According to the head of the Colorado state government’s pension plan for retired government employees, the program is a great economic boon for everyone. Nonsense.
Greg Smith is the executive director of Colorado’s Public Employees Retirement Association (PERA). He claims that PERA’s retired government employees support nearly 48,000 jobs, for a total economic impact of nearly $7 billion. He also says that the state and local taxes generated from that economic activity cover more than one-third of what state and local governments pay in each year to support the government’s very generous pension system.
The institute is a creation of the public pensions and the Council of Institutional Investors. Its chairman is none other than Greg Smith, and its vice chairwoman is Smith’s immediate predecessor in Colorado, Meredith Williams. Colorado PERA is listed as a member of NIRS’s “Visionary Circle.”
Now the fact that the Colorado PERA used your tax dollars to buy a study showing how wonderful Colorado PERA is doesn’t necessarily prove that the study is incorrect. So let’s take a look at the actual data in the study, which is titled “Pensionomics.”
Smith accurately says that since 1989, PERA has paid out $42 billion in benefits and grown its asset base by $36 billion, while receiving $13.6 billion from taxpayers, plus $12.9 billion from employees.
According to “Pensionomics,” for every dollar contributed by taxpayers in the last 30 years, there was an overall economic multiplier of seven dollars.
“Pensionomics” further asserts $1.79 of economic “ripple effect” for every dollar of Colorado pension benefits paid out in 2012.
In op-eds published across the state, Smith translates those figures into members supported and dollars returned to individual counties.
“Folks, if there’s some other economic engines that work like that I suggest we find them and grab hold of them and hold on tight, because there’s nothing else that generates money like that,” said Smith.
It turns out, though, that NIRS’s “Pensionomics” is pension nonsense.
PERA has actually generated none of the identified wealth. PERA took money from taxpayers and from government workers, and used it to buy stocks and bonds. So if PERA bought shares of ExxonMobil, and the stock price went up, PERA claims that it generated the extra wealth. No, actually ExxonMobil generated the wealth.
PERA didn’t build that. PERA didn’t make that happen.
PERA’s “Pensionomics” study admits that it doesn’t take into account the money subtracted from the economy to make pension investments. In other words, PERA’s claims that it helped the economy ignored the fact that PERA has taken over $26 billion dollars out of citizens’ hands since 1989.
The taxpayer and worker money that PERA took for itself would have been invested or spent by taxpayers and workers.
If PERA hadn’t taken the money in the first place, then the taxpayers and the government workers could have bought stocks and bonds themselves. Instead of having to give money to PERA, state government workers ought to be allowed to keep their own pension savings (like private sector employees can do in an IRA). The resulting economic activity would be just as beneficial.
Money invested in IBM stock, or Verizon bonds doesn’t know whether it’s been invested by PERA or by a private individual. Either way, it would earn the same amount and add the same amount of wealth to the state’s economy.
Likewise, if a retired teacher could spend money from her own, personally controlled retirement account, that would help the economy exactly as much as does the PERA program. When the retired worker spends money for a pair of new shoes, the economic benefit is the same, no matter where the money comes from. PERA dollars don’t magically multiply more than other dollars. Likewise, the sales or income tax collected on that transaction is the same.
PERA doesn’t create wealth, multiply dollars through the economy, or increase tax revenue. Colorado’s taxpayers and workers do that, and PERA shouldn’t attempt to steal the credit.
Joshua Sharf manages the PERA project at the Independence Institute, a free market think tank in Denver.
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