An End to Business As Usual
State leaders have seized the opportunity presented by the unprecedented budget deficit to implement long-term solutions that will help restore the State’s fiscal strength. While the budget negotiations signaled a change in Albany’s working dynamics, some old habits die hard; indeed, some just won’t die at all.
For the past five years, the Citizens Budget Commission (CBC) has monitored bills introduced in the State Legislature to enhance the pension benefits of New York’s public employees, grant costly protections to retiree health insurance benefits, and make fiscally imprudent changes to the funding of the State’s pension systems. This year, even as elected officials worked to pass a budget to restrain State spending, more than 55 such bills have been introduced.
Most of these are “pension sweeteners” designed to increase the generosity of public pensions. The most egregious, identified in our scorecard, would add at least $300 million a year to the cost of State pension contributions and $560 million a year to local governments’ costs. And these estimates are on the low side, as four bills do not have cost estimates provided.
Many of these bills are perennial favorites that have been introduced in past years. Shockingly, several bills would roll back the reforms of Tier V legislation passed just 13 months ago. The most costly bill identified, A5093, would change the formula for computing final average pensionable salary back to that used for Tier I employees, costing the State and local governments over $200 million a year. Similarly, A5086 would add $150 million in annual costs by changing the benefit multiplier back to the Tier I standard. Another, A3904, would allow early retirement for certain employees with 25 years of service without any reduction to benefits. Its total costs exceed $165 million a year.
In addition to these benefit enhancements, another important class of bills do not provide any estimate of fiscal impact, but makes substantial changes to retiree health benefits. The first, A6371, would require the cash-strapped Metropolitan Transportation Authority (MTA) to increase its reimbursement of Medicare Part B premiums from 50 percent to 100 percent. Only five states offer even a modest reimbursement of Medicare Part B premiums, yet this bill seeks to increase the cost burden on the MTA even more.
Five others would prevent State and local governments from reducing retiree health benefits, granting these benefits a protection comparable to the constitutional protections afforded to public pensions. Four bills would make this restriction permanent. Two, A5550 and S916, would prevent private firms and non-profits from reducing benefits, as well.
The last bill worth highlighting does not restrict flexibility to address rising retiree health insurance costs or expand pensions; rather, it is a fiscal gimmick introduced to allow school districts to shirk the cost of pensions in the short term – while drastically increasing them in the long run. For the next two school years, A6309/S4067 would permit school districts outside New York City to cap their required employer pension contributions at 8.62 percent of salaries and pay for the remainder by issuing bonds. Although the legislation does not include a cost estimate, CBC estimates it would add over $500 million in interest costs over the next 15 years.
Fiscal gimmicks are not the way to address the rising costs of public retirement benefits. While the Governor and the Mayor reasonably propose the adoption of new tiers to ensure that future benefits are affordable, some legislators are seeking to add costs that will make the sustainability of the State’s retirement security costs even more difficult. CBC calls for an end to “business as usual.” We will be monitoring these bills in our Benefit Sweeteners Scorecard and urge the Governor to veto any that come to his desk.
- CBC estimates based on a 4 percent interest rate over a 15 year period.