Despite Reforms, Retirement Costs For Governments Set To Skyrocket

1:40 AM, Mar 24, 2012   |    comments
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Albany Bureau Chief

ALBANY -- Pension costs for local governments and agencies in New York are expected to skyrocket 59 percent in 2013 compared to last year as officials warn that recent reforms will provide no immediate relief to the mounting expense.

A review by Gannett's Albany Bureau of pension expenses for more than 3,400 governments and authorities in New York shows staggering growth in retirement costs for towns, village, counties and even local libraries since 2011.

While Gov. Andrew Cuomo last week reached an agreement to limit pension benefits for new public employees starting April 1, local leaders say it will do little to limit the big bills they face to fund workers' retirement in the coming years.

"It is going to be the downfall of certain communities," predicted Susanne Donnelly, supervisor of the town of Ossining in Westchester County.

The pension tab for taxpayers in New York soared from $2.2 billion in 2011 to nearly $3 billion this calendar year, an increase of 36 percent, Gannett's review of data obtained from the state Comptroller's Office found. The cost is estimated to grow to $3.5 billion by next year.
"It's a noose around the neck for taxpayers," said Poughkeepsie Mayor John Tkazyik.

Among the findings:

  • Pension costs are expected to more than double for at least 200 local governments between 2011 and 2013, mainly small municipalities, libraries or special districts with few employees.
  • The $3.5 billion in pension costs for local governments next year -- which excludes the state's own $1.6 billion tab for state workers and most of New York City's bill -- averages $224 a year for each of the state's roughly 19.5 million people. It was $140 per capita in 2011.
  • Westchester County residents are expected to pay $463 per capita next year for local governments' pension costs -- the most among the state's largest counties. For all the governments in Westchester, the collective pension tab is expected to come to a whopping $440 million.
  • In Rockland County, the pension tab for taxpayers is estimated at nearly $95 million, or $304 per capita, next year. It's $173 million in Monroe County, or $232 a year per person. The tab in Dutchess County is $61 million, or $205 per person; $47 million, or $234 per capita in Broome County; $22 million in Tompkins County, or $216 a person; and nearly $18 million in Chemung County, or $198 a person.
  •  Higher pension costs have led 128 governments this year to borrow from the state's pension fund to pay off current expenses. They've delayed payments of about $200 million and will have to pay them back at about 5 percent interest over the next decade.
  • The data excludes pension costs for school teachers, but includes some school district workers. Schools are paying 29 percent more this year for teachers' retirement costs than last year, and the cost is expected to increase slightly next school year -- to nearly $2 billion annually.

"Even with this pension reform, the numbers are still very difficult for our local governments," Cuomo said March 16 when he signed the pension bill into law.

Labor unions are assailing the new pension tier, called Tier VI. They accuse the state of attacking new public workers, saying they are shouldering the expense for the decline and corruption on Wall Street. The rise in costs is due largely to a drop in investment earnings from the state's $140 billion pension fund because of the national recession.
Mario Cilento, president of the state's AFL-CIO, said the pension changes are futile. He and other unions want the state to close corporate loopholes to raise revenue for local governments.

"There's not a dime of savings for local and state governments and municipalities as a result of Tier VI," Cilento said.

Cuomo estimates his pension reforms will save state and local governments $80 billion over 30 years. The savings will be achieved mainly through higher contribution rates for new employees. The new law also increases the retirement age to receive full benefits from 62 to 63.

He said without the changes, workers would face layoffs. Cuomo stresses that the pension tier only affects new workers; the state constitution protects the pensions of current workers.

But Cuomo's own estimates show the savings would be gradual: Only $5.9 billion would come within the first 10 years.

That's not fast enough for local leaders. They said pension costs are the fastest growing expense in their budgets.

Costs On the Rise

"Mandate relief is great," said Donald Zeigler, mayor of the Village of Horseheads in Chemung County. "But what can you do for the next five years because it's going to be crucial?"

The village of about 6,700 people faces a pension tab of about $433,000 next year -- a 49 percent increase from just two years ago.
"You're going to see a lot of small villages struggling to survive," Zeigler said.

Cuomo successfully got the state Legislature last year to pass a property-tax cap, which limits the growth in taxes to 2 percent a year. But some communities say their pension costs are growing more than the capped tax-increase allotment.

Pension costs that grow more than 2 percent a year are exempt from the cap, but local governments said they still have to pay for the expense -- either through raising taxes or cutting services.

"We keep having to cut back and we keep overriding the tax cap. It's vicious," said Priscilla Suits, supervisor for the town of Eaton in Madison County. The town has about 5,200 people and its pension costs grew from $27,000 to $60,000 over two years -- a 116 percent increase.
In the city of Binghamton, pension costs were $330,000 in 2002. Next year, they are expected to grow to about $8 million.

"That's a lot of money for communities that aren't really experiencing any population growth," Mayor Matt Ryan said.

Libraries, with small budgets and staffs, have felt the impact of higher pension costs.

The pension tab for the Nyack Library in Rockland County was about $65,000 in 2009, said the library's director, Jim Mahoney. Next year: $174,000.

The library has had to cut back on staff, programs and the purchase of books and periodicals. And it raised library taxes 3 percent last month.
The pension costs have "been a major difficulty and the cause of us going back to the public for more money," Mahoney said.

Borrowing To Pay

The Nyack Library was one of 128 governments this year that agreed to essentially borrow from the state's pension fund to pay for their growing pension costs now, called amortization.

They have to pay back the cost over a number of years -- at about 5 percent interest -- to the pension fund.

"It's the worst thing that you can do financially," Suffolk County Executive Steve Bellone said earlier this month in Albany. But he said the county, which borrowed nearly $46 million this year, had no other choice.

Suffolk County, which has the largest population of about 1.5 million outside New York City, declared a fiscal emergency this month and faces a $530 million deficit.

The number of local governments borrowing to pay for their pension costs has soared since the program was first introduced in 2010.
Fifty-seven did it in 2011 at a cost of $53 million. About $203 million was borrowed this year.

Monroe County borrowed $6 million last year and $8 million this year to pay for pension costs that are growing to about $49 million next year.
"It's terrible," Monroe County Executive Maggie Brooks said of having to borrow. "It's terrible that counties have to be given that choice in the first place, but it really underscores how dramatic the problem is."

County leaders have asked the state to let them borrow for pension costs at a lower interest rate, saying they could get a better deal on the open market rather than through the pension fund. But the measure hasn't been passed.

Future Costs

Unions point out that local governments are paying more now because they essentially skated with little or no pension expenses for years -- when the economy was soaring.

For example, school districts paid less than 2 percent of their payroll toward pensions between 1998 and 2003, records show. Next year, they are expected to pay nearly 12 percent of payroll toward pensions.

The same is true for the state's pension fund, which is controlled by Comptroller Thomas DiNapoli and covers nearly one million employees and retirees. Local governments paid 1.5 percent of payroll toward pensions in 2003; it will be at about 19 percent next year.

State budget documents estimate the pension costs could soar to 31 percent of payroll for police and fire officials' pensions by 2015.

Unions want schools to be able to "smooth out" their pension costs to avoid future dips and spikes in public employers' contributions -- and to have Wall Street pay more in taxes and fees to cover current pension increases. They estimate the state could find billions of dollars in savings from closing business loopholes.

Cuomo vetoed a pension-borrowing bill for schools last year. He kept higher taxes on the wealthy this year to help close a $3.5 billion budget deficit.

"What should have happened is, the crisis that school districts and local governments are facing should have been resolved by asking the 1 percent - Wall Street, the hedge fund operators - to take care of their share," said Richard Iannuzzi, president of the New York State United Teachers union.


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