There is a question about New York’s pensions I’ve been asking for years, but no one has been able to answer. Most objective analyses will tell you that the New York State pension system, which also includes all the local governments outside New York City, is in the hole, and residents of the rest of the state will face diminished services and higher taxes for years as a result. But those same analyses will also tell you that the New York State pension system is nonetheless one of the least underfunded among all public employee pension funds in the U.S. Comparative analyses of local government pension funds are rare, because there are so many and most are small. But according to those I have seen, which analyze large local pension funds along with the states, the separate City of New York pensions funds are among the most underfunded in the U.S. New York City residents, already faced with a higher overall tax burden and service cuts, will suffer even more as a result.
Why the difference? Why is the New York City Teachers Retirement System so much worse off than the New York State Teacher’s Retirement System, the New York City police and fire pension plans so much worse off than the New York State police and fire pension plans, etc.? How long has this been true? Are the benefits that much different? Has New York City never gotten out of the hole it got in after the Lindsay pension deals in the 1960s? Why didn’t various Comptrollers, actuaries and Control Boards require better of funding of the city’s plan in the years since? And if the city has been in the hole all along, how come the state legislature continues to impose pension enrichments on the city that are greater than or equal to those for the local governments in the rest of the state and the state government?
While I don’t know what the answer is, I do know what the answer is not. I have attached a spreadsheet that is a distillation of one I first published and described in this post. And long term data on state and local government pensions from the Census Bureau shows that New York City’s pension funds are not underfunded because New York City residents have failed to suffer enough to fund them. We’ve paid and paid.
As the “Taxpayer” tab in the attached spreadsheet shows, the New York City taxpayer contributions to its pension funds, as a share of the wages and salaries of those still working, have been above the national average – often far above – for virtually all years since the 1970s. Meanwhile, taxpayer contributions to the New York State pension system have been below the national average since the early 1990s – and were at New Jersey-type irresponsible levels during a few years around 2000. (Census Bureau budget cuts eliminated Governments Division data collection for some of those years). But it isn’t the New York State pension system that is as desperately underfunded as New Jersey. It is the New York City pension system. Why is that?
Nor do low pension contributions by public employees explain the difference. As the chart in the “Employees” tab shows, New York City’s public employees contribute to their own pensions at far lower levels than the U.S. average, or public employees in New Jersey (where recent legislation has increased the employee contribution rates further still). The only years in which New York City’s public employees contributed as much or more to their own pensions as the national average were years when they were temporarily paying extra to “buy back” years of earlier retirement, as they did for a while after the 1995 pension deal. But employee pension contributions by public employees covered by the New York State pension system have been even lower as a share of their wages, for decades. So while New York City’s public employees have underfunded their pensions, that is not the reason why the city’s pension system is worse off than the state.
It is true that benefit payments to retirees have been higher, as a share of the wages and salaries of those on the job and providing public services, in New York City than just about anywhere else, and this ratio is going up everywhere. Are the city’s benefits richer? For whom, why and since when? But that gap has been in place for more than 30 years, and in theory higher pension contributions over those years should have offset the higher level of benefits leaving the city’s pension plans no more underfunded than the state’s.
Instead the city’s pension fund payouts as a percentage of assets have been far higher than the U.S. average, which in turn has been generally higher than the average for the New York State system. The city’s payout to asset ratio has been dangerously close to a level at which a pension fund can go into a downward spiral, because assets are sold to pay current pensioners and therefore future returns can’t make it up.
We have a situation in which the state legislature, based on bills to allow the rest of the state to borrow pension contributions rather than fund them, believes that residents of the rest of the state can’t be asked to pay taxes and give up services for pensions — to an extent far lower than what New York City residents have been forced to pay for years. The city’s pension contributions are already far higher as a share of employee wages than local governments in the rest of the state might be forced to pay going forward. Why is a level of tax burden and public service cut that is just fine for New York City too much for the rest of the state?
Even if these differences date back to the 1960s, before the state legislature took charge of the rules for both the city and state pensions, it is fair to ask the question why the difference between the state and city pension system has persisted. Which Comptrollers and actuaries have allowed this? Which politicians benefitted from shifting costs to the future? Members of which unions got which pension deals that could not be afforded, and would never have been considered in those living in the rest of the state would have been harmed?
The difference between the two pension systems demands and explanation.