Pension Reform, Now

Moments of absolute clarity are rare in politics. Governance usually is a muddle of compromises, short-term solutions and outright evasions. It isn’t pretty, but nobody ever said democracy was a work of art. Competing interests need to be satisfied; elections need to be won.

But every now and again, politicians and policymakers are confronted with a dilemma so profound and so frightening that the usual methods of operations can no longer apply.

Such a moment is here. State and local governments are on the verge of bankruptcy because of the spiraling cost of public employee pensions. The time for reform is now. Governor Cuomo and the State Legislature no longer have a choice. It doesn’t matter that lawmakers are up for re-election this year and so are reluctant to make hard decisions.

Mr. Cuomo, to his credit, has made it clear that reform is his top priority for 2012. Cheering him on are mayors and county executives from across the state who have had to deal with the pension sweeteners that the Legislature regularly grants the politically potent public employee unions. Local government pension costs are shredding vital services and creating unsustainable gaps in their budgets. The finances of Nassau and Suffolk counties are in disarray—officials there have had to borrow nearly $90 million this year to cover pension costs. In New York City, annual pension costs have risen from $1.5 billion a decade ago to $8 billion this year. That is a staggering sum.

It should be noted that the pension crisis is not unique to New York. State and local governments around the nation are trying to come to grips with unsustainable pension costs, and they are doing so by borrowing or cutting vital services. Pension costs in Pennsylvania have gone up by 600 percent in six years. In San Jose, Calif., libraries have been shut and 2,000 city workers have been laid off because of skyrocketing pension costs, which have risen from $73 million in 2001 to $245 million this year. City taxpayers can thank California’s political leaders for their troubles—back in the 1990s, politicians cut a deal with public safety unions that allowed members to retire at 90 percent of their pay. Workers now retire at the age of 50 with a lifetime pension of $90,000 a year.

In New York, many public employees routinely load up on overtime in their last three years of service so they can boost their annual lifetime pensions. That’s because pensions for firefighters, police officers and other workers are calculated on actual earnings rather than base salaries. That abuse is condoned by superior officers who do nothing to crack down on graying eager beavers who work 50, 60 or 70 hours a week in their final years of service.

This has to stop, and Mr. Cuomo knows it. Legislators must know it, too, but as a group, they will have to be forced to take action, because public employee unions are their friends, regardless of party affiliation.

The future of New York is not an abstraction. The future of New York is being written now, in places like San Jose and other localities where pension costs are driving local governments into actual bankruptcy. The city and state can be grateful that they are not yet in a situation similar to that of Harrisburg, Pa., which filed for Chapter 9 bankruptcy last fall. But that dire scenario is not far off for some on New York’s local governments—Suffolk County declared a financial emergency in early March. The struggling Great Lake cities upstate are not far from the abyss. Indeed, Buffalo already has a financial control board to oversee its deteriorating treasury.

Mr. Cuomo is pushing for reforms that would save up to $100 billion over the next three decades. His plan would create a new tier of pensions for future workers that would increase employee contributions to the retirement fund, raise the retirement age, lower payouts and crack down on those who game the system through inflated overtime earnings at the end of their careers.

Publicly, the leaders of New York’s public employee unions are vowing to fight the governor’s plan. Privately, however, there are indications that they know the game is up—although they would hardly put it in those terms. But they certainly do know that the system is unsustainable, and that they will suffer grievous damage to their reputations if they continue to defend the status quo.

Nobody who supports drastic pension reform would, in any way, denigrate or dismiss the service of hard-working public employees, especially those in public safety jobs. Public employees, from clerks to firefighters, are the lifeblood of government. Without them, we are less safe and poorly served.

Current workers were made promises that should not have been made. Future workers cannot be made the same kinds of promises. Pension reform for new workers must reflect 21st-century realities, including the absolute reality that the Empire State will go bankrupt if radical pension reform is not achieved.

And so it must be. And now is the time. Pension Reform, Now