Moratorium on Progress: How New York’s “Moratorium” Statute Has Helped Halt Public Sector Teacher Pension Reform

By Ed Delauter, Albany Government Law Review

We need a government that performs better and costs less . . . . [this] means enacting mandate relief.  By next year, pension costs for schools and state and local governments will have increased one hundred percent since 2009.  We need to reform the pension system and create a Tier VI.  The joint Legislature and Executive Mandate relief Council we created last year will begin its work this month.  I will request that Council hold public hearings.  We need a robust discussion on the pros and cons of the mandates.[1]

Amidst the backdrop of a national recession and record federal and state budget deficits across the nation—including New York[2]—Governor Cuomo stood before the crowd gathered at Empire State Plaza on January 4, 2012 and delivered the 2012 State of the State address.[3]  The Governor emphasized the need to reduce the amount of retiree benefits received by public workers, specifically public pensions.[4]  To achieve this reduction the Governor announced his plans to include a Tier VI pension plan into his budget proposal.[5]  The proposal for a Tier VI pension system was unsurprising considering the Governor’s efforts to get the legislature to pass the Tier VI pension system the previous year as a stand-alone bill,[6] and the skyrocketing cost of retiree benefits in conjunction with a tail spinning economy.[7]

Perhaps it was with these reasons in the mind the New York Legislature voted the Tier VI pension bill into law during the early hours of March 15, 2012.[8]  Governor Cuomo signed the bill into law the next day.[9]   According to the Governor, the newly created Tier VI will “sav[e] local governments and New York City more than $80 billion over the next 30 years.”[10]  Such savings are realized by increasing the amount public employees must contribute to their pensions, and increasing the retirement age from 62 to 63, along with other requirements.[11]  In addition to savings measures, the state must pre-fund any pension enhancers, which ensures that local governments and school districts no longer pay for those enhancements.[12]

While, the governor lauds the savings potential of Tier VI, some other officials remain skeptical.  Aside from labor union officials who have described the passage of Tier VI as disrespectful to union workers,[13] Comptroller David DiNapoli has voiced concerns over the long-term savings estimated by the Cuomo Administration and the inability of the new pension tier to provide much needed short-term savings to local governments and school districts.[14]

Regardless of the effects the new pension system may have on future budgets, school districts have still been struggling in recent years to fund the retiree benefits currently in place.[15]  The newly imposed Property Tax Cap,[16] supported by the Governor[17] and passed by the legislature a year prior to the passage of tier VI,[18] places hurdles on school districts looking to increase revenue to help pay for retiree benefits.[19]  These benefits remain among the highest costs for school districts.[20]  Further, the alternative means for a school district to raise revenue—funding from the state—has plateaued in past years and is starting to decline.[21]

In addition, aside from common law violations such as breach of contract and promissory estoppel, a school district’s ability to decrease retiree health benefits is limited in other areas. Notably, Chapter 504, Part B, section 14 of the 2009 session laws—more colloquially known as the “Moratorium Statute”—prohibits a school district from diminishing health insurance benefits to retirees or diminishing the contributions a school district makes for such health insurance benefits unless a corresponding diminution is made to active employee benefits.[22]  In essence the Moratorium Statute acts as a mandate.  The Statute dictates to school districts what cuts they may make to public retiree benefits—regardless of the terms found in the collective bargaining agreement that their retirees may have retired under, or the terms which an employee bargaining agent and the school district may have agreed to in the first place.

The Legislature originally enacted the Moratorium Statute as a one-year sunset law in 1994 at the request of a special task force created by Governor Andrew Cuomo’s father, Governor Mario Cuomo. [23]  The Legislature renewed the statute every subsequent year with a one-year sunset provision from 1995–2008. [24]  Finally, the Moratorium Statute became permanent law on December 10, 2009.[25]  In his approval message of the original legislation, Governor Mario Cuomo cited the need for the Moratorium Statute to eliminate unexpected changes to retiree health insurance benefits for school district retirees on limited budgets.[26]  In opposition to the law, Mayor Rudy Giuliani, in a letter sent to Governor Mario Cuomo, expressed the laws subversive effect on collective bargaining and the law’s constricting effect on public employers seeking to control spending costs.[27]

The debate between the former Mayor and the former Governor adequately summarize the two countervailing policy arguments surrounding mandates like the Moratorium Statute.  Should public employers be mandated to find other areas to cut spending because certain public employee benefits are too essential to public employee’s needs or should a public employer through the collective bargaining process be allowed to apportion spending as it sees fit?

The answer to this question must be the latter.  The Moratorium Statute has created a host of problems and has significantly changed collective bargaining with respect to health insurance benefits in New York.  These problems range from constitutional to statutory in nature—and create difficulties in the execution of public policy.  Most importantly, the Moratorium Statute has subverted the intent of New York’s Taylor Law[28] by imposing terms and conditions related to employment upon parties when no such agreement has been reached through the collective bargaining process, and has also significantly hampered school districts’ ability to cut costs in one of the few places it can.

While a retiree’s ability to receive health insurance benefits without an abrupt diminution of those benefits is an important legislative goal, common law claims of breach of contract and sometimes promissory estoppel provide adequate remedies for retirees whose health insurance benefits have been diminished.  While these doctrines may not adequately apply to health insurance benefits a school district provides outside of a collectively bargained agreement, a labor union can instead exercise its bargaining skills to create provisions within collectively bargained agreements that explicitly provide for retiree health insurance benefits instead of relying on a statute that imposes terms and conditions related to employment upon public employers.


[1] Andrew M. Cuomo, Building a New NY . . . With You: 2012 State of the State Address 17 (2012) available at http://www.governor.ny.gov/assets/documents/Building-a-New-New-York-Book.pdf.

[2] Phil Oliff, Chris Mai & Vincent Palacios, States Continue to Feel Recession’s Impact, Center on Budget and Policy Priorities (June 27, 2012), available at http://www.cbpp.org/cms/index.cfm?fa=view&id=711.

[3] Thomas Kaplan, Cuomo Pushes Job Creation in 2012 Plan, N. Y. Times, Jan. 5, 2012, at A1, available at 2012 WLNR 209379 (Westlaw).

[4]  Id.

[5] See Cuomo, supra note 1, at 17.

[6] See Press Release, Andrew M. Cuomo, Governor Cuomo Introduces Pension Reform Legislation (June 8, 2011), available at http://www.governor.ny.gov/press/06082011PensionReformLegislation.

[7] See E.J. McMahon & Josh Barro, New York’s Exploding Pension Costs (2010) available at http://www.empirecenter.org/Documents/PDF/PensionExplosion.12.20102.pdf.

[8] Rick Karlan, Tier VI Just Passed in the Assembly Capital Confidential (Mar. 15 2012, 8:05 AM), http://blog.timesunion.com/capitol/archieves/120948/tier-vi-just-passed-in-the-assembly.  In a legislative session beginning at midnight, which saw a majority of Senate Democrats leave in protest of redistricting measures, the Tier VI legislation passed in the Senate 32-5 and passed in the Assembly 95-44.  See id.; see also NFIB, Voting Record 2011-2012 New York (2012), available at http://www.nfib.com/Portals/0/PDF/AllUsers/states/NY/NFIB-NY-2012-Voting-Record.pdf (discussing voting record on Tier VI bill at paragraph “7”).

[9] Press Release, Andrew M. Cuomo, Governor Cuomo Signs Law to Enact Major Pension Reforms (Mar. 16, 2012), available at http://www.governor.ny.gov/press/031612pension.

[10] Karlan, supra note 8 (quoting Cuomo’s press release).

[11] Id.

[12] Id.

[13] Id. (referring to CSEA press release regarding Tier VI passage).

[14] See Jimmy Vielkind, DiNapoli says There are ‘ifs’ in Tier VI Savings Estimate, Capital Confidential (Mar. 20, 2012, 12:13PM) http://blog.timesunion.com/capitol/archives/121498/dinapoli-says-there-are-ifs-in-tier-vi-savings-estimate/); Cara Matthews, DiNapoli: New Pension Tier Won’t Save Local Governments Much in Short Term, Politics on the Hudson (Mar. 15, 2012), http://polhudson.lohudblogs.com/2012/03/15/dinapoli-new-pension-tier-wont-save-local-governments-much-in-short-term/.

[15] See, e.g., Paul J. Kolkmeyer, Editorial, City, Schools Face Unmanageable Retirement Costs, Buffalo News, Feb. 20, 2008 at A6; Mary B. Pasciak, Educators Hit Pay Dirt with Pensions, Buffalo News, Aug. 10, 2008 at A1; Dionne Searcey, Early Retirement a Key Factor; Local Governments Looking to Albany, Newsday, May 13, 2002 at A16; Nicole Gelinas, Opinion, Out-of-control Spending Needs to be Checked, Newsday, Aug. 8, 2005 at A35; Associated Press, Pension Fund Swells, Newsday,  Oct. 4, 2005 at A48; Rob Seetoo & Spencer Ainsley, Cities Stare at Budget Holes, Poughkeepsie J., Nov. 11, 2002 at 1; John Davis, Pay, Pensions, Fuel Raise Budgets, Poughkeepsie J. , May 14, 2006 at 1A; Jenny Lee-Adrian, School Districts Face Higher Pension Payments, Poughkeepsie J., Feb. 1, 2010, at A1; see also Sandra Peddie & Eden Laikin, An A+ in Pension Planning, Newsday,  May 5, 2008 at A02 (discussing how a Long Island school administrator was able to attain a $300,000+ pension by using loopholes in the public school retirement system).

[16] For the language of the bill, see 2011 N.Y. A.B. 3521 (assembly version); 2011 N.Y. S.B. 5052, 5052A (senate version).

[17] See Celeste Katz, Gov. Cuomo Signs 2% Property tax cap, Daily News (Jun. 30, 2011, 11:22 AM), http://www.nydailynews.com/blogs/dailypolitics/2011/06/gov-cuomo-signs-2-property-tax-cap.

[18] See, e.g., Danny Hakim, Deal Reached in Albany to cap Property Taxes, N.Y. Times, May 24, 2011, http://www.nytimes.com/2011/05/25/nyregion/in-albany-agreement-is-reached-to-cap-property-tax-increases-at-2-percent.html?pagewanted=all.

[19] See id. (noting that the property tax cap law requires a sixty percent vote of a local school district to override the two percent cap).

[20] See supra note 15 (citing various articles which discuss the impact of retiree benefits on public budgets).

[21] See School Aid: New York State Executive Budget 2012-2013, NYSUT (last visited Mar. 7, 2013, 6:08 PM), http://www.nysut.org/research/2013/executivebudget/index.asp (selecting “state total” from the drop-down menu).

[22] Retired Employees of School Districts and Certain Board—Health Insurance Benefits Act, ch. 729, § 1, 1994 N.Y. Sess. Laws 1807 (McKinney).

[23] See id. (Bill Jacket).

[24] See 1995 N.Y. Sess. Laws 798, ch. 139, § 1; 1996 N.Y. Sess. Laws 119, ch. 83, §1; 1997 N.Y. Sess. Laws 185, ch. 80, § 1; 1998 N.Y. Sess. Laws 440, ch. 68, § 1; 1999 N.Y. Sess. Laws 168, ch. 43, §1; 2000 N.Y. Sess. Laws 96, ch. 47, § 1; 2001 N.Y. Sess. Laws 84, ch. 31, § 1; 2002 N.Y. Sess. Laws 352, ch. 70, § 1; 2003 N.Y. Sess. Laws 180, ch. 48, § 1; 2004 N.Y. Sess. Laws 103, ch. 25, § 1; 2005 N.Y. Sess. Laws 121, ch. 16, § 1; 2006 N.Y. Sess. Laws 42, ch. 27, § 1; 2007 N.Y. Sess. Laws 181, ch. 22, § 1; 2008 N.Y. Sess. Laws 229, ch. 43, § 1.

[25] See 2009 N.Y. Sess. Laws 1337, ch. 504, Pt. B §14.

[26] Retired Employees of School Districts and Certain Board—Health Insurance Benefits Act, Ch. 729, § 1, 1994 N.Y. Sess. Laws 1807 (McKinney) (Bill Jacket).

[27] Id.

[28] See N.Y. Civ. Serv. Law § 200 (McKinney 2012) (noting that the purpose of the Taylor Law is to “promote harmonious and cooperative relationships between government and its employees and to protect the public by assuring, at all times, the orderly and uninterrupted operations and functions of government.”).

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Filed under Civil Service Law, Government Reform, Labor Law, Municipal Law, Public Budgets, Retirement Income

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