Pension alarms getting louder

Quite deep already is New York's hole for public employee pension and benefits costs. An alarming new analysis, however, projects that future obligations could make it even deeper. It's time to start constructing a ladder out.

An analysis by the Empire Center for New York State Policy, a conservative fiscal policy group, describes these obligations as explosive, estimating that contributions for teachers alone could quadruple in five years to $4.5 billion statewide. Covering that nut alone would translate into a 3.5 percent property tax hike. On Long Island, add a few billion more in debt to cover the cost of all other public employees. All this extra expense comes in a cycle of declining revenues and increasing political support for property tax caps.

Short-term, politically expedient choices got us into this mess. Pension costs were so far down the road that hiding their true consequences was an easy shell game. Pension sweeteners smoothed out contract negotiations by unions that could deliver votes, and early retirements were the way to balance budgets.

Long term, it will take strategic thinking and courageous elected officials to get us out of this. There will be a need to raise retirement ages, demand more contributions toward health care costs and possibly some hybrid form of public pension that shifts some of the market risk to employees.

Of course, these numbers won't be so troublesome if the stock market comes roaring back for 20 years - a rally that would fatten up fund balances. But we can't afford to lose that bet. It would mean that our children and grandchildren will be left with a state and a region offering them fewer services, a downgraded educational system and very inadequate infrastructure.

What taxpayers pay is determined by the rate of return on investments: the higher the return, the lower the contributions. That's what happened in the 1990s, when local governments and school districts saw their contributions drop to zero. Now returns are lower and the bills higher. State Comptroller Thomas DiNapoli lowered the projected rate of return this fall from 8 percent to 7.5 percent - but even that may be too rosy. At the new rate, contributions by Nassau and Suffolk counties will grow by $90 million next year, and another $75 million in 2012. The payments will soon amount to more than 16 percent of the counties' budgets. That's unsustainable.

Most taxpayers in the private sector don't have anywhere near the benefits they are being asked to subsidize. The Empire Center calculates that a private sector retiree would need to purchase an $860,000 annuity to get the same income stream that a New York teacher would get at age 59.

Critics of the Empire Center's report say five-year predictions are too speculative. What can be safely predicted, however, is that in the next five years, taxpayers won't be any more able or inclined to pay these enormous legacy costs. hN