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24_3_snd-pensions.htmlCity Journal:

Across New York State, underfunded pensions are clouding the future.

Steven Malanga

Summer 2014


Municipalities across New York State face myriad financial problems, ranging from flat economic growth and stagnating tax revenues to expensive state mandates. It’s not surprising, then, that dozens of cities, counties, and towns, especially in upstate New York, have embraced a program allowing them to postpone billions of dollars of contributions into the state’s pension system. Unfortunately, the future cost may prove tough to repay. In the last fiscal year, 139 New York municipalities deferred $472 million in retirement-system payments, while the state government skipped another $937 million, according to state comptroller data. Since New York introduced what is euphemistically known as the “contribution-stabilization program” three years ago, governments have put off $3.3 billion in payments—apparently unconcerned that pension underfunding helped propel cities such as Stockton, California, and Detroit into bankruptcy.



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Stockton’s Unlearned Lessons
The troubled California city could straighten out its finances, but its leaders don’t seem to want to.
Steven Malanga
8 October 2014

The Bureau of Labor Statistics, which tracks monthly unemployment in 372 metropolitan areas, reported that Stockton, California had the nation’s eighth-highest jobless rate at the end of August. More than 10 percent of those looking for work in the struggling Central Valley city couldn’t find it. This is nothing new. Stockton has been coping with unemployment rates 50 percent to 75 percent above the national average for more than a decade. Based on that long history of joblessness, you’d think that qualified local residents would be ready to snap up government jobs with starting salaries of $60,000, plus health benefits, a pension, and yearly pay increases. Apparently not: according to the city’s elected officials, if Stockton is forced to reduce its generous and costly retirement plan as part of its exit from bankruptcy, the city will see a “mass exodus” of workers and won’t be able to fill crucial positions in its police and fire departments.


Bankruptcy judge Christopher Klein ruled last week that the unusual legal protections enjoyed by California pensions, which make it virtually impossible to cut the costs of a pension plan in the Golden State, did not apply in bankruptcy court. Stockton city officials and lawyers were livid. They had planned a reorganization sharply cutting what some creditors receive while leaving the city’s gigantic annual pension bill untouched. One city creditor, Franklin Templeton Investments, which would receive as little as one penny on the dollar for its unsecured claims, has objected, arguing that it’s not fair that Stockton could ignore its huge retirement debt. Judge Klein essentially agreed, saying that there’s no reason the city couldn’t hack away at it, or even dump its expensive plan with the California Public Employees’ Retirement System and seek a cheaper alternative. “There are lots of permutations and combinations out there,” said Klein, explaining the various ways Stockton might save money by replacing its expensive pensions with something more affordable.


Stockton officials’ claims that they would face a personnel crisis if they cut pensions strain credulity. Salaries and benefits in California’s public sector are so generous that, even after bankruptcy, a government job should appeal to many Stockton residents. Based on a deal negotiated between the city and its police union after Stockton entered bankruptcy, the starting salary for a police officer is $4,970.39 per month, or $59,644 annually. That rises to $72,888 after five years. Firefighters start at $49,000 annually, a salary that rises to $60,000 in five years. The city’s median annual household income is less than $36,000. Stockton will also spend about $14,000 a year toward a family health-insurance plan for a new officer or firefighter. New officers enter a pension plan under which they can retire at 57, with 2.7 percent of final salary for every year served. So an officer with 30 years of service and a final salary of $75,000 would qualify for a pension of nearly $61,000.



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