State lawmakers are showing renewed interest in legislation that would rattle municipal finances and crowd out local services such as police and fire protection.
The bill (A4989/S4191), sponsored by Senator Andrew Lanza (R-Staten Island) and Assemblyman David Weprin (D-Queens), would prohibit public employers from “diminishing the health insurance benefits” provided to retirees or the “contributions” below what’s given to current employees. A push in recent weeks by public employee unions brought the number of senators supporting the anti-diminution measure to 11.
Retiree healthcare is a perk enjoyed by nearly all New York public employees, compared to only about 14 percent of private-sector workers, federal data show. It’s most costly for municipalities with police and fire departments, where employees often retire in their 40s and keep local taxpayers on the hook for a decade or more of family coverage.
New York’s retiree healthcare benefits are problematic because they involve paying for services years, even decades, after they were rendered. Unlike public pensions, for which employers and most employees are putting away money while they’re on the job, the cost for a public employee’s retiree healthcare doesn’t generally hit until he or she starts collecting it. That means there’s no near-term cost to promising a benefit several decades into the future—which is why so many public employers have done just that.
New York public employers are carrying massive, almost incomprehensible liabilities for future retiree healthcare payments, totaling over a third of a trillion dollars and for which little if any money has been set aside.
That’s already translating into tangible costs that risks crowding out other priorities. Healthcare for current retirees costs New York state government (including SUNY and CUNY) $2.2 billion last year—more than the combined budgets of several state agencies.
Retiree healthcare costs present an especially serious challenge for cities, which tend to have both police and fire departments. In Buffalo, for example, city government’s $53 million in retiree healthcare costs have swollen 19 percent in just four years. The Queen City’s healthcare plan last year covered 2,900 retirees (compared to 2,600 current employees), and the cost of that coverage took up more than 10 percent of the budget.
The fiscally distressed city of Albany has for years struggled to get retirees to pay anything toward their coverage. Most recently a state appellate court thwarted the effort to get the city’s retired firefighters to pay $500 per year toward the deductible on their family coverage (which likely costs taxpayers over $20,000 annually).
As both retiree ranks and healthcare costs keep growing, municipalities unable to control benefit costs will have two options: hike taxes or trim spending in other areas.
Big retiree healthcare costs come from having big payrolls, meaning the places facing the worst pressure tend to be the ones where the biggest thing to cut is police and fire personnel.
The Chautauqua County city of Jamestown has periodically collided with New York’s little-known constitutional limit on property taxes (and spent considerable time under a hiring freeze). Cities in similar situations won’t have options. They’ll have service cuts—period.
An Old Bad Idea
The concept behind the Lanza-Weprin bill has been around for more than a decade and has earned varying levels of interest in recent years as employers have grappled with how retiree healthcare benefits can be changed. Former Governor Andrew Cuomo in 2011 pushed successfully to have state employees, and by extension, many retirees, pay 12 to 16 percent of their healthcare costs, up from 10 percent. New York City, more recently, has moved to shift retirees (for whom city taxpayers pick up the entire cost of coverage) onto somewhat more narrowly crafted Medicare Advantage plans. Neither house of the legislature has approved the measure previously, though it has passed in committee as recently as 2019 (and with bipartisan support).
School district employees in 2009 won a guarantee that effectively blocked healthcare changes, causing ballooning costs to translate automatically into higher school property taxes and pressure on student services.
The sponsors say, unironically, the bill is necessary “given the increasing costs of health care.” Lawmakers otherwise deeply concerned about unfunded mandates from Albany seem strangely unconcerned about where those costs fall.