Mitigating Pension Stress? The Impact of Public Pensions on Services, Equity, and Employees

The shadow of unfunded public pensions has raised concerns on its consequences for citizens and cities. Some have argued that unfunded pensions will crowd out urban services while others propose that the effects are limited to public employees. This article empirically examines the extent to which the stress of unfunded pensions is mitigated or demonstrates spillovers to services, equity, and employees. Employing a novel identification strategy and over two decades of new data on city-sponsored pensions (1997–2018), I provide forward-looking causal estimates on the short- and long-term effects of unfunded pensions on cities. I find that unfunded pensions have significant spillovers to urban services including public safety and economic development with the most acute impact on redistribution. Further, decline in pension generosity indicates spillovers to public employees, and contrary to political economy theory, pension stress explains impact on unions. Although the spillovers to urban outcomes are partially mitigated by asset returns to pension fund investments, these effects are highly persistent