The Mandate: In recent years, the pension cost crisis has revealed the underlying imbalance between the high cost of New York's public pension benefit structure and the limited fiscal capacity of local governments and their taxpayers. The state and its local governments operate under what is known as a defined benefit plan where employees are guaranteed a certain level of benefits financed primarily by state and local employer contributions to the retirement system. Over the years, these benefits have become increasingly more difficult to sustain.

The Cost: Pension contribution rates - as a percentage of payroll - have declined moderately in recent years, currently placing them in the same range as they were in the late 1980s (ERS rates in 2010 will be 7.4 percent of payroll, down from 8.5 percent in 2009 and 9.6 percent in 2008, while PFRS rates in 2010 will be 15.1 percent of payroll, down from 15.7 percent in 2009 and 16.6 percent in 2008). However, the base upon which pension costs are calculated - that is, salaries - has risen substantially since then. This, coupled with the pension benefit enhancements that have been granted over the last several years, has resulted in the continued rise in the pension bill amounts for many local governments.  In fact, villages and cities (outside NYC) experienced a tenfold increase in pension costs between 2003 and 2005.  Furthermore, in September 2009, the State Comptroller announced that pension costs would rise sharply in 2011, with average increases of 61% for non-uniformed employees and 21% for uniformed employees.  When combined with other mounting fiscal pressures on local governments, this jump in pension costs will undoubtedly lead to property tax increases and cutbacks in essential municipal services.  Other than raising property taxes, local governments have few options to help address these costs.

The Solution: Our state leaders should be commended for establishing a new retirement tier with more affordable retirement benefits for new hires in both the Employees' Retirement System and the Police and Fire Retirement System.  This new tier contains many of the elements the Conference of Mayors has been calling for, including: 1) requiring an employee contribution for the duration of their employment; 2) increasing the minimum retirement age at which an individual can begin to draw down even a partial pension benefit; and 3) revising the way the final average salary is (FAS) is determined by considering more than three years and taking into account only base pay.  This much-needed and long overdue pension reform is clearly a significant step toward helping local governments address their rising personnel costs.  Unfortunately, it will do little to assist municipalities in the short-term and, as a result, we must continue to support finding ways to ease the immediate impact of rapidly rising pension contribution rates.  To accomplish this, the state must undertake a thorough analysis of the benefits, funding methodology and oversight structures of our public pension system.  Additionally, legislation must be enacted to allow local governments to amortize a portion of their pension costs.