might want to blame the entire problem on excessive benefits.  But that could draw attention to the fact that is prior generations of public employees that got the excessive and retroactively increased benefits.   Not those working today.  And the fact that the private sector is also paying later-born generations far less than their parents’ generation had received in the same jobs at the same ages.

Fair-minded discussions of who is to blame would come up with a different distribution between past taxpayers and older and retired public employees in different places, but either way the beneficiaries would turn out to be members of Generation Greed.   And the victims, taxpayers, public service recipients, and public employees alike, would be the generations to follow.

Thus the latest ploy – blame Wall Street.  Every politician and public employee union hopes to want to use it.

No one has been more critical of the financial sector and the executive/financial class than I have.

https://larrylittlefield.wordpress.com/2017/11/26/the-executive-financial-class-the-political-union-class-and-the-serfs-redux/

https://larrylittlefield.wordpress.com/2018/09/06/rising-u-s-debt-is-the-real-cause-of-the-u-s-trade-deficit-and-inequality/

Public pension funds often try to score political points by divesting from one company, one industry, or another.  But at my house we have responded to falsely inflated stock prices, unjustly inflated executive pay based on those stock prices, inadequate investment and excessive financial engineering economy-wide by divesting from the stock market entirely.   And, during the period when zero percent interest rates inflated a bond bubble, from bonds as well.

But if they want a scapegoat for the public employee pension crisis, and the soaring taxes and collapsing services it has caused and will cause, the political/union class will have to look elsewhere.  Low investment returns are not to blame, as over the long term, including bubbles and busts, and NOT starting the analysis in 2000 or 2001, the way the Center for Retirement Research does, investment returns have not been low.  They have, in fact, been higher in the past than they are likely to be in the future, when Generation Greed, the generation with all the wealth, is having to sell assets rather than accumulate them.

For most of the past 50 years, New York’s pension funds have assumed a 7.0% future return.  That was increased to 8.0% in 2000, and there was a “market value restart” taking full credit for the dot.com bubble stock prices that year, in order to justify the claim that the pension benefit increase, permanent employee pension contribution cut, and temporary cut in taxpayer pension contributions that year would “cost nothing.”

It was then decreased back to 7.0% in 2012.

Assuming more than a 7.0% future return in the past was, frankly, irresponsible and deceptive.  While a 7.0% return from current asset values would be very difficult to achieve, however, just about every state’s pension system had an average return at least that large during the FY 1987 to FY 2016 period, which began and ended with a stock market bubble.

Chart10dReturns

The only state with an average public employee pension fund rate of return from FY 1986 to FY 2016 significantly lower than 7.0% was South Carolina at 6.6%, far below the 8.7% U.S. average.  Those looking to blame the pension crisis on “pay to play” and excessive hedge fund and private equity fees might want to head for that state, and start asking questions.

Among the states in close proximity to 7.0% — not low enough to blame investment returns for their problems but not great compared with the U.S. average – were Massachusetts at 6.9%, Indiana at 6.9%, Connecticut at 6.9%, and Mississippi at 7.3%.  Other states reporting below average returns to the Census Bureau over the FY 1987 to 2016 period include Iowa at 7.5%, Arizona at 7.8%, and the District of Columbia at 7.9%.

Kentucky, where Frontline focused on Wall Street fees and returns as an explanation of that state’s pension crisis, reported an average gain of 8.3% per year.  California, where a former director of its largest pension plan CALPERS went to jail for pay to play, averaged 8.9%.  The New York State pension system, from which former Comptroller Alan Hevesi went to jail for pay to play, averaged 9.6%. New Jersey averaged 8.7%, the national average.

Low-return Massachusetts and Connecticut have large financial sectors, and it may be that those states suffered from snorting their own supply. The same may be said of New York City, which averaged a mere 7.9% return over the years.

But that is misleading.  The majority of retired New York City police officers, firefighters and corrections officers have been receiving an annual “Christmas bonus” of $12,000 in addition to their earned pension benefits.  Due to “excessive returns” in the past, but now every single year since the returns are no longer excessive.  New York City has been deducting those bonuses from pension plan investment returns in Census Bureau data, rather than adding them to pension plan benefit payments, to make the benefits and returns seem lower.

https://larrylittlefield.wordpress.com/2016/07/26/census-bureau-pension-data-for-2014-and-2015-not-usable-thanks-to-nyc/

New York City tried the same trick with the payments from the pension fund for guaranteed 7.0% return on city teachers’ personal 401Ks.  I caught that and changed the data.  Were any games like this to make pension benefits and returns seem smaller played elsewhere?  I have no way to know.  Mostly, I can only explain what I see in the numbers from what I remember having happened over 30 years for New York and New Jersey.

______________________________________________________________________________________________

State and local government public services are part of what made mass middle class life possible.   The schools, the streets, the parks, the transit, water, sewer, libraries, etc.  But Generation Greed has wrecked the future of those services by not paying for them by underfunding pensions, and by inflating their cost by retroactively increasing those already rich pensions.  The distribution of guilt between Generation Greed taxpayers and Generation Greed public employees and their unions varies from place to place.  The values of Generation Greed are the common denominator.

In 2006, I predicted that in 20 years public employee pensions would not be paid.  That’s eight years from now.

http://r8ny.com/2006/08/21/twenty-years-from-now-public-employee-pensions-will-not-be-paid/

Based on the data, how good will my prediction turn out to be?

The next post, the last in this series, will add this aspect of our sold out future at the state and local government level to the others to come up with an aggregate sold out future ranking by state for FY 2016, and compare it with what I found for FY 2012.

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1 thought on “Sold Out Futures By State: Public Employee Pensions in FY 2016

  1. larrylittlefield Post author

    Everywhere you look. Consider this.

    https://www.sevendaysvt.com/vermont/pension-tension-vermonts-underfunded-retirement-obligations/Content?oid=24284143

    “Vermont faces a mountain of pension obligations, thanks to chronic underfunding of the state employees’ and teachers’ funds from the early 1990s to the mid-2000s. For those keeping score, it started when Democrat Howard Dean was governor and continued through the first half of Republican Jim Douglas’ administration. In 2006, Douglas and the Democratic legislature agreed to start fully funding the pensions again.”

    Howard Dean ran for President. Popular Democrat. What was his credential? Evidently he found a way to come up with some extra money to throw around.

    “According to figures from Treasurer Beth Pearce, the state’s contribution to the Vermont State Employees’ Retirement Fund in the most recent fiscal year was $63 million. Of that, $47 million was devoted to paying down those past obligations. It’s even worse for the Vermont State Teachers’ Retirement Fund. The payment for that kitty was $106 million in fiscal year 2018. Ninety-eight million dollars helped to make up for past budgetary sins. Only $8 million was required to meet current obligations. Let that sink in for a moment. If the state had fully funded its pensions in the ’90s and ’00s, its most recent pension payments would have been only $24 million — instead of the $169 million actually required. The financial drag will get even worse in the next two decades.”

    The article doesn’t say so, but now that see Vermont was like everywhere else, I suspect that one reason the costs from the past is so high is retroactive pension increases for Generation Greed public employees cashing in and moving out. And reason payments for those on the job are so low is cuts in pay and benefits for new public employees. The “screw the newbie, flee to Florida” cycle even there.

    The reason pensions don’t provide such a big hit to Vermont’s Sold Out Future ranking is that state doesn’t have the enormous number of public employees we have in New York. Thus while pension benefit payments were 7.9% of assets in that state, which is bad, the additional assets to get that down to 4.0% are only 12.6% of state residents’ personal income, which is one of the lowest. Still, that means they settled for small government and still ended up with high taxes.

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