This commentary is by Hank H. Kim, executive director and counsel for the National Conference on Public Employee Retirement Systems, which is based in Washington, D.C.
Let’s get one thing clear from the start: Vermont pension dollars aren’t being squandered in Wyoming and it’s a ludicrous notion to take away from my testimony last year to Vermont’s Pension Benefits, Design and Funding Task Force. (“David Flemming: Vermont pensioners take their money elsewhere,” March 16, 2022.)
I was invited by the task torce last October to share the results of the peer-reviewed National Conference on Public Employee Retirement Systems study, ”Unintended Consequences: How Scaling Back Public Pensions Puts Government Revenues at Risk.”
This study provides a national perspective on how public pensions affect state and local economies, and the task force thought Vermonters deserved the benefit of the objective facts and meaningful context it provides. So do the readers of VTDigger.
The study discerned two major impacts: The first is through investment of pension fund assets, an aspect totally ignored in Flemming’s commentary; the second is through spending of pension checks by pensioners.
For the sake of uniformity, we based our study on public data that is available across all 50 states. These data do not even attempt to examine in- and out-migration of pensioners state by state, because nobody collects data with that level of granularity.
Flemming’s assertion that 25% of pension payments leave Vermont strikes us as unusual, but people have the right to choose where they live in retirement. That said, if some Vermont retirees choose to live elsewhere, it’s also a pretty good bet that some retirees from other states choose to live in Vermont.
Certainly, snowy northern states have seen their population growth slow at the expense of sunny Southern and Western ones. (How Wyoming came to Flemming’s mind as a stellar example of migration patterns is anyone’s guess.)
But when you’re talking about economic impact, you must look at the complete picture. For example, consider the effect of tourism, which is one of Vermont’s top industries. Visitors from other states come to Vermont to ski in the winter, enjoy blue skies and breezes in the summer, and leaf-peep in the autumn, and surely some of these people are retired.
The state’s 13.3-million-plus visitors every year spend $3 billion on lodging, food and drink, and goods and services, according to the Vermont Department of Economic Development. That $3 billion is a countervailing economic force if ever there was one, especially compared to the $90 million that Flemming fears, without conclusive evidence, might be leaving the state.
Real economic damage is being done when states and localities monkey around with pensions, requiring pension systems to cut benefits, demand larger and larger employee contributions, and convert pensions into retirement saving schemes that put the entire burden on workers.
By all means, let’s have a lively debate about unfunded liabilities. And let’s start by mastering the facts. Pension liabilities are usually amortized over 30 years, and it’s fatally flawed logic to compare them to one-year revenue streams. When you’re looking at pension sustainability and resources, you must take the long view.
You can start, as we did, by measuring 30-year unfunded liabilities against 30-year personal income (the best measure for revenue capacity) for all 5,000 state and local pension plans. Result? These liabilities equal about 0.6% of personal income. In Vermont this figure is 0.4%. This is hardly a situation that suggests the sky is falling.
