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

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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.