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De Blasio's Challenge on Public Pensions

David Callahan

Progressives both in and outside New York City are super excited about Bill de Blasio running City Hall. President Obama summed up those feelings in his endorsement yesterday of de Blasio, saying that his ideas for universal pre-K and affordable housing could make him a "great mayor." 

Yet if de Blasio embodies the growing promise of progressivism—a movement, for instance, that is unafraid to propose tax hikes on millionaires to educate poor toddlers—de Blasio is also certain to confront the biggest peril for progressives: the soaring costs of public pensions and health benefits for retired government workers. 

Progressives are great at sidestepping this incredibly thorny issue. We point, rightly, to the fact that a financial crisis engineered by Wall Street—along with bad investments peddled to pension funds by the financial industry—dealt a body blow to these funds, helping create shortfalls. And we note that the average public pension for retired workers is very modest. In contrast to the failed private 401(k) system, public pensions actually provide economic security in a reliable way. Why attack that system? 

Of course, there is no reason to attack that system. On the contrary, we should be looking for ways to actually expand state public pension systems to allow ordinary people to buy in, as California recently did with its innovative California Secure Choice Retiremment Program. Demos laid out how to implement such an approach in states across the country in a brief last year proposing State Guaranteed Retirement Accounts

Every American should be able to pay into a retirement system where assets are pooled and managed professionally, and where risks can be buffered to ensure a minimum level of benefits no matter what happens in the stock market. 

All that is true. Yet it is also true that current public pension systems in many places, including New York City, face intense challenges. Rising healthcare costs are a big reason why. Decades ago, it was no big deal for government to promise to cover the healthcare needs of its workers and retirees. Healthcare costs were relatively low and people didn't live as long. Now, healthcare costs are sky high and life expectancy has also risen. 

The cost of healthcare costs for New York City's public workers and retireed public workers has more than doubled in the past decade -- and is projected to keep rising fast. 

Rising healthcare costs are a national problem best controlled, in my view, by a single-payer universal healthcare system or other dominant government role in the health sector. 

In the meantime, though, tough choices are in order. Here at Demos, like most organizations, employees have forked over growing co-payments to defray the rising cost of our insurance policy. 

Yet 90 percent of New York City's municipal workers pay nothing toward their health coverage. The City also picks up the entire costs of Part B Medicare premium for retirees. 

If this sounds unusual, it's because it is: A recent study by the Citizens Budget Commission found that "New York City’s health premium policies for employees and retirees are more generous than those of comparable employers in the public and private sectors."

Adopting a premium-sharing approach more in line with other employers could save over $2 billion a year by 2016. 

Reformers have also suggested a bunch of other tweaks to New York's pension system that could save big money. The kind of money that de Blasio needs to fund his progressive investments in kids and affordable housing. 

Unions oppose most of these changes for the obvious reaason that it will hurt their members. And a basic challenge for de Blasio -- like municipal leaders across the country -- is whether he can strike the right balance between what's fair to public workers and what's fair to the rest of the city. 

But there is a bigger issue: Even with higher taxes on the wealthy and a larger government, which I strongly support, our society will increasingly face trade-offs: How many resources do we want to spend on the old versus everyone else? 

A New York Times story today notes that the city of San Jose now spends a fifth of its budget on pension and healthcare costs for retirees, and that share keeps rising. This in a city with numerous poor kids of color who desperately need public investments in their future. 

Yes, that share would be smaller if San Jose didn't face the constraints on raising property taxes, thanks to Proposition 13, and hadn't taken a hit from the financial crisis. 

But the fact remains: in an aging society, where retirees live a lot longer and healthcare costs are much higher, the trade-offs between the old and the young are intensifying. 

If de Blasio truly wants to be a groundbreaking progressive leader for change, let's hope he has some creative ideas in this department.