This, however, is not the whole story. State governments also influence the level of local government taxation, through spending mandates and state aid, and by having services provided at the state rather than local level. While Medicaid has been a state program in New York since the early 1980s, for example, the state’s local governments are still required to contribute to it. For this and other purposes, New York’s local governments were required to collect on average $8.36 in local taxes per $1,000 of personal income to send to the State of New York, compared with just $2.44 in North Carolina. That is one of the reasons New York’s average local tax burden as a share of its residents’ personal income is much higher than in North Carolina. (Very high public school spending as a share of personal income in the portion of the state outside New York City is another reason).

In fact, New York’s total state and local tax burden as a share of personal income is among the highest in the U.S., while North Carolina is below average. As the table shows, New York’s state and local tax burden was 34.1% higher than the U.S. average as a share of personal income in FY 2007, with most of that excess at the local level. In the past (we’ll do this table later) I’ve found that virtually all the rest of the states are no more than 15.0% higher or lower than the U.S. average, once income is taken into account.

Looking at the 2007 State Government Expenditures and Debt table, one finds that spending is also expressed per $1,000 of personal income. For every $1,000 its residents earned in 2007, for example, the State of New York spent $9.07 on Higher Education in FY 2007, while the State of North Carolina spent $21.48 for each $1,000 earned by the residents of that state. Think of it this way. As a New York State resident, for every $1,000 of your income, you might have spent $250 on housing, $150 on food, $150 on transportation, and -- through the state government -- $9.07 on public colleges and universities and $3.26 on state prisons.

Note that this is described as “direct spending.” The relationships between the federal, state and local governments are complex. In some cases states spend money on services and benefits they provide themselves, with higher education, corrections, and unemployment insurance examples of functions where states do most of the work. But more often they merely pass money on to local governments (or in the case of health care the private sector). The Census Bureau distinguishes between “direct spending” on actual public services and benefits, and “intergovernmental” revenues and spending, the portion of the budget sent to or received from some other government.

Take, for example, Medicaid funded health care at a hospital run by New York City’s Health and Hospitals Corporation. Medicaid is a state program in New York, but local governments are required to contribute to it. So the City of New York might “spend” a dollar on “public welfare” aid to the State of New York (Medicaid is lumped in with public welfare in revenue data because it is a categorical, income restricted federal program). The State of New York, meanwhile, could then “spend” that same dollar as “public welfare” aid to the City of New York, as a payment to the Health and Hospitals Corporation. And then the City of New York could then spend that same dollar a third time, as direct Public Hospital spending on care. For comparisons of spending by function across places, only “direct expenditures” should be used.

Note that Medicaid cannot be directly accounted for in Census Bureau statistics. If Medicaid money (or less commonly other money) is used to pay private health care companies, that direct spending is classified under Medical Vendor Payments. Note that New York State is far above the national average in direct spending on Medical Vendor Payments as a share of its residents’ personal income, at $35.02 compared with $23.02 (and just $16.65 in California, among the lowest in the country). If Medicaid is used to pay for Public Health or Public Hospitals spending, for “direct” purposes that spending is tabulated there. Public Hospitals also receive funding from charges for services, as well as Medicaid and tax support. New York’s “direct” Public Hospitals spending was about average at the state level, but as will be shown later, much higher than average for local government hospitals in New York City.

You will note that the State of New York had zero spending on cash welfare assistance in FY 2007, but that is only because in New York such spending is classified as “local government spending.” The State’s contribution to that spending, and spending on social services, shows up (in the “FY 2007 State Government Revenues and Local Aid” table) as “Welfare, Hospitals and Health” aid to local governments, not direct spending. In New York, such state spending on local government aid equaled $18.19 per $1,000 of personal income, compared with just $6.50 nationally – because if state governments are providing the service, there is no need to send money to local governments to do it.

But much of the money for Medicaid and public welfare programs originates with the federal government. The State of New York received a total $42.78 in aid from the federal government for each $1,000 of its residents’ personal income in FY 2007, 23.9% more than the U.S. average for all states. But New York was below average in federal aid by this measure in most major categories, such as education and transportation. Much of New York’s high level of federal aid can be traced to high Medicaid spending, which also leads to higher local taxes via New York’s local contribution to Medicaid.

While revenues and expenditure categories do not line up directly, I have attempted to combine categories and disentangle how much spending in different categories actually costs in state taxes, as opposed to intergovernmental aid or fees. Looking at the FY 2007 State Government Revenues & Local Aid Expenditures table, one finds that tuition and other charges, federal aid, and aid from local governments equaled 37.5% of the State of New York’s spending on Higher Education in FY 2007, leaving 62.5% to be paid for by taxes or debt. Transportation charges (tolls, parking revenues, air transportation charges, motor vehicle fuel and license taxes) accounted for most state spending in the category, in New York and elsewhere.

Transportation, as tabulated in my state government tables, does not include Public Transit. In most of the country, and in New York City, Public Transit is classified as a local government activity, whereas in all of New York State outside New York City and in New Jersey it is classified as state government. That is true even though New York City Transit has been part of the state-run MTA since 1968. Similarly, local elementary and secondary schools are almost everywhere a local government activity, but the State of Hawaii operates the schools there and some states, notably New Jersey, have taken over failing school districts. Comparing New York City’s local government spending in these categories with the New Jersey and U.S. totals based on the original data, therefore, would be misleading, because some of the spending would be missing. In the tables to be presented, therefore, state spending on Elementary and Secondary Education and Public Transit is reclassified as local government spending, to get a similarly measured total for different places.

For local government spending within different parts of New York State, this requires that New York State as recorded by the Census Bureau be allocated based on data from the Federal Transit Administration. As an added complication, for historical reasons all the revenues, expenditures and debt of the Port Authority of New York and New Jersey are tabulated as local government in New York City. Where possible, I’ll divide this spending up between the city and New Jersey. Note that when I present data for local government individual New York State counties, data for public transit systems such as the Long Island Railroad and the Capital District Transportation Authority are not included.

Pension systems present an even more complicated mix between state and local government. Most local government workers are covered by state run government pension plans: in FY 2007 U.S. local government pension plans paid $30.5 billion in benefits, while state government pension plans paid $136 billion. Those “expenditures” come from pension plan assets, and are thus not directly funded by taxes, fees or intergovernmental aid. What is paid for by taxes are pension plan “revenues,” those paid by state and local governments. In some cases, moreover, state governments are responsible for making contributions for local government employees, notably teachers in California and, I believe, New Jersey.

As it happens, the largest local government pension system in the U.S. is right here in New York City, with $8.9 billion in benefit payments in FY 2007. Most of what you read about the condition of New York’s public employee pension plans does not include New York City, which has far greater problems (in large part as a result of pension deals passed by the New York State legislature). So comparing New York State’s pension revenues and expenditures as a share of personal income with other places would be misleading, because New York City would be missing and make the state seem low. Comparing New York City’s local pension revenues and expenditures as a share of personal income would similarly be misleading, because for most local governments there are no pension revenues and expenditures, because they don’t have their own pension plans.

So I make the comparisons I can, using the data that is available. For the most part, pension revenues and expenditures are presented as a share of the wages of public employees rather than personal income, for all state and local government pension plans within a state combined. Within New York State, on the other hand, the data is presented for the State and City of New York pension system separately. For the New York State pension plans, data is available on contributions to the pension funds by the state government and by other governments (which we know are those outside New York City), and by state employees and local employees (which we also know are those outside New York City). This can be divided by the wages and salaries of state employees and local government workers in the part of New York State outside New York City, combined.

As the “FY 2007 State Government Expenditures & Debt” table shows, employees of the State of New York and local governments outside New York City contributed 1.0% of their wages and salaries, on average, to the state pension plans in FY 2007, compared with a national average of 4.5%, and 6.5% in California and 7.0% in Illinois, where pension underfunding has become a crisis. California teachers contribute 8.0% of their wages to their own pensions, and they are not eligible for Social Security. New York’s taxpayers contributed the equivalent of 9.0% wages to the state funds that year, compared with a national average of 9.4%, 12.5% in California and 9.2% in Illinois. Pension benefit payments equaled 22.9% of the wages and salaries of those still working for those covered by the New York State pension plans, compared with 21.2% nationally, 23.2% in California and 28.7% in Illinois.

Note that pension benefit payments equaled just 14.6% and 16.9% of the wages and salaries of state and local government workers still on the job in North Carolina and Texas. That is because those states are growing rapidly, and have relatively few state and local government retirees from the past when their population was smaller, compared with their larger tax base and state and local employment today. Fast growth allows places to underfund their pension plans for a while, but unless enough money is set aside today for when their new, larger workforce retires, North Carolina and Texas will eventually face the same crisis as California. In FY 1987, pension benefit payments in California totaled just 12.3% of the wages and salaries of public employees still on the job, compared with 23.2% today. Those low pension contributions in Texas and North Carolina, and the low taxes associated with them, may be a trap. And, of course, other public employee retirement benefits such as retiree health insurance are not pre-funded, which means they cost little in taxes in fast growing localities with many taxpayers and few retirees, but the cost can explode later.

And what of the City of New York pension plans, which are larger than those of virtually all state plans? As in the New York State system, the employees don’t contribute much compared with those in the rest of the country – just 2.5% of wages and salaries in FY 2007. But New York City taxpayers contribute massively – equal to 20.8% of the wages and salaries of those still on the job in FY 2007, and likely to soon be much higher. And pension benefit payments equaled 33.7% of the wages and salaries of those still on the job, another figure likely to rise due to early retirement deals (like the 2008 teachers’ deal to retire years earlier) and the wages, salary and employment cuts needed to pay for them. And while the Census Bureau does not have separate data on public employee health insurance, let alone separate data for health insurance for retirees, it would not surprise me if in New York the current cost of health insurance for the retirees was as much in NYC as the cost for current workers actually providing current services. This data will be discussed in greater detail later.

Speaking of burdens from the past, as the FY 2007 State Government Expenditures & Debt table shows interest on state debts consumed $4.38 per $1,000 of New York State residents’ personal income in FY 2007, well above the U.S. state average of $3.61. That is because state debts totaled $161.63 for every $1,000 of New York State residents’ personal income, compared with just $124.14 nationally. But New York’s local government debts are also high (with most of the excess concentrated in New York City). State and local debts combined totaled $280.63 per $1,000 of New York State residents’ personal income, 38.3% above the U.S. average, up from just $228.52 in FY 1987 (before Pataki, Bruno and Silver took over), and approaching the $312.78 of 1972, before the City and State faced the fiscal collapse of the 1970s.

Back in 1972, pension payments equaled just 6.4% of the wages and salaries of public employees still on the job for the state system compared with 22.9% in FY 2007, and 12.2% for the City of New York system, compared with 33.7% today. And the cost of health insurance for retirees (and for everyone else too) was much lower in 1972 than in 2007. A soaring share of the one’s state income tax bill, local property tax bill, or transit fare will be going not to public services and benefits that benefit people today, but to deferred costs from the past: underfunded pensions, unfunded retiree health care, and debts used for maintenance rather than growth. Were it up to me, the base tax or fare owed would be cut to the level of services and benefits people were actually getting, with the additional money required for costs from the past assessed in a separate “sins of the past surcharge.” So everyone could see it.

Note that in Texas, local government debts are quite high as a share of the personal income of current Texas residents. But much of that debt is incurred to provide the new infrastructure for a growing population, which will contribute to paying it back. In New York, meanwhile, debts are high even as little new infrastructure has been added since the 1970s, and the state has barely kept up with maintaining and ongoing replacement of what it had 40 or 50 years ago. Give its low state debt total, moreover, the state and local debt burden in Texas is just slightly average the U.S. average and well below New York.

The Census of Governments takes place every five years. Between census years, aside from 2001 and 2003 (when budget cuts forced the Census Bureau to break a data series going back to the 1960s), the Bureau surveys state and local governments to produce state level data. That is, data for the state of New York, and for all local governments in New York State added together, but not local government in different parts of New York State separately, because the sample size does not allow for accurate local area estimates. Because individual data is available for the City of New York for each year, however, it is possible to also create separate data for local governments in the rest of the state in total, by subtraction. So I plan to produce local government data for the U.S., selected states and different parts of New York State for FY 2007 using Census of Governments from that year, and local government data for past years for the U.S., selected states, New York City and the rest of New York State.

Some years are better for the economy than others, and when the economy is bad personal income goes down and taxes and spending a share of personal income go up. That represents circumstances, not policy. A fair comparison over time, therefore, requires that data for similar years be used. As it happens FY 2002, the previous Census of Governments year, was a lousy one for the economy, as FY 1992 had been, with FY 1997 not much better. But FY 2007, the year of the most recent Census of Governments, was the peak of an economic bubble, and that presents a problem. Thus I will not be comparing FY 2007 with FY 2002, because that could make it seems as though the tax burden and spending were going down even if they were going up in reality.

Therefore, I have created tables with data for FY 2007 (the peak of the housing bubble), FY 2000 (a non-census year and the peak of the tech bubble), FY 1987 (the peak of the junk bond boom), and 1972 (the first year available, another good year, and one year before the peak median wage for most Americans). Moreover FY 1972 was just before the fiscal crisis in New York City, which saw taxes soar and services collapse, and may be a useful point of reference for many places in FY 2007. The 1972 to 1987 period starts out with New York City Mayor Lindsay and New York State Governor Rockefeller, and includes the fiscal collapse and partial recovery during the Koch and (Mario) Cuomo years. The 1987 to 2007 period shows the influence of the Silver, Bruno and Pataki era at the state level, while 2000 to 2007 shows the Bloomberg years in the New York City, with trends from FY 1987 to FY 2007 perhaps attributable to the Giuliani regime.

Interestingly, while New York’s state and local debts have climbed relentlessly as a share of state residents’ personal income during the 1987 to 2007 “Generation Greed,” era, the extent to which New York is higher than the U.S. average actually fell from FY 2000 to FY 2007. State and local debts in the rest of the country, having fallen as a share of income from FY 1987 to FY 2000 (when the federal government was also run more responsibly in the wake of the Reagan debt binge), soared from FY 2000 to FY 2007 (as federal and private debts also soared). Sadly when it comes to the future New York, a state controlled by the sort of people moving away and whose children have moved away, has been ahead of its time. This time, New York and other older central cities will not be alone if facing a debt and pension crisis.

Next, a discussion of local government geography. There are really only two local governments operating within the boundaries of New York City, the City of New York and the Port Authority of New York and New Jersey, but that is not the norm. In general, the same neighborhood may be taxed by, and have services provided by, a county government, a municipal and/or township government, a school district, and other special districts. Data for one type of government only, such as comparing the City of New York with other city governments, therefore does not provide a useful basis for comparison. The public school spending by the City of Los Angeles, for example, is zero. Instead, all the local governments within a state or county need to be added together into a single figure.

The U.S. Census Bureau still provides data for all local governments added together in each state, but does not plan to provide a “county area” file for comparisons within states. For all the counties in New York State, however, I have created such a file for 2007. I have also created aggregate local government finance data for four regions of New York State for simplified tables: New York City; the Downstate Suburbs (Nassau, Suffolk, Westchester, Rockland, and Putnam counties); Upstate Urban counties (Albany, Broome, Dutchess, Erie, Monroe, Niagara, Oneida, Onondaga, Orange, Rensselaer, Saratoga and Schenectady counties), and Upstate Rural (all other counties). Mass Transit revenues and expenditures attributed to the State of New York are divided between these four regions.

Creating the “county area” file for New York was only the second most difficult work I have done to date. The most difficult data was lining up the same category of data in the same row for each unit of geography in each year. One can see this process in the “Reorganized” worksheet in the attached spreadsheet. Census Bureau categories have shifted over the years, and in some cases (notably what debts are used for and the type of capital spending) the level of detail has been reduced. One can see data items with no date, for example, and others for which the data begins to be provided at some point, having perhaps been lumped into “Not Elsewhere Classified” previously. To save money, and due to the classification changes of 2006, the public use files that provide data by year for the history of the program are no longer being updated. I attempted to match codes and, for New York, the U.S., and the selected states indicated, add data for 2007 and 2008. I then had to calculate the totals myself, limiting the work to those totals I wanted to use. Which is why you see many “total expenditure” fields blank for FY 2007, as I only required total direct expenditures.

If you want to fully understand the data from the Census Bureau’s governments division, you can read this classification manual. But the simple summary is this: I have taken data collected by the U.S. Census Bureau and made adjustments to make the data as comparable as possible from year to year and place to place. The goal is a series of tables and charts to show how the tax burden by type of tax, and spending by type of public service or benefit, compares between New York State, the United States, and representative other states, and between different parts of New York State.

Looking at “direct expenditures” only, nationally, local governments directly spent $124.5 per $1,000 of U.S. residents’ personal income in FY 2007, while state governments spent just $84.23. And of that $84.23, a substantial share was just cash out rather than work done by state employees -- $23.02 for Medical Vendor Payments, $2.43 for Unemployment Insurance Payments, $1.00 for Worker Compensation Payments, and $3.61 in interest. While the next post will discuss state government expenditures, therefore, most of the data I plan to present is for local governments, where the rubber meets the road. But the tax burden of and spending by local governments are a state issue, too. The largest item in the average state budget is not a direct expenditure, it is state aid for local government education at $24.96 per $1,000 of personal income nationally and $26.83 per $1,000 in New York.

This isn't happening by itself, due to "circumstances beyond our control." Those debts and pension enhancements were a choice by Generation Greed. The decision to pay them, rather than declare bankruptcy and negotiate shared sacrifice with everyone starting at zero, is another, similar choice. Among many such choices.
]]> http://www.r8ny.com/blog/larry_littlefield/charter_commission_let_the_city_council_eliminate_term_limits_without_a_referendum.html 2010-08-22T06:03:59-05:00 2010-08-22T06:03:59-05:00 Larry Littlefield

Pataki and Bruno are gone, Thank God, but their damage lives on. Silver's still increases.  There were no dictators.  Silver and his backers got their piece of our hides.

No shifting around the burdens can change the overall picture. People and firms are still coming to NYC because of its unique characteristics that owe little or nothing to state policy for the past 20 years. Those parts of the state that are in competition with similar areas elsewhere haven't fared as well. And as the self serving people who control our state government keep grabbing, it is likely they will take NYC down too.

And no matter how the burden is shifted, some things are never considered. Once again, the state made a non-decision that the retirement income of public employees will not be taxed the same way that the income of other workers is taxed, no matter how high that retirement income is, no matter how many decades in retirement they get.

So there you have your winners, those who get money off the top and somehow "deserve" a better deal that everyone else. Today's seniors, particularly retired public employees, including those who just got a pension "incentive" to retire years earlier. And hedge fund managers. The public employee unions and the Wall Street sharks are the same type people doing the same types of things without much concern about the effect on anyone else. But their arrogance is justified. After all, they own the state legislature, don't they?
]]> http://www.r8ny.com/blog/larry_littlefield/obamas_mistake.html 2010-08-02T10:04:17-05:00 2010-08-02T10:04:17-05:00 Larry Littlefield

So how much do all these pension deals cost? Most are passed in the dead of night with no analysis, no debate and no announcement. An irrevocable decision that future state legislators cannot reverse, no matter how disastrous, is hidden from public view. But to the extent the state legislature, Governor and/or Mayor do put a price on these deals, it generally falls into one of two categories. Either they claim it costs nothing, or they claim it actually saves money. I beg to differ. As the model in the spreadsheet attached to this post shows, newly re-attached for those who had trouble downloading it, just the recent deals I am aware have vastly increased the cost of New York’s public employee pensions far beyond what had been promised or admitted. Public services and benefits will be devastated to pay for them. This massive, bi-partisan transfer of wealth from those who are worse off to those who were already better off marks the beneficiaries as selfish and the state legislators as despicable. Totally despicable. Particularly when the unions and legislators subsequently have the nerve to pretend to object to service cuts, benefit cuts, and tax increases, staging a hypocritical show of protest.

Download and save the spreadsheet, and read the related blog post to see how it works. Go to the enhanced tab. And understand that what you see is just some of the major pension enhancements I am aware of. There have been, perhaps, hundreds of others, with thousands proposed, many of which have personally benefitted the state legislators or their relatives themselves.

Looking first at Table I, in 1995 then-Mayor Giuliani cut a deal to allow thousands of public employees to retire years earlier, just one of many of these near-annual pension “incentives.” At the same time, the state altered the basic “Tier IV” pension whose cost was calculated in the “promised” worksheet. Future public employees, and those who opted in, would be allowed to retire at age 57 rather than 62, after working 25 years rather than 30, and receiving ultra-expensive retiree health insurance benefits for eight years before Medicare picked up most of the tab rather than three. But they would also be required to contribute 4.85% of their own pay to the pension funds rather than 3.0%. So what was the net effect?

Not even including the cost of retiree health care, the new Tier IV would have required 20.4% of payroll to be deposited into the pension funds rather than 11.8%, and even with the higher share contributed by the employee, the cost to taxpayers rose from 8.8% of payroll to 15.6% of payroll, or nearly double. The specific dollar value in this example is based on the 2008 salary pattern of a NYC teacher. The total taxpayer contribution in dollars for an employee with that pattern rose 46.8% as a result of the deal. I assume, thought I am not sure, that the same deal was provided to local government workers in the rest of the state.

But there was another feature of the deal. Those newly-hired workers were required to contribute even more than 4.85% of their pay to the pension funds in the years through 2001, when Giuliani was to be term-limited out of office. In other words, the cost of his political giveaway was timed to soar when he wouldn’t be around to distribute the pain, and the city was reeling from the devastation of 9/11. Typical Giuliani. Typical of every politician who has been popular in the Generation Greed era.

The biggest single pension enhancement of the recent era was signed in 2000, and is demonstrated in Table #2. In a comment, I’ll put in a web release from the New York State United Teachers crowing about it. There were many aspects of it.

As pushed by Carl McCall, who was planning to run for Governor and seeking public employee union support while also selling out to Wall Street while serving on the board of the New York Stock Exchange, the deal included an inflation adjustment at one-half the consumer price index for the first $18,000 of income. There is a minimum increase of 1.0% in any year, meaning that retirees get a “cost of living” increase even in years when the cost of living – and the wages of the workers paying for the pensions – is falling. The maximum in any year is 3.0%. I didn’t spend the time to figure out how to get a maximum and minimum in the formula inflating the pension for inflation, so it just increases it by one-half the inflation rate times $18,000. That makes the impact of a 1.8% inflation rate, which the model includes, seem less than it actually is.

For those not already in the age 57 pension plan, and with the salary pattern of a NYC teacher in 2008, that automatic “cost of living” increase pushed up the amount of money required to have been set aside at retirement by $30,580 according to the model, compared with the pension that had been promised. If someone had just been hired, that could have been paid for with additional pension contributions over the years, but it was granted retroactively, opening up a huge deficiency in the existing pension fund.

Worse, a huge retroactive cost of living increase was granted to those who were already retired, and in some cases had been for decades. The cost of the retroactive benefit of those who were already retired in 2000, or have retired in the years since, dwarfs the cost of the cost of living adjustment for those just starting their careers. As a result, according to data from the U.S. Census Bureau, the state and city pension funds in New York State went from paying out $10.6 billion in 1999 paying out $13.9 billion in 2002, an increase of 31.1% that no money had been set aside for.

Those who benefitted the most were those who had cashed in to the rich Lindsay-era “Tier I” pensions of the late 1960s. These were the teachers who didn’t teach, the police officers who didn’t protect people, the transit workers who didn’t maintain the transit system, and the sanitation workers who went on strike, after moving the suburbs and before retiring rich and early to Florida, leaving the city bankrupt and in ruins. But there is one deal they didn’t grab – a cost of living adjustment. And as a result, after the inflation of the late 1970s they weren’t so rich anymore – and the city wasn’t quite as bankrupt, since inflation devalued its debts as well. In signing the bill, Governor Pataki noted how much the pensions of the long-retired had shrunk, but not the damage their retroactive deals did to the city and state in the 1970s. Now Mayor Lindsay’s Tier Is had struck again.

The other major aspect of the deal that I attempted to model is that Tier IV workers were no longer required to contribute a cent to the pension plan after they had worked ten years. A three percent contribution was maintained for the first ten years of work, to ensure that newly hired public employees would be no better off, and therefore better workers would not be attracted despite the huge increase in cost. A union-active neighbor who was otherwise thrilled with the deal questioned this aspect of it. If the employees are paying three percent less, he asked, who would make that up? No one, he was told. But that, of course, is impossible. The added cost was merely put off with interest. In reality, the 2000 pension enhancement that “cost nothing” according to Giuliani, McCall and the state legislature, increased the amount the taxpayer should have contributed to the pension funds by 65.0%, while reducing the amount that the employee contributed by 75.0%.

The bottom line is that due to this deal, for regular public employees, New York State and its local governments should have been contributing 14.4% of payroll for those with less than 10 years in and 17.4% of payroll for those with more than ten years, rather than the 8.8% that had been promised. Plus all the additional money required to offset the massive hole that was created when these benefits were awarded retroactively.

So, some regular Tier IV public employees are allowed to retire at age 62 after working 30 years while others are allowed to retire at age 57 after working 25 years, right? Not according to the unions.

They believe they have a right, every year or two, to a pension “incentive” to allow workers to retire years earlier, generally at age 55, without contributing an extra dime. There was once such incentive in 1995, when it was presented as a way to avoid layoffs. NYSUT crowed about having the legislature pass the “traditional early retirement incentive” in 2000, during a nationwide teacher shortage, after the 1995 incentive had devastated the city’s schools and left them filled with uncertified non-teachers grabbed off the street. Another pension incentive was enacted this year. Basically, after hiring workers with the understanding they will work to age 62, and not even setting aside enough money for that, the state legislature in fact lets them retire at age 55. Over and over. What does this cost?

Table 3 shows the cost Mayor Bloomberg’s deal to allow New York City teachers to walk out the door at age 55 in 2008, after not contributing an extra dime to the pension funds. It opened up an immediate 17 percent pension fund shortage for each teacher who took it. If the politicians acknowledged up front that public employees would be allowed to retire at age 55 instead of 62, and including the cost of the 2000 pension enhancement, they would have set aside double the taxpayer dollars compared with the pensions that were promised when Tier IV workers were hired. That’s right, those who get these early retirement incentives are getting twice as much in pension contributions than they were promised. Double. And little of this has been paid for – yet.

The 2008 deal for New York City teachers was passed in Albany in exchange for a promise of political support in a legislative election. “In announcing the agreement with the UFT, the Bloomberg administration said the costs of the benefits for early retirees would be balanced out by savings from the increased contributions and the replacement of more expensive senior teachers with a younger workforce.” So who do you believe, me or Bloomberg? Since that deal, the city’s spending on education has continued to go up – other public services have been cut to allow education spending to go up despite the recession – but public school services have been slashed repeatedly. The reason? Soaring pension costs. In the end, the city will be replacing “expensive senior teachers” with nobody. And those higher contributions were only for new workers, and those with a few years before they could take advantage of the deal. Those 55 and up walked out the door without contributing an extra dime.

I’ll say it again, every one of those pension enhancements opens a 17.7% hole in the pension fund for each worker who gets it. And it is “traditional” for it to be offered year-after year.

Let’s get back to those hired after 1995. As mentioned, under the first Giuliani deal they were required to pay 4.85% of their salaries into the pension fund, in exchange for being allowed to retire at age 57 after working just 25 years. But the 2000 deal cut that contribution to just 1.85% for those with ten year’s seniority.

With the city going bankrupt post-2000 as a result of all the pension sweeteners, the public employee unions have repeatedly (as in the 1970s) agreed to lower pay and benefits for future workers, often in exchange for allowing all current workers to do less work. The pay of most newly hired NYC workers was cut 15.0% in Bloomberg’s first contract. Starting salaries for police officers and firefighters were cut by 40.0%, and as a result a decade later starting pay is still lower than it had been in 2000. The cost of living increased 27.0% in that time. Although the unions would claim their younger members are not cheated, because they are not the same kind of workers. They are less qualified and motivated, and we have no right to expect much from them. “If you are a good worker, then go get another job, but don’t complain if you are here” one union rep told me. So much for trading lower wages for richer pensions, the usual claim. The public employee unions actually do less work, and lower quality work, for lower wages. And then get the richer pensions after the fact anyway.

Another example of the screw the newbie phenomenon is the higher percent of salary future NYC teachers will have to pay into the pensions – back to 4.85% for 27 years – in exchange for existing teachers – who sacrificed nothing – working fewer days. After all, the city can’t afford more days given its soaring pension costs, but it probably cannot afford new teachers either. This is shown in Table #4. This latest deal means future teachers will be paying nearly five times as much into the pension fund as the teachers who got to walk out the door early under the 25/55 deal cut just one year earlier. While the taxpayer contribution will be 24.8% lower than it was for the recent retirees, it will be still be 51.6% higher than the cost of the pensions those recent retirees had been promised when they were hired. The city’s cost for the pensions of new teachers, if there weren’t already an enormous hole to fill, would be 16.2% of payroll, still nearly double the 8.8% recently retiring teachers were promised when hired, if less than the ultimately got. A surprising result, given that all those pension enhancements and incentives allegedly either cost nothing or saved money. This is fraud.

I’m just using a spreadsheet to try to calculate the additional cost of the pension sweeteners to the pension funds. But a cost that may be as great or greater, for those who get to retire early, is the added years taxpayers have to pay for retiree health care before Medicare picks up most of the tab. New Yorkers would have had to pay for that health care even if the early retired were still working? True, with earlier retirement is has to pay twice – for the additional retirees and the workers who replace them. And don’t taxpayers “save money” if the early retirees are not replaced? Only if the remaining beneficiaries agree to do more work so that New Yorkers do not receive less from them in exchange. When does that ever happen? Not this year. Not next year. Transit service is being cut. Classroom teaching is being cut. The PBA is claiming its members won’t do as much to prevent crime. The Uniformed Firefighters are claiming they won’t be as quick to rescue us from fires. All in exchange for higher taxes.

Speaking of police, I’ll continue this analysis in my next post. The NYSUT announcement of the 2000 deal, linked in my first post in this series, is in the comment below. Lest they try to remove their celebration from their website as public education is destroyed to pay for it.

Well, according to Yahoo Finance, the S&P 500 stood at 1,481 on July 11th, 2000. Given that not all pension fund money is invested in stocks, and bond yields tend to be lower, to meet an 8.0% overall annual return stocks would have had to have risen more, say by 9.0%. Which would have brought the S&P 500 to more than 3,500 ten years later. But in fact, the S&P 500 stood at just 1,077 on July 11, 2010, less than one third the predicted value. And according to mutual fund company Vanguard, its S&P 500 index fund averaged a return of minus 1.67% during those ten years, no surprise given how high prices were at the start of the period. Not plus 8.0% or 9.0%. Its bond index fund averaged 6.2% during the past ten years. So how did such a wildly incorrect estimate of future returns work out for those involved in the 2000 pension deal? Splendidly! Because based on that expected return they seized for themselves a huge chunk of our future well being, and hid the cost by putting it off.

To understand how this magic occurred, return to the Excel file attached to this post, and tab to the “underfunded” worksheet. As discussed previously, based on a reasonable expected return of 4.0% more than inflation, New York’s state and local governments would have had to consistently contributed 8.8% of payroll to the pension funds of most public employees, 13.2% for those in physically taxing titles, and 28.7% for police and firefighters, just to pay for the pensions that had been promised when most of those now approaching retirement were hired. Without any subsequent deals such as the one signed into law on July 11th, 2000.

That is based on a 5.8% rate of return. But what if the rate of return were assumed to be 8.0%?

Then for most public employees just 10.25% had to be put into the pension funds, and with the employees having been required to put in 3.0% based on what they were promised when they were hired, that leaves just 7.25% for the taxpayer. Not 8.8%. The taxpayer would be contributing 35.7% less to the pension funds during a worker’s career. For physically taxing titles, just 13.3% would be required to be deposited, leaving 10.3% for the taxpayers, not 13.2%. That is also a 35.7% reduction in the taxpayer contribution. And for police and fire just 23.55% would be required, leaving perhaps 22.8% for the taxpayer, not 28.7%. The taxpayer would be contributing 31.5% less. Lots of tax dollars could then be used for other things. Like special tax breaks and special member item grants. Or pension enhancements.

So does a higher expected rate of return mean that state and local governments have lower pension liabilities, and a lower expected rate of return, which the Government Accounting Standards Board (GASB) has called for, mean higher pension liabilities? Bloomberg News seems to think so. “Pension-forecasting proposals from the rule-making organization, released June 16, would revise methods for projecting liabilities and investment returns. The changes mean estimated investment income likely will be reduced from current assumptions and unfunded liabilities will increase, Moody’s Investors Service said July 6 in a report.” But it isn’t so. The actual liability is the pensions that were promised. What the expected rate of return affects is when the liabilities are paid for, now compared with later. By increasing the expected rate of return, pension contributions experience time travel – from the past when the public services were provided, to the future that no one in the United States seems to care about until it arrives.

What happens when the rate of return turns out to be more like the 5.8% (4.0% over inflation) that I believe is reasonable to assume, not 8.0%? At the time of retirement, the spreadsheet shows, for a Tier IV NYC teacher (or another worker with a similar earning pattern) nearly $80,000 too little would have been set aside to pay for their pension, or 15.0% less than was actually required. That amount would have to be made up later. The deficiency would be $77,000 for an employee in a physically taxing title with a Department of Sanitation salary pattern, 18.0% less than was actually required, and $151,176 for the NYPD, or 22.1% too little.

But the actual deficiencies New York faces are far greater than that. In the years leading up to the year 2000, New York’s state and local governments had been contributing less and less to the pension funds because stock prices went up faster than the 7.0% expected pension investment return in force before 2000. For several years, then-Comptroller Carl McCall did not require any employer contributions to the pension funds on behalf of regular employees of local governments in the rest of the state. Zero is a lot less than 8.8% of payroll. Mayor Giuliani slashed the city’s contributions to its pension funds as part of the 2000 deal to make those pensions richer, a combination that makes absolutely no sense. In 2000, according to the annual report of the police retirement fund, the city’s contribution to the fund was just 10.0% of payroll, not 28.7%.

Putting off costs makes perfect sense to New York’s political class, which represents the sort of people who have been cashing in and moving out, and public employees in particular. By the time the bill comes do they may have died off, or retired to a lower tax state, and/or started collecting retirement income instead of paychecks. Retirement income that is exempt from New York’s state and local income taxes no matter how high that income is, if you are an ex-public employee (or state legislator), no matter how young you have retired. In other words, someone else, someone in a younger generation, would have to pay higher taxes and/or face service cuts to make up for what older generations decided to promise themselves but not pay for. Just like all those government debts that were run up at the same time. Just like Social Security. And that is exactly what is happening. And it is not an accident.

In defense of their de-funding of the pension system, some pols have asserted that legally they can’t contribute more to over-funded pension plans, but that is a flat out lie. There are federal limits on what corporations can contribute to over-funded pension plans, because the contributions reduce their corporate income tax liabilities, but state and local governments pay no corporate income taxes, and are not bound by those rules. (In fact, if state and local governments were required to follow corporate rules, they would be required to kick in to their pension plans based on their actual past investment returns, not the 8.0% fantasy).

Moreover, whether or not a pension plan is overfunded depends on the expected future rate of return. If, in 2000, that expected future rate of return was slashed based on the fact that stocks were overpriced, then the pension funds would not have seemed over-funded. That is exactly what should have been done.

And, of course, the excess returns of the 1982 to 2000 period were followed by extremely weak returns during the past decade. Returns that have been nowhere near the 5.8% per year in the model I created, and may not get there for another decade. Our debt bubble was similar to that of Japan. The Nikkei stock index peaked at nearly 39,000 in early 1990 according to Yahoo Finance, but stands at just 9,550 today – it is down more than 75 percent after 20 years. And Japanese executives are not systematically pillaging their companies through excess executive compensation the way U.S. executives are. (With much of the cost of that compensation deferred so people don’t realize how low future corporate earnings are likely to be, and a growing share of it in the form of massive “supplemental” pensions). The previous downcycle for U.S. stocks, moreover, lasted 18 years from 1966 to 1982, for numerists.

By the way, what assumed rate of return does GASB propose? According to Bloomberg News it “proposes using the expected return on a basket of high-quality municipal bonds, which would produce a deficit somewhere between the high and low estimates. The Bloomberg Fair Market index of AAA-rated municipal bonds ended yesterday yielding 4.38%....Every percentage point drop in the assumed rate of return would increase reported pension underfunding by between 8 percent and 12 percent, according to Moody’s.” Well that’s a little harsh. After all, after the coming wave of municipal defaults I’m sure local governments, almost none of which are high quality, will be paying much higher interest rates on their debts than that.

So past and present underfunding by taxpayers is responsible for a share of the pension catastrophe. In some states, where nothing was put into the pension plans for years, that share is large. But for New York City I was surprised that for a typical employee the pension shortage created by an expected return of 8.0% rather than 5.8%, according to the model in the spreadsheet, was as small as it was. The pension enhancements, the subject of next post, caused far more damage.

Looking back to 2000, it is clear that we had a mania, easily identified as such by those outside it, one that people with power took advantage of. With stock prices having soared for reasons that had little to do with them, a generation of corporate executives, as members of corporate boards, awarded each other a soaring share of U.S. private sector wealth. And public employee union officials and the state and local politicians they kept in office shifted what should have been pension contributions to tax breaks and other deals, while radically enriching their generation’s retirement benefits above what had been promised, claiming higher investment returns would pay for it all.

The executives didn’t admit that their excess compensation would in fact be paid for through lower wages and benefits for other private sector workers and lower returns for investors, often through stock dilution as stock options were exercised. And unions and politicians didn’t admit that the pension enhancements and pension funding reductions back then would be paid for in huge tax increases and drastic reductions in public services and benefits down the road. But that is what is happening.

How does the pension actuary who writes for Governing magazine see the future? He doesn’t’ see bankruptcy, as I do. Instead a “more likely scenario” is a “decade-long reduction of public services, chronic hiring and salary freezes, bigger payroll deductions for employees that reduce their real wages, and withering confidence in state and local government as a result of the ballooning costs of retirement plans and unsustainable benefits” ending with the “ultimate demise of public services to pay for over-promised retirement benefits,” something “we don't need to be melodramatic or hyperbolic about it.” He must not use public transit, seldom go to public parks, expect to be able to pay for his grandchildren to attend private schools, not need the public old-age benefits he is paying for, and live in a gated community, because otherwise he would surely be as “melodramatic or hyperbolic about it” as I am.

And here is what is amazing. Even with the disasters of the past decade, the dot.com crash, the earnings fraud scandals, the huge reductions in interest rates to ward off deflation, the stock price decreases, the government bailouts funded by massive federal debt, the assertion that for younger generations only Social Security and Medicare will have to be cut – they are still doing the same deals! The assumed investment rate of return on public employee pension fund investments is still 8.0%. Executive pay consultants still assert that executive pay should be just as high, as if justified by the wealth the executives create. And new pension enhancements continue to pass the New York State legislators, allowing public employees to walk out the door to a life of leisure years earlier. Each and every year.

The rationalization is long gone. And yet they kept grabbing, and mouthing the same nonsense, or trying to hide and defer the costs. Are they really delusional enough to lie to themselves about what they are doing, and what the consequences for other people are? Or do they just not give a damn?

Accounting for pensions is complicated, because there are so many variables and variations depending on an individual’s salary and work history. The tables in the three worksheets provide a simple model of a single employee who works the number of years required for a full pension, retires at the earliest allowable year, and then lives to age 80, a reasonable average for those retiring today or (if they are male) their spouse.

Some workers end up working longer and/or later, allowing more time to contribute to the pensions and fewer years of payouts, so the percent of their pay that must be deposited into pension funds may be smaller. But they also are entitled to higher payouts. At the minimum age for full retirement, most New York government workers are entitled to 50% of what they earned at the end of their careers, but that would have gone up 1.5% per year for additional years worked under the rules when they were hired. Someone working 50 years would have been entitled to a pension worth 80.0% of their pay. So that may balance out, making the cost as a percent of pay similar to those presented here.

Other workers only work for the government a few years and leave, leaving most of the money set aside for their pensions (ie. the share provided by taxpayers) behind. So the extent to which pensions need to be funded depends on an estimate of how many workers will be ripped off in this way. Although looking at pensions from a single-employee perspective ignores the “savings” from turnover, frankly I wouldn’t be counting on too much of it going forward given the state of the private economy. And in many cases, participation in the pension system can be avoided by those who believe themselves most likely to leave.

A reasonable expected investment return, based on history, is 4.0% more than inflation if starting at fair (not inflated) asset prices, with somewhat more for stocks and somewhat less for bonds. This is what is used in the model, although current bond yields are lower and I believe stock prices remain inflated, particularly given that today’s earnings require more and more debt to allow a big difference between what most people earn on the job and what they buy as consumers. I expect additional years of very low returns, and many financial experts do likewise. This is an optimistic model.

The action in the spreadsheet concerns two variables and one key number. The first variable is the inflation rate, which the user can set. I used 1.8%, the recent spread between regular 10-year U.S. Treasuries and TIPS, which indicates the market inflation estimate for the next ten years. But the actual inflation rate is zero, with some economists fearing deflation, others believing the Fed won’t be able to stop it. Inflation at zero means bond yields down at 3.0% or less rather than 5.0% or more; inflation below zero is worse. If deflation occurs, let’s move directly to a discussion of state and local government bankruptcy.

The inflation rate is used not only to set the rate of return, but also to deflate the past salaries of public employees retiring today into their 2010 dollar equivalents. The actual average annual inflation rate for the 20-year period from 1990 to 2009 was 2.8% rather than 1.8%, but the first spreadsheet is a model of promised pensions rather than actual salary histories, so expected inflation is a reasonable shorthand. Adjustment were supposed to be made if conditions turned out to be significantly differently. While this doesn’t affect the “promised,” worksheet, where pensions have an inflation adjustment, the inflation rate is also used to inflate the pension paid in later years. More or less, as will be discussed in the third blog post.

With the inflation rate set, the user also sets the percent of payroll that will be deposited into the pension plans. The goal is to set it to the rate that will allow enough money to be set aside when the employee is working that, given investment returns, all payouts can be covered until age 80. (Some will die sooner, producing a savings, and some later adding to costs, but this is expected to balance out.) Your shift the percent of payroll in back in forth until you hit the rate that gets the balance at age 80 as close to zero as possible. This is a brute force approach. A financial whiz could probably put in a macro to calculate the percent of payroll required for the balance to hit zero age 80 automatically. But then a financial whiz would probably need to know what outcome one wanted to show to justify whatever self-serving deal they were doing and work backward from that, and charge a good price for doing it. So we’ll stick with the horse and buggy.

The other field in the spreadsheet that is input data rather than a calculation is the salary earned each year. Although teachers have separate pension plans in New York State, and may thus have slightly different pension rules, I used the salary of New York City teachers as my input for general New York state and local government workers, since teachers account for the largest share of total public employees. It was a little complex, because NYC teachers are paid based on the number of post-graduate course credits they have as well as how many years they have worked, but I put in the data based on a hypothetical career in which credits are gradually accumulated. The information I was able to get was for teacher salaries was from 2008, but that isn’t that obsolete. After all, most people in the private sector aren’t making more, and are perhaps making less, now than they did that year.

The “promised” model does not include overtime, because no one promised that employees would be able to use overtime to pad their pensions. Just as the model does not include a “discount” for turnover, as discussed above. You’ll have to hire an actual actuary for these nuances, one of the few who might actually remember how to tell the truth.

The Tier IV pensions, as promised when those now approaching retirement were hired, allowed full retirement at age 62 after 30 years of work, paying out 50% of the average pay over the last three years worked, with no adjustment for inflation (a decline in the real value/cost of the payout over time). Assuming a 5.8% return on assets (4.0% real plus 1.8% inflation), $531,944 would have to have been accumulated by age 62 to meet that obligation to pay.

Given investment returns before retirement, and the $59,367 that the employees themselves would have contributed (based on the then-required 3.0% of pay contribution level), the government would have had to contributed $174,144 over the years, at a steady 8.8% of salary rate. (Yes I know that to make greater sense of the $59,367 and $174,144, they should be translated into current dollars, but there are enough columns in the spreadsheet as it is). The total percent of payroll required would have been 11.8%, with 8.8% for the taxpayer and 3.0% for the worker.

How about physically taxing titles, which allow full retirement at age 55 after 25 years of work under the rules then (and now) in effect? I would like to have used the wages of a New York City Transit worker hired as a conductor who switched to a train operator after five years as an example, but was unable to find information on what MTA workers get paid on the MTA or TWU website, so I went with a sanitation worker instead. The 25 years of pension payments from age 55 to 80 would have required a pension balance of $428,574 at the time of retirement given a 5.8% rate of return. (It is less than the requirement for teachers, despite the longer duration, because the final salary and pension payment for sanitation workers is lower than that for teachers, or so I believe based on the limited pay information I was able to get). And that would have required a steady contribution rate of 16.2% of pay over the 25 years of work, including 13.2% for the taxpayer and 3.0% for the worker.

And what about police officers and fire fighters, who get to retire after working for just 20 years at any age? Assuming they come on board at age 22 (it could be younger), they could be on their way to a life of leisure at age 42, with 38 years in retirement on average. Based on the police officer salary scale I could get off the NYPD website, that would require $686,247 to be socked away by the time of retirement, which would require 29.6% of payroll to be put away during a police officer’s career.

The share that the police officers are responsible for is a little funky according to the annual report of the police retirement fund. Evidently it starts at 8.65% of pay and gradually decreases. Except that under a 1963 deal, the city not only pays its share of required pension contribution, but also pays most of the employee share. This makes little sense, except that if the police officers earned 5.0% more, instead of having the city make a 5.0% of pay pension contribution on behalf of the officers, the officers might owe more in taxes but also receive higher pensions. Also, with more of their pay hidden in the form of additional pension contributions, perhaps the police officers get to whine more about their pay than is justified – like CEOs unionized public employees prefer pay that is unseen and uncounted. In any event, this is just another example of what a complicated mess the pension systems are after decades of deals.

Bottom line, the taxpayers promised to pay for just about all of the police pensions, and perhaps the fire pensions in NYC (not sure about the rest of the state). That puts the taxpayer contribution at about 28.7%.

So there you have a rough estimate of what was promised to different types of public employees in New York State when they were hired. Pensions costing the taxpayer 8.8% of pay for most workers, 13.2% of pay for those in physically taxing titles, and 28.7% of pay for police and fire.

As an aside, it appears that NYC teachers, with summers off, earn more than I do after 15 years of work. I am approaching 25 years of experience in the type of work I do. Police officers surpass my pay level after six years, not including overtime, and with more days off. Sanitation workers earn 83.8% of what I do after six years, without having had to attend college or graduate school. I have always been aware of this, and it doesn’t bother me for three reasons.

First, I could have been a teacher, police officer or sanitation worker, but would rather spend my days doing research and writing reports that dealing with a class of kids, some nice and some less nice, dealing with the worst New Yorkers on their worst days, or picking up garbage (though the working outside part is nice, and mail carrier is a good job).

Second, I am the lower earning spouse in a two-income family, and like many New Yorkers in similar situation I have the double whammy of a high federal, state and local income tax rate (due to my spouse’s salary) and having all my income subject to the federal (and now MTA) payroll tax. So the taxes I would have to pay on any additional money I might get is well over 50.0%, on the way to a likely 60.0% and a possible 6.7.0%, plus any sales tax I would have to pay on what was left if I actually decided to spend it. So getting more money is not a priority.

And third, working with economic data as much as I do, I am well aware of what other, equally hard working and not powerful people typically earn in the United States, and realize that I get paid plenty and ought to be grateful for it.

But I am also aware of what other people receive in retirement benefits. In 2006, according to the federal Bureau of Labor Statistics, just 51.0% of all private sector workers were participating in any retirement plan other than Social Security, which provides a very modest pension at age 67 for those born in 1960 or later – though this may be cut back. New York’s public employees also get Social Security (California’s local government employees do not, saving taxpayers 6.2% of payroll).

Only 20.0% of all private sector workers had defined benefit pensions, including a far smaller share of younger workers, and many of those are underfunded. If they go under, as many have since 2006, the government only pays pensions to those 65 or over, and only up to a maximum amount. State and local governments are expected to cover public employee pensions regardless of the consequences for everyone else, even those poorer, no matter how severe.

A total of 43.2% of private sector workers had defined contribution plans (401Ks). Obviously, since the defined benefit and defined contribution total to more than 51.0%, many private sector workers had both, but many government workers do as well. The difference is that in the government the unionized public employee is often given a guaranteed return far in excess of typical market returns, with the government making up the difference. As in the 8.0% return guaranteed for NYC teachers.

And for the now-prevalent 401K plans, how much does the employer contribute? When pensions were phased out, employers typically promised to pay in substantial amounts to 401Ks instead, to convince needed employees to come on board. But in each recession many firms either reduce or eliminate the employer share, leaving the employees to fund their entire retirement out of their salaries. I would say the typical employer share is zero; my employer kicks in 1.0%. The reason is that current and retired public employees have voted for most private sector workers to receive little or no additional retirement compensation in addition to their salaries. When did they cast that vote? Every time they went shopping, and sought a better deal, they were forcing those producing what they were buying to settle for less.

And how much in turn are taxpayers, who must pay off the top and have no choice of seeking a better deal, contributing to public employee pensions today as share of payroll? According to the NYC Budget Summary, as shown on page 44 of this document, in FY 2011 New York City’s pension contributions are estimated to cost 16.4% of payroll for most Tier IV workers, and 29.1% for those in the Department of Education. Not the 8.8% promised. For the Department of Sanitation, with its “physically taxing” jobs, the expected pension contribution is 31.0% of payroll, not the 13.2% promised. For the Police Department, it is 59.6% of payroll, not the 28.7% promised. And not the zero most private sector workers receive. And these contribution levels are likely to go much higher, because pension contribution levels will need to rise and payroll (ie. workers actually providing services) will need to fall to free up more money for retirement.

Pension contributions for the State of New York and local governments in the rest of the state have been much lower, but are expected to soar until they are much higher, perhaps as high as in New York City. So the state has just passed a law allowing local governments in the rest of the state to not pay the required amount, leading to an even more massive bill later. When those localities cannot or will not pay, it is fair to assume the entire state will pay instead, including New York City which is already paying more. It is also fair to assume that the rest of the state is facing the kind of exploding taxes and collapsing services that New York City faced in the 1970s due to rising debt and pension costs, as NYC goes for Round II.

So what happened? I had to be, and was, some combination of two things: past taxpayers putting in less than they should have, shifting a far greater cost to future taxpayers and service recipients (though service cuts), as will now be done formally in the rest of the state under the new state law. And public employees getting far more in pensions than they were promised when they were hired, and contributing far less to them.

How much each of the two factors is responsible for the onrushing pension disaster should be at the center of the upcoming debate as state and local governments face an institutional collapse. I’ll try to model some scenarios in the other two worksheets in the attachment. But two things are certain. Those who cut the deals lied about the consequences, with the cost of each and every deal (if the deals were revealed at all) announced as zero even as pension costs soared and soared. And younger generations, of taxpayers, public service recipients, and public employees, will bear most of those future consequences, while most of the past benefits have gone to Generation Greed. And Generation Greed, as represented by the New York State legislature, has no other answer to the coming crisis other than to dig the hole deeper to defer those consequences as long as possible – while continuing to cut even more deals to benefit itself.