Since taking over as state comptroller from the disgraced Alan Hevesi in 2007, Thomas DiNapoli has introduced a number of reforms to make the state pension fund more transparent and accountable. One thing he did not — and cannot — do is make major changes to control the recent, huge run-up in pension costs. Only elected leaders can do that, and, unfortunately, they are still showing no signs of realizing they have to. Perhaps DiNapoli’s latest assessment, revealed in a New York Times article Tuesday, that state and local government tax-funded pension contributions may triple over the next five years, will get their attention.
Such an increase would mean counties would have to contribute an amount equal to nearly one-third of their civilian payrolls to the state pension system and more than 40 percent of their payrolls for police and fire departments. And even those numbers may be low because DiNapoli’s assumptions about the stock market, in which the pension fund is invested, seem rosy. He is expecting a quite healthy stock market rebound in the next five years — 1.5 percent for the current year, 13 percent for the next two years, and 10 percent for the last two years. What if the market goes up less, or goes down, as it did in the last fiscal year when the pension fund lost 26.3 percent of its value?
How did we get into this situation? By, quite simply, giving the public employee unions the most lavish pension system they could ask for; and then, when they still asked for more, giving them more. The Legislature limited employee contributions, reduced the minimum retirement age to 55, reduced the years of service needed to qualify, increased the percentage of salary the pension is based on, gave annual cost-of-living adjustments, etc., etc., etc.
“I’m alarmed,” Peter Abbate Jr., chairman of the Assembly’s Labor Committee, told the Times. “I’m responsible,” would be more apt. Abbate never met a pension sweetener he didn’t like. But he’s not alone; most of the union giveaways, and there are dozens of them each year, are passed unanimously by both the Assembly and Senate.
What can be done? Gov. Paterson’s solution of creating another tier, Tier V — which will extend the retirement age for all new employees to 62 and require them to contribute 3 percent of their salary toward their pension for all years rather than just the first 10 — isn’t nearly enough. In fact, it just gets things back to where they were in the original Tier IV, before certain sweeteners were added.
And DiNapoli’s plan to ease the pension burden for local governments by capping their contributions for the next six years and allowing them to borrow from the state for amounts exceeding the cap, would only make matters worse. It would hide the problems now so nothing will be done, while raising the total costs due to interest payments and passing the burden along to our children.
There are, in fact, only two ways to rein in runaway pension costs. One is a defined contribution plan, like a 401k, where new employees would be required to contribute to their pensions and share the risks; if the market does well, their retirement income would grow commensurately, and vice versa. Another is to amend the state constitution, which prohibits any diminishment of pension benefits.
Without real changes, the alternative is massive tax increases, massive layoffs, or both. The system is unsustainable, and it’s time our state elected officials recognized this.