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July 18, 2005

Analysis: lawmakers continue efforts to increase public pension despite fiscal crunch

Despite ever-increasing public employee pension costs, lawmakers in New York have introduced “literally hundreds” of bills that would further increase government workers’ retirement benefits, according to a new analysis by the Manhattan Institute’s Empire Center.

“During the 2005 session, both Houses of the Legislature passed at least 46 bills increasing pension benefits for entire groups of employees, at a total estimated cost of more than $100 million in onetime or recurring expenses to taxpayers,” the analysis said. The memo also said that Governor Pataki had, as of July 8, signed about six of those measures.

The largest of bills signed by the Governor will require “a $50 million annual boost in taxpayer-funded pension contributions” to pay benefits to New York City employees who claim illnesses from working at Ground Zero, the analysis said.

“Still in the legislative hopper are roughly 500 other pension-related measures with estimated fiscal impacts totaling $5 billion to state, local, and school district taxpayers in New York,” the analysis added. “Nearly two-thirds of that amount, which includes recurring annual expenses as well as immediate one-shot costs, can be attributed to just 10 bills proposing large benefit increases for broad categories of government employees.”

Lawmakers have also introduced several bills that would establish the first Deferred Retirement Options Plans (DROPs), according to the analysis. “DROPs have been implicated in some of the worst pension funding crises to be experienced by large government employers elsewhere in the country,” the report said.

“Public pension benefits in New York, which are guaranteed by the state Constitution, far outstrip those available to private sector workers,” the analysis said. “Yet, on the other side of the ledger, Governor Pataki and legislators have not introduced a single bill that would save tax money by reducing or restructuring retirement benefits to make them more closely resemble the packages available in the private sector, even though such changes would necessarily be limited to future workers. Nor has Albany responded to Mayor Michael Bloomberg's call for a new, less expensive pension ‘tier’ based on the traditional public model.”

The analysis highlighted recent trends in the pension system that could causes fiscal crises around the state, including:

Proposals to raise pension benefits have a “retroactive impact” on all active and retired workers, the analysis said. Reductions in benefits for new employees builds savings slowly and gradually while benefit increases causes immediate permanent growth in pension obligations, “which taxpayers must cover whenever investment returns fall short of targets.”

The analysis outlined several other pension measures proposed this year, including bills that would allow police, firefighters, corrections officers and court officers outside of New York City with heart problems to retire with disability benefits. “This would cost taxpayers statewide an additional $17.2 million in pension contributions,” the analysis said.

The analysis said retirement plans could be made more affordable and controllable by moving to the sort of defined contribution plan used in private-sector employment.

“Such plans consist of individual accounts supported by employer contributions, usually matched at least in part by the employees' own pre-tax savings. But the concept is hardly new to government,” the analysis said. “After all, for decades now, a defined-contribution plan has been the retirement vehicle of choice for employees of public higher education systems such as the State University of New York.”

The full analysis can be found at www.nyfiscalwatch.com/html/fwm_2005-07.html.