Government Spending

Introduction

State and local government pension benefits are paid not from general operating revenues, but from trust funds to which state and local government retirees and their employers contribute during employees’ working years. These trusts pay nearly $400 billion annually to retirees and their beneficiaries, benefits that reach virtually every city and town in the nation. On a nationwide basis, contributions made by state and local governments to pension trust funds account for 5.11 percent of direct general spending (see Figure 1). Pension spending levels, however, vary widely among states, depending on various factors, and are actuarially sufficient for some pension plans and insufficient for others.

In the wake of the 2008-09 market decline, nearly every state and many cities and counties took steps to maintain or improve the financial condition of their retirement plans and to reduce costs. States and local governments changed their pension plans by adjusting employee and employer contribution levels, reducing benefits, or both. Recent data shows that while total pension contributions have grown – rising 10 percent from FY 2021 to FY 2022 – the percentage of spending on pensions has remained steady. This update provides figures for public pension contributions as a percentage of all state and local government direct general spending for FY 2022, and projects a rate of spending on pensions on an aggregate basis for FY 2023.

Date published

March 2025

Contact

Keith Brainard, Research Director
Alex Brown, Research Manager

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