Few in New York are likely to know, and even fewer to remember, “Squeezy the Pension Python,” the main character in a viral video seeking to win public support for pension reform in Illinois a decade ago. But they might want to give it a look.
Pythons squeeze their prey until they asphyxiate. Pension costs can similarly suffocate cities and imperil their growth. New York is, once again, facing such a challenge. The problem: to the extent that rising pension costs constrain a city’s ability to provide ample services, they can erode the quality of urban life, threatening future vitality. As the city allocates more money to pensions, it has less to spend on police or fire protection, schools, or services.
The end of a bull market in 2022, combined with the Covid-induced exodus of office workers and high-income residents, makes it harder for New York to raise revenue and pay more for pensions for its retired and soon-to-retire employees. The city estimates that it will have to contribute more to its pension systems covering teachers, police officers, firefighters, and other workers between now and 2026. Last year, New York spent 14.7 percent of its total revenues on pensions. That sum has been rising: between 2011 and 2022, pension expenditures grew by 20 percent, in inflation-adjusted dollars.
The city has few levers that it can pull to address rising pension costs. This is because, for the most part, state law determines pension policy. The city just pays the bill.
One option is to raise taxes. But given the work-from-home revolution and New York’s already-high taxes, this choice would further threaten the business climate. Another option is to reduce city employment by attrition—not replacing workers after they retire or quit. But unless the city can find ways to do more with less, public services will deteriorate as a result.
The best alternative to reduce the pension squeeze is for Mayor Eric Adams and other city officials to petition Governor Kathy Hochul and the state legislature to enact reforms that will bend the city’s cost curve. What changes would do that?
First, the state should merge the city’s five pension plans into a single plan governed by a professional administrator. Instead of five plans administered by 58 politically appointed board members, the state would run one plan, with one board using (and an in-house professional investment staff) managing all the assets.
Second, the state should raise the full retirement age for public employees to 65. By requiring more years of service, the state and the city will be able to hold down contribution costs, if only modestly. Other small changes in the pension formulas, such as the multiplier or employee-contribution rates, can also help restrain costs.
Third, the state should expand the defined-contribution plan options and extend them to more employees. SUNY and CUNY professors have long enjoyed such an option, rather than the traditional defined-benefit plan. Making these choices available to more employees will reduce the number of workers for whom the city is liable.
Reform is often seen as politically unattractive because its tangible benefits accrue only in the distant future, but the payoff will not take as long to manifest as some might believe. Under then-governor Andrew Cuomo and then-mayor Michael Bloomberg, New York enacted a similar batch of pension reforms in 2012 (called Tier VI). Estimates suggest that the city has saved some $7 billion in pension costs over the last decade thanks to those changes. Another round of reform would save billions more.
Ultimately, pension reform serves current workers (whose jobs will be more secure) and the public (which relies on city services). Reform thus safeguards jobs and services, which will help maintain the city as an attractive place to live and do business.
While pensions are often seen as technical policy area, their costs are deeply woven into the fabric of the city’s human capital, on which the city relies to flourish. Policymakers shouldn’t let the past and future be the enemy of the present. Instead, they should strive to make New York a national model for responsible pension reform.