ALBANY—State lawmakers are moving ahead with a plan to defer more than $1 billion in pension payments over the next five years, arguing it will help them hold the line on spending increases even as critics warn of long-term risks.
Governor Andrew Cuomo, a Democrat, proposed another five years of “pension amortization” in his proposed $141.6 billion budget, the state's most recent financial plan shows. He's continuing to utilize a program first enacted in 2010, when the state government and municipalities were socked with a spike in required pension obligations to make up for stock market losses related to the 2008 stock market crash.
In New York, public employee pensions are paid from a handful of funds managed by Comptroller Tom DiNapoli. (A separate fund handles teacher pensions.) Employers—a village, county, or the state itself—are required to pay a contribution that is inversely related with the fund's performance, rising after years when the $181.7 billion fund posts a piddling return.
The amortization program lets them defer a portion of their bills and pay them back over 10 years, at interest rates between 3 percent and 5 percent, a move critics say is akin to borrowing. Dozens of municipalities have used the program, holding their short-term costs down to prevent tax hikes or reductions in other services.
The state has deferred $3.2 billion in payments since 2011, and was set to stop borrowing this year. The budget division reversed course in October, after DiNapoli's office announced it was adjusting the way contributions are calculated to reflect longer lifespans.
Cuomo's spending proposal includes another five years of amortization, including $395.1 million in the upcoming fiscal year. Members of both the State Senate and Assembly accepted the idea in their one-house budget resolutions.
So what's the problem with this plan?
This:
Critics said there was no reason to borrow the money this year because the state has gathered a $5.4 billion cash surplus from one-time settlements with major financial institutions.
Elizabeth Lynam, director of state studies for the Citizens Budget Commission, said use of the program was no longer warranted.
“It's a bad idea,” she said. “Anything we do to postpone payment, to defer payment, puts those funds in jeopardy. New York is a bright spot—we're pretty well funded—and we don't want to start down the slippery slope to a situation like New Jersey or Illinois where we don't have the funds to meet our obligations.”
And this:
The C.B.C., a business-backed group, estimated that the state's deferrals have already resulted in $144 million in interest costs. That figure will run to $780 million if the borrowing continues.
They're setting up where pensions are going to cost a lot more than they would if they just made the pension payments rather than deferring them and paying nearly a billion dollars in interest.
You can bet we'll hear in about five to ten years how pension costs have skyrocketed, funding ratios have plummeted and cuts will need to be made to existing and future pensions in order to handle the shortfalls.
That's the goal behind this plan from Cuomo - to manufacture a "pension crisis" and force drastic cuts to the pension system in future years.
And our "friends" in the legislature are happily going along with it.
What this means is that Cuomo wants to screw us years after he has left office. It is a classic phychopath move straight from the Bloomberg textbook.
ReplyDeleteThis analysis is "spot on" in that the deferral program, at its inception, was intended to deal with the spiking pension costs that the NYS Local Employees Retirement System was forced to pass along to municipalities in the aftermath of the financial crisis in 08-09--for several years, municipalities were about to be handed 20-25% annual increases in their contribution rates with no previous warning.
ReplyDeleteThe "crisis," if there now is one, is no longer because of poor market returns (NYSLRS made close to 13% in FY 2013-2014 on a well-diversified set of investments) but because of the 2% property tax cap imposed by the Governor and Legislature and the Gap Elimination Adjustment (GEA), which was put in place to withhold State school aid to localities to help the STATE fund its own deficits. Municipalities have had five years to plan to deal with variations in their pension contributions but are now spending very large amounts of their constrained budgets on those contributions because they can't raise property taxes for anything beyond the 2% cap and have to give State education aid right back to the STATE.
This may all sound like financial gibberish to many folks but unless the State-imposed property cap and GEA with-holding grab are removed for the long term, look for much more of this pension gimmickry and for Tiers VII, VIII, IX and X--which will move new State and City employees very quickly into new configurations that are pretty much 401ks and not defined benefit plans.
And, yes, the pension reformistas are just as vocal, organized, vicious (and anti-us) as are the education reformistas--actually, worse, because they come backed by very learned and very abstruse and very biased financial analysis that makes trying to figure out whether "community schools are effective?" sound like a pop quiz in a fourth grade math class by comparison.