One of the hoariest tenets of economic development has to do with “primary” jobs.
Such jobs are prized because they bring new revenue into a regional economy, spurring local demand for goods and services.
Increased demand encourages non-primary employers to add workers and expand their facilities, thereby creating more secondary jobs.
Colorado Springs boomed in the 1990s because primary employers such as Focus on the Family and Intel moved here. Our short-lived, high-tech manufacturing boom crested at the turn of the century, when more than 20,000 well-paid industry workers called Colorado Springs home.
When the industry collapsed in the early 2000s, other primary employers took up the slack. Fort Carson added thousands of active-duty soldiers and local military contractors grew apace, fueled by a decade of war in the Middle East.
But we’re still struggling now to re-balance our economy.
We want more entrepreneurs, more young professionals, more manufacturers, more varied visitor destinations and more sources of venture capital.
We’d like to find a few more folks like billionaire Philip Anschutz to invest hundreds of millions in our city and help make it the shining city on the hill that General William J. Palmer envisioned a century and a half ago.
Laudable goals, to be sure — but maybe we’re not focusing on the right metrics.
Follow the money
Consider the basic measure of money circulating through the regional economy. The more people who have money to spend, the more will be spent. Rich people don’t drive America’s dominant consumer economy — that’s up to the middle and working classes.
As Silicon Valley billionaire Tom Steyer noted in a recent opinion piece, he doesn’t buy any more pairs of pants than a guy whose income or net worth is a tiny fraction of his. Similarly, if I won $250 million playing Powerball, I’d invest most of it. Sure, I’d buy a new car, fix up my house and live a little larger than I do now — but that’s it.
But if 250,000 Colorado Springs residents each won $1,000, that would create a nice mini-boom in clothing sales — as well as consumer goods and services of every kind.
So rather than focusing solely on regional demographics or business profiles, we should also ask some simple questions:
Where does the money come from? Where does the money go? Given that an increasing number of local residents are 50+, 60+ and older, how do they get by?
We know some of the answers.
The military retirement system, described by military.com as “arguably the best retirement deal around,” offers those who serve 20 years or more a pension and benefits that start on the day you retire. Social Security kicks into full gear at 66 (or as early as 62, with a lower monthly payment). Private savings and other pension plans help many of us to enjoy a reasonably comfortable, pants-buying retirement.
The aggregate economic impact of such payments is enormous.
PERA’s local impact
Let’s consider the local economic impact of just one major pension plan, which provides annual benefit payments of $392.9 million to more than 10,000 Colorado Springs residents. The average monthly payment is $3,056.
A third-party economic and fiscal impact analysis commissioned by the pension plan suggests that these payments create $490.7 million in total economic output, supporting 2,482 jobs, added value of $179.9 million, labor income of $95.8 million and $30 million in state and local tax revenue.
That’s what the Colorado Public Employees’ Retirement Association fund contributes to the local economy, according to PERA figures. And since the retired public employees who receive PERA benefits did not contribute to Social Security during their PERA-eligible employment, those payments are crucial to recipients.
PERA is a defined-benefit plan, a pension structure that private companies have largely abandoned in favor of defined contribution systems, or no system at all.
That makes the city’s two-year battle with PERA all the more incomprehensible and short-sighted. Had the city prevailed, a cascade of similar withdrawals from the system might have precipitated the collapse of the statewide plan, which is not currently sustainable without continued employee-employer contributions.
Although the city had received $259 million in an escrowed payment from University of Colorado Health to satisfy Memorial Health System’s PERA obligations, the city went to court, claiming that it owed nothing.
Opposing the suit, PERA asserted that the city owed it $185 million, the sum needed to satisfy present and future memorial beneficiaries.
The city’s claims were summarily rejected in court, but the city persisted until settling last month for $190 million.
Defunding PERA, which provides benefits to 103,203 Colorado residents, would be catastrophic to the state and local economies. If benefit payments were reduced by one-third, the impact would have been substantial — far greater than any economic benefit the city might have reaped by an additional $190 million in funding for the city’s health foundation.
By law, such foundations must make annual grants at least equal to 5 percent of their assets. Based on that, $190 million would fund around $9.5 million in annual giving — a substantial sum, but one that is insignificant compared to the $392.9 million that the city was willing to put at risk.
And although the final settlement amount was slightly more than PERA originally sought, the city still managed to deprive PERA of tens of millions in investment returns.
PERA’s investment portfolio returned 15.6 percent in 2013, up from 12.9 percent in 2012. Had the city not embarked upon its quixotic suit, the fund might have increased the $190 million by as much as $52 million. Instead, the escrowed funds returned a minuscule 0.39 percent while the outcome was in question.
City officials and others who supported the lawsuit still believe they were in the right. In their view, PERA is an underfunded Ponzi scheme, a lumbering dinosaur that deserves extinction. The nine members of City Council, the body that authorized the suit, will not publicly discuss the genesis of the lawsuit or the reason that it was settled.
That may be wise. The oldest continuing criminal enterprise in America, the Mafia, has always held its members to the code of omerta — silence.
And if you’re in the business of stealing from pension funds, you probably shouldn’t brag about it.