Could New York City Taxpayers Be Paying for Suburban and Upstate Public Employee Pensions?

That is one of several possible explanations for a data anomaly I have discovered in the state and local finance data from the U.S. Census Bureau. The State of New York has a pension system that covers both state employees and the employees of local governments outside New York City. New York City has its own pension system. State taxpayers, including New York City taxpayers, contribute to the state pension system, presumably in an amount sufficient to provide for state workers. Local governments outside New York City, using taxes collected outside New York City, also contribute to the state pension system, presumably in amounts sufficient to provide for their own workers. New York City taxpayers have to pay into the New York City pension system to cover the pensions of local government employees in New York City.

The Census Bureau provides pension data for pension systems, not the state and local governments that contribute to them. So I only had one number for all pension benefits paid by the state system, both to former employees of the state and former employees of local governments outside of New York City. To provide a separate number for each, I decided to make an assumption that the share of the total benefit payments that went to the former state workers must be in proportion to the share of the total pension contributions made by the State of New York. But the results were bizarre – the presumed state pension benefits soared from FY 2000 to FY2007 as a proportion of state residents’ personal income, while the presumed local government pension benefits fell. So I decided to look more carefully at the state versus local taxpayer contributions to the New York State pension fund. What the hell is going on up there?

The result of my research is in the attached spreadsheet. The State of New York accounted for 28.9% of total taxpayer contributions into the state pension fund in FY 1972, 28.2% in FY 1987, and 20.0% in FY 2000. But the state accounted for a whopping 55.5% of the taxpayer contributions to the state pension fund in FY 2007. Was that what was suddenly required to pay for the pensions of state workers? Or were taxpayers of the entire state, including New York City, paying for local government workers outside New York City?

Similarly state taxpayer payments into the New York State pension fund equaled 7.7% of state worker wages in FY 1987, compared with a 14.2% contribution for as a percent of wages for local governments outside New York City. I presume that ws because a higher share of local government workers are in categories with more expensive pensions, such as police. The FY 2000 situation should be the subject of a post all its own, and the news is not good – particularly since the pension contributions of the workers themselves was reduced, and benefits were enhanced, at the same time. But in FY 2007, state taxpayer payments into the pension funds equaled 13.6% of the wages of state workers, while local governments outside New York City paid in just 6.3% of their workers’ wages.

It is always possible that there is an error in the Census Bureau data, even though New York State is one of the few that provides a relatively clean electronic feed direct to the Bureau’s Governments Division. So I looked over the year-by-year data going back to 1972 and found that FY 2007 was not unique. From FY 2003 to FY 2008 the State of New York accounted for between 44.0% and 61.1% of total taxpayer contributions to the State of New York’s pension funds. During those years state workers accounted for about 28.5% to the total employees of the State of New York plus the state’s local governments outside New York City.

What seems to have happened is that none of these governments were kicking enough into the pension funds a decade ago, and as the need to make up for it by raising taxes to the roof and gutting public services, became increasingly unavoidable, local governments in the rest of the state were initially protected – at the expense of state workers, and New York City services, taxpayers and public employees.

Now there are a couple of possible somewhat innocent, though not that innocent, explanations for this.

The first is that a decision was made to bail out poor local governments in Upstate New York, with the rest of the state kicking in their share of pension payments through state taxes and extra pension contributions by the state. The timing appears to coincide with the City of Buffalo facing bankruptcy and under a Control Board, and there are other Upstate cities and small towns in nearly as bad shape. But I never heard an announcement about this. I don’t recall a debate. Are the people of New York City being asked to bail out Buffalo and Podunk? Or Amherst, Scarsdale and Garden City as well? And are the bailed out being made to pay the psychic price of acknowledging that NYC residents are being sacrificed on their behalf, and not the other way around?

The second explanation is that the state government is kicking in more than its share now, because it kicked in less than its share before. Look at 1991 to 1994, when the state kicked in virtually nothing, and 1998 and 1999, when it provided around 10.0% of the taxpayer pension contributions with around 30.0% of the workforce covered by the state pension system and 35.4% of the wages and salaries of such workers. If this is the case, when was it disclosed that the State of New York was piling up this massive off the books debt a-la New Jersey? When was it debated? Who approved it? Who voted for it? Who benefitted from it? Who should be sacrificed to pay for it, and why?

One thing is clear – my commonsense assumption that the amount the State of New York, and local governments with workers covered by the state pension system, are required to contribute to that pension system would bear some relation to the benefits ex-workers from each group received -- is nonsense. Those pension contributions seem to bear no relationship to anything. Other than a steady relationship to the taxpayer contributions by the City of New York to its own pensions – the rest of the state has somehow paid much, much less as a share of public employee wages. What the hell is going on up there?

Is NYC Paying NY State Pension Costs.xls29 KB