Video: Pension costs threaten city budgets

By Chip Reid Correspondent
NBC News
updated 12/29/2005 8:52:46 PM ET 2005-12-30T01:52:46

One issue on which New York City’s striking transit workers said they absolutely would not bend was pensions.

In the end, the Transport Workers Union forced the city to drop its proposal to make future employees pay more into their pension plans. But some economists say New York missed a critical opportunity to rein in soaring pension costs.

Bill Niskanen of the Cato Institute says the threat to cities from pensions is so grave that New York should have followed the model of then-president Ronald Reagan, who fired thousands of striking air traffic controllers in 1981.

“The pension problem is very large for the city of New York and is very large for a lot of other municipalities,” said Niskanen. “This would have been a very good place to draw the line.”

Robert Johnson of the non-partisan Urban Institute disagrees on mass firing, saying that it would be harsh. But he does agree that the exploding cost of pensions threatens the financial health of towns and cities across the nation. Many have cut jobs, even closed libraries, to keep up with pension payments. In the end, Johnson says, it’s taxpayers who will bear the burden.

“As pension costs continue to rise, the taxpayer is going to get increasingly fed up with these rising costs,” says Johnson. “Eventually, they are going to say ‘Enough is enough.’”

One key question now: Does the success of New York’s transit workers on pensions give hope to private sector employees battling to keep theirs?

CNBC’s Ron Insana says no. “The New York City transit workers had control of New York city during their strike. They brought the city to its knees right before the holiday shopping season was coming to a close,” says Insana.

It’s a kind of leverage that most private sector employees could never even hope to match.

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