The New York City Police Department is a microcosm of the problems facing municipalities across the country in dealing with their employees. In a nutshell, most large cities are paying out enormous amounts to retired cops and other large work forces, far more than they can afford. A New York Post article provides a revealing analysis of this growing situation in the Big Apple.
In New York City, crime is on the rise, while the police force is being decreased. Over July 4 weekend, 21 people were killed in the city. Although murders are down, shootings have soared, up 11%. This caused overall crime to be higher by 4%.
And yet, the police force is shrinking. In 2000, the city employed over 40,000 officers; today the number is 34,000. Four years ago, forecasts by the NYPD had total headcount reaching over 36,000 cops in 2012, more than the current number. Now, City Hall is looking to decrease headcount by 104 over the next two years.
Financial problems in the city have resulted from the Wall Street layoffs and depressed economic activity that reduced tax receipts. Nevertheless, the city paid $2.1 billion into the cops’ $24.7 billion pension fund, the former being four times more than the amount paid in 1999-2000.
The NYPD pension has been using an unrealistic rate of return of 8%; it generated 5.767% for over a decade. In an attempt to bolster returns, the city has hired over 200 investment “consultants,” up from 38 a decade ago. Payments to these people were $90.4 million, four times more than payments in 2000. The value of the fund has risen only 34% during this period.
Benefit payments to retired cops have peaked at $2 billion a year. This is a function of the early retirement policy of the NYPD: 20 years with half salary benefit plus overtime. Retired cops under 55 years of age now total nearly 13,000; they received an average of $43,000 in annual pension benefits. This does not include injured officers or annual “bonus” payments that range from $2,500 to $12,000. Soon the total number of retired cops will be greater than those working.
The only way to control pensions is to manage salaries and decrease the most beneficial aspects of the current arrangement, they being the number of years of service before retirement (it has been increased to 22 years for new officers), the calculation of the last year’s salary plus overtime (it determines the actual pension benefits) and/or less cops (the least desirable alternative).
Municipalities are having more problems every day meeting their responsibilities. Some are even filing for bankruptcy. The cost of municipal workers is a big chunk of overall municipal costs. They must be reconsidered before the entire municipal system crumbles before us.