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Governor Signs ‘Most Significant Pension Reform Legislation in 25 Years’

Says Future Savings on Long Island in Range of $8.5 Billion Over 30 Years

Governor David A. Paterson signed into law last week pension reform legislation in North Hempstead Town Hall that is expected to provide more than $35 billion in long-term savings to New York taxpayers over the next 30 years. It will, he said, save $8.5 billion on Long Island and will provide much needed long-term property tax relief.

In introducing Governor Paterson, North Hempstead Town Supervisor Jon Kaiman said in difficult times leadership is needed to make hard decisions, can do things that actually make a difference.

The legislation creates a new Tier V pension level, the most significant reform of the state’s pension system in more than a quarter-century. Governor Paterson first proposed a new pension tier in his 2009-10 Executive Budget, and it was a core recommendation of the Commission on Property Tax Relief, which was chaired by Nassau County Executive Thomas R. Suozzi. “We would not be standing here,” the governor said, “without the statewide effort of Tom Suozzi.”

“In order to get our fiscal house in order, Albany must make fundamental reforms to the way it spends money. Tier V is the first substantive pension reform in a quarter century, and is another critical step toward making our government more accountable to taxpayers,” Governor Paterson said. “The savings this reform achieves will help to lower property taxes by reducing not only State spending, but local spending as well.“

Patterson said the issue is that for years it was possible to offer very generous packages to public employees, however, over the course of time, there are no longer revenues to support it. “The problem,” he said, “is that an unsustainable pension system won’t help any of us—just drive us deeper into debt.”

From the start of economic downturn, Governor Paterson has worked to achieve pension reform that would ease the burden on State and local governments and provide relief to New York’s property taxpayers. On June 5, Governor Paterson announced an agreement with the Civil Service Employees Association (CSEA) and the Public Employees Federation (PEF) that achieved immediate workforce savings while avoiding large-scale layoffs, in addition to securing support from the two unions for the Governor’s efforts to implement Tier V pension reform.

Projection on savings for a 30-year period includes $827,807,328 for Nassau County and $18,771,320 for the Town of North Hempstead. For the Great Neck villages, savings are as follows: Village of Great Neck, $1,851,018; Great Neck Estates, $2,934,809; Great Neck Plaza, $827,483; Kensington, $1,430,706; Kings Point, $4,914,276; Lake Success, $5,162,996; Russell Gardens, $254,074; Saddle Rock, $76,845; Thomaston, $289,105. The Great Neck Public Schools will save $100,909,275; Great Neck Park District, $2,097,868; and the Great Neck Library, $2,536,680.

Key components of Tier V include:

• Raising the minimum age at which most civilians can retire without penalty from 55 to 62 and imposing a penalty of up to 38 percent for any civilian who retires prior to age 62;

• Requiring employees to continue contributing 3 percent of their salaries toward pension costs so long as they accumulate additional pension credits;

• Increasing the minimum years of service required to draw a pension from five to 10 years;

• Capping the amount of overtime that can be considered in the calculation of pension benefits for civilians at $15,000 per year, and for police and firefighters at 15 percent of non-overtime wages.

Members of the NYS Teachers Retirement System will have a separate Tier V benefit structure that will achieve equivalent savings as other civilian public employees. It includes:

• Raising the minimum age an individual can retire without penalty from 55 to 57 years;

• Contributing 3.5 percent of their annual wages to pension costs rather than 3 percent and continuing this increased contribution so long as they accumulate additional pension credits;

• Increasing the 2 percent multiplier threshold for final pension calculations from 20 to 25 years.

In accordance with constitutional requirements, these new pension reforms would apply only to public employees hired in the future. These provisions will apply to the state workforce and to employees of localities outside New York City. (The bill will implement an agreement between Mayor Bloomberg and the United Federation of Teachers (UFT) to enact reform of their pensions, which will result in estimated annual savings of $19.1 million in 2010, increasing to $64.1 million in 2019.)

On June 2, Governor Paterson vetoed a bill that would have provided Tier II benefits to all new police officers and firefighters, matching the benefits of current employees at a significant cost to local governments. The “temporary” bill had been extended on a bi-annual basis since 1981. In his veto message for Senate Bill 1409, Governor Paterson stated that while this legislation had been routinely extended in the past, “these are not routine times.” In particular, the message noted a report from State Comptroller Thomas DiNapoli that stated the pension system lost 26 percent of its value in the last fiscal year, which will necessitate higher pension costs for the State and localities.

In his opening remarks, Supervisor Jon Kaiman said the town employs hundreds of people and that he appreciates the complexity of the pension system and wants the employees to have the benefits they deserve. At the same time, he continued, they need to be part of the solution, make the appropriate contributions, and have the same limitations as all the others who work in the state.

New York State Senator Craig Johnson, who represents Great Neck and surrounding communities, supported the legislation. “Tier V will provide much-needed structural changes that will put state and local governments on a path towards controlling skyrocketing pension costs. The governor and legislative leaders should be commended for making this vital, and frankly long-overdue, legislation a reality,” he said.

Assemblywoman Michelle Schimel also supported the legislation, saying “Tier V legislation addresses one of the most significant cost drivers in local and state budgets. I am pleased that Governor Paterson can sign this pension reform bill into law on my watch and in my own Town of North Hempstead.”