(January 25, 2012) — New York City Mayor Michael Bloomberg has revealed that with pension costs skyrocketing and straining New York City’s budget, state legislatures should support the governor in creating a new pension tier for future municipal and state workers.
Bloomberg has not always agreed publicly or privately with New York Governor Andrew Cuomo. However, on Tuesday, the mayor voiced praise for Cuomo’s $132.5 billion executive budget plan — giving specific approval for the governor’s plan to introduce a new Tier VI pension system for new hires. According to the mayor, the city’s pension costs were $1.5 billion when he first took office and are now roughly $8 billion annually, or 12% of the city’s budget.
According to the mayor, the new pension tier would save the city $30 billion over 30 years without costing current workers anything. “Unless we enact sensible reforms now, our pension costs will keep growing and keep diminishing our ability to pay for schools, libraries, parks and other essential services, or to limit an increase in taxes,” said Bloomberg in his testimony on the governor’s executive budget and reform plan.
He continued: “It would raise the retirement age, exclude employee overtime from pension calculations, bring progressivity into employee pension contributions and institute shared risks and rewards that would reflect the fluctuations in the market. It would also offer new employees the choice of a defined contribution option, with a flexibility and portability that many may find a better, fairer choice for them.”
Bloomberg has declared that most estimated returns on pension plan investments are out of touch with reality. “The answer is, in the end, we cannot afford these pensions,” Bloomberg said. “We have no obligation to people we have yet to hire.”
Referring to the proposed pension tier, Bloomberg asserted: “It would also offer new employees the choice of a defined contribution option with a flexibility and portability that many may find a better, fairer choice for them, but it wouldn’t force it on them, it would just give them the option. Why are we so afraid of giving people an option?”
In June, Bloomberg voiced disapproval with a study commissioned by Comptroller John C. Liu that predicted that New York City’s pension costs will peak in 2016 before they begin a gradual, steady decline. The mayor said that he saw major flaws in the report. According to the report — titled “Sustainable or Not? NYC Pension Cost Projections through 2060” — pension costs will grow at a slower rate than the city’s economy from 2016 through 2040 and beyond, using up significantly less of its budgeting resources. “Poor market performance over the past decade means we still have a few tough years ahead as those investment losses catch up to us. However, significant reforms already implemented in recent years will drive down costs for decades to come,” Liu said in a news release. The Comptroller attributed today’s high pension costs partly to stock market losses.
aiCIO investigated New York City’s underfunded pension system in its Spring issue, revealing the tension between the Mayor and Comptroller. Bloomberg’s goal to reform the City’s pensions operation has not been universally applauded. While Liu is responsible for overseeing New York City’s pension management, Bloomberg hired the City’s first chief investment advisor in 2010 and brought on another senior professional to help run the system’s five pension boards. Insiders have claimed that Bloomberg favors greater attention to risk management and asset allocation and less emphasis on selecting asset managers, which is primarily Liu’s domain.
Read aiCIO’s investigation of New York City’s underfunded pension system.