Fortifying Main Street

The Economic Benefit of Public Pension Dollars in Small Towns and Rural America

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As many small towns and rural communities across America face shrinking populations and slowing economic growth, a new report finds that one positive economic contributor to these areas is the flow of benefit dollars from public pension plans. In 2018, public pension benefit dollars represented between one and three percent of gross domestic product (GDP) on average among the 1,401 counties in 19 states studied.

These findings are detailed in a new study, Fortifying Main Street: The Economic Benefit of Public Pension Dollars in Small Towns and Rural America.

This new report finds that public pension benefit dollars also account for significant amounts of total personal income in counties across the nineteen states studied. For all 1,401 counties in this study, pension benefit dollars represent an average of 1.37 percent of total personal income, while some counties experience more than six percent of total personal income derived from pension dollars.

Part Two

Previous research has indicated that small towns and rural communities experience a greater relative economic impact from public pension benefit dollars than major cities and metropolitan areas do. The recent release of county-level gross domestic product (GDP) data has allowed for an examination of pension benefit dollars as a percentage of GDP at the county level. This report considers pension benefit dollars as a percentage of both GDP and total personal income at the county level, as well as categorizing counties as metropolitan, small town, or rural. The thesis of this research is that less populated counties with smaller economies experience a greater relative economic benefit from the flow of public pension benefit dollars into the county than more populated, urban counties with larger economies because the benefit dollars simply represent a smaller portion of overall economic activity in those urban counties. The key findings are as follows: 


• Public pension benefit dollars represent between one and three percent of GDP on average in the 1,401 counties studied. 

• Rural counties and counties that contain state capitals have the highest percentages of their populations receiving public pension benefits. 

• Small town counties experience a greater relative impact in terms of both GDP and total personal income from pension benefit dollars than rural or metropolitan counties. 

• Rural counties see more of an impact in terms of personal income than metropolitan counties, whereas metropolitan counties see more of an impact in terms of GDP than rural counties. 

• Counties that contain state capitals are outliers from other metropolitan counties, likely because there is a greater density of public employees in these counties, most of whom remain in these counties in retirement. 

• On average, rural counties have lost population while small-town counties and metropolitan counties have gained population in the period between 2000 and 2018, but the connection between population change and the relative impact of public pension benefit dollars is weak.


This new study builds on this previous research and adds a deeper level of data and analysis. This research examines data from nineteen geographically diverse states representing every region of the country. The analysis utilizes data from a majority of public pension plans in those states and the data was collected directly from those plans to guarantee its accuracy. To compare the results to those of previous studies, this report considers pension benefit dollars as a percentage of total personal income in each county.


State Capitol Counties

In a state like Wyoming, which has a small population statewide and no major urban areas, the data looks a little different, which one would expect. Laramie County in Wyoming, home of the state capital Cheyenne, is the most populous county in the state, but is the smallest population county with that distinction in the United States. Its population density is also more than double the second-most populous county in the state, Natrona, home to the city of Casper. Since the entire state is sparsely populated and mostly rural, retired public employees and their pension benefit dollars are more evenly distributed throughout the state. Counties in Wyoming tend to cluster much more around the average of 2 percent of GDP represented by pension dollars in that state, with only Albany (home to the University of Wyoming) and Fremont counties exceeding three percent.


Wyoming illustrates the fact that state capital counties tend to be outliers to the general pattern. State capitals are often major cities, although not always the largest city in a state. The data would generally predict that a major city would see a smaller relative economic benefit from pension dollars, but state capitals do not follow this pattern likely because there tend to be more public workers per capita in and around state capitals, with many remaining there following retirement. Aside from Laramie County, WY, Hinds County, MS, Cole County, MO, Carson City, NV, Burleigh County, ND, and Hughes County, SD are among other state capital counties that also experience higher than expected economic benefit from pension dollars.


Conclusions

Benefit dollars from public pension plans have a deep economic impact on the communities in which retired public employees reside, especially in small towns and many rural areas. The newly-released county-level GDP data has enabled a clearer assessment of the economic impact of public pension benefits. Public pension benefit dollars represent, on average, between one percent and three percent of GDP across the nineteen states studied. In individual counties, though, pension benefit dollars can represent more than ten percent of GDP. Public pension benefit dollars also account for significant amounts of total personal income in counties across these nineteen states. For all 1,401 counties included in this study, pension benefit dollars represent an average of 1.37 percent of total personal income, but some counties see greater than six percent of total personal income derived from pension dollars. Separating the counties into categories based on status as metropolitan, small town, rural, or state capital yielded some of the key findings. Generally, counties containing small towns experience the most relative economic benefit from pension benefit dollars. Rural counties see a greater impact in terms of personal income than metropolitan counties do, but metro counties see a greater GDP effect than rural counties. State capital counties are outliers from other metropolitan counties due to the higher numbers of public employees who remain in these counties in retirement. While much of the conversation around public pension plans focuses on the contributions that state and local government employers make to these plans, it is important to remember that these plans ultimately pay benefits to retirees and that the spending of these benefits has a real economic impact in local communities. Especially for small towns and rural communities that are more likely to have an older population and have smaller economies, the flow of pension benefit dollars into these communities has a real impact.