According to the New York Comptroller’s Office, by 2015 New York’s county pension costs are set to soar from $2.6 billion to $8 billion – amounting to nearly one-third of civilian payroll costs (and 40 percent of fire and police payrolls). Recovery depends heavily on the stock market’s performance. And, even if the market does recover, tax hikes and/or benefit cuts are likely inevitable.
The public sector pension crisis is much vaster than New York; many states and local governments have spent years overpromising benefits, deferring contributions, and underestimating the size of those unfunded liabilities. Public sector pension plans are underfunded nationally by $310 billion.
Governor Paterson and Comptroller Thomas diNapoli disagree over how to deal with New York’s mounting pension system losses.
The comptroller suggests local governments increase their contributions, a strategy the governor argues will only raise property taxes. Governor Paterson suggests limiting benefits to new employees.
At least the state isn’t taking Montana’s approach to its pension crisis: when your actuary tells you to cut benefits or increase contributions, hire another actuary.
The New York Times notes the root cause of the nationwide crisis in public sector pension plans: the difficulty of saying “no” to unions:
If there is any silver lining, the trends appear to have somewhat curbed Albany’s appetite for extending pension enhancements to public employees to placate labor unions, which wield enormous clout and lobbying dollars in the capital.
“I’m alarmed,” said Assemblyman Peter J. Abbate Jr., a Brooklyn Democrat and the chairman of the Assembly’s Labor Committee, who is one of the capitol’s more reliable union allies.
“Bluntly,” he said, “I’ve spoken to a lot of the union leaders and their lobbyists and said I don’t want to see bills that will cost the counties and the state millions of dollars.”
Andrew Biggs of the American Enterprise Institute discusses how governments cook their public pension books in the Wall Street Journal.