Albany’s Most Urgent Task: Pry Pols From Their Pensions
January 3, 2011
This much we know: New York's public pension system, with its exorbitant defined benefits, must be radically changed or it will bankrupt us. Over the next five years, the tax-funded annual contributions to the Teachers' Retirement System will more than quadruple and contributions to the New York State and Local Retirement System will double, according to a recent report issued by the Empire Center for New York State Policy. The same report indicates that pension costs for New York City, having grown tenfold over the past decade, will increase by approximately 20% over the next three years. At a time when the state faces a $9 billion deficit and serious economic stress is being felt by every municipality, increasingly scarce resources are being diverted from critical public services to prop up these systems and their far-too-generous benefits - which are, according to the Census Bureau, more than twice as high as equivalent benefits in the private sector. This is unacceptable. But what few people realize is that the main obstacle to reform - even bigger than the public employees unions themselves - is elected officials in Albany and the people who depend upon them for political jobs. They - or I should say "we," since I am one of them - are dependent upon the very pension system that's drowning the state in red ink. We benefit from its largesse every bit as much as firefighters, teachers and other state workers. The longer we stay in the system, the more retirement income we earn. According to the New York State Comptroller's office, there are more than 12,000 elected officials in New York from every level of government and countless others in politically appointed positions who also enjoy a taxpayer-funded, defined-benefit pension. As long as this remains the case, the Legislature will have a profound conflict of interest that prevents it from tackling this massive fiscal problem. No reform will be possible. The solution is to pass a law that "carves out" the political class - defined as all elected officials in the state and all non-civil service political appointees - by immediately capping the defined-benefit pension plan to this class of participants while, at the same time, creating a new defined-contribution plan. With the state comptroller acting as sole trustee of the new defined-contribution platform - which would work just like the 401(k) plan most workers have - these employees and elected officials will, going forward, contribute their own funds, on a pre-tax basis, into their own self-directed retirement accounts with investment choices monitored by the comptroller. A discretionary employer match could be included based on the municipality's fiscal health. The argument against this approach - that it is a reduction of a promised benefit, unconstitutional in New York State - is a red herring, since you cannot diminish a benefit you have not yet earned. This one, simple step would have three important benefits: First would be the end to "pension spiking," which is the movement of employees to higher paying positions with the goal of boosting the final average salary, a key determinant of benefit amount. Political appointees are known to abuse this practice. Second, the attraction of patronage jobs in government would be diminished due to the elimination of the defined-benefit pension. As a result, we could expect a higher caliber public sector worker. Finally, and most important, would be a bigger, broader benefit: The reform would begin to profoundly change the corrupt, free-lunch culture of New York's state government. An environment would finally be created whereby the interests of the politicians are more closely aligned with those of the taxpayers, the overwhelming majority of whom do not enjoy taxpayer-funded, risk-free, defined-benefit pensions. Some credible voices for political reform in New York - former Mayor Ed Koch among them - believe, with the best of intentions, that term limits, campaign finance reform and nonpartisan redistricting will solve the problems of dysfunction in state government. But none of these reform measures will fundamentally change behavior among the political class. The root of the corrosive culture I see at work every day is the overstuffed pension system and the huge benefits it perpetually promises at the end of the rainbow. Nothing short of closing the system to these people will produce the desired result of a leaner, more efficient and taxpayer-friendly government - or create a political environment where that might someday be possible.