iceberg-webpage-150x150-4271132A Republican-sponsored bill that would impose a massive unfunded state mandate on local governments was unanimously reported out of Senate committee this week.

Sponsored by Sen. Andrew Lanza (R-Staten Island), S3854 would “prohibit state and local governments from diminishing the health insurance benefits of retirees below the level of benefits that are in place 30 days after this act shall become law.”

Translation: unless they rush to cut them, local taxpayers would have to absorb 100 percent of future cost increases on benefits now provided to their retirees.

All seven members of the Senate Civil Service and Pension committee, five Democrats and two Republicans, voted to advance the measure to the full Senate. The same-as bill (A4203) is sponsored by Assemblyman David Weprin has not (yet) received a committee vote. The bill was introduced each year beginning in 2009, and came close to getting floor votes in the Senate in 2014, 2015, and 2016.

GOP Senate leaders critical of local mandates never explained their willingness to move the bill to the floor, one step from passage, when they still controlled the chamber. Now that the Senate is dominated by a large new majority of (even more) union-friendly Democrats, it could pose a real danger to local taxpayers.

A 2012 Empire Center study estimated New York state and local taxpayers face an unfunded liability of nearly $250 billion for retiree health benefits–a figure that’s likely grown. As E.J. McMahon warned in this space when the Senate came close to passing an earlier version of the Lanza bill in 2016:

Over the long term, it may be the single most costly and short-sighted new mandate that Albany could impose on local governments, not to mention on the state government itself.

Unlike nearly all current private-sector workers, New York’s state and local public employees typically can expect to receive continuing health insurance coverage after they retire. And since most can retire years (in the case of police and firefighters, up to 20 years) before reaching Medicare eligibility at age 65, this is a very expensive proposition. Unlike pensions, OPEB benefits are not pre-funded during an employee’s working life but paid for out of current budgets.

Across New York State, today’s taxes finance health benefits for yesterday’s employees, perpetually shifting a steadily growing bill to future generations of New Yorkers. Benefits first accrued years or even decades ago are a bill presented to taxpayers who may not even have been born at the time.

Article V, Section 7 of New York’s state constitution treats pension income as a contractual entitlement that cannot be “diminished or impaired.” However, the state’s highest court has ruled that this provision does not apply to retiree health insurance. The legal status of retiree health benefits varies by employer, as determined in a series of other state court decisions over the past 30 years. In many local jurisdictions across the state, retiree health benefits for public employees were granted by laws or resolutions but have not been enshrined in union contracts. In other cases, only a portion of the benefits can be considered contractual.

Public school retirees are an exception to this rule, however. Under a temporary law first enacted in 1994 and regularly extended thereafter, the governing boards of school districts outside New York City have been barred from making any change in retiree health benefits unless the same change is collectively bargained for active employees, regardless of whether those benefits were contractual to begin with. This restriction was made permanent as part of a pension “reform” law passed with Governor Paterson’s support in late 2009.

One union, the Civil Service Employees Association, blames government accounting standards for prompting local governments to consider cuts—as though the liabilities would somehow be less problematic if they were omitted from financial statements.

This and other anti-diminution measures would do more than just slam local governments with a massive and unshakable unfunded mandate. It would actually work at cross purposes with ongoing state efforts, through the state Financial Restructuring Board for Local Governments, to stabilize struggling municipalities by modifying the way benefits are provided.

The Southern Tier city of Jamestown, for instance, was recently paying more for coverage for its retirees than for current employees, in part because eligible retirees weren’t enrolled in Medicare. While Jamestown is now realizing savings after shifting those retirees to Medicare and providing supplemental coverage, the Lanza bill would effectively prohibit other local governments from making a similar course correction.

The bill would also block efforts by Governor Andrew Cuomo to reduce the state’s retiree healthcare costs by limiting how much the state pays toward Medicare premiums for “high income retirees,” which would save taxpayers more than $24 million per year by fiscal 2021.

About the Author

Ken Girardin

Ken Girardin is the Empire Center’s Director of Strategic Initiatives.

Read more by Ken Girardin

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