Posted by Doug Turetsky, March 6, 2009

When Mayor Michael Bloomberg released his budget plan in January, many observers were scratching their heads over one number in particular: $200 million in pension savings. That’s the amount the Mayor said the city would save in the next fiscal year alone if a new pension arrangement first proposed by Governor David Paterson was approved in Albany.

This so-called Tier V would require newly hired city employees to pay more into the pension system than current workers and make the new hires work longer before they become eligible to retire with full benefits, among other changes designed to lower public pension costs. Given that these changes would only apply to new municipal workers and that the city’s current budget malaise makes it unlikely there will be many of them in the near future, the Mayor’s savings estimate seemed very high.

It appears that the savings number in the Mayor’s Preliminary Budget is inconsistent with other estimates provided by the Bloomberg Administration. A Memorandum of Support of the Tier V proposal for city uniformed employees—police, firefighters, correction officers, and sanitation workers—based on information submitted by the Bloomberg Administration to the state Legislature cites much lower estimated savings. The memo says, “This bill will result in savings to New York City of approximately $25 million in the year after enactment. Savings would increase by approximately $25 million per year as new employees are hired, such that the annual savings will be $500 million in 20 years.”

So maybe most of the savings will come from the rest of the city’s workforce, including teachers and other civilian employees? A memo from the Mayor’s budget office to the state’s budget office puts that supposition to rest. Sent last January 9—just 21 days before the Mayor presented his Preliminary Budget—the memo estimated that savings from a new pension tier for teachers and civilian workers would be $10 million in the first year and grow by $10 million annually in subsequent years and reach $200 million in 20 years.

So how does a combined estimate of $35 million in first year savings morph into $200 million? It seems the Bloomberg Administration is hoping to get an agreement to “frontload” some of the expected savings by taking the average over a relatively long term and applying it annually rather than allow it to accrue on a year-by-year basis as current employees retire and new employees with lower pension costs for the city are hired.

Why the Mayor would want to do this is a matter for conjecture. But one thing is clear: whatever its longer term fiscal merits, a Tier V wouldn’t really save $200 million in 2010.