Bloomberg News

Bloomberg’s $68.7 Billion NYC Plan Spreads Pension Payments

February 03, 2012

(Updates with mayor’s comment in fourth paragraph.)

Feb. 2 (Bloomberg) -- New York Mayor Michael Bloomberg said his $68.7 billion preliminary budget for the next fiscal year would avoid new taxes or cuts to vital services by stretching billions of dollars of increased pension costs over 22 years.

The mayor, 69, who presented his 11th budget today at City Hall, said New York has reduced its anticipated spending for pensions by $850 million through June 2013. That’s because the city had set aside more money than would be needed if the state Legislature, City Council and unions agree to his plan to amortize the payments over more than two decades.

Those savings -- combined with $180 million in reduced debt service, spending cuts, more state aid and $500 million in freed-up reserves -- helped close a $2 billion deficit in the fiscal year that begins July 1, he said. Bloomberg projected a $3 billion gap in the following year.

“It is a responsible budget that continues to make responsible spending cuts while protecting the core services and investments that have helped make our city the place to be, helped us to weather the national recession better than most other places,” the mayor said.

When prepayments are included, city officials’ anticipate spending $70.3 billion in fiscal 2013, Bloomberg said.

City Council

The budget anticipates firing 120 workers as part of a plan to reduce the city-funded payroll to 251,909. The dismissals don’t include teachers, firefighters or police officers, Bloomberg said.

City Council members, who must approve the plan, would oppose the mayor’s proposal to close 20 fire companies, and would work to restore some, if not all, of $74 million cut from libraries and $41 million from cultural institutions, said Domenic Recchia, a Brooklyn Democrat and chairman of the council Finance Committee.

Pensions and fringe benefits for police, firefighters and sanitation workers now exceed their salaries, and will equal 116 percent of wages by 2016, Bloomberg said. For all city workers, benefits equal about 75 percent of salaries and wages, he said.

The city’s pension contributions have increased 500 percent to about $8 billion this year from $1.3 billion in 2002, Bloomberg said. That represents about $450 million less than previously estimated, because of the actuary’s new methods for stretching out the payments, even though the ultimate cost has increased, the mayor said.

Too Optimistic

The city owes its pensions more than previously anticipated because officials have been too optimistic in assuming an 8 percent return on the $115.2 billion that the five funds hold in assets, Chief Actuary Robert North has determined. A more realistic expectation would be 7 percent, which, if taken all at once, would have increased the city’s current liability by about $2 billion in one year, North said in a telephone interview.

To reduce the revised rate’s impact, the increased liability may be spread over 22 years, with 3 percent increases annually, taking into account variables such as market performance, worker attrition, life expectancy and retirement age, North said. The mayor set aside $1 billion last year, anticipating such an adjustment in fiscal 2013.

In November, while facing a $4.6 billion gap through June 30, 2013, Bloomberg cut spending by $2 billion and set in motion a plan to reap $1 billion from sales of new taxi medallions. New York is also paying current hospital costs by tapping $2 billion through 2014 from a fund set up to pay future retiree health- care obligations.

The mayor, an independent, has called upon the state to approve a new schedule of pension benefits for future employees that Democratic Governor Andrew Cuomo has proposed. The proposal would reduce state and city costs by requiring more worker contributions, increasing the retirement age, reducing some benefits and offering a voluntary defined-contribution program similar to a 401(k) plan.

The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

--Editors: Mark Schoifet, Rick Levinson

To contact the reporter on this story: Henry Goldman in New York at hgoldman@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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