NCPA - National Center for Policy Analysis


July 13, 2009

Keeping New York state and local government retirees in clover could require $5.4 billion more from local taxpayers outside New York City over the next five years.  The real scandal is that politicians are reluctant to do anything about it, says E.J. McMahon, a Manhattan Institute senior fellow.


  • In New York (as in almost every state), public-employees' pensions are defined-benefit -- meaning that the government guarantees an income stream based on peak salaries and career longevity.
  • By private-sector standards, benefit levels are extraordinary: N.Y. state and local government employees (and employees of public authorities) can retire earlier, with larger pensions, than the vast majority of those who pay their salaries, says McMahon.

The problem with these lavish benefits is straightforward, says McMahon:  Projections suggest that annual pension bills for the state and its local subdivisions could easily double or triple by 2015 if nothing is done to stem costs.  Under the state Constitution, pension benefits can't be "diminished or impaired" for any current member of a public-retirement system in New York.  So it will be hard in the short term to stem the tide of mounting pension costs.  Thus, reform debate is really about compensation for the next generation of government workers.

One reform proposed by New York's Governor includes dramatic changes in police and firefighter pensions:

  • This proposal would change the current "20 and out" plan -- retirement at half pay after 20 years, with no minimum retirement age -- to half pay after 25 years at a minimum age of 50.
  • Mayor Bloomberg projected that this would save the city $200 million a year almost immediately.

Far-fetched as it may seem, given state lawmakers' shameless pandering to unions in recent years, there is precedent for reform: During the '70s fiscal crisis, the Legislature managed to scale back pension benefits for new public employees.  But the unions spent most of the next 25 years successfully clawing back much of what they'd lost.

Unfortunately, leading politicians continue to seek union permission to make any changes. It's time for these officials to reassert their managerial prerogatives -- and to understand that government unions will never voluntarily relinquish the gold-standard pensions that taxpayers can no longer afford, says McMahon.

Source: E.J. McMahon, "Defuse the Pension Bomb," New York Post, July 9, 2009.

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