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Cost of pensions soars on LI

The cost of pensions are soaring on LI.

The cost of pensions are soaring on LI.

Taxpayers on Long Island will ante up $1.25 billion for the New York State pension system during the next 12 months, a nearly 40-percent increase over the previous yearlong period.

And that jump could be just the beginning of hefty spikes in contributions.

The soaring costs have been largely triggered by stock market losses during the depths of the recession in 2007 and 2008. By law, the pension system, which is constitutionally guaranteed, must be fully funded - able to cover the retirements of all workers. When pension funds take a hit, it can take years for taxpayers to replenish them, even if the market is rebounding.

To supporters, the public pension system - covering workers in villages, towns, police and fire departments, libraries and schools - is an unchangeable pact between government and its workers. Historically, the appeal of many public-sector jobs was not high salaries, but the generous benefits that came with them.

But, as private employers have reduced retirement options for their workers, critics nationwide have seized upon public pensions as unsustainable and in need of reform. Their calls come as states and localities struggle with lower revenue and outrage over high taxes.

"If we stay on this course we are going off a cliff," said Suffolk Executive Steve Levy, who backs fundamental changes to the state's pension system, including a move to 401 (k)-style programs similar to those in the private sector. Suffolk faces a pension tab of nearly $180 million payable by next February, a 30-percent increase over this year's bill.

New York City Mayor Michael Bloomberg, seeking to avoid future budget gaps, wants to slash a $12,000 pension bonus paid each year to police and firefighter retirees, but public-employee unions have vowed to fight. And the controversy over public pensions is helping to fuel a broader battle in statehouses across the country between public unions and elected leaders who want to curb their influence.


Database findings

Newsday has assembled a database of pension costs that reveals what public agencies on Long Island pay into three state pension systems - the Employees' Retirement System, the Police and Fire Retirement System, and the Teachers' Retirement System. The database includes every public employer on the Island - from the Village of Baxter Estates in Nassau, which has one active employee in the pension system, to the Brentwood Union Free School District in Suffolk, the largest on Long Island, with 2,987 employees in the system.

Among the findings:

Long Island's 13 towns will pay a projected $107.4 million into the Employees' Retirement System by February 2012, up 119 percent from 2010.

Local libraries will pay a projected $20.2 million for pension contributions by February 2012, an increase of 132 percent from 2010.

Villages will pay a projected $55.6 million in that same period, up 87 percent over 2010.

Though pension costs are often only a small part of local governments' total budgets - 5 percent in Suffolk this year and 3.7 percent in Nassau - they're a growing burden, officials said. In Nassau, one of the wealthiest counties in the country, which despite its high property tax rate faces a state takeover of its finances, addressing rising pension costs is critical.

"Simply put, New York State must reform its pension system," Nassau Executive Edward Mangano said. "The time is now to put government on a diet."

By far the largest pension contributions on Long Island will come from the counties. Suffolk is supposed to pay $176.8 million to the Employees' Retirement System and the Police and Fire Retirement System by February 2012, according to estimates from the state comptroller's office, which oversees the two systems. Nassau will have to pay $157.3 million to both systems. By February of this year Suffolk had owed $136 million; Nassau paid $114.1 million.

Suffolk was one of 11 public employers on Long Island to choose a new option this year: to amortize its pension costs, paying less initially, and spreading what it owes into future years. That reduced Suffolk's immediate costs by about $20 million, according to the state comptroller's office.

Long Island's 126 school districts pay into the third state pension fund - the Teachers' Retirement System, which operates on a different fiscal year than the other two systems. By Nov. 15, 2010, when their payments were due, the districts contributed $297.6 million into the system. By next Nov. 15, when the districts' contributions will be due again, they could pay $413.7 million into the system, according to Newsday's projections, which are based on Teachers' Retirement System expectations of what it will require of school districts in coming years.


Costs expected to balloon

By Nov. 15, 2012, the districts could pay a projected $533.7 million into the system, a 79-percent increase over 2010, Newsday's analysis found. Contributions to the three pension systems are based on a percentage of total payroll. So if salaries are reduced, pension costs would also go down.

The huge contribution increases - and those forecast - are primarily a result of stock market losses from the financial crisis of 2007 and 2008. From the state's fiscal years 2007 to 2009, the pension fund that the state comptroller's office oversees lost 29 percent of its assets, or $45.7 billion. The Teachers' Retirement System fund during its corresponding fiscal years lost 31 percent of its assets, or $32.4 billion.

Noel DiGerolamo, second vice president of Suffolk's Police Benevolent Association, which has about 5,000 members, said public-sector workers are being blamed for ballooning pension costs when Wall Street investment houses are the true culprits.

"After we spend billions of public dollars bailing them out and allowing them to go back to business as usual with exorbitant bonuses, we now begin to turn the public employees into public enemies," DiGerolamo said.

The need for increased contributions also stems from decisions made a decade ago, when the stock market was doing well. At the time, fund administrators dropped employer contribution rates to near zero. Had the state kept contributions at a higher rate, there would likely be a cushion now in tougher times, experts say.

"It was irresistible for state and local officials to say, 'Let's pocket that money and use it to replace our contributions so everyone can feel good about it,' " said James Parrott, chief economist at the Fiscal Policy Institute, a Manhattan-based liberal think tank. "It was a stupid fiscal move."

Parrott said critics are making pensions and public-sector workers scapegoats for the economic collapse.

"They should go after the people who caused the problem and that's not the people receiving the pensions," he said.

In an interview, State Comptroller Thomas DiNapoli said that, over the last 20 years - including 2007 and 2008 - 84 percent of the funds in the plans his office oversees have come from investment earnings, not taxpayers' dollars.

"We are the best-funded state pension plan in the country," DiNapoli said. "We have paid our pension obligations. That puts us, even in a very tough time, in a very good position."

The pension systems smooth the impact of market declines so that they aren't felt all at once, but instead impact the system - and localities' contributions - over a multiyear period. As a result, the 2007 and 2008 stock market declines may not be fully absorbed until at least 2013, experts said.

"This problem with pension costs is not just going to go away when the economy recovers," said Andrew Biggs, a scholar at the American Enterprise Institute, a conservative think tank in Washington, D.C. "You've lost so much money; it's going to take a long time to catch up."

Those who want the pension system overhauled say it's galling that private-sector workers whose retirement accounts collapsed during the recession must now pay the soaring tab for public-sector retirees.

"It is outrageous," said Fred Gorman, a critic of school financing and a founder of the Nesconset-based group Long Islanders for Educational Reform, "that people who have lost their futures are asked to support other people's futures because of union-dominated politicians."


Key findings



Taxpayers take a hit

The state's three pension systems will bill Long Island's public employers $1.25 billion over the next 12 months, an increase of nearly 40 percent from the previous yearlong period.

LI entities affected

That bill includes $107.4 million for Long Island towns, $20.2 million for libraries, $55.6 million for villages, and $334 million for Nassau and Suffolk Counties.

Impact of recession

Pension cost jumps - forecast to continue at least through 2012 - are due largely to losses the state's pension funds suffered in the recession of 2007 and 2008. When pension funds drop sharply, it can take years for taxpayers to replenish them, even when the market improves.

Stock market losses

Also playing a role in these increases are decisions made over a decade ago when the stock market was hot. Fund administrators cut contributions required of public entities to minimal levels. Had contributions not been so sharply decreased, experts say, there likely would be a cushion to rely on now.

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