Friday, September 10, 2010

New York's pension crisis

From the 13 September 2010 Greater Niagara Newspapers

By Bob Confer

If you work or have worked in the private sector you know retirement income, even retiring itself, is not a sure thing. As a result of the recession many retirees have seen their pensions slashed considerably (or, in some cases, eliminated altogether) or their 401(k) accounts downsized by 25 to 35 percent. Baby Boomers who are still working have felt those same pains and many have suspended their plans to retire by 5 to 10 years, maybe more, sadly realizing they’ll have to work well into their 70s due to the economic uncertainty of what was to be their Golden Years.

In stark contrast to that harsh reality is an alternate universe known as New York. Here, in the Empire State, decades of injudicious political rule have granted government workers special privilege, a retirement that is guaranteed, no matter the economic conditions. Unlike retirees from the private sector, they receive a set post-labor income. They can actually retire and comfortably – some of them extravagantly - enjoy the twilight of their lives.

In order to ensure that happens, others have to assume their risk, namely the taxpayers. In trying financial times like these when the return on the stock market just isn’t there, thus yielding lower returns for the state’s pension fund, our assumption of risk becomes even greater.

State Comptroller Thomas DiNapoli delivered such a sobering message recently when he told New Yorkers that the pension cost for state and local governments will escalate by 37 percent in 2012. That’s because municipalities will be forced to contribute to the state pension fund a value equal to 16.3 percent of total salary. Mind you, that 37 percent increase is based on a 2011 versus 2012 comparison. Earlier this year the input rate was “only” 7.4 percent of payroll (it’s set to be 11.9 percent in early 2011), meaning that come 2012 taxpayers at the local level will dedicate more than twice what they had been for pensions just 7 months ago.

Considering that labor is the number one expense for municipalities, DiNapoli’s new requirement will pose a significant budgetary hurdle for towns and cities across the state. Early calculations from DiNapoli’s office say that, in total, municipalities will be on the hook for $3.5 billion in pension funds for 2011 alone. That works out to be $200 from every man, woman and child living in New York.

Budget-conscious mayors and supervisors and tax-stung taxpayers thought 2010 was bad, but it will be a walk in the park compared to the coming years. Rochester officials believe pension mandates will bankrupt the city by 2015. Many other governing bodies speak the same (although behind closed doors) for they see that the economy is not set to grow quickly anytime soon and the federal government has overextended itself to the point that it will be unable to provide emergency funding to the states (it was the only thing that kept many afloat). That means there are some truly creative and gut-wrenching choices to be made. Services will have to be cut and public workers will have to be let go, or so goes the logic. But, we aren’t talking about logical, reasonable people here. This is New York State, where logic is cast aside and things like gigantic guaranteed pensions are considered good government.

That said, it’s certain that cuts will be minimal and property owners will see disgustingly larger tax bills in 2011 and 2012 and possibly well beyond the decade’s half-way point if the economy continues to move along at a snail’s pace or falls into a double-dip recession. Considering that New York’s property taxes are already among the highest in the nation and in part responsible for our state’s long-running economic malaise and the mass exodus of residents from our borders, it’s frightening to think of what might be.

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