The Price of Promises Made

New York City’s municipal leaders have run up a tab of more than $95 billion and continue to charge about $5 billion more annually to this bill. The current debt equals about $30,000 for each household in New York City, and the burden will continue to grow without changes to current policies.

The credit card used by municipal leaders is known as OPEB: other postemployment benefits. These benefits represent a part of the compensation for people who work for the City of New York, just like salaries and other fringe benefits. OPEB are benefits promised to police officers, firefighters, teachers, and other civil servants who provide public services each day. The City promises them benefits in the future–and charges the promise on the credit card. Specifically, a variety of health insurance benefits promised to these workers when they retire are not paid for as they work, but are to be paid for in the future when they reach retirement age. The taxpayers having to foot those bills, at prices likely to be notably higher than their current cost, will be the next generation of New York City taxpayers.

This current OPEB financing arrangement violates a principle termed “intergenerational equity” which requires those who receive and consume services to pay for them rather than pass the cost on to future generations. This report examines the magnitude and nature of this fiscal problem that has been left unaddressed for decades. It also suggests strategies for reducing this financial burden on current and future generations by better aligning New York City’s OPEB with other municipalities’ benefits and establishing more appropriate arrangements for funding those benefits.