Police, teacher pension costs ballooning across LI
This is a downward spiral with no fix, until the whole system crashes. Municipal defaults will rise with time along with stress on county and state budgets. Pension is like a Ponzi scheme. Pay the workers less today and promise them goodies in the future to be paid by future residents. So when the future arrives, we have to pay for pension and the pay both at the same time. Nice !
Long Island taxpayers will pay an estimated $2.9 billion over the next two years into the state's public pension systems, a 69 percent increase over the previous two-year period.
The projections for 2012 and 2013 come as towns, villages and schools are already facing budget headaches heading into 2012. Nassau and Suffolk counties are struggling with projected deficits, and Nassau remains under control of a state fiscal watchdog.
Newsday last March reported that local municipalities and school districts would be taking a big hit in soaring contribution costs due by February 2012 to compensate for sharp stock market losses in 2008 and 2009. Since then, the state comptroller and the Teachers' Retirement System have projected rates that show contributions will rise further through 2012 and 2013.
"There has never been anything as crippling to local budgets as this pension time bomb is," said outgoing Suffolk County Executive Steve Levy, who has backed fundamental changes to the public pension system. "It is a miracle that schools and local governments are able to keep things going with these phenomenal costs.
"Local governments cannot stay afloat if this type of increase continues," he added.
To supporters, the public pension system -- the Employees' Retirement System, the Police and Fire Retirement System, and the Teachers' Retirement system -- is an unchangeable pact between government and its workers. By law, the pension system is constitutionally guaranteed and must be fully funded and able to cover the retirements of all workers. Historically, the appeal of many public-sector jobs was not high salaries but the benefits that came with them.
Newsday has assembled a database of pension costs that shows what governments and districts on Long Island will pay into the three systems. The database includes every public employer on the Island -- from the libraries, villages, school and taxing districts, to both counties.
Among the highlights:
By February, local governments, including Nassau and Suffolk counties, will pay an estimated $824 million for their pension contributions to the state comptroller's office, which manages the Employees' and Police and Fire systems, according to data provided by state Comptroller Thomas DiNapoli.
In addition, next fall, school districts will have to pay about $540 million into the teachers' system, according to Newsday projections based on TRS data.
By February 2013, local governments could owe an additional $973 million, based on the comptroller's projections. And school districts may see their TRS pension-related costs rise to $583 million.
The bill totals $2.9 billion over the next 24 months. In 2010 and 2011 combined, local taxpayers paid $1.7 billion over the two-year period, Newsday found.
All three pension systems are trying to "smooth" -- or stretch out -- the huge stock market declines over a five-year period, and every local public employer has to contribute enough to make up the losses.
Exactly how long that smoothing process will last is not known.
"We're well into it, but we're certainly not through it," DiNapoli said.
Smoothing out payments or not, local officials say the cost of public pensions is far too high.
"It's a horror story that's continuing," said Nassau County Comptroller George Maragos. "It's insanity that this is happening. I think it's going to increase the stress on certainly the county and every local government.
"Ultimately, if this continues -- and it's likely if the market doesn't perform -- this alone can bankrupt us or force taxes through the roof," Maragos said.
Some experts note that pension contributions are just one factor in a broader local budget crisis, pointing to the potential elimination of the so-called millionaires' tax and state aid reductions as equally critical local budget issues.
"To focus all of the responsibility on public workers is just inappropriate," said James Parrott, the chief economist of the Fiscal Policy Institute, a liberal think tank. "There are other things going on."
The state's property tax cap has certain exemptions for pension contributions, so it's possible that localities could raise taxes to account for future increases, Parrott said.
A growing burden
Pension contributions constitute a percentage of payrolls. The Employees' Retirement System's average contribution rate for 2013 will rise to 18.9 percent of payroll, from 16.3 percent in fiscal year 2012. The Police and Fire Retirement System's contribution rate will increase to 25.8 percent of payroll in 2013, from 21.6 percent in fiscal year 2012. Most local entities pay into the Employees' Retirement System, while the counties, some villages and some police districts pay into both.
The school districts contribute to both ERS -- for their nonteaching staff -- and the Teachers' Retirement System. The TRS contribution rate will rise to 12 percent for its fiscal year 2013, the system reported last week. That's up from an 11.11 percent rate in 2012. The Teachers' Retirement System's fiscal year ends in June of each year, while the ERS and Police and Fire Retirement System end in March.
Robert Lowery, deputy director of the New York State Council of School Superintendents, said most districts had to freeze or cut expenses to absorb pension costs without big tax increases.
"That's been a huge burden for school districts to wrestle with," Lowery said.
The burden has carried over to the region's libraries, which will pay $48.4 million during 2012 and 2013, compared with $25 million they paid from 2010 through 2011.
Even though many libraries are able to handle the increases now because of fund balances and other income sources, Middle Country Public Library director Sandra Feinberg said the future is uncertain.
She said her library is facing almost $2 million in pension contributions over the next two years.
"I feel we're in good shape for the next three to five years, but after that, I wouldn't guarantee anything," Feinberg said. "That's across-the-board for any municipality, but it's particularly bad for libraries that are very sensitive to costs for the community."
Several localities have tried to manage the strain by spreading out their contributions -- an option the state comptroller offered to allow employers to spread the pain. Suffolk County spread out its contributions last year, and plans to continue to do so, Levy said. Nassau County will amortize the difference between its 2011 and 2012 contributions, according to county spokesman Brian Nevin.
But that won't be enough, officials said.
"All governments must rein in costs and cut expenses to protect taxpayers from a tax hike," Nassau County Executive Edward Mangano said.
Fixing the problem
Solutions to the pension question range from giving localities a year off from contributing -- a pension holiday of sorts -- to overhauling the state's system into a defined contribution plan, similar to a 401(k).
Jerry Laricchiuta, who heads Civil Service Employees Association Local 830 and advocates the pension holiday idea, said the average union pension is $18,000 a year. The pensions are the "last vestige" of public worker benefits, and shouldn't be compromised, he said.
DiNapoli said in an interview that a pension holiday could hurt the system's fully funded position. But, he added, overhauling public pensions or limiting their benefits isn't the answer either.
"I don't think we should jeopardize retirement security because of some bad decisions by Wall Street," DiNapoli said.
Gov. Andrew M. Cuomo has introduced proposals to reform the pension system, including a tier for new public employees that would increase contributions, raise the retirement age and exclude overtime. The goal is "to reduce costs for both state and local governments," said Cuomo spokesman Josh Vlasto.
Andrew Biggs, a resident scholar with the right-leaning American Enterprise Institute in Washington, D.C., said such moves are necessary, especially given the unknown potential of another market downturn.
"If you're hit again with another market downturn, then what do you do?" he said. "The day that we can put off these choices is behind us."