Budget Breakdowns and The Hidden Costs: Debt, Pensions, and Promises

The Hidden Costs- Debt, Pensions and Promises

Costs that Come Ahead of Service

When most New Yorkers think of the city budget, they do so through the lens of daily experience, considering issues like crowded classrooms, subway delays, and whether their local library is open on weekends. For city employees, however, the budget starts much earlier. Just under one-third of New York City's spending is already committed before a new service can even be touched. These costs are fixed and are designated as pensions, post-retirement health benefits, and debt service.

They are not optional costs. They are promises made by a city government to its employees who dedicated themselves to city employment (for decades in many instances) and to bondholders who financed much of the city's bridges, schools, and affordable housing. But in addition to being a commitment to the city's past, they now restrict what we can do with today's budget priorities.

Pensions as a Secure Retirement

Many city employees, teachers, police officers, firefighters, sanitation workers, and many others don't consider pensions an add-on benefit. It is a part of their paycheck that is deferred until their retirement age. Many city employees also receive a lower wage than their counterparts in similar private sector jobs, understanding that this pay gap will be offset by the stability of their retirement.

On an annual basis, New York City pays nearly $10 billion per year to its pension systems, which cover roughly 300,000 retirees and their beneficiaries. The city's contributions to its pension systems are constitutionally protected by New York State law, guaranteeing that the city government will keep its pension promises. For employees, this represents peace in their lifetime careers. For the city budget, these are self-imposed mandates. Pension payments cannot be reduced to free up funding; they must be paid in full, regardless of the absence of supplies in classrooms or cuts to after-school programs.

Retiree Healthcare: The Obligation is Real

The city also pays for healthcare for hundreds of thousands of retired employees and their families, in addition to pensions. Very few employers still provide the same range of coverage. While New York City has historically offered this healthcare benefit, the cost is several billion dollars a year, making it one of the budget's fastest-growing segments.

This benefit is essential to workers nearing retirement, just as the pen