In an interview with WNYC on his way out the door, former New York City Actuary Robert North, who survived to collect a pension himself by remaining silent when all the pension increases of the past two decades were described as “costing nothing,” and left NYC with some of the most underfunded pension funds in the U.S. said:
“We’ve increased employer contributions to the point that we’re digging out of a hole. In fact, that’s why contributions have risen so much for New York City. I believe the five systems combined had contributions of $700 million in Fiscal Year 2000. And it will be close to $9.6 billion for Fiscal Year 14, I believe.” http://www.wnyc.org/story/most…
The bad news: according to North (who somehow failed to bring up all those pension increases in the interview,) even while so much NYC spending going to past costs for the early retired rather than for current services, the NYC pension plans would not be out of the hole until the year 2032. This will mean more tax increases and service cuts every time the stock market turns down. The worse news: North is still underestimating, assuming average future investment returns from inflated asset values and no additional retroactive pension increases. The even worse news: according to Mayor DeBlasio’s budget the city is putting in $8.5 billion, not $9.6 billion, and that amount is assumed to go down over the next four years.
To find out what DeBlasio has to say about pensions, check out the OMB Budget Summary on page 52. It shows pension contributions at $8.5 billion this year, and going down – even as the cost of pension benefits continues to explode.
There are a couple of possible explanations for the difference between the contributions North said were required, and contributions the city says it is making. First, perhaps North was including New York City Transit, whose members are also part of the city transit system. Second, perhaps the city was never making as much in contributions as North said was required. The Budget Summary document shows the city was only putting in $8.5 billion in the last Bloomberg budget too.
Recall that North allowed the Bloomberg Administration to put in less than the required pension contributions, deferring them with an expectation that they’d be made up later – in the DeBlasio Administration.
“The impact would be too great,” said one analyst involved in the discussions between the actuary and the administration. “You have to look at the [city’s] ability to pay.”
Which is to say the ability to pay at the time. Not the ability to pay after more members of Generation Greed had cashed in and moved out. Whenever the stock market went up over the past 20 years, the unions and politicians had claimed that the pension funds had plenty of money, so pension increases would “cost nothing.” And whenever the market went back down to normal, the unions and politicians and city actuary blamed low investment returns for the resulting disaster – and passed it on to future generations.
“Sources said union officials who sit on the pension fund boards have yet to approve North’s strategy and may balk.”
Why would they? After all, they have been screwing their own future members for years, and those they care about are cashing in and heading for a retirement where THEIR benefits – far in excess of what they were promised when hired – are guaranteed, and exempt from state and local income taxes. And they can move away from the public services fallout.
Regardless of the reason why the city’s pension contributions are lower than North said were needed in his exit interview, there is no reasonable explanation for those contributions going down. Not with the city’s pension funds as underfunded as they are, and benefit costs continuing to explode.
It is possible that the DeBlasio Administration and new local liar in chief Scott Stringer are rationalizing things this way. The stock market is up again, therefore the pensions have “plenty of money for now.” Thus pension contributions can be cut relative to the rapidly escalating pension benefit payments – until the stock market goes back down again and the city is faced with far vaster contributions in the middle of a fiscal crisis. Contributions that would be once again deferred rather than made, because “the impact would be too great.” This same cycle – underfunding and/or pension increases in every bubble, deferred disaster in every correction, has led to a diminished future for younger generations all over the country.
Forget the current level of stock (and bond prices). The actual cash income that supports those prices is low – the dividend yield is half the historic average, and interest rates are rock bottom. Stock and bond prices are high because of yet another temporary speculative bubble, driven by Federal Reserve policy and flight capital from elsewhere in the world.
As a result the actual cash income the pension funds are earning is a fraction of what they need to pay benefits. Could those funds sell off stocks and bonds to pay benefits? Sure, but what would that leave to pay the benefits of today’s public employees in the future? Moreover, what happens if interest rates rise? That would mean more income going forward relative to asset prices, but it would cause the current market price of the pension funds’ current holdings to plunge – perhaps by half in the case of stocks.
It all comes down to income. The income isn’t there. Debts are.
The New York State pension funds are also reducing required pension contributions, I have read. There is, however, a critical difference. The state pension funds, which also cover local government employees in the rest of the state, are (despite being underfunded) among the best-funded public employee pension funds in the U.S. The New York City pension funds are among the worst funded.
As I have shown, the New York City Police, Fire, and Teacher’s pension funds are in dire condition. Such dire condition that the if the city and unions were being honest the city would be putting in as much each year as the benefits that were being paid out, an amount that goes up every year. According to the latest data I have seen (they hide this stuff as long as they can) the city was doing so for Police and Fire back in 2011 and 2012, but not for the NYC teacher’s pension fund. Not even close.
Perhaps the deal between DeBlasio and the United Federation of Teachers was that the teachers would get raises in excess of inflation over a contract that included the recession, even as most New Yorkers got raises that lagged inflation. Those raises would be over and above the soaring cost of the 2008 UFT pension deal,
and do nothing for younger and future teachers who were subsequently forced to pay more into pension funds that were less generous than Generation Greed had been promised to begin with. And the city would stop hassling the worst teachers about doing a better job, and cut the amount of time they spend teaching (for which teachers got a 20 percent raise, which remains, earlier in the Bloomberg Administation). But in exchange, the union wouldn’t object when the DeBlasio Administration (also) deferred to cost of the pensions to the future.
What does the new City Actuary have to say about all this? There is no new City Actuary, though the unions and Mayor are jointly searching for a suitable replacement.
What the DeBlasio Administration is doing with pensions, it is also doing with infrastructure. Before the early 1990s recession, New York City contributed about $800 billion per year (in today’s money) to the MTA Capital Plan, with the state putting in a similar amount. In cash, money raised from taxes. Then the city and state made a deal. You cut off money to the MTA, and we cut off money to the MTA, and we’ll have the MTA borrow the difference. As part of that deal, money that had been considered operating costs was reclassified as “reimbursable” capital costs, and borrowed for.
At it happens I was a junior staff member at NYC Planning at the time, and came along for a meeting with MTA officials. One of them told my bosses “there’s stuff going on that I can’t really say” with regard to the budget, but they were clearly upset. They were told to “make it work.” The result, when MTA funding wasn’t restored through two (now three) economic booms, was $32 billion in debt. Plus the added costs of the 2000 pension deal, which caused payouts to retired transit workers (and other retired public employees in NY State) to soar.
The proposed city budget provides nothing to the MTA Capital Plan. Instead it identifies who should be blamed when the transit system degrades to collapse, like the one in Boston.
The State of New York, and Governor Andrew Cuomo. Too bad we don’t have an MTA head with the guts to quit and tell it like it is on the way out the door, as in Boston, perhaps because those at the top in the MTA and the advocates are still hoping someone will hand out the sacrifices needed to pay for the past and save the transit system from another collapse.
DeBlasio has also identified who to blame when the city’s schools are further degraded to (belatedly) pay for that 2008 teach pension deal (and 2000 and 1995). The state, because the city schools need $billions more in state funding “owed” by the Campaign for Fiscal Equity lawsuit. Even though the city is spending vastly more per student on schools than was ever contemplated in the findings of that lawsuit, without providing much in return, as any true “progressive” might have objected to.
There is nothing in that budget about facing up to things, aside from facing up to the fact that NYC public employees are going to be getting more and more relative to everyone else. There is no discussion of who will have to sacrifice what to pay for it. Just a set up to have someone else to blame.
Look beyond the alleged ideological conflict between Mayor DeBlasio and Governor Cuomo. And realize that they, and New Jersey Governor Christie, all share the same ideology. They are careerists. And they all share the same situation. They inherited fiscal disasters from politicians who sold the future to hand out goodies to their supporters and other powerful interests, and are primarily focused on handing out further goodies while further deferring the cost of past deals into the future. Or, when that is no longer possible, blaming someone else. None is willing to hand out the pain that would be necessary to turn things around. Or call out the interests – and generations responsible for it.
That’s what the dead silence about the MTA Capital Plan is. That’s what the ongoing New Jersey pension crisis, with Governor Christie refusing to pay for his own deal, is. That’s what the DeBlasio budget is. Don’t let any rhetoric to the contrary fool you. And don’t, two or three of five years down the line, let anyone say that what is happening to people is due to “circumstances beyond our control.”
You see the same situation in California, and in Illinois, and Washington. It’s all about managing perceptions, hiding the realities from screwed younger generations, and finding “creative solutions.” Which always seems to mean either sticking it to the less powerful, or avoiding solutions but taking more out of the further future.
We’ve had 20 years of lying about the true cost of the pension deals that started in 1995. And the debts run up starting about the same time. What they don’t know won’t hurt them, at least until some point in the future when either the link between what we did and what happens to them can be obfuscated and perhaps we are gone. Lying by the unions and elected officials, and silence about what this has done to younger generations by the media. Isn’t that enough?