Crains New York - March 25, 2013 - (Page 11)

Boomer retiree costs explode city budgets S omeone once said that the baby-boomer generation was like a goat swallowed by a python: You could follow the goat as it passed slowly through the snake.And indeed we have. Some 76 million Americans were born between 1945 and 1964. First that crop of kids jammed our elementary schools, overcrowding them until new schools could be built. The story was similar for junior highs, high schools and colleges. Then they entered the labor market, pumping vast sums into retirement plans such as Social Security and Medicare. Since these programs are basically pay-as-you-go, financing them seemed pain-free. Now the first of the boomers have retired, and there are fewer active workers to support them. Now there is stress, and it is growing. These same demographic factors are putting pressure on state and local governments. These entities find themselves with large numbers of retirees drawing pensions and (for most of them) deeply subsidized retiree health care.These costs have reached punishing levels and are squeezing funding for basic public services and generating pressure to raise taxes. Accounting standards require that pensions be funded using actuarial projections, but not retiree health care. The unfunded cost of these fu- ALAIR TOWNSEND ture health care obligations is huge and growing rapidly—an estimated $83 billion for the city’s public workers, $56 billion for the state’s employees and $200 billion in the state as a whole. Those are massive goats. One obvious question is why,given the passage of Medicare in 1965, we offer retiree health plans at all. A Shapeshifting race takes another turn A news report on WNBC last week on the spat between City Council Speaker Christine Quinn and Mayor Michael Bloomberg over establishing an inspector general for the New York Police Department involved a series of point-counterpoint clips. At the end, the woman I live with turned to me and said, “And that woman is going to be the next mayor?’’ She wasn’t the only one to think that controversy and a series of other rapid-fire developments may have made the past two weeks a decisive one in the mayor’s race. Let’s start with the GOP. Former MTA Chairman Joe Lhota proved he can quickly raise enough money to run a credible campaign. Tom Allon and George McDonald showed they can raise absolutely no money. Mr. Allon dropped out. Mr. McDonald vows to soldier on, but primary voters won’t waste their ballots on someone who will effectively concede the big race before it starts. He, too, will have to pull out—sooner rather than later. Meanwhile, even the Bronx Republican Party abandoned former Borough President Adolfo Carrión, making it unlikely that he will get the nod from the three county chairmen he needs to even have his name GREG DAVID listed on the Republican ballot. So the GOP primary comes down to Mr. Lhota and supermarket magnate John Catsimatidis. Mr. Catsimatidis has the financial resources to do whatever he wants and large part of the answer lies in the fact that so many public workers retire well before age 65,the time when they become eligible for Medicare. Public-employee pressure, through their unions, has led to governments in this state and elsewhere providing coverage to early retirees, regardless of whether they find other jobs. One-third of all city retirees are early retirees, and their premiums cost $1.4 billion. If these retirees enroll in GHI or HIP plans, they pay nothing—zero—for their insurance. By contrast, in New York state, only 10% of private-sector companies offer health insurance to early retirees. And most state and local governments as well as privatesector employers require retirees to contribute to their premiums. New York City stands apart in offering free care to its early retirees. Our generosity doesn’t end there. Once our retirees turn 65, the city plans become supplemental coverage to Medicare. The city reimburses retirees and their spouses for the full cost of Medicare Part B premiums at a cost of nearly $300 million. No other city does this. And very few private employers offer health coverage to retirees over 65, including only 11% of private employers in New York state. According to calculations by the Citizens Budget Commission, requiring a 50% contribution by retirees and eliminating the Medicare Part B reimbursement would save more than $1 billion a year, growing over time. That would provide vital budget relief and would be far fairer to the taxpaying public. can make life difficult for Mr. Lhota. But virtually everyone who has talked to me about the Crain’s GOP debate earlier this month has remarked unprompted on how Mr. Catsimatidis simply doesn’t seem to understand the issues and can’t hold his own in a public forum. As for the Democrats,what makes the NYPD inspector general issue so important is that it highlights a growing concern about Ms. Quinn: that she is a politician first,last and always, without bedrock principles. Her support for a Police Department IG is designed to make sure her rivals don’t outflank her on the left.It is also a flipflop from her position of only a few weeks ago that she wanted Ray Kelly to continue as police commissioner, which he can’t do now because he bitterly opposes the IG concept. The WNBC report also raised doubts about Ms. Quinn’s commitment to doing everything possible to keep reducing crime. Thus, the reaction of my partner, which was echoed by many others. The result: Former City Comptroller Bill Thompson has been looking for a way to seize the moderate position among the Democrats.This gives him that opening. And Ms. Quinn has made Mr. Lhota’s core pitch to voters—that the city’s gains of the past 20 years are “fragile’’ and that no Democrat can be trusted to preserve them—much more credible. What will happen next in this interesting and important campaign? Bringing clients to the next level Industries served: Financial Services . Manufacturing & Distribution . Technology . Retail . Construction . Architecture & Engineering Real Estate . Healthcare . Transportation & Shipping 488 Madison Avenue, New York, NY 10022 50 Jericho Quadrangle, Jericho, NY 11753 www.grassicpas.com Go to crainsnewyork.com/video for highlights of Crain’s popular industry events. 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Table of Contents for the Digital Edition of Crains New York - March 25, 2013

In the Boroughs
In the Markets
Real Estate Deals
The Insider
Business People
Opinion
Alair Townsend
Greg David
40 Under 40
Classifieds
For the Record
Small Business
New York, New York
Source Lunch
Out and About
Snaps

Crains New York - March 25, 2013