NYC may try to prune union pensions via bargaining

NEW YORK (Reuters) - New York City may ask the state to give it back the power to negotiate retirement benefits with city public workers in a bid to curb soaring pension costs.

Deputy Mayor Howard Wolfson on Wednesday told reporters this was one of two options the city was considering.

The second option would be again asking the legislature to create another less costly "tier" of pension benefits for newly hired public workers, from teachers to police officers.

"The two ways are not mutually exclusive," said Wolfson, a former top aide in Hillary Clinton's 2008 presidential campaign, after an Association for a Better New York event.

City teachers have accepted a less generous Tier 5 for new hires, and the legislature honored the accord Bloomberg reached with them. But the rest of the workforce only has four tiers.

In 1973 Albany enacted a law stripping counties, cities, towns and the like of the ability to negotiate pension benefits with unionized public workers.

The goal was to simplify what was then a highly fragmented retirement system as individual localities often had their own pension funds with varying investment results. The different benefits and rules made it hard for workers to switch jobs.

The decades-old state law was successful from one perspective: it spurred local politicians to bring their public workforces into the state's retirement system.

The mayor has repeatedly warned that the city cannot afford all of the benefits the state granted public workers over the years, a problem worsened by the huge investment losses pension funds incurred during the credit crunch and the recession.

Another difficulty is the lofty 8 percent rate of return that the city expects its pensions to earn. That is a typical rate for a public pension, partly because it slices how much a state or city must contribute. Bloomberg has jested that only Bernie Madoff could achieve that high a return over the years.

However, James Parrott, deputy director of the Fiscal Policy Institute, a liberal think tank, noted that the late 1990s stock market boom allowed the city to "dramatically" reduce its pension contributions.

This year, New York City will spend $7.4 billion on pensions -- more than one-tenth of its $64 billion budget. In fiscal 2002, the pension price tag was just $1.3 billion.

Along with many other states and cities, New York cannot clip the pensions of retirees or current workers.

"The only real answer is that you go and you have a different tier for those who we have yet to hire," the mayor said. However, such a move delays the city's savings for 10- to 15 years.

Critics blame unions for persuading vote-hungry legislators to grant pension benefits that are much more generous than those paid to private sector workers. Echoing these arguments, Bloomberg recently warned: "In the end, we will have a smaller workforce because of the costs of our pension system."

This concern is prompting him to explore hiring private companies to do some of the work now performed by public workers. "We will farm things out to the private sector more because the municipal workers just cost too much," he said.

Though banks, hedge funds and private equity firms have raised billions of dollars to privatize infrastructure -- from roads to parking meters -- Bloomberg has repeatedly cautioned against selling capital assets.

(Reporting by Joan Gralla, Editing by Andrew Hay)