A little-noticed provision in lawmakers’ budget proposals would also be the most costly: their change to state retirement rules would slam New York taxpayers with more than $4 billion in new debt, and immediately drive up local pension costs, by sweetening the pension benefits of public employees.

The resolutions passed earlier this month by the Senate and Assembly laying out their opening positions in state budget negotiations called for boosting the pensions for state and local employees hired since 2012, commonly known as “Tier 6” members.

Pensions are calculated primarily based on how long an employee has worked and their earnings ahead of retirement, measured by their Final Average Salary (FAS, a term of art). Lawmakers proposed measuring the FAS over three years instead of five, leading to a higher FAS. That would retroactively increase the pensions for a small group of people who have retired in the past two years and raise the future pensions for roughly half of New York’s public-sector workforce.

The biggest beneficiaries of the change would be higher-paid public employees, such as downstate teachers, since they would have the largest increase in FAS and therefore largest pension increases.

Basing pensions on this higher FAS, pension plan actuaries estimated, would add $2.2 billion in debt to New York City’s five pension plans and $1.5 billion for the New York State and Local Employees Retirement System.

The impact for the state Teachers’ Retirement System (NYSTRS) wasn’t estimated, but given how the plan’s smaller city counterpart, NYCTRS, faces $667 million in new debt, if NYSTRS faces just the same amount, the total cost to taxpayers goes to at least $4.4 billion, more than what lawmakers sought to add to Medicaid through a new tax on health insurance plans.

(While the Medicaid hikes would be recurring costs, they would at least be something the Legislature can revisit. Once a pension sweetener is approved, lawmakers have no way to reverse it.)

The proposed change would instantly hit New York City with $163 million in added annual pension costs, an amount that would double by 2040. The total first-year cost for New York State—the entity the state Legislature is ostensibly elected to oversee—hasn’t been presented. It would be at least $57 million, not including the state’s bills from the TRS systems for SUNY and CUNY employees.

School districts and local governments would all see their pension costs rise, which would force them to either cut programs or raise taxes.

Public employee unions, which opposed the 2012 pension reforms, have been pressing lawmakers to roll them back one by one using baseless claims about their effect on things ranging from employee morale to recruitment. Empire Center founder E.J. McMahon swatted down these arguments at an October legislative hearing.

The unions have yet to demonstrate how the public interest would be served in sweetening these pensions. New York public employers are hardly alone in struggling to recruit in the post-COVID labor market, and  defined-benefit pensions are increasingly rare in the private-sector, available to less than one-sixth of workers. The pensions in question here are a cut above the rest, exempt from state income tax and guaranteed by state taxpayers.

Unfortunately for New York taxpayers, the only cost-benefit analysis will be the one made by state lawmakers and Governor Hochul as they decide how much more public money they must give away to unions ahead of the 2024 elections.

The FAS change is not the only pension sweetener the unions are seeking and it won’t be the last. Some unions are pushing among other things to cut the amount of money public employees must contribute toward their pensions, while teachers’ union activists are pressing for the state to give members full pensions at age 55.


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