Dealing with skyrocketing pension costs is one of the major challenges facing village, town and county governments required to make higher and higher contributions in economic hard times.
Public employer contributions are one of the two major sources of revenue for the $150 billion fund, the other being return on investments. Employee contributions are the third source, but they are set by law. In a booming stock market, fund investments reaped major returns, reducing the employer share.
As investment returns dropped sharply in recent years, municipalities have seen their contributions soar from nearly zero early in the last decade to 20 or 30 percent of salaries, putting a strain on budgets at any time but more so when municipalities and school districts must also comply with the property tax cap.
Responding to local government complaints, Gov. Andrew M. Cuomo has proposed a way to stabilize pension contributions with a long-term approach to contributions. The stable rate pension contribution offers local governments and schools stability by allowing them to lock in a fixed rate of contribution over a 25-year period rather than adapt to wild year-to-year fluctuations in pension payments.
Municipalities might see some immediate savings now in a lower contribution. St. Lawrence County would see its contributions drop from 21 percent to 12 percent for a savings of up to $3.5 million in the first year. The city of Watertown would save $1 million. However, north country officials are way of the plan. In future years, municipalities could pay more than they would under the present system in savings from new pension tiers expected to reduce employer costs.
Jefferson County anticipates its rate coming down under the current system in the next few years. The town of LeRay expects to see its annual contributions drop to about 6.5 percent as the states latest Tier VI pension plan is implemented, so locking in 12 percent for that time would not pay off.
Villages, cities, towns and counties would not be able to take immediate advantage of a recovering stock market that also will help reduce their contributions over the next few years. It is unclear whether municipalities will be able to opt out of a fixed rate in future years or at what cost.
Lower contributions now could make the state plan more vulnerable. The proposal for near-term savings now will burden future elected boards and taxpayers, who will not be able to take advantage of later pension savings.
Gov. Cuomo offered the plan as a means of providing financial relief to local governments, but it is a gamble that borrows against an unpredictable future.