Budget; New York City's $76 Billion Shortfall;

The Empire Center for New York State Policy discusses New York's Exploding Pension Costs

Public pension costs in New York are mushrooming—just when taxpayers can least afford it. Over the next five years, tax-funded annual contributions to the New York State Teachers’ Retirement System (NYSTRS) will more than quadruple, while contributions to the New York State and Local Retirement System (NYSLRS) will more than double, according to estimates presented in this report. New York City’s budgeted pension costs, which already have increased tenfold in the past decade, will rise by at least 20 percent more in the next three years, according to the city’s financial plan projections.

NYSTRS and NYSLRS are “fully funded” by government actuarial standards, but we estimate they have combined funding shortfalls of $120 billion when their liabilities are measured using private-sector accounting rules. Based on a similar alternative standard, New York City’s pension funds had unfunded liabilities of $76 billion as of mid-2008—before their net asset values plunged in the wake of the financial crisis.

In November 2003, the Manhattan Institute for Policy Research issued a report de-scribing New York State’s public pension system as “a ticking fiscal time bomb.”

The bomb is now exploding—and New Yorkers will be coping with the fallout for years to come.

New York’s state and local taxpayers support three public pension funds encom-passing eight different retirement systems—five covering different groups of New York City employees, and three covering employees of the state, local governments, school districts and public authorities outside the city. Between 2007 and 2009, these funds lost a collective total of more than $109 billion, or 29 percent of their combined assets. Two of the three funds ended their 2010 fiscal years with asset values below fiscal 2000 levels; the third has barely grown in the past decade.

Meanwhile, the number of pension fund retirees and other beneficiaries has risen 20 percent and total pension benefit payments have doubled in the past 10 years. Tax-payers will now have to make up for the resulting pension fund shortfalls.

Assuming the pension systems all hit their rate-of-return targets:

• Taxpayer contributions to NYSTRS could more than quadruple, rising from about $900 million as of 2010-11 to about $4.5 billion by 2015-16. The projected increase is equivalent to 18 percent of current school property tax levies.
• State and local employer contributions to NYSLRS will more than double over the next five years, adding nearly $4 billion to annual taxpayer costs even if most opt to convert a portion of their higher pension bills into IOUs that won’t be paid off until the 2020s.
• New York City’s budgeted pension contributions, which already have in-creased by more than 500 percent ($5.8 billion) in the last decade, are projected to increase at least 20 percent more, or $1.4 billion, in the next three years.

Pension costs would be even higher if New York’s state and local retirement funds were not calculating pension contributions based on permissive government ac-counting standards, which allow them to understate their true liabilities.

While New York’s two state pension systems officially are deemed “fully funded,” we estimate that NYSLRS is $71 billion short of what it will need to fund its pension obligations, and that NYSTRS has a funding shortfall of $49 billion, based on valua-tion standards applied to corporate pension funds.

New York City’s pension systems are not as flush as NYSLRS and NYSTRS, which is the main reason why the city spends more for pension contributions than all of the state’s other public employers combined. The official “funded ratios” for the five city retirement systems ranged from 56 percent to 80 percent as of June 30, 2008. This would indicate they were $42 billion below fully funded status before the financial market meltdown wiped out more than 20 percent of their net assets. However, the city actuary also has computed alternative measures of funded status based on the kind of more conservative assumptions used in the private sector. These measures show the city’s pension system was underfunded by $76 billion in 2008.

The shortfalls in the city systems undoubtedly have grown much larger in the last two years, but the full dimensions of the problem won’t be known until the pension plans issue their financial reports for fiscal 2010.

Note that those shortfalls assume New York meets its expected rates of return of 7.5-8.0% based on plan. The odds of that happening are slim. Please see the article for more facts, figures, and charts.