Why Pensions Are Set to Eat the City Budget
Editor's note: This editorial is based on a new report by E.J. McMahon and Josh B. McGee, The Never-Ending Hangover: How New York City's Pension Costs Threaten Its Future.
Disgusted with the subway? Well, chew on this: Since 2014, the city has forked over more to its pension funds than it has for building and repairing schools, parks, bridges and, yes, subways — combined.
That’s not because the city pays so little for infrastructure but because it pays so much for pensions — a whopping $9.6 billion for the fiscal year that starts July 1, over 11 percent of the budget.
And more than half of that is to pay down its pension-fund debt. Lower that debt, and you free up funds for other pressing needs, like subways.
That’s just one of the stunning takeaways from last week’s Manhattan Institute report by E.J. McMahon and Josh McGee. Here’s another: The city is misleading everyone about how much more it will need to pay off its bills down the road.
Gotham’s official estimate of its pension-fund shortfall now stands at a whopping $65 billion. That will be hard enough to cut down over the next 15 years, as the city plans.
But the report puts the actual red ink at more than twice that sum — $142 billion. Ouch.
Why the difference? It’s because the city uses an overly rosy estimate of how fast its pension assets, now valued at about $175 billion, will grow. To be safe, independent actuaries and economists suggest using an annual “market” growth rate of less than 4 percent; the city uses 7 percent.
The more optimistic figure lets officials claim the funds are “only” short 34 percent — instead of the more realistic 53 percent.
More bad news: The city will only reach full funding in 10 to 20 years....
This piece originally appeared in New York Post