Colorado PERA – Economic and Fiscal Impacts on the Colorado and Colorado Springs Economies
Posted by admin on January 23, 2012 under Colorado, Colorado Springs, Government, Retirement | 
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by Mike Anderson
The Colorado Public Employees’ Retirement association (PERA), like most state and local government pension funds, has become a subject of much media attention and often a source of political debate. Oddly missing from the public discourse, however, has been any discussion of the economic impact and importance to the economy of the benefit payments made by pension funds to their retirees.
PERA retirement benefit payments, like military and other public and private pension plan payments, represent deferred compensation to the retiree. The retiree often spends a large share of that deferred compensation purchasing necessary goods and services in the community in which they reside and thus contribute to local economic activity.
In 2011, there were nearly 9,800 PERA retirees living in El Paso County. PERA retirement benefits paid to those retirees in 2011 totaled $348.9 million, or roughly $35,600 per retiree. It should be noted most PERA members do not participate in Social Security and, therefore, the PERA retirement benefit is designed and funded to provide total retirement monies consistent with the private sector where retirement is based on a combination of a private plan and Social Security. Of the 53 Colorado counties, El Paso County had the second largest number of retirees and benefits paid, being surpassed only by Jefferson County.
A recent study titled, “The Economic and Fiscal Impacts of Colorado PERA”, produced by the Colorado based economic consulting firm Pacey & McNulty, attempts to quantify the relative importance of benefit payments to PERA retirees in Colorado. The report can be found at: http://www.copera.org/pdf/Impact/Impact2011.pdf . It contains an analysis of impacts on the Colorado economy as a whole, and for each of its regions and major metropolitan areas including Colorado Springs (El Paso County).
In their study, Pacey & McNulty utilized an input-output based impact model known as IMPLAN. IMPLAN is a widely recognized model that Summit Economics has also successfully applied in a number of its impact analysis projects. The model is used to measure the multiplier effect of additional dollars introduced into a region’s economy as a result of some type of economic event. As Pacey & McNulty succinctly point out in their report: “when a household receives PERA benefit payments, it represents an infusion of income into the local economy that creates a chain of economic activities whose total impact is greater than the initial benefit payment. That is, these payments have substantial “ripple” or “multiplier” effects where one recipient’s spending becomes someone else’s income…The impact of the PERA benefit payments reaches well beyond those who receive the initial benefit payments as the recipient can fulfill obligations such as purchasing groceries, apparel gasoline, etc.”
Some of the key findings of their study include:
• In 2011, PERA provided benefit payments of $3.03 billion to Colorado residents.
• In Colorado, the $3.03 billion in payments resulted in $4.31 billion in output (all goods and services transactions), $1.87 billion in value-added (State gross domestic product), $1.01 billion in labor income (worker wages), and 23,400 jobs.
• When the statewide results are analyzed on an industry sector basis, there are five industries in which the economic impact is greatest: Finance and Insurance, Health Care, Retail Trade, and Real Estate and Rental and Leasing.
• “PERA payments are a critical source of reliable, predictable income and provide an “automatic stabilizing” effect on state, regional and local economies, especially in economic downturns as these monies provide important stimulus in maintaining market activity.”
Digging deeper into the study, there is also some revealing data for the Colorado Springs area:
• PERA benefit payments to Colorado Springs metro area residents totaled $348.9 million in 2011.
• The $348.9 million amounts to approximately 3.9 percent of total payroll in Colorado Springs.
• PERA benefit payments in Colorado Springs resulted in about $436 million in output, of which $253 million is value-added above the benefit payments.
• Labor income (workers wages ) in Colorado Springs supported by PERA benefit payments were estimated to be $85.1 million in 2011, which sustained a total of 2,204 jobs in the area.
• Since PERA recipients pay a portion of their benefit payments in income taxes and also pay sales, use and property taxes as well as fees for licenses and permits. In addition, there are taxes and fees paid on the additional spending resulting from the multiplier effect. Total State and local tax revenue attributable to PERA benefit payments are estimated at $21.1 million in Colorado Springs. For Colorado as a whole, total tax revenue is estimated at nearly $232 million.
While the participants in the debate over PERA have found it difficult to agree on many points, all should be able to agree that protecting the financial health of PERA and its sustainability to preserve the flow of benefit payments to retirees throughout Colorado is important to the vitality of the state’s economy and and employment base.
No doubt the number of military retirees residing in the Colorado Springs area and the associated retirement benefit payments is many times larger than the number of PERA benefit recipients residing in the area. Imagine what proportion of total economic activity is attributable the expenditures of retirees when one adds to those amounts the retirement benefit payments made to retirees by other local government and private pension plans, and perhaps, social security payments to local residents. That will be a good topic for discussion in the future.
