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NY Pension Costs Expected to Jump by 17% in 2012

Source: WSJ – Jacob Gershman

Posted on 26 Aug 2011

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Further straining local governments as they cope with a new tax cap, pension costs for counties, cities and other local governments around New York state are expected to jump by 17% next year.

The ballooning figure is based on the higher contribution rates announced this week by the state comptroller's office, which raised the percentage of payroll that local governments must chip in to the major pensions system to the highest level in about a quarter-century.

The higher rates for the two systems—largely a factor of stock-market declines—translate into an increase of $274 million billed to counties, cities, villages and towns outside of New York City, according to an analysis by the Empire Center for New York State Policy, a fiscal think tank based in Albany.

The average contribution rate for the Employees' Retirement System is increasing next year by 2.6 percentage points, to 18.9% of payroll, the highest rate in about 30 years, according to the Empire Center. The Police and Fire system is going up 4.2 points, to 25.8%, the highest percentage in 25 years, putting deeper stress on cities that have more cops and firefighters.

Many of the localities, which face steep deficits in their fiscal plans, will have to deal with those costs in next year's budgets, the first subjected to the new cap on local property taxes.

The cap restricts the rate of tax growth, a major revenue source, to 2% a year. The law makes some exceptions for growth in pension costs, but more than half of the projected increases in retirement costs borne by municipalities must be absorbed under the cap.

For state employees, taxpayer-funded pension costs jumped by 35%, to $2.1 billion, this fiscal year, ending in April. A borrowing plan adopted by Albany means that much of the increase won't be paid this year but spread out with added interest costs over the next decade. The costs are projected to grow by another 17% next fiscal year.