The huge jump in taxpayer contributions to New York City’s pension system over the past decade is primarily the result of poor market performance, according to a new report from City Comptroller John Liu.
The analysis, which examines a $31.6 billion rise in the city’s pension costs between 2001 and 2010, finds that investment losses accounted for 48% – $15.2 billion – of the additional costs. The results aren’t surprising, given that the funds assumed an 8% annual rate of return but earned an average of only 2.5%.
What is surprising, however, are the conclusions Liu and the Bloomberg administration appear to have drawn from the report.
“New York City has successfully managed its pension funds for more than a century,” Liu said in a statement. “While pension reform is needed, radical changes to retirement benefits should not be made based solely on one of the worst decades in market performance…Residents of the city should be proud that in spite of tough economic times, the New York City Pension Funds continue to meet their obligations.”
But, as E.J. McMahon points out in the NY Post today, the city’s pension troubles were largely avoidable – the result of a decade of financial mismanagement and bad policies. Now pension contributions are projected to eat up 20% of NYC’s tax revenue in 2012.
The long-term costs of New York’s inflated pension promises were obscured or grossly understated until it was too late. Now the system is demanding more of taxpayers when they can least afford it. That’s not a bug — it’s a feature of defined-benefit public-pension plans across the country…
Bloomberg, meanwhile, is taking a same-but-less approach to fixing pensions — proposing to retain the DB system with higher retirement ages, lower benefit levels and higher employee contributions for new workers. Yet that approach has been tried before in New York — and failed to deliver lasting savings. Unions can be expected to start clawing back any lost benefits as soon as pension costs fall back below “normal” levels, assuming they ever do.
The comptroller’s numbers make it clearer than ever that the traditional public-pension system has exposed New York taxpayers to intolerable levels of financial risk and volatility. The mayor needs to rethink his pension reform agenda — and the comptroller needs to get one.
Read McMahon’s whole column here.