Doing the Retirement Math

Posted by & filed under CGR Staff, Rochester Business Journal.

Kent GardnerI was transfixed by the recent riots in France over raising the retirement age from 60 to 62. All the more striking was the participation of high school students in the riots. That, more than anything else, convinced me that France was in trouble.

My suspicions about the French were confirmed after I consulted the OECD PISA scores (that’s the Program for International Student Assessment from the Organization for Economic Cooperation and Development). In the percentage of students performing at an advanced level in mathematics, France ranked 20th, barely ahead of Estonia and way behind educational powerhouses like, oh, the Czech Republic and Liechtenstein. Clearly, these poor young people can’t do the simple math of retirement. If their parents and grandparents are going to continue to retire at the cushy age of 60, the younger generation’s taxes are going to go through the roof.

Face it, young Frenchies. By time you retire, nearly one in three of your fellow citizens already will be on the retirement dole—that’s up from about one in five today. Nicholas Sarkozy has your best interests at heart. Abandon the barricades! And for heaven’s sake, get back to math class.

It isn’t surprising that New York voters also fail retirement math: Our students do worse than the French! According to a study by Eric Hanushek (formerly of the University of Rochester, sadly now at Stanford University) linking the National Assessment of Educational Progress to the PISA, just over 6 percent of New York’s 8th graders were performing at the advanced level in math in 2005. This puts us in the same league as Lithuania and Russia. By contrast, about 10 percent of French youth performed at advanced levels. (See http://bit.ly/djZR89) We lose badly to the Finns, 21 percent of whose children perform at advanced levels. Forget trying to compete with Korea, Hong Kong or Taiwan. An amazing 28 percent  of Taiwan’s youth scored at advanced levels in math on the 2006 PISA.

Just for the record, Hanushek and his co-authors report that Massachusetts’ students are the best in the nation—if it were a nation, Massachusetts would be 17th globally with 11 percent of its students performing at high levels. Minnesota ranks second nationwide at 11 percent, and Vermont, New Jersey and Washington are just behind it.

The common rejoinder to these international comparisons is, “It’s the poverty! New York schools would be right up there with the best in the world if we only adjusted for poverty.” Lacking statistics for poverty, the authors compared U.S. white students and those with at least one college-educated parent to the world at large. New York students with at least one college-educated parent pull even with all French students—10 percent score at advanced levels. White students in New York still lag the French at 8 percent. They are roughly even to all students in Hungary and Poland.

So perhaps it’s our weak math proficiency that has allowed New York’s public employee retirement problem to get out of hand. Taxpayers in New York, through our elected representatives in Albany, agreed long ago to pay for health care coverage of public sector retirees, a benefit that is offered by few small firms and only 28 percent of companies with more than 200 employees. Courtesy of a new disclosure rule from the Government Accounting Standards Board and some excellent analysis from the Empire Center (see http://bit.ly/aQqnkb), we now know that this is going to cost future taxpayers about $205 billion. There’s no “trust fund” set aside for this, as there is for regular public employee pension obligations. This is a bill that has to be paid by future taxpayers.

To put this in perspective, the non-pension post-employment benefit burden for state employees is about $3,000 per capita. That’s how much we really ought to put into a trust fund today to avoid passing the bill along to future taxpayers. And we’d need to add nearly $700 each to cover the liability for Monroe County’s retirees. If you live in Rochester, your share of the tab is increased by about $2,900 for city retirees and an additional $1,700 for the school district, or roughly $4,600 total.

This can’t end well. In this fiscal year, Buffalo is spending $35 million on retiree health care, $5 million than Buffalo retirees spend on the health care costs of active employees. Rochester is headed in the same direction. Check out the Empire Center report (nicely titled, “Iceberg Ahead”) for more bleak statistics and some thoughts on addressing this tangled problem.

Kent Gardner, Ph.D. President & Chief Economist
Published in the Rochester (NY) Business Journal November 19, 2010

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