Fortifying Main Street

Rural Communities, Small Towns & Public Pension Spending

Do smaller economies realize greater economic benefit?

A new study by the National Institute on Retirement Security, ‘Fortifying Main Street: The Economic Benefit of Public Pension Dollars in Small Towns and Rural America,’ asks if helps sustain those smaller economies.

WASHINGTON, D.C., March 3, 2020 – 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.

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. In Mississippi, for example, several less populated counties have pension benefit dollars that represent more than three percent of total personal income in the county. Oktibbeha County, home to Starkville and Mississippi State University, has one in twenty dollars in total personal income coming from a public pension plan.

Effects On Small Towns And Rural Communities

The analysis indicates that less populated counties with smaller economies experience a greater relative economic benefit from the flow of public pension benefit dollars into the county as compared to more populated, urban counties. This larger relative impact helps to sustain the economies of small towns during this period of economic transition in rural America.

“America’s broader economic trends have been tough on many small towns and rural areas across America that are struggling with population declines and lagging economies. Often, the largest local employer in these communities is a public entity such as a school system or city, which employs teachers, police officers and firefighters. These public employees spend their career providing public services in their community at a time when more and more young people are leaving their hometowns to seek better job opportunities in more populated areas,” said Dan Doonan, NIRS executive director.

“Eventually, these public employees become retirees, staying in their communities and spending their pension checks in these small towns. The pension benefits serve as a stable source of economic support in these areas, with retirees spending their retirement income on goods and services like housing, food, medicine and clothing. It’s clear from our analysis that this pension spending provides a substantial economic impact on struggling small towns and rural communities across the nation,” Doonan explained.

The report’s 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 with state capitals have the highest percentages of populations receiving public pension benefits.
  • Small town counties experience a greater relative impact both in terms of GDP and total personal income from public pension benefit dollars than rural or metropolitan counties.
  • Rural counties experience more of an impact in terms of personal income than metropolitan counties, whereas metropolitan counties experience more of an impact in terms of GDP than rural counties.
  • Counties with 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.
The analysis indicates that less populated counties with smaller economies experience a greater relative economic benefit from the flow of public pension benefit dollars into the county as compared to more populated, urban counties...

This new study builds on 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.

This study also offers a major new element that is possible because of newly-available data. In December 2018, the U.S. Department of Commerce’s Bureau of Economic Analysis (BEA) made available for the first time ever Gross Domestic Product (GDP) by county data. Initially, this data only covered four years, but in December 2019, BEA released a new set of GDP by county data covering the years 2001-2018. This study uses this new 2018 data as it is the most recent data available. In addition to this economic data, the report examines changes in a county’s population from 2000 to 2018 to determine if there is a connection between the economic impact of pension benefit dollars and growth or loss of population in the county.

 

 

 

The National Institute on Retirement Security is a non-profit, non-partisan organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers and the economy as a whole. Located in Washington, D.C., NIRS’ diverse membership includes financial services firms, employee benefit plans, trade associations, and other retirement service providers. More information is available at www.nirsonline.org. Follow NIRS on Twitter @NIRSonline.