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February 20, 2013


And speaking of NYSUT …

E.J. McMahon

If Governor Cuomo’s dubious proposal to “smooth” tax-funded employer pension costs is passed by the Legislature and accepted by the trustees of the New York State Teachers’ Retirement System (NYSTRS), and if all school districts then opt into the plan, NYSTRS will be systematically under-funded by billions of dollars over the next few years. You might think the union representing New York teachers would not favor weakening the source of its members’ future pensions. But you’d be wrong.

New York State United Teachers (NYSUT) has just endorsed the governor’s plan. And if that surprises you, you’re not familiar enough with the history of pension gimmickry around the country. It’s by no means unprecedented for public employee unions to put short-term interests ahead of long-term financial security of their pension funds.

New York’s biggest government union, the Civil Service Employees Association (CSEA), has been critical of Cuomo’s plan.  CSEA is right, and its members should appreciate it. NYSUT is wrong — but not for the first time. Two years ago, the union drafted a bill, subsequently passed by the Legislature, that would have allowed school districts to bond out a portion of their rising pension costs.  That measure was vetoed by Cuomo, who now backs a less direct (but potentially even more dangerous) form of borrowing from the future.

Filed under: Public Pensions

3 Comments »

  1. EJ, what is the source/backup for the assertion that “if all school districts opt into the plan, NYSTRS will be systematically under-funded by billions of dollars over the next few years” ?

    Thanks –
    Bill

    Comment by Bill Nojay — February 20, 2013 @ 1:38 pm

  2. In answer to Mr. Nojay:

    That’s my estimate. Cuomo’s plan would freeze the pension contribution rate at 12.5 percent — 3.75 percentage points below the 2013-14 contribution rate of 16.25 percent, which is payable in the fall of 2014. Furthermore, based on the methodology that Josh Barro and I used for projecting pension costs (accurately, so far) in our December 2010 pension report, the NYSTRS pension contribution will peak in 2014-15 at roughly 19 percent, which is 6.5 percentage points above the Cuomo “smoothed rate.” Each percentage point on the school district teacher salary base equates to roughly $160 million, based on comptroller’s salary data for school districts. It will be several more years, at a minimum, before the natural “normal” NYSTRS contribution rate subsides to the 12.75 percent promised by Cuomo — assuming no serious financial downturns in the meantime. Do the math, and you can see where the reference to “billions” in underfunding comes from. If everybody did it, the under-funding would total $600 million in the first year alone, conservatively estimated. Then over $1 billion in the second year. And then, somewhat less than a billion in the third year. And so on.

    Comment by mcmahon — February 20, 2013 @ 2:07 pm

  3. The reason that NYSUT is “in favor” is because many school districts are facing large budget increases this year, if not huge tax increases to go with them, due to a NYTRS funding delta that will see as much as a 16.5% funding contribution requirement that falls directly to the annual bottom line. On top of Triborough-mandated salary increases, many districts are going to be looking at more teacher cuts and school closures, and other ‘un-natural acts’ while really waking up their taxpayers with large tax increases. Like all legislation, NYSUT and the Governor are well aware they can always change things later if need be, yet if the economy recovers, 12% will result in a windfall for NYSTRS - the NYSTRS employer contribution rate averaged 5.66% for the entire decade of the 90’s and 6.74% annually for the last decade - why would anyone believe 12% appropriate for the next 25 years??

    The Governor and the Legislature will float-up any outlandish scheme rather than do what we all know most needs to be done yet they lack the guts for, which is abolish or modify Triborough to allow school boards to bring pension and salary costs back inline with the rest of the citizenry. That’s what teachers fought for in the 70’s and what the citizenry has every right to expect of our elected now.

    Comment by Livewire — February 20, 2013 @ 4:33 pm

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