Public Pension Benefits Support Small Towns Across America

Public pension benefits provide a vital source of retirement security to the retired public employees who earned them during their years of public service. But the impact of public pension benefits goes beyond the retirees, spouses, and other beneficiaries of these plans. These benefit dollars also play a critical role in supporting local economies, especially in small towns across America.

In absolute terms, the greatest number of public pension recipients and, therefore, public pension benefit dollars reside in big cities. However, the economies of big cities are large and complex, so the relative economic impact of pension benefit dollars is modest despite the number of retired public employees who live there. This, however, is not the case in small towns and rural areas where the economic impact of pension benefit dollars goes farther.

Recent research from the National Institute on Retirement Security (NIRS) examines the economic impact of public pension benefit dollars at the county level. Fortifying Main Street uses data from 2,922 counties across 43 states representing every region of the country. The Bureau of Economic Analysis in the U.S. Department of Commerce has begun producing Gross Domestic Product (GDP) by county data in recent years, and the new research utilizes this data for the analysis. The analysis of the data reveals that pension benefit dollars account for an average of 1.2% of GDP across the 2,922 counties studied. However, some counties receive far more than that in terms of GDP. Alger County in the upper peninsula of Michigan, for example, receives a whopping 16% of GDP from pension benefit dollars.

Those benefit dollars also constitute a significant percentage of personal income. Across the 2,922 counties in the study, the average percentage of total personal income was 1.25%. Again, some counties were outliers. Lincoln County, Nevada, for example, has nearly 8% of personal income accounted for from pension benefit dollars.

The small town, or “micropolitan,” counties in the study experienced the greatest relative economic benefit from public pension benefit dollars. This makes sense because in many small towns, the largest employer may be a public entity such as a school district or municipal or county government. The public employees who work in these small towns are likely to stay there in retirement, which also keeps their pension benefits local. As a result, these pension benefit payments play a key role in supporting the local economy.

The analysis also reveals an interesting phenomenon happening in rural counties. While Metropolitan and rural counties see similar levels of GDP represented by pension benefit dollars, rural areas have a greater percentage of personal income from pension dollars. This likely is because many rural areas have agriculture-dependent economies. Farms often are described as “asset rich, but cash poor.” This means that the value of the land, equipment, and goods produced is high, but the monthly cash income of the farmers is relatively low. Therefore, the pension benefit dollars in these counties represent a greater portion of personal income than GDP.

Not all of the counties in the study were outliers on the high end. Some counties had very low levels of both GDP and personal income represented by pension benefit dollars, but often for very different reasons. Consider two examples. New York County in New York is Manhattan. It has the highest level of per capita personal income in the United States. Oglala Lakota County in South Dakota is the poorest county in the U.S. Both of these counties had less than one-quarter of one percent of GDP and less than half a percent of personal income derived from pension benefit dollars, but for completely different reasons. New York County experiences relatively little benefit because the population and overall size of the economy in the county dwarfs the economic benefit of pension dollars. Oglala Lakota County, on the other hand, experiences relatively little benefit because its population and economy are both small and it has few pension benefit recipients.

The findings of this new research highlight the importance of public pension benefits in states across the U.S., but understanding the local context also is important. For example, some counties in western North Dakota may see a smaller relative impact if their economies are heavily affected by shale oil & gas production. Counties that are home to state capitals, on the other hand, benefit more than typical counties very likely because of the greater numbers of public employees who worked in state government in those areas.

The research tells us that the conversation about public pensions should not focus solely on the dollars contributed to the plans. It also must acknowledge the billions of dollars paid out in benefits each year that result in substantial economic impact across the nation.