Newly elected New York City progressive mayor-elect Zohran Mamdani - like almost everyone - is ignoring the Fiscal Elephant in the room: the Pension funds (5 of them!).
From Crain's March 9, 2023 issue:
Last year, the city contributed $9.6 billion to the funds, which have about $250 billion in assets. Employees contributed about $2.5 billion, according to the funds financial statements.
Then there are spiraling management costs:
Last month, New York City Comptrollers Brad Lander called on the states Department of Financial Services to review the pension fund for schools non-teaching staff, where spending has grown about 170% in five years. New York City's Board of Education Retirement Systems $35 billion budget exceeds the budget of the police pension, which has almost twice the membership...More than a decade ago, former New York City mayor Michael Bloomberg and then Comptroller John Liu proposed consolidating the investment management of the five pensions into a single independent investment board. Managing money internally would save the city $1 billion a year, they said. That proposal was pulled because some unions wouldn't be represented on the new board and individual pensions wanted to maintain control over investment decisions.
Together, this is well over $10 billion, more than the deficit that would accrue if current spending patterns were left in place in FY 2024.
But savings on pension management and "catch-up" contributions when the city has a bad year, like 2022, are inevitably paid AFTER the asset markets have bottomed and asset prices have risen again and they are spread over several years. This is billions of dollars and dramatically undercuts the stated ROI over long periods.
In fact, former Comptroller Scott Stringer produced a report that showed zero ROI over a 10-year pension period ending in 2015, when he included $2.5 billion in management fees. Then, as now, suggestions were made to consolidate the 5 pension funds and increase efficiency and ROI. Then, as now, they were mostly ignored.
But again, this misses the big picture. Most pension funds, after fees and deducting employee contributions too, barely generate positive returns at all.
The roughly $250 billion dollar question then, is: Why do we need pension funds at all?
The pensioners are NOT the problem. They could, should and would be better off if they were paid a guaranteed amount equal to what they get now, with equally guaranteed COLAs every year. This kind of Pay-Go system should be guaranteed in the City Charter, or for state pensions - another roughly $250 billion - in the state Constitution. Lawyers and unions can figure out what legally binding agreement to use.
Then, a bunch of expensive investment managers - who, collectively, rarely beat the S&P 500 index, could be laid off. The Comptroller's staff would shrink and he could focus on fiscal management of the city without the gross conflicts of interest that investing in commercial enterprises brings.
Then, the pension fund could be gradually sold off, say, in 5 years. Some of that could pay down city debt, immediately raising the city's credit rating and lowering borrowing costs, which alone could pay for the absence of whatever marginal gains the pension funds might actually make.
See here for a list of what New York State and New York City invest in as of the end of Q2, 2025:
These are in no way, "safe" or "conservative" investments. Where else could this money be invested?
This money might go to things that serve Main Street, not Wall Street, such as:
- A city Public Bank ($50 billion in deposits) that would replace the loans that the decades-long disappearance of small, community banks used to lend out.
Under-banked does not mean undeserving, and lending to small businesses and individuals at competitive rates - and working with existing community banks - would boost employment, security, and the tax base.
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