New York City Pension Watch: Balancing the Budget by Shorting the Pensions

I did it... the Chicago wayyyyyyyy

Great.

12 May 2026, NYT: How Mamdani and Hochul Are Solving New York City’s Budget Crisis [emphasis added]

A generous influx of state resources from Gov. Kathy Hochul and a new tax on luxury second homes will help Mayor Zohran Mamdani balance a $125 billion budget.

Three months after Zohran Mamdani claimed New York City was facing a budgetary crisis of generational proportions, the mayor announced on Tuesday that he had closed the gap, thanks to an infusion of state resources from Gov. Kathy Hochul and some routine belt tightening.

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The largest share -- about $2.3 billion over two years -- is expected to come from the city’s delaying certain pension payments, a change that requires state approval and buy-in from municipal unions.

Unions, think very carefully about this.

There can be consequences, and if you think Mamdani will buy you off now with overtime or raises, look to Rhode Island, New Jersey, and especially Detroit as to where this can eventually land you.

Prior Post on this Idea

I wrote out a lot of what I thought on this idea already:

Just because the cash flow promised occurs later, the innumerate think, “Oh, well, it doesn’t matter much if I don’t set aside any money now, after all, I promised. The promise is as good as paying….”

Until 20 years later, and there’s not enough money.

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Why is there a NYC pension gap?

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I will note that NYC ERS is a “normal” public pension plan in that its funded ratio tracks with the national average, though its contribution rates are fairly high.

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If you squint, you can see there’s a little bend in that line for each of those lines, where NYC’s happened back in 2010, and NY State & Local happened over a few years, but the current one was settled in 2021.

Current assumed rates of return:

• NYC: 7%

• NY State and Local: 5.9%

and NY State and Local has been getting a higher rate of return… but with a lower target.

From a risk management point of view, NY State and Local is sitting pretty.

NYC is barely hitting its target on a long-term point of view.

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Well, that is actually the big difference between NYC ERS and NY State & Local ERS. NYC ERS, before it recently shifted down to 5.9% as its assumed rate of return, had used 7% (not 8%) as its assumed rate of return.

That “conservatism” (yes, I mean that as scare quotes) in determining their contribution rates helped keep the NY State and Local ERS plan fully-funded, while NYC ERS’s funded ratio deteriorated.

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Bottomline: “Delaying” pension contributions is borrowing from the pension funds

And the public employee unions, and especially the retirees, know this.

Perhaps some of them have been looking over at New Jersey or Rhode Island and saw what happened to COLAs (cost-of-living adjustments) in those states, and decided they didn’t want that to happen to their own pensions.

What happened in Rhode Island and New Jersey? The COLAs were cut in 2011.

FIFTEEN YEARS LATER, and the COLAs in both states are still suspended/much less than originally promised:

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But borrowing from the pensions, which is what “delaying” the pension contributions, aka, under-contributing to the pensions, is. The unfunded liability would accrue and the funded ratio would decrease.

And consequences would start creeping up. This is how this sort of thing starts. It doesn’t require losing all the pension benefits… just a lot of the benefits that make them valuable, like COLAs.

That’s just one possible result.

Fragility of Can’t Fail Thinking

I mentioned Detroit.

Detroit was a city that went bankrupt — not directly due to the pensions, but in the bankruptcy workout for the city, the pensions got involved and payments for current retirees got cut, not just future retirees.

I re-published a classic post of mine in 2020. It was something I originally wrote in May 2014, during Detroit’s bankruptcy: Public Pension Watch: The Fragility of “Can’t Fail” Thinking

Calpers does not like the Detroit pension plans being treated like unsecured creditors in a bankruptcy proceeding, and cites the constitutional (state constitutional, that is) protections for pensions. Thing is, there’s law, and there’s reality.

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What actually threatens the actuarial soundness of public pension plans is behavior like the following:

• Not making full contributions.

• Investing in insane assets so that you can try to reach target yield. Or even sane assets that have high volatility to try to get high return, forgetting that there are some low volatility liabilities that need to be met.

• Boosting benefits when the fund is flush, and always ratcheting benefits upward.

Calpers should be extremely familiar with that sort of behavior.

Here is the problem: all sorts of entities directly involved in public pensions have thought that the pensions can’t fail. Because of stuff like: constitutional protections of benefits (so paying pensions would take precedent over other spending needs, like paying for current services), “government doesn’t go out of business”, the supposedly infinite taxation power of the government, and so forth.

Because they thought that pensions could not fail in reality, that gave them incentives to do all sorts of things that actually made the pensions more likely to fail. Because, after all, the taxpayer could always be soaked to make up any losses from insane behavior.

Bad behavior is borrowing from the pensions when you’d rather spend the city budget on something else, as Hochul and Mamdani are proposing here.

The unions should say no.

Other Commentary

Just grabbing quick comments from others:

12 May 2026, NY Post op-ed, Ken Girardin and John Ketcham: Zohran Mamdani’s unbelievably dishonest NYC budget

Mayor Mamdani spiked the ball Tuesday, as the city’s budget crunch seemed to go away as quickly as it had appeared.

He announced that Gov. Kathy Hochul and state lawmakers would dallop a few extra billion dollars on Gotham over the next few years to patch up the city’s suddenly balanced budget.

But the mayor’s revisionism, coupled with the slipshod manner in which the budget is being balanced, gives reason to worry that he will struggle to handle less avoidable fiscal challenges ahead.

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Mamdani has reportedly gotten the governor and state lawmakers to agree to change the way New York City’s under-funded public pension plans pay off debt they incurred a generation ago by making overly rosy assumptions about how their investments would perform.

The city wants to reduce those debt payments and instead pay it off over a longer period, likely well into the 2040s — meaning tomorrow’s workers will be taxed extra to pay for city services delivered before some of their parents were born.

This is a one-time fix, if you can call it that, which the governor and the mayor are turning to outside of a recession or emergency.

This is putting stuff on the credit cards for something that isn’t an emergency at all.

If an actual emergency arrives at the city’s doors… what then?

Using up any kind of fiscal cushion for “nice to have”s and then taking on more debt, when none of it is necessary, is a questionable choice.

“But I promised!”

Yes, but we all know politicians lie. Nobody expects delivery.

Should the public employees have to wonder about the pension promises?

“But you promised!”

Those promises are empty, if the pension fund is seen as something one can always shortchange without consequence… and its condition deteriorates, and oops, you employees have to suck up some of the cost, not just taxpayers and bondholders.

Again, ask your fellow public employee unions in Detroit, Rhode Island, and New Jersey (and Ohio and…) how it’s worked out for them.