Senate panel OK’s huge OPEB bill

by E.J. McMahon |  | NY Torch

iceberg-webpageFor the third time in as many years, a state Senate committee has approved and sent to the Senate floor a bill that would lock in tens of billions of dollars worth of unfunded retirement health insurance coverage promised to New York government employees.

The bill in question, sponsored by Republican Sen. Andrew Lanza of Staten Island, is designed to prevent state and local government employers from attempting to restructure costly other post-employment benefits (OPEB) without first bargaining with public employee unions.

The Lanza bill was favorably reported to the Senate floor early this afternoon by the GOP-run Civil Service and Pension Committee, chaired by Sen. Martin Golden of Brooklyn. The committee session was sparsely attended and ended within minutes, with no substantive discussion. A vote tally was not immediately announced or available.

Previous blog posts here have explained why the Lanza “anti-diminution” bill is a terrible idea. 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. 

As of three years ago, financial reports indicated, New York’s total unfunded liability for OPEB came to $250 billion. That’s a looming fiscal iceberg of a quarter trillion dollars, with a “t,” if you’re keeping score. But as far as potential costs are concerned, the sponsor’s memo for Lanza’s bill includes this breathtakingly disingenuous entry:

FISCAL IMPLICATIONS:
None. This bill merely requires the State to continue the level of benefits which it is now providing.

That statement is accurate only in the very narrowest sense. It’s also extremely misleading, when you realize that “merely” continuing current level of benefits as of fiscal 2015  equated to an unfunded liability of $77.4 billion for the state government alone—up $9.2 billion over the previous year, according to Governor Andrew Cuomo’s latest Five-Year Financial Plan (see p. 47).

State courts have ruled that retiree health benefits are not covered by constitutional language that prevents changes to accrued pension benefits, and in many cases retiree health benefits were granted by local law or even custom, not collectively bargained.  In any event, public employees unions do not represent and cannot bargain on behalf of retired members.

Nonetheless, retiree health insurance coverage of New York public school district employees has been locked in for more than 20 years under a law first enacted temporarily under Gov. Mario Cuomo in 1994 and made permanent under Gov. David Paterson in 2009.  This has been a huge giveaway to teachers’ unions—a gift that just keeps on giving—and unions representing other types of employees naturally keep demanding the same thing for their members. However, similar anti-diminution bills for all government workers were repeatedly vetoed by Governors Pataki, Eliot Spitzer and Paterson.  No such bill has reached Cuomo’s desk in the past five years—although Senate Republicans seem to be in a perpetual state of flirting with the idea.

Hurry up and wait

In each of the last two years, the Lanza bill made it to “third reading” on the Senate calendar, which meant it was ready for a floor vote on short notice if the leadership felt inclined to pass it. As in past years, an identical Assembly bill still lurks in committee, from which it could be whisked to the floor very quickly.

In 2014, the Lanza bill emerged from committee in March. Last year, the committee waited until its final meeting, in June, to move the bill to the floor. Now the bill has been approved at the very first Civil Service and Pensions Committee meeting of the 2016 session.

What’s the rush? That’s one of many unanswered questions continuing to surround this measure.

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- E.J. McMahon is the Research Director at the Empire Center for Public Policy.