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The Empire

Comptroller's chief economist responds to deputy mayor Steel

Response to “Deputy Mayor Steel rebuts Liu on pensions,” by Colby Hamilton on the WNYC blog The Empire Blog of Thursday, July 14, 2011.

In his comments during the Citizens Budget Commission breakfast at the Princeton Club on Thursday, Deputy Mayor Robert Steel was quoted as saying “Pensions are to the City of New York what entitlement reform is to the federal government…"

We beg to differ. In fact, the NYC pension funds are fundamentally different than federal entitlement programs and it confuses the issue to make such comparisons.

First, City pensions are an actuarially-funded system in which future costs, insofar as they can be predicted accurately, are pre-funded in advance. The federal entitlement programs are essentially pay-as-you-go systems, in which present workers pay taxes that are transferred to current program recipients.

That's exactly why the failure to raise the debt ceiling could immediately impact the U.S. Government's ability to make social security payments. In contrast, NYC Pension Funds closed this fiscal year with assets of approximately $119 billion. Even while continuing to pay out annual pension benefits, these assets are expected to grow with a combination of investment returns, employer contributions, and employee contributions.

Second, Medicaid and Medicare are health delivery systems, not income support.  As such, their costs are fundamentally affected by the costs of providing the underlying service, in those cases, health care.  Obviously, health care costs that tend to rise faster than the inflation rate and faster than GDP are a major national concern, because mathematically they will absorb ever more of national output unless they are curtailed.  There is no equivalent problem with NYC pensions; they are providing dollars to beneficiaries, not services, and have no underlying costs pressures to which they are vulnerable. Moreover, unlike the case of federal entitlements, there is no demographic bulge like the baby boom driving city pension costs.

A report released last month by Retirement Security NYC, Comptroller John Liu’s research initiative, found that pension costs will grow at a slower rate than the City's GCP. This is true under three different rate-of-return scenarios: 7%, 7.5%, and 8%. (See Sustainable or Not? NYC Pension Cost Projections Through 2060, http://comptroller.nyc.gov/rsnyc/reports.asp?f=2).

Comparing the City’s pension funds to Social Security, Medicaid, and Medicare may make for good headlines but is no different than comparing apples to oranges, tangerines, and bananas.

– Frank Braconi, Chief Economist, NYC Comptroller’s Office