I’ve downloaded the public employee pension data for FY 2011, and find that New York City is in the same situation. Which is no surprise, because it will probably be in that situation for years, perhaps decades. The city’s pension funds are in something close to a death spiral, with 13.8% of total assets paid out every year. The national average is 7.7%, the figure for the New York State pension funds, which also cover local government workers in the rest of the state, is 6.3%. The city has 1.30 workers to every retiree receiving benefits, compared with the U.S. average of 1.69 and the 1.57 for the state pension funds. That is one year paid for a permanent vacation in retirement for every one year, four months worked, on average. City taxpayers contributed $24,701 to the pension plan for each public employee in FY 2011, compared with the U.S. average of $6,622 and the average of $6,731 for the rest of the state.
The City Actuary has said that New York City is contributing $1 billion less per year to these pension funds than is needed by his own calculation, which will have to be made up later many times over.
This is the City Actuary has been in office, and seems to have felt there was no problem, for the 20-plus years when one retroactive pension increase after another has passed, the city’s pension costs have soared, and taxes have been increased and services cut to pay for it. And it has already been announced that the city will have to contribute an extra half $billion a year from now, because the rate of return was below expectations a couple of years ago. But if one looks at the actual rate of return the city is likely to achieve, and how underfunded the pensions have become under the watch of City Actuary Robert North, two Comptrollers who are running for Mayor, and a former budget director who is running for Mayor, I would say that taxpayers ought to paying into the pension funds 100.0% of benefit payments out, to prevent a death spiral that would bankrupt the city. The actual figure in 2011 was 78.9%.
The spreadsheet is after the jump; additional commentary follows.
The “output” part of the spreadsheet is set up to print on an 8 1/2” by 11” sheet of paper, although I can’t guarantee that’s what your particular spreadsheet program will do with it. To the right one finds the data as downloaded from the Governments Division of the U.S. Census Bureau.
As noted, pension funds run by New York State also cover local government employees in the rest of the state, an arrangement that is common in the U.S. But some local governments, such as New York City, have their own, separate pension systems, including the local governments of several older cities such as Chicago, Los Angeles, Philadelphia, San Francisco and Providence. Because states also cover local government employees, there is no way to really separate “local government” from “state government” using the Bureau’s separate employee pension data, except in New York State where I know exactly what is going on. So the data by state in this spreadsheet, and the U.S. total, are for all public employee pension funds together. More information is available in the state and local government finance dataset, which comes out later.
There have been a number of comparative analyses of state government pension systems, and major local government pension systems, in recent years, by people with different ideological biases and using different assumptions. They have all concluded that the New York State pension systems are among the best funded in the country, but the New York City pension systems are among those in the worst trouble. Although Thomas “Mr. Smooth” DiNapoli seems to believe his generation can make one last score by evening that up at the expense of the state pension funds.
Look at the first column in the table. In Rhode Island, the pension situation is so desperate that pensions for current retirees and employees have been cut to try to stave off state bankruptcy, a few municipalities have gone or will go bankrupt, and Providence decided to avoid bankruptcy by basically eliminating public services. The Rhode Island public employee pension funds paid out 12.2% of their assets in benefits in FY 2011, compared with 13.8% for the NYC pension funds.
In Illinois, the state is so broke, despite decades of underfunding pensions while enhancing them, that it has simply stopped paying many of the bills it owes to businesses and non-profit organizations, and is proposing a variety of changes including big increases in contributions for current workers and the elimination of retiree health insurance for current retirees. The City of Chicago is even worse off; its Mayor has proposed pushing the retired public employees into Obamacare. Illinois public employee pension funds paid out 10.5% of their assets in FY2011, less than New York City.
California just passed a huge tax increase by referendum. Voters were told the higher taxes would go to the schools, which have faced devastating service cuts in the wake of the Great Recession, but after the tax increase it came out that all the additional money would go to higher pension contributions. “The lobbyists for teachers and administrators both urged the legislators to boost the state contribution to the CalSTRS pension fund, now about 2.5% of pay, back to the 4.6% rate cut in the late 1990s.” In New York City, according to the proposed budget for FY 2014, taxpayer contributions for the Department of Education would be 32.8% of pay, up from 21.4% of pay in FY 2008. In California the pension funds paid out 6.4% of their assets in FY 2011, compared with 13.8% for New York City. But CALSTRS believes it has to take action to avoid a death spiral, thanks to a pension deal cut in 2000 (NYC had one then, plus another big one in 2008).
I could go on and on with this, but lets move on to the next column. The only states where the ratio of working public employees to retired public employees getting benefits was lower than the 1.30 for New York City were Alaska (1.01), Michigan (0.96), Pennsylvania (1.29), and Rhode Island (1.20).
Lets focus on Michigan for a moment. In that state, where there once had been a wide variety of innovative competing auto companies, by the 1970s all that was left was an oligopolistic “Big Three.” At the height of their power, everyone who worked for the “Big Three” was overpaid, and the companies produced cars that were not fuel efficient, broke down all the time, and wore out quickly. Meanwhile in Japan you had Toyota, Honda, Nissan, Suburu, Suziki, Mitsubishi, Mazda, and Isuzu fighting it out in a smaller market and looking to grow.
We know how that turned out. The “Big Three” nearly collapsed and took the Michigan economy with it. That state has had huge losses in population, particularly the working-age population, jobs, average wages and income. Those not in the government have become vastly poorer. But the public employee pensions and debts still get paid, so public services have collapsed.
Meanwhile in New York, a large number of competitive major financial companies have consolidated down to a vastly overpaid and much resented “Big Five.” In the long run, anyone who is expecting “the rich” to pay for New York City’s pension deals, in taxes on money they didn’t deserve to begin, with should think again.
Speaking of Wall Street, the Federal Reserve’s cheap money campaign has led to paper assets, once again, having overinflated prices relative to the income they provide. Public employee pension funds count those paper asset price gains as income, even though only real income that can be used to pay pension benefits is in cash — in interest and dividends. Otherwise, a pension plan is selling off its assets to pay benefits, and the pension plans are emptied out. Counting paper gains, the average U.S. pension plan had a 15.8% return in FY 2011. For the New York State pension plans, the return was also 15.8%. For New York City it was 10.7%, lower than in all but two states.
Back in the 2000s, then-Comptroller Bill Thompson decided the way to avoid paying (and taking blame) for the big retroactive pension enhancements passed in 2000 (until a future on one cares about but which continues to arrive) was to promise a higher rate of return from Wall Street. And the way to promise a higher return, he decided, was hire investment companies that pay themselves vastly higher fees, such as hedge funds and private equity firms, with future taxpayers making up any deficiencies in their promises. Something that outraged me at the time. Comptroller John Liu continued the policy.
One year does not a disaster make. It could be that New York City’s pension funds have, in fact, been hedging, accepting lower returns in bubble years in exchange for diminished losses when asset prices come back to earth. So I checked the Bureau’s data for FY 2009. The earnings of the average U.S. pension fund that year was minus 25.9% of assets, compared with minus 22.1% for the New York City plans and minus 33.1% for New York State plans. Good news. But the state pension plans were far deeper into hedge funds that year than the city, thanks to deals cut by former State Comptroller Alan Hevesi. We’ll have to wait another cycle, with all the “Zombie Funds” accounted for, to decide if these Comptrollers have allowed Wall Street to rip off the common future, in addition to allowing public employee union members who are cashing in and moving out to rip off the common future.
According to the U.S. Census Bureau, New York City public employees made 9.5% of all contributions to New York City pension funds in FY 2011, with taxpayers contributing the rest. The national average was 29.5% contributed by the employees. In the city, moreover, taxpayers in fact make most of the contributions “by police officers” for them, and have since the 1960s. And many teachers and other employees have been contributing an extra 1.85% of their pay, under deals cut in 1995 and 2008, in exchange for being allowed to retire years earlier, something that costs the pension funds far more more.
On a straight dollar, the only state in the U.S. where taxpayer pension contributions per active employee are much more than half of what New York City taxpayers have to pay is Nevada. In the rest of the New York State, where people are screaming about the tax increases and service cuts required to pay pensions – and shifting costs to the future to avoid dealing with it – the per employee burden was little more than a quarter the burden on New York City taxpayers back in FY 2011. And yet to avoid a death spiral, New York City taxpayers ought to be paying more, perhaps another $3 billion in total.
In FY 2011, the data shows $2,813,423 was contributed to New York State pension funds by state government taxpayers, and $2,740,562 was contributed by local government taxpayers elsewhere in New York State. New York City’s taxpayer contributions to its own pension system was $8,842,051, or 9.3% of all the employer contributions to all the state and local pension systems in the entire U.S.
The question is why was the State of New York contributing so much to the state pension systems? In 2011, according to BLS data, the State of New York only employed 259,100 workers, while local governments in the rest of New York State (outside NYC) employed 650,600. If the pension contributions were in proportion, the local government contribution to the New York State pension plans would be more than twice the state contribution. Instead, the Census Bureau data shows the state actually contributed more.
This has always bothered me, and this year I decided to follow up with the Census Bureau. It turns out that a lot of the money going into pension funds for teachers in the rest of New York State, the New York State Teachers Retirement System, is coming from the State of New York, not the school districts. The Bureau has been told that most of this is school aid. Instead of making a round trip from the state to the school districts and back into the pension fund, is simply put in the teacher pension fund directly by the state. So in reality that is really school district money after all.
But some the state contributions are state cash that is not school aid. It is other state money, collected in part from New York City taxpayers. Perhaps for community college teachers who previously worked in the public schools and permitted to stay in the school pension systems?
I e-mailed the New York State Teachers Retirement System how much of their money came from the state, and where that money came from. It did not respond. I e-mailed the accounting division of the Office of the New York State Comptroller with the same question. It responded that it had no involvement with state contributions to the Teachers Retirement System, and I should follow up with someone else.
I just hope that, as part of a political deal, the state legislature hasn’t been decided to use state tax dollars collected in part from residents of New York City to subsidize the pension plans covering teachers in the rest of the state, with no benefit for New York City. Even though city residents pay far more for pensions, and are facing round after round of budget cuts and potential tax increases every year. Agreeing to such a deal at the expense of the people of New York City, in exchange for perks like extra funding for “their” non-profits, is just the sort of thing the city’s so-called “representatives” in Albany would agree to.