Analysis: The Ticking Pension Time Bomb

The economic slowdown has put a heavy burden on the pension systems.

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    NEWSLETTERS

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    Back in 2003, the Manhattan Institute for Policy Research published a report calling New York State’s public pension system “a ticking fiscal time bomb.”

    A couple of years ago the institute reported: “The bomb is now exploding and New Yorkers will be coping with the fallout for years to come.”

    Governor Andrew Cuomo has just confirmed this dire description, warning the Legislature that he’s willing to risk a shutdown of government to change the pension system for the next generations of public workers.

    “It is one of the seminal clashes of this budget and of my administration,” Cuomo declared, according to the Wall Street Journal. “The question is, does this body, does this government, does this Legislature perpetuate a pension system that is on the verge of bankrupting the state -- or does the Legislature respond to the needs of the people?”

    The governor’s words are strong, and clearly designed to get the Legislature’s attention. In just seven years, the state’s contributions to its pension systems has tripled, rising to $1.5 billion. The governor would create a new tier for future state workers that would raise the retirement age from 62 to 65 and would no longer allow them to take early retirement. The most controversial part of his plan would give future workers the choice of joining a less generous pension plan or a 401K-type program. Cuomo said the new program would save $123 billion over the next 30 years.

    Carol Kellerman, president of the Citizens Budget Commission, strongly endorses the governor’s proposals. She told me that, in places like Rhode Island and Illinois pension systems are already on the brink of insolvency. “We have to do a few things to fix our retirement plans: the retirement age has to be raised; the practice of padding pensions by working overtime in an employee’s last years must stop; various state agencies should not be squeezed to meet the cost of the pensioners.”

    Union leaders are raising battle flags against the idea that pensions will be cut. The cozy relationship between many legislators and union lobbyists is an obstacle to the proposed cuts. But the failure to act to curb these costs can spell financial disaster for the state government.

    It’s time to pay the piper. We have to pay a price for the excesses of the past.

    The economic slowdown has put a heavy burden on the pension systems. The return from investments has fallen off drastically. Something must be done to benefit both state and city workers and the taxpayers.

    Cuomo said that his plan “goes right to the heart of the beast…the central power struggle of Albany.”

    If the budget isn’t passed by April 1, Cuomo could refuse to accept a budget that doesn’t have a budget proposal and he could then include changes in an emergency “extender” budget bill. If the legislators refuse to pass that, the government would be shut down.

    “Am I willing to go to extenders?” Cuomo asked. “Yes. But they have to shut it down, not me. There must be pension reform in the budget.”

    It’s as though the leaders in Albany are playing a game of  “chicken.” It’s serious business and something has to be done before it’s too late.