For all the smoke coming out of Albany since a newly elected Governor Andrew Cuomo began to clash with the Empire State’s public-employee unions, you might think that there was a real fire. But this is New York State government, and appearances can be deceiving. The situation in the state capital barely rises to the level of a fight—which makes it hard to tell who, if anyone, is winning.
The first round of this delicate combat was fought over the governor’s proposed budget, which passed with relatively little acrimony. Reflecting the general consensus, Chris Smith wrote in New York that the on-time budget, which cut state spending and didn’t raise taxes, was “an enormous political victory for New York’s governor, the product of a brilliantly played first 100 days in office.” Indeed, Cuomo showed political savvy in getting the unions and their allies to sign on to the budget before they understood his austerity plans. But the unions didn’t really give up much. Cuomo demanded some concessions, but he didn’t raise any of the collective-bargaining issues that have been put on the table in Wisconsin, Ohio, Indiana, New Jersey, and even Massachusetts. Ultimately, the budget battle wasn’t much of a battle, because the final plan left out the most controversial items, such as reductions in Medicaid spending. Pursuing that would have provoked the ire of the Service Employees International Union’s powerful 1199 local.
The current round of the clash involves the state’s pension system. Again, Cuomo has left the biggest structural reforms off the table, such as moving away from the current “defined-benefit” system and toward the “defined-contribution” or 401(k)-style plans that are now the norm in the private sector. Unions value defined-benefit plans so highly because they put all of the risk on the employer and none on the beneficiary. Under a defined-benefit plan, retirement benefits don’t fluctuate with the stock market the way they do under a defined-contribution plan: they are defined, which means guaranteed. If pension funds perform poorly in the stock market, or the amount that government and its workers contribute to them is insufficient, it doesn’t matter: the promised annuities must be paid. Today, 84 percent of state and local public employees across the country participate in defined-benefit retirement programs, as opposed to just 21 percent of workers in the private sector.
Cuomo’s proposal does make some helpful changes to New York State’s pension scheme, however. If passed, it would raise the retirement age from 62 to 65 for most state workers and from 57 to 65 for teachers. It would raise workers’ contributions to their pensions from 3 percent to 6 percent of their salaries. It would reduce opportunities for pension “spiking” (schemes in which public employees get large late-career pay raises that inflate their eventual retirement income). The unions oppose even these changes.
For most politicians, the toughest thing about pension reform is that the issue is a short-term loser. The public doesn’t readily grasp what’s at stake, and business groups care more about other things, so officials earn little political capital by taking the issue by the horns—while also infuriating public-employee unions, which are an attentive and powerful constituency. Therefore, the coalition for major reform is usually fleeting, while the defenders of the status quo are dug in for the long haul. Whether Cuomo will go any farther in seeking a pension fix is uncertain.