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Investing in Libraries . . . or Pensions?

eye on the news

Investing in Libraries . . . or Pensions?

Retirement-benefit costs leave the New York Public Library badly in need of more funding. June 15, 2015

New York City will soon finalize its budget for the next fiscal year, and public libraries are feeling shortchanged. Though Mayor Bill de Blasio’s budget boosts capital funding by $300 million over ten years, the libraries had requested much more—$1.4 billion. And de Blasio would cut operational funding by $10 million.

If the libraries are getting less than they wanted, it’s not for lack of a public relations effort. Visitors to the New York Public Library’s website find a pop-up petition enjoining them to “tell the city that libraries need more funding.” Every major city newspaper has recently run stories or editorials echoing the systems’ demands. But most commentary has failed to explore why, in a city with such a marked preference for bigger government, libraries remain cash-strapped almost six years after the last recession ended.

Any honest account of library underfunding must include the ongoing burden of retirement-benefit costs on the city budget. In the last fiscal year, New York City devoted $8.1 billion to pensions—a 152 percent increase over the prior decade. If pension costs had kept pace with the overall budget, which grew 42 percent between 2005 and 2014, the city would have had an additional $3.6 billion to spend on services. To put that figure in context, after accounting for inflation, libraries would need about $164 million to restore spending to prerecession levels.

Pensions are a form of deferred compensation. “Backfilling” pension systems—that is, making contributions into the system to make up shortfalls—is effectively using current tax revenues to pay for past work. The costs of the past squeeze services in the present.

In addition, last year, the city spent $3.1 billion on retiree health care. Workers who retire before they become eligible for Medicare can stay on the city’s plan at no cost. And, when they reach 65, they get their Medicare Part B premiums reimbursed. Such generous benefit packages have nearly vanished from the private sector—and are thus totally unnecessary to attract and retain a qualified city workforce.

In recent years, the city’s libraries have harmed their cause through lack of transparency. Last March, they tried to pass off a glorified Powerpoint presentation as a “special report” substantiating their request for more money. And yet, the libraries do need more money. Even greater transparency won’t save them from having to close on hot summer days due to malfunctioning HVAC systems.

The fatal flaw of defined-benefit pensions, which city workers have, is that their costs increase during recessions to compensate for stock-market losses. When such cost increases combine with reduced revenues and the rising demand for many services—including libraries—that typically occurs during bad fiscal times, pensions’ impact on city budgets becomes devastating.

New York City is a big-government town. Municipal service commitments here are broader than elsewhere, and no true fiscal conservative has served as mayor in modern history. That’s a reality of New York, but it also means that single-issue advocacy makes even less sense with respect to municipal services here than in other cities. In exchange for any additional funding, city officials should demand more accountability and information from the New York library system, especially about its plans for what it calls its “midtown campus.” In addition, as should be the case with all capital commitments in New York, new appropriations should be guided by the principle of “fix it first,” not service expansion. Yes, the city should give libraries more funding—but library advocates should appreciate the inherent tension between expansive services and generous benefit programs for public employees. It’s those benefit programs that most need reform, which would ease the mounting fiscal pressure on city services, libraries included.

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