In the aftermath of a federal judge’s ruling that state constitutional protections do not shield pension obligations for retirees in Detroit, unions and others across the country say public employee pensions can now be fair game for cutbacks in financially ailing municipalities.
But in New York State, there is a world of difference between what is going on in Detroit and what has or even what might happen to localities facing tough fiscal times. Chief among them: New York has not let any of its municipalities go bankrupt.
“We don’t see any impact at the moment,” said Thomas Nitido, deputy comptroller for the New York State and Local Retirement System, which has nearly 1.1 million members, retirees and beneficiaries.
When told others do not believe that the Detroit ruling will affect retirees in New York, one labor official suggested that people in Michigan might have thought the same not long ago.
“I’m not trying to claim the sky is falling here, but I do think Michigan had a long labor tradition where labor had some impact on decisions made in the political process, and we’ve seen that largely eradicated. We certainly have not seen a ruling like this before that is undermining the integrity of state constitutional issues,” said Stephen Madarasz, a spokesman for the Civil Service Employees Association, the largest state workers union, which also represents thousands of local government employees in Western New York.
While unions were sounding rallying cries against the Detroit ruling, there are some sizable differences between Michigan’s situation and New York’s. For starters, the ruling in Detroit pertained to a case involving a city under bankruptcy protection.
However, New York State has a long tradition of stepping in to prevent downward fiscal spirals from reaching that point. One way has been the creation of state-run fiscal control boards that can largely take over a municipality’s finances and make tough decisions that locally elected officials might otherwise avoid. That has happened in New York City, Nassau County, the City of Buffalo and Erie County.
Moreover, the situation in Detroit involves a chronically underfunded pension system. Such is not the case with the New York public pension system, which has gone to great lengths to ensure that its funds have enough money for future retirement payments. Witness the high expenses paid by localities into the system in recent years.
Also, Detroit, like New York City, runs its own pension system, and that was the sole concern of the federal decision there.
New York State agency and authority employees, as well as workers at 3,004 local government employers, are members of the $160 billion New York State and Local Retirement System run by State Comptroller Thomas P. DiNapoli. Teachers in nearly 700 school districts are part of the New York State Teachers Retirement System.
Because so many state and local government units are part of one pension system, it means that a potential bankruptcy by one municipality would not have the broad impact on a pension system as seen in Detroit.
The state comptroller sought to downplay any connections between Detroit and New York State municipalities. “New York has a long tradition of working successfully with distressed local governments to avoid bankruptcy, stepping in to provide oversight and assistance,” DiNapoli said in a statement.
The state also has at least two proactive programs to help struggling municipalities recover. In the past, New York has come to the rescue with cash for ailing localities and just recently approved deficit financing for Rockland County.
Nitido, the deputy comptroller of the retirement system over which DiNapoli serves as sole trustee, said there is a “fundamental difference” between Detroit’s system and New York’s.
“We’ve been scrupulously well-funded over the years. Our 3,000 employers make their contributions, and when somebody retires, their pension has been paid for, and that’s not the case in all places,” Nitido said.
Some representatives of local governments hope the Detroit ruling will shine a light on their calls for cost-saving changes to the state’s pension system. “While municipal bankruptcy has never happened in New York, it is clearly not beyond the realm of possibility,” said Peter A. Baynes, executive director of the New York Conference of Mayors.
With a growing number of localities facing tough fiscal times, partly because of rising pension costs, Baynes said, the Detroit ruling is “a stark reminder of why collaborative bargaining is so important – and why New York must proactively assist municipalities so that we never have to suffer the painful and far-reaching consequences of municipal bankruptcy.”
Whether the Detroit case fuels any push for reform of New York’s pension programs is a long shot in the near term, especially in the upcoming legislative session when the governor and all legislators are up for re-election. Such campaign years have traditionally been the periods in which pension sweeteners, not cuts, are adopted in Albany.
The drama being played out in Detroit is unlikely in New York, said Mark LaVigne, deputy director of the New York State Association of Counties.
“There are other mechanisms that kick in well ahead of a potential bankruptcy filing,” he said of the various potential bailouts the state can offer.
While critical of the Detroit ruling and worried about its potential impact, unions in New York said they do not anticipate that the decision will have an immediate fallout on the New York pension system.
But the CSEA, the largest state workers union that also represents thousands of local government employees in the Buffalo area, believes that the Detroit ruling is dangerous and has precedents that go beyond pensions and public workers.
“The key here is it basically says we can’t have any more confidence in our government than we do in the social contracts in the business world,” Madarasz said.