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The Wrong Cuts

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eye on the news

The Wrong Cuts

The real problem with the NYPD budget isn’t officer headcount; it’s spiraling retiree fringe-benefit costs. July 2, 2020
New York
Economy, finance, and budgets

New York City has approved a new, pandemic-squeezed budget that’s making headlines because it includes a $1 billion cut to the NYPD amid calls, in the wake of the George Floyd killing in Minneapolis, to defund police. The reality is less dramatic, with about half of that $1 billion coming from shifting money and workers from the NYPD to other departments.

While the mayor pushes back against the “defund” bandwagon, his sleight of hand misses an opportunity in a time of crisis. The police budget has grown enormously because of lavish benefits that the city has awarded to NYPD employees and because New York State laws make it difficult to slow the increase in those costs once the perks have been awarded. The de Blasio administration is doing little to address those problems. Resisting calls to defund the department shouldn’t mean carrying on with a cost structure growing increasingly unwieldy. Police in New York have a hard job, but the extraordinary increase in the department’s benefit costs makes the budget a target.

In the past ten years, the police budget has increased by $2.8 billion—to $10.9 billion—a compound growth rate of 3 percent annually. That’s slower than the rate of increase of the city’s overall budget, but more than half of the increase in the NYPD’s total budget has been for pensions and fringe benefits, mostly health-care premiums for workers and retirees. When you add in debt service, these costs alone now account for 49 percent of the department’s budget. In other words, for every dollar the department spends on salaries, which constitute the main part of the rest of the NYPD budget, it’s spending another dollar on benefits. This is wildly disproportionate.

The cost of fringe benefits has expanded by 56 percent in the last decade, to $2.3 billion. The city provides nearly full medical coverage to employees and retirees, requiring only small contributions from some beneficiaries. Retirees under age 65—and almost all cops retire after 20 years on the job—don’t qualify for Medicare, a federal program, so the city pays the entire cost of their health benefits. According to a recent study, retiree coverage cost $17,000 annually for families and $7,500 for individuals. The NYPD, with more retirees than current active members of the force, absorbs a big part of the cost. Some 60 percent of the department’s spending on retiree health care is for those no longer working but who have not yet reached 65. The rest of the money is spent paying smaller Medicare premiums for city retirees over 65. The city is carrying full health-care costs for two workforces—the actual employees of the NYPD and its retirees.

While retiree benefits for cops are more expensive anyway, due to their younger age of retirement, New York’s costs are huge even compared with those of other cities. A 2013 study by the Citizens Budget Commission found that cost sharing between retirees and the government was far more common elsewhere, where retirees typically pay about 25 percent of their health-care costs. In the private sector, such cost sharing is even greater—if an employer offers any retiree health-care program.

The other benefits monster is pensions. The annual cost to the department to fund retirements equals $2.7 billion and essentially adds 50 cents to every dollar the department spends on salaries. One of the biggest perks that uniformed personnel enjoy is the ability to count overtime pay toward their pensions—something rare in the private sector and at most government jobs in other jurisdictions. One recent report estimated that this perk alone will add $2.5 billion to the cost of pensions in the department over the next two decades. It’s also a big reason why the average pension for a retired police officer is about $75,000 a year.

In the past, even well-intentioned reformers have had trouble hacking away at these costs because of unusual state constraints. A state constitutional amendment, for instance, limits the ability of municipalities to reform or reduce pension costs once a worker joins the system, even for work that the employee has not yet performed. This means that once a municipality hires a person, the rate at which the employee earns pension benefits cannot be reduced for the rest of his career. By contrast, pension laws in most other states let an employer change the rate of pension benefits for future work. In New York, the only recourse to savings is to change benefit rates for workers not yet hired, though it takes years for those savings to kick in.

Health benefits are not subject to constitutional restrictions and can be reduced. But changes must be bargained for, and the Taylor Law, which retains existing contract provisions in the event of a stalemate, makes that difficult. It provides a disincentive for unions to agree to concessions. The law also gives public-safety unions the right to bring contract impasses to arbitration; over the years, arbitrators have often ruled favorably toward unions.

During his tenure, de Blasio has gained few concessions from unions. In the current circumstances, the only way to cut costs quickly is to reduce the workforce. The new budget cuts some 1,100 workers from the NYPD and saves money through gimmicks like transferring entire functions—such as school safety—to other agencies, which must absorb the benefit costs. But the city has left numerous options typically exercised by other governments off the table—including larger contributions by retirees toward their insurance, especially those under 65, and reductions in coverage for entire families of retirees. The pandemic is the kind of crisis that demands state reforms and better city contracts to save money, not reducing the number of police officers needed to maintain safe streets.

New York City’s police have a hard job, and they do it well. But the combined salary and benefits costs of the average patrolman now reaches about $180,000 annually. It’s much higher for officers. Those costs have helped make the NYPD budget a focus of critics. The city may live to regret that.

Photo by Justin Heiman/Getty Images

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