The Honorable Bill de Blasio
Mayor, City of New York
Office of the Mayor
City Hall
New York, NY 10007

Dear Mayor de Blasio,

A bill moving swiftly through the State Legislature would reverse recent pension reforms and greatly increase New York City’s required future pension fund contributions. The bill, A9594/S7326, would enrich disability pensions for police officers hired after July 1, 2009 under a “Tier III” plan. The Citizens Budget Commission urges you to oppose the supporting home rule message under consideration in the City Council as well as the bill itself.

As you know, skyrocketing pension costs—$8.2 billion in fiscal year 2013, up 235 percent from fiscal year 2004—greatly affected the City’s finances in the last decade. As the City’s contribution to the pension funds became a greater slice of the budget pie, fewer resources were available for critical services and new programs. Investment losses partly drove the growth, but multiple benefit enhancements since 2002 also contributed and make New York City pensions among the most generous in the nation. Pension enhancements are authorized by the State Legislature, but must be paid for by the City.

In 2009 as state and local governments faced the budgetary implications of the Great Recession, Governor David Paterson took action to help make pension costs more manageable; he vetoed a bill that granted police officers in Tier III the more generous pension benefits of Tiers I and II. Members of Tier III work for 22 years, instead of 20, to collect full-service pensions. Their disability benefits are 44 percent of final average (last three years) salary with an offset for Social Security benefits, instead of 75 percent of the final year’s salary with no offset. After the veto, the Tier III plan was made permanent in comprehensive 2012 pension reforms, which will save the City an estimated $31 billion over 30 years.

These reforms, which have helped improve the City’s financial outlook, may be eradicated by A9594/S7326. Police disability benefits for recently hired officers would be raised to 75 percent of final salary, calculated on the basis of one year. Additional annuity payments and increased take home pay provisions would be added.

With more than one-third of all police retirees, approximately 15,000 people, collecting disability pensions, the proposed changes would increase the City’s costs by $35 million in fiscal year 2015. The actuarial value of contributions required by the City to fund the new benefit would be far greater: $266.4 million in fiscal year 2015, growing to $617.9 million in 2019. These are conservative estimates that do not account for increased salaries and pensions that result from the current labor negotiations, and they do not include increased contributions that would be necessary if other uniformed workers, in particular firefighters, two-thirds of whom retire on disability pensions, are given the same benefits.

New pension tiers that are helping New York City to lower costs and balance the budget were not easily achieved in Albany. You have voiced repeatedly your commitment to fiscal responsibility; please affirm that commitment by opposing this bill.

Sincerely,

Carol Kellermann
President

cc: Anthony Shorris, Dean Fuleihan, Bob Linn