The New York City Pension Time Bomb

As with other states and municipalities around the country, New York City faces a pension time bomb as well. It comes at the same time that the fiscal mess on Wall Street has seen layoffs and massive reductions in state and city tax revenues, which have fed the monster state and local budgets when times were flush.

NYCERS alone lost $3.5 billion in the three months ending Sept. 30, a report shows. It lost about twice as much in the disastrous months since then, Murphy said.

Similar losses by four other pension funds, for police, firefighters, teachers and other city employees, bring total assets down $30 billion from more than $100 billion a year ago, Murphy and other sources estimate.

By law, the city must make up the difference when the pension funds earn less than 8 percent a year. The city can spread the cost of plugging that gap over the following six years.

In other words, the city budget just got hit with a huge hole as a result of defined compensation plans that require the city to fund all shortfalls regardless of the circumstances.

That's billions of dollars that the city simply doesn't have. The city can't raise revenues on the wealthy precisely because those were the very people hit hardest by the Wall Street meltdown and whose companies are now out of business or holding onto the TARP lifelines wiping out the expected tax revenues. It means that the City and State will have to figure out how to make do with far less money, but the first instincts of both Mayor Bloomberg and Governor Paterson is to raise taxes and fees, not to cut discretionary spending elsewhere.