New York City's pension costs will rise by about $6 billion over the next three fiscal years as high inflation and fears of a recession have hammered the city's retirement plans.
Five of the city's pension funds lost 8.65% for the fiscal year, the most since the financial crisis. Taxpayer contributions of $861 million in fiscal year 2024, $1.97 billion in 2025 and $3.02 billion in 2026 will be required to buoy the pension funds, according to a city bond offering document. The funds count on a 7% annual assumed rate of return.
The rising pension costs threaten to strain the finances of the largest U.S. city. New York's financial plan — which was released in June and doesn't reflect the projected increase — already anticipates a $4.2 billion deficit in 2024 and gaps of $3.7 billion and about $4 billion in fiscal years 2025 and 2026, respectively. And with nearly all of the city's labor contracts expiring, Mayor Eric Adams will face pressure to boost pay amid the highest inflation in 40 years.
"Given other fiscal risks facing the city, this reinforces the need for the city to take swift and prudent actions to align recurring spending and revenues," said Ana Champeny, vice president for research at the Citizens Budget Commission.
Stocks have gone on a wild ride this year as investors speculated how aggressive the Federal Reserve will be in its fight against inflation. The stock-market tumble earlier this summer had already hurt New York's June estimated personal income-tax payments, which are closely tied to capital-gains realizations. The rise of remote work has also led to office vacancy rates of more than 20% and lower real-estate transaction taxes, according to S&P Global Ratings.