Do Pension Expenditures Impact Education Spending?
Critics maintain that pension expenditures by state and local governments are crowding out other important forms of spending—notably, education funding. But overwhelmingly, the data shows that the crowding-out effect simply isn’t occurring.
In updating a 2019 NCPERS study with an additional three years of data, lead researcher Michael Kahn dug into claims that pension expenditures are rising faster than education expenditures and found them flawed. The 2023 research update, “Do Pension Expenditures Impact Education Spending?” examined state-by-state historical data on pension contributions, education expenditures, revenues, and the economy.
NCPERS hosted a webinar on May 4, 2023 where Dr. Kahn shared the key findings from the study. Watch the recording.
When viewing a 26-year period from 1993 to 2019, education funding grew at three times the annual rate of pension spending. During this period, whereas growth in education funding has been stable, pension spending has been volatile.
Pension funding is unlikely to displace education funding because pension contributions are such a small part of state and local revenues. During the past quarter century, the average pension expenditures were 3.6 percent of state and local own-source revenues (taxes and fees collected by municipalities). The same figure for education expenditures was 33.8 percent. As a result, even if pension expenditures rise faster than education expenditures, pension funding is unlikely to crowd out education funding because the ratio of the two is likely to stay about the same.
State and local governments face many competing priorities. The governments can afford both pensions and education, but to do so, they must take determined steps to bring their revenue systems into harmony with the economy.
This study shows that public pensions do not crowd out education funding—or funding for other public services including health care and public safety.
Are Pension Contributions Crowding Out Education Funding in Your State?
Click on your state below to find out if pension contributions are crowding out education funding and if the state and local revenue systems are out of sync with the economy.
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia