N.Y.C. vs. N.Y.S., the Pension Battle
Mayor Michael Bloomberg wants New York City to take control of its own business back from Albany, especially pension costs.
The city negotiates wages and health benefits directly with its employees’ unions. But since the 1970s fiscal crisis — when Albany took over the city’s finances — the State Legislature and the governor have dealt with the city’s pension benefits. The way it usually works, the mayor negotiates a pension deal, which state lawmakers approve and then later “sweeten” for their friends in the unions.
Albany is notoriously compliant when it comes to demands from the powerful unions that represent the state’s public employees, which is one of the reasons the state is in such deep fiscal trouble. Legislators have been even more generous to city employees because the city, not the state, pays for their generosity.
Unless New York City gets relief, the spiraling pension burden will cripple the city’s finances for years to come. The city’s contributions to the pension fund — for 293,000 employees and about 235,000 retirees — have risen from $1.5 billion in 2001 to an estimated $8.4 billion next year. Payouts to retirees have nearly doubled from $6.6 billion in 2002 to more than $11 billion this year.
Those breathtaking numbers have several drivers, including Mr. Bloomberg’s own willingness to repeatedly raise city workers’ salaries, especially for teachers, which raises pension costs. The recession also pushed down pension fund earnings, requiring an increase in city contributions. And retirees are living longer.
But city officials estimate that from 1996 to 2009, the Legislature has added $1.7 billion to the city’s annual pension benefits. The costs would be even higher if governors had not vetoed hundreds of other sweeteners.
If Mayor Bloomberg wrestles back control from Albany, the immediate savings for the city’s budget would be relatively small. Under the state’s Constitution, previously approved pension deals cannot be renegotiated.
But with control, Mr. Bloomberg could immediately — without negotiations — cancel year-end bonuses for new retirees at a savings of $200 million in this next fiscal year. He also wants to negotiate new pension tiers for newly hired workers. The mayor’s budget experts estimate their proposal could save $1 billion over the next eight years in pension costs.
The list of Albany’s pension “sweeteners” — and the shabby political deal-making behind them — is long and well documented. In 2000, an election year, the Legislature agreed to annual cost-of-living increases for retirees that currently mean an additional $696 million annual payout. A second law that same year cost $406 million annually. It allowed nonuniformed city workers and teachers to stop contributing to their pensions after the first 10 years of employment. That law also allowed many police officers and firefighters to calculate their pensions based on their final year’s earnings — including sudden, last-minute bursts of overtime — instead of the average of their earnings in their final three years. The law also forced the city to double its share of extra pension contributions for the uniforms from 2.5 percent to 5 percent.
Then there are the “heart bills,” which automatically presume that a serious illness is caused by the job. With disability benefits, a city worker can often retire with 75 percent of pay instead of about 50 percent, a costly difference.
For all of his tough talk, Mr. Bloomberg’s own record on pensions has not always been stellar. In 2009, when Albany introduced a less generous pension plan for new state employees, the mayor, who was running for re-election, did not push hard to get the city’s new workers included. Now safely in his third and last term, Mr. Bloomberg sounds serious. His new tiers for new employees would be tougher than the state’s 2009 pension plan.
He has proposed allowing new teachers and nonuniformed employees to be vested after 10 years instead of the current five. And they would have to wait until after age 65 to receive benefits, not the current 55 to 57. (The state puts retirement at 62 in most cases.) Overtime would not count toward the final salary calculation the way it often does now, and pensions would be based on an average of the last three years of salary, with overtime no longer included.
The mayor is also calling for a similarly tough new tier for new uniformed employees — police, fire and sanitation workers. And he wants to end the “heart bills” and cancel those year-end bonuses — currently worth up to $12,000 — for new retirees.
These are undeniably stricter terms. But given the current fiscal crisis, and the spiraling pension burden, they seem sensible and fair.
Gov. Andrew Cuomo has argued for less costly pension terms for new workers, but he has not said anything about returning control to the city. He should push the Legislature to do what Mayor Bloomberg is asking. This would not cost the state an extra dime. And it would put the political responsibility of negotiating with the city’s workers where it belongs: back in New York City.
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This is part of a series of editorials about the fiscal crisis in New York State and in other states around the country. You can read all of these articles at: nytimes.com/fiscalcrisis.
