Don Boyd, co-director of the State and Local Government Finance Project at the Center for Policy Research at the University of Albany’s Rockefeller College, spoke about the challenges facing New York City’s Teacher Retirement System in the wake of the COVID-19 financial crisis in City Journal this week.

In his conversation with Charles F. McElwee, Boyd discussed the findings of his recent study in conjunction with NYU Marron, which was funded by Equable. The study found that NYC TRS’s benefit design and funding policy posed notable risk to city taxpayers. In the wake of  the COVID-19 financial crisis, this has become even more apparent.

“Unfortunately, the economic impact of Covid-19 presents risks to city tax revenue and to stock market returns,” Boyd says in his talk with City Journal. “Higher pension contributions may be required when the city budget and taxpayers can least afford them. Based on previous research, this correlation is real, though not guaranteed in every downturn. Its effects are particularly significant for New York City, which relies heavily on income taxes influenced by financial markets. Ignoring this correlation leads policymakers to underestimate risks to budgets.”

“TRS will likely have significant shortfalls in the fiscal year that ends this June,” he continues. “Absent surging financial markets in May and June, a 10 percent shortfall—a negative 3 percent return when TRS is assuming positive 7 percent—is plausible. This would represent a shortfall of $5 billion to $6 billion in the TRS’s defined-benefit plan, which taxpayers would need to make up over 15 years. The other major city plans invest similarly and would have large deficits, too, as analysis from the Independent Budget Office (IBO) shows.”

Read the full interview on City Journal.

This article republishes selections from “Covid-19 and the Public-Pension Crisis” an interview with Charles F. McElwee and Don Boyd for City Journal, 4/25/2020