New York City’s short-term pension costs will fall under a state budget bill set to pass Tuesday, but changes championed by Mayor Zohran Mamdani will increase the tab by billions of dollars for the next decade.
Mamdani, a democratic socialist, sought approval from state lawmakers to push off — or “re-amortize” — some required pension payments during the following five years. The maneuver will let him save as much as $2.2 billion as he tackles a projected $5.4 billion deficit for the next fiscal year.
At the same time, Albany lawmakers are approving enhancements to the 2012 Tier VI retirement law that will sweeten public pension benefits and cost New York City an additional $123.3 million each year.
The pension re-amortization will cost New York City an additional $7.6 billion over the next 10 years. The Tier VI changes will add around $1.4 billion over the same period.
Mamdani has said he was open to changing the Tier VI law, but was wary of adding additional costs. His spokespeople didn’t respond to requests for comment. The city spends around $10 billion a year on its pension costs.
Andrew Rein, president of the fiscal watchdog Citizens Budget Commission, said both actions will only create more problems down the road.
“We are continuing the habit of increasing costs we can't afford and making our children pay our bills,” Rein said. “This is not the right path to fiscal stability. This is exactly what gets us into problems when we need to get out of problems.”
The Tier VI changes will affect more than 500,000 teachers, cops and firefighters, as well as state and local government office workers across New York. It will cost state and local governments, including New York City, a total of $551 million annually, according to fiscal analyses released late Monday.
The Tier VI deal prompted cheers from public-sector unions and groans from associations that represent cities and towns. Both Democratic and Republican lawmakers said they were supportive of the measure.
“This is a victory for public workers across New York,” New York State United Teachers President Melinda Person said. “We are taking an important step toward building a fairer future for the next generation of public workers. And we’re going to keep fighting.”
Gov. Kathy Hochul has said she supports the pension overhaul. Changes will take effect immediately after she signs the bill.
The package has perks for various parts of the public workforce. Teachers will be able to retire without penalty at age 58 — down from 63 under the Tier VI law. State and local agency workers will pay less toward their pensions. Police officers and firefighters will get to include more overtime earnings in the final salary that’s used to calculate their pensions.
Hochul and state lawmakers settled on the deal after a monthslong campaign by public-sector unions. The unions say the current level of pension benefits makes it harder to recruit workers, and that changes were important to create a level playing field between newer hires and older workers.
Unions originally proposed changes that would cost around $1.5 billion a year, but they were pared down in negotiations.
Municipal associations say they’re concerned about the costs — and they doubt that pension benefits were a hindrance in recruiting public-sector workers.
“It’s not as bad as we thought it was going to be, but it’s still not good,” said Barbara Van Epps, executive director of the New York State Conference of Mayors. “The state has finally recognized the fiscal challenges facing local governments, and then they’re hitting us with a couple hundred million dollars of increased cost. It will essentially wipe out any benefit we would receive.”
Public sector pensions in New York are jointly funded by governmental employers — like a city or school district — and contributions from their employees. That money is put into a central fund that is invested in stocks, bonds and other items.
When benefit levels increase, governmental employers need to make up the difference. Chris Koetzle, who leads the New York State Association of Towns, said that increasing benefits often leads to tax hikes.
In addition to the cost impact on New York City, school districts around the state will need to contribute $94.9 million a year more. The state’s other towns, villages, cities and counties will need to pay $195 million and New York state is on the hook for $105 million a year.
United Federation of Teachers President Michael Mulgrew said it was worth it.
“To me, it's just an investment in trying to keep your workforce,” he said.
