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Home Publications Blogs Beat the Press Public Employee Pensions: Does the Worst Case Provide the Best Guidance for the Future?

Public Employee Pensions: Does the Worst Case Provide the Best Guidance for the Future?

Friday, 24 December 2010 08:39

How many state or local jurisdictions have lost 40 percent of their population in the last four decades and have their top elected officials convicted of corruption? While this may fit the bill in some places, it is not typical for the country as a whole. Populations are continuing to rise in most areas and the number of elected officials who are convicted for corruption is still a relatively small minority. 

This might lead one to wonder why both the New York Times and Wall Street Journal were so anxious to tell readers that the city of Prichard, Alabama foretells the future for their public employee pension plans. The city has stopped making pension payments to 40 retired workers who have earned them.

According to the articles, it appears that the pension funds have long been drained, at least partly through corruption. Due to its depressed economy the city is now finding it difficult to make ends meet.

It is worth noting that the pension obligations do not appear to be quite the crushing burdens implied in these articles. The NYT reports that the average pension is $12,000 a year. This means that if the full payment were made out of current tax revenue it would imply a tax of approximately $18 per capita on the town's 27,000 residents. This is less than 0.14 of the city's per capita income.

Comments (6)Add Comment
66 not 18
written by Scrooge, December 25, 2010 10:00
"it stopped sending monthly pension checks to its 150 retired workers,"

"by September 2009 there was no longer enough left in the fund to send out the $150,000 worth of monthly checks owed to the retirees."

"city’s population shrank by 40 percent to about 27,000 today, from its peak of 45,000"

--> Average check is $1000 per retiree per month.
--> Total Yearly bill is 12 * $150,000
--> Yearly bill per resident = 12 * 150,000 / 27,000 = 12 * 150 / 27 = $66.67
No, it's 18
written by Tiny Tim, December 25, 2010 12:34
Dean is talking about the monthly cost to taxpayers for the "full payment" -- to the 40 workers who are not getting their pensions.

That is (1/12)*40*$150,000/27,000 = $18.52
written by JBG, December 25, 2010 12:38
There is also this typo: "...a tax of approximately $18 per capita on the town's 27,000 residents. This is less than 0.14 of the city's per capita income." Presumably, you mean, "...less than 0.14%...".
Tiny Tim's calculation is pure gibberish:
written by Scrooge, December 25, 2010 3:41
The article clearly states that there are 150 retirees who are not getting paid, not 40!
(40 was the number represented by Larry Voit per WSJ)

And $150,000 is the total amount of the monthly checks. You don't divide that by 12 again!

And you don't multiply a total amount by the number of retirees! You divide $150,000 per month by the 150 retirees to get an average of 1,000 per month per retiree.
The magic of the internet
written by Rich, December 26, 2010 8:42
Through the magical internet, I was able to find the Prichard annual report for 2008.

http://www.thecityofprichard.org/pdf/City of Prichard Annual Financial Report Sept 30 2008.pdf

On page 21, you will see that Prichard paid out close to $2.0 million in pension benefits in 2008.

This is about $185 per household or 0.57% of gross income.

Prichard's pension fund also took in about 600k in contributions, so funding the balance from general taxation would mean a tax increase of about 1.4 million, or $130 per household. Seems likely they could afford it.

SULZBERGER'S : Buddy/Employee Journalist/Banker Thief/Czar Steve Rattner
written by Union Member, December 30, 2010 9:36
It's so hard to perform the public service of the paper of record: dull earnings report, after dull earnings report, quarter after quarter, while all your friends get to perform a real public service. They get to make the public sector more efficient; put the public employee's money (at risk) to work for them. That's exciting. Productivity! Creative destruction. Journalism is boring.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.