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Rising pension costs burying gov'ts, school districts

Yonkers Schools Superintendent Bernard Pierorazio with Mayor Mike

Yonkers Schools Superintendent Bernard Pierorazio with Mayor Mike Spano in June. Pierorazio called his district's projected rise in pension costs "astronomical." Spano has been working with other big city mayors to persuade the state to take greater responsibility for pension contributions. (June 25, 2012) Photo Credit: Jim Alcorn

Public pension costs in the Hudson Valley are continuing to rise at an alarming rate, even as local governments and school districts shed jobs, eliminate services and slash spending to meet payroll and other fiscal obligations.

Experts say the financial hemorrhaging likely will continue for the next several years, forcing local governments to make even tougher decisions.

Much of the blame lies in the stock market crash of 2008, which crushed pension fund investments. Those massive losses have forced local and county governments, as well as school districts, to increase pension contributions sharply.

Increases in Westchester County's pension costs -- now among the highest in the state -- bring the problem into sharp focus. In 2001, county taxpayers contributed about $3.3 million to pensions for employees. In 2013, county officials project that figure to surpass $90.8 million.

"The pension bill shows no sign of getting smaller, and there's no immediate help in sight," said Ned McCormack, a spokesman for Westchester County Executive Rob Astorino. "It's a very difficult picture ahead, because as employees become more expensive, the math is that you have to have fewer of them."

In New Rochelle, city officials have had to raise property taxes, reduce services and lay off dozens of employees in recent years, in part to offset pension costs, which have increased by an average of 20 percent every year.

"The State of New York, in their infinite wisdom, has put a tax cap on municipalities with one hand while sending us a bill with the other hand that's higher than the amount we can raise under the cap," city manager Charles Strome said, referring to New York's 2 percent limit on property tax increases, a change engineered by Gov. Andrew Cuomo.

School districts across the state also are feeling the pain. Many have been forced to lay off employees or ask voters to approve overrides of the property tax cap to cover costs over which they have no control, including pension contributions.

In Yonkers, schools Superintendent Bernard Pierorazio believes his district's pension costs will increase from $25.4 million in 2012-13 to $46.6 million in 2013-14 -- an increase of about 83 percent in two years.

"The projected rate increases for next year are astronomical," Pierorazio said in an email in response to a question about pension costs. "Two percent of real estate tax in the City of Yonkers will only generate $5 million in revenue. Where will the funding come from in a district that has already experienced two years of painful staff and program reductions?"

In planning 2013-14 school year budgets, districts face paying 15.5 percent to 16.5 percent of payroll, up from 6.19 percent in 2009-10.

"This one is really difficult," said Jim Montesano, superintendent of the Nyack School District, where the pension costs are projected at $1.5 million of an almost $73 million budget in fiscal 2013. "It begins to set up the perfect storm for a lot of us."

A look at historical contribution rates shows that pension contributions felt virtually free in the early 2000s, when market returns were good and contribution rates were below 2 percent of payroll. Contributions peaked in 1978, four years after the 1973-74 market crash, but eased in the 1980s as the market improved.

The problem for governments, McCormick said, is that they must bear the full brunt of stock market losses suffered by pension funds, while employees pay into the funds at a fixed or relatively steady rate, usually 2-3 percent of their salaries. McCormack said employees should be sharing in the pain as well as the gain.

But the adjustment McCormack suggests would require an amendment to the state's constitution, a change few political analysts expect to happen.

"There's a fundamental imbalance in the system now," McCormack said. "What you've had since 2008 is a lower return on stock market investments and lower employee contributions, and that's why the municipalities' portion has gone up."


Just don't blame the public-sector workers for skyrocketing pension costs, said Stephen Madarasz, a spokesman for the Civil Service Employees Association of New York. Madarasz said local governments are "looking for a scapegoat" and suggested they should be targeting their criticism at the state government, which he argues has fallen short on pension reforms.

"The public has this really skewed view that everybody in public employment has a golden parachute, and that's just not the reality of it," Madarasz said. "The average pension for a CSEA employee is under $16,000 a year."

Madarasz said that the state's main public employee pension fund -- the Common Retirement Fund, which serves both state and local employees -- is well-managed and will benefit the state's taxpayers in the long run.

"Most experts would tell you it's probably one of the best-run pension systems in the country," Madarasz said.

The retirement system has seen good returns since the market crash -- 25.9 percent in 2010, 14.6 percent in 2011 and 6 percent in 2012, according to annual financial reports. State pension fund officials say that contribution requirements are expected to moderate in 2015-16, when losses from the 2008 market crash no longer will be averaged into the rates.

"It's our hope that with steady recovery, contribution rates should begin to ease at that point," said Eric Sumberg, spokesman for state Comptroller Thomas DiNapoli.

Meanwhile, the Cuomo administration has attempted to ease the pension crisis with a series of reforms. The administration won enactment of a new "Tier 6" pension plan, which will reduce pension benefits for public employees hired after April 1, giving those employees the option of enrolling in a 401(k)-style savings plan, in place of a pension. Another reform sets a floor of 4.5 percent for future employee contributions.

But public officials say such reforms won't shift the financial burden in any significant way for a decade or more.


Meanwhile, the state has tried to help city, town, and school officials muddle through with loans, allowing cash-strapped entities to cover their obligations to the state pension fund with credit from the fund itself.

Yonkers Mayor Mike Spano said he is now using the state's loan program to meet his city's pension obligations. Spano says pension costs borne by the city will increase by about $15 million in 2013. The long-term financing of the contributions will cost the city about $28 million in the end.

Spano has been working with other big-city mayors to try to persuade the state to take greater responsibility for pension contributions.

"This should be a cost incurred by the state," Spano said. "They have the deep pockets."

McCormack said Westchester County -- which also has been borrowing from the state to cover pension costs -- is pushing for statewide legislation that would allow municipalities to borrow from private-sector bond markets, where good credit ratings would allow borrowers to get loans at very low interest rates.

"Let us pay the bill on our own," McCormack said. "It shouldn't make any difference to the state, because they are going to get their money."

School officials urge another reform. Today, schools, unlike cities and towns, cannot hold reserves to smooth out the wild swings in contribution requirements brought on by stock market swings. Montesano, the superintendent in Nyack, said the state should change that policy.

"When you have these spikes, you could hopefully manage it if you had a reserve," Montesano said.

Meanwhile, cities like Yonkers say they will have to keep cutting staff and services and raising taxes to foot the bill.

"This is an issue we have to come to grip with," Spano said. "If we don't, it's going to eat us up."

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