E.J. McMahon is a senior fellow at the Manhattan Institute for Policy Research and its Albany-based Empire Center
Gov. Andrew M. Cuomo says he's willing to be a "veritable Gumby" of flexibility in negotiating the terms of public pension reform, as long as a new pension plan reduces costs by a large enough amount.
Just what Albany needs: another clay figurine.
The governor insists he wants pension reform to deliver "maximum savings" for taxpayers, and he has estimated that his own so-called Tier 6 proposal would reduce pension contributions statewide by $113 billion over 30 years. But he's now hinting he may drop a key provision of his plan, and he's effectively inviting state legislators to think about reversing benefit cuts as soon as the economy improves.
The problem is that there is no way to enforce that long-term pension savings goal. Cuomo's proposals -- raising the minimum retirement age, increasing employee pension contributions and reducing pension benefits -- can apply only to future employees. As a result, it will be five to 10 years before Tier 6 begins to have a significant impact on taxpayer-funded pension contributions. Meanwhile, in the next few years, costs will continue rising to cover pension promises made in the past.
Any projection of long-term pension savings from Tier 6 is purely speculative, assuming that benefits will never be increased. Incredibly, the governor himself is now pouring cold water on that assumption.
"You can always raise the pension benefits," he said this week. "You know, three years from now, let's say the economy turns around and people say we want to have a better pension plan to attract different workers, then raise it, fine."
But Cuomo can't have it both ways: He can't claim to be obsessed with saving money in the long run while winking at the likelihood that unions will push to restore higher benefits before the first Tier 6 employees are even vested in the plan.
The governor, of all people, should understand that pensions aren't just another annual budgetary line item that can be ratcheted down when money is short and ratcheted up when "the economy turns around." Changes to pensions have consequences that stretch across decades, affecting generations of employees and taxpayers.
New York's inflexible and formulaic pension structure is made more rigid by the state constitution, which is widely interpreted as preventing any decrease in benefits for employees once they join the payroll. Benefits for current workers can only go in one direction -- up. It's happened repeatedly in the past. That's why we're now talking about New York's sixth new pension tier in 40 years.
By suggesting that pension benefits might be increased again when the economy improves, Cuomo has exposed the fundamental flaw in his Tier 6 calculus. As long as the state retains a defined-benefit system for most of its workers, taxpayers will face the risk of another pension cost explosion when they can least afford it. You can mow down benefits to the nub -- but like dandelions after a spring rain, they'll grow back when the sun shines.
The governor is unwilling to uproot this system, but his original Tier 6 proposal at least would plant the seeds of an alternative -- by offering new employees the option of a portable defined-contribution retirement plan. A decent defined-contribution plan, like the one adopted almost 50 years ago at the State University of New York, could attract a sizable minority of employees in some large occupational groups, especially teachers and other professionals.
Public employee unions and their political allies have concentrated their fire on the defined-contribution provision of Tier 6 because they know that it could be a first step to true structural reform. Unfortunately, this week Cuomo would not deny reports that he is ready to pre-emptively surrender the optional plan. Instead, he spoke of his Gumby-like willingness to bend on the details of reform in pursuit of a squishy future "savings" number.
Rhetorically, at least, the governor remains unafraid to stand up to pension-reform opponents. Take his response to the unions' claim that pension reform is an attack on the middle class: "What's going to make the middle class disappear is a tax burden they can't afford."
He's right, of course. But before he can deliver lasting tax relief, the governor needs to firm up his negotiating posture.
E.J. McMahon is senior fellow at the Manhattan Institute's Empire Center for New York State Policy.