An Examination of State Pensions by Total State Expenditures, State Budget Deficit, and Red v. Blue State

• In Event: Tax

Abstract

Pensions are important to the government employees in every state. The funding of pensions is quite different from state to state. In some states, pension funding is close to 100 percent of the present value of future obligations; while in other states, the funding is substantially lacking. The annual contributions to the pension funds are close to actuarial recommendations in some states; but in others, the contributions fall notably short. This paper examines state pensions, providing a state-by-state analysis based on total state expenditures, state budget deficits, and political inclination (i.e., red /Republican versus blue/Democrat states).
Findings show that more states with lower state expenditures per capita have done a better job of funding their state pensions. Funding is significantly higher on average in states with lower state expenditures per capita. States with lower budget deficits, relative to states with higher budget deficits, paid a significantly higher percent of annual required contributions. This suggests that states that are more fiscally conservative (lower budget deficit) do a better job of making required annual contributions to their state pensions. Regarding the relationship between pension funding and state political inclinations, no significant differences were found.

Authors

• Don Chamberlain, Murray State University

• Murphy Smith, Murray State University

• Randall B. Bunker, Murray State University