Cuomo, Legislature Destroy State Pension Funds

New Jersey here we come:

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.

Governor Cuomo And The NY Post - In Search Of A Pension Crisis That Doesn't Exist

Guest Post By Harris Lirtzman, former Director of Risk Management for the New York City Retirement Systems in the NYC Comptroller's Office from 1996-2002 and former Deputy State Comptroller for Administration from 2003-2007.

A few fun pension facts may be useful before teachers all over the City start pulling their hair out over comments made recently by Governor Cuomo or the New York Post about teachers' pensions.

New Jersey, Illinois, Michigan and Rhode Island are the states with the most significant actual pension problems, verging on "crises," caused almost entirely by years and years of the state failing to make mandated minimum employer contributions to keep their pension systems solvent.  New York State and New York City are awash in cash as tax revenues from soaring sales of residential and commercial properties roll in and personal income and sales tax proceeds exceed every recent projection and are making current contributions to their pension plans.

In 2013, the New York City Teachers Retirement System (TRS) was funded at approximately 63% of accumulated retirement benefit obligations and earned 11.9% on its $38.3 billion investment assets.  In 2013, The New York State Teachers Retirement System was funded at approximately 88% of accumulated pension obligations and earned 13.7% on its $82.7 billion investments assets.  There is no pension "crisis" in New York City or New York State that would warrant, even by the Post's own credulous standards, the sort of panic that such an article will engender.

No politician in New York City or New York State will take on public pension fund systems directly by attempting to reduce the benefits paid to current retirees or accruing to current employees.  They cannot do that because pension benefits are a constitutional obligation of the State of New York and a contractual obligation of the City and State as employers.

The only time that a state constitutional protection has been abrogated other than by some change in the constitution itself occurred two years ago in Detroit, when a federal bankruptcy judge, relying on long-standing precedent, ruled that the Michigan State constitutional protection against the diminishment of already accumulated pension benefits does not apply when a municipality of the State, in this case, Detroit, declares bankruptcy.

We all need to remember that even during the fiscal crisis of the 1970s, New York City did not go bankrupt.  It came very close to missing a payment that would have triggered a default on its bonds (which is very different than bankruptcy) but it did not miss that payment partly because the City's very own pension funds agreed to help the City make that payment and avoid bankruptcy.

There is some concern that our pensions will be put at risk if the referendum in 2017 about convening a state constitutional convention passes but the referendum in 1997 failed 62-38% and there are other reasons to doubt that the next referendum will succeed—the primary one being that even the folks whose purposes may be served in part by calling a convention are likely to fear the larger damage that a convention might cause them.

The really important question that New York City teachers should be asking themselves, and should be asking the three UNITY members who sit on the TRS board, is why the City and State funds, both operating under the same state laws and regulations, have such different funded ratios and investment returns.  A teacher who works for the City has a pension benefit that is only three-quarters as secure as a teacher who works anywhere else in the State and belongs to a pension system that earns 13% less a year less on its investments than does the State system.  The answer is complex but in its simplest form will be instructive to anyone who wonders exactly how the UNITY caucus manages the oversight of our pension plan: the UNITY board members agreed fifteen years ago to a pension accounting gimmick that allowed the Giuliani Administration to grab some of our pension funds in return for a short-term gain for members but which put the City TRS at a long-term structural disadvantage compared to the State TRS where no pension grab ever occurred.

The argument will now regularly be made, and the Post, as usual, is in the vanguard, that there is a "pension crisis"--just as the education reformistas set up the public for their privatization of the public education system by creating an "education crisis" as far back as 1983 with the publication of "A Nation at Risk."  The "pension crisis" will be framed as "You, the people of New York City and State, have a 'pension crisis'.  You cannot afford to pay both the annual employer contributions required to keep the pensions of your greedy public employees agreed to by your grasping public officials funded at reasonable levels and the current costs of government, especially police, fire, sanitation and other public health and safety obligations.  You must now make a choice and you must choose your own current welfare." 

Short of the bankruptcy of the City or the State, those of us who already belong to anything up to Tier 4 have a full defined benefit pension plan.  Tiers 5 and 6 have all the trappings of a defined benefit plan but are not nearly as comprehensive.  The next two or three tiers, which will come in rapid succession, are likely to begin the transition from defined benefit to defined contribution retirement plan so that the unlucky new employee covered by a Tier 10 will have nothing to show for 40 years of public employment.

The "pension crisis" generation machine is revving up.  If teachers and other public employees and their unions are as feckless in the protection of their pensions as the UFT and NYSUT now are in their battle with Andrew Cuomo and the "reformistas" then they will deserve to lose their pensions and they will lose them.

NY Post Editorial Calls For Pension Cuts To New York And New Jersey Retirees

I missed this in the days after Christmas, but the AFL-CIO didn't.

The Rupert Murdoch-owned NY Post says there's no money for government worker pensions and cuts must be instituted to "save" them:

Some promises are made to be broken. As 2014 draws to a close, it’s looking more and more likely that among them will soon be those made to retired public workers.

We don’t say this lightly. When governments make promises, they should keep them.

Here’s the problem: The same pols who made these promises looked the other way when it came time to funding them.

It doesn’t matter whether you’re a public worker for a city such as New York, which can go bankrupt, or a state such as New Jersey, which cannot. Fact is, even though more and more tax dollars are swallowed up by these pensions, the gap between what taxpayers will owe future retirees and the funding for them continues to widen.

That’s true in New Jersey, notwithstanding reforms in 2011. These were solid reforms — but nowhere near the fix both Democrats and Republicans pretended they were.

Now the pension gap is back with a vengeance, and Gov. Chris Christie is cutting payments into the system, because he says the state simply cannot afford them.

New York City is not as desperate, but it faces the same squeeze. Since 2000, the amount of money this city has been pumping in to pay for its pension promises has increased 12 times, to more than $8 billion. And it’s still not enough.

The government-worker unions and the pols in their pocket know this. For decades, they’ve played a game of deliberately underestimating the problem and fighting even modest cuts.

But they have played the game too long. It’s now starting to backfire, because the shortfalls can’t be made up with more taxes or contributions alone. Painful cuts will have to be part of the medicine.

For decades the public unions have assumed agreed-to benefits are sacrosanct. But if there is really no money in the till, all bets are off.

In this light, the recent deal in Washington on multi-employer plans was instructive. Though the deal involved pensions for private-sector retirees, the terms were illuminating. In the interest of keeping the program solvent for all, some retirees will get less benefits than promised. And there’s no congressional bailout.

Some version of this is likely to come to the public sector if we continue to kick the can down the road. The multi-employer deal looks more and more like the canary in the coal mine, and it’s hard not to imagine some judge approving cutbacks on the grounds that this is simple reality.

Those who hold such pensions will scream this is unfair. They will be right. But what should really worry them is that, if there’s really no money in the till, it won’t matter.

Mario Cilento, President of the New York State AFL-CIO, responded to the Post editorial:

It’s telling that during the same week the Dow Jones hits 18,000, a historic and once unthought of high, The Post calls for reductions to the pensions of current employees and retirees  (Pensions and Promises, Dec. 28).  

In the past, The Post’s advocacy for reducing worker wages and benefits would be hidden behind cries of economic crisis; now, there is no attempt to even mask that agenda.

New York continues to have some of the strongest public-pension systems in the country, and contrary to the assertions of the editorial, employer contribution rates are set to begin declining.  

The problem of income inequality is troubling and well-documented.  Gains in the economy have been enjoyed nearly exclusively by those at the top of the income ladder.  

It’s unconscionable to advocate for cutting one of the few ways workers directly benefit from growth in the market – pensions.

New employees have already had to eat two new pension tiers with reduced benefits in New York, but apparently that’s not enough.  Now, current employees and retirees are on the menu.

The NY Post editorial came five days before Governor Cuomo issued this threat in his "second" inauguration speech on January 1 in Buffalo, NY:

Albany has been too concerned with protecting the pension rights of teachers and not enough with the future of students. #NYGov2015
— Andrew Cuomo (@NYGovCuomo) January 1, 2015

Yesterday I surmised that Cuomo wouldn't have the political muscle to push through pension reform this time around, given the relative weakness of his political position to his first term.

But if he does push pension reform, it seems he will have the NY Post to provide political cover for him, even though as Mario Cilento points out in his response to the Posties, the economy is on the rebound, the Dow is at an all-time high, and two new pension tiers were added in recent years that reduce benefits for future retirees in New York.

But that's not enough for the plutocratic functionaries at the NY Post - they say there's no money for pensions for current employees and retirees and cuts must be instituted immediately.

Will Governor Cuomo agree with that false prescription for a fake crisis?

He just might.

But if he does, he's going to have a hell of a fight on his hands.

This isn't 2011 with the state still reeling from the worst economic downturn since the Great Depression.

This is 2015, with the Dow at an all-time high and the job market creating 200,000+ jobs a month again (albeit, not enough and not good ones - but a far cry from 2011 when the state and private sector were shedding workers.)

Cuomo and his fellow pension haters do not have an economic argument to use to try and cut pension promises to current employees and benefits to retirees.

Instead it would just be a naked money and power grab.

Is that what Governor Cuomo plans for his second term?

Is Cuomo Coming For Teachers' Pensions?

In case you missed this not-so-subtle threat from Governor Cuomo during his second inauguration speech, here it is again:

Albany has been too concerned with protecting the pension rights of teachers and not enough with the future of students. #NYGov2015
— Andrew Cuomo (@NYGovCuomo) January 1, 2015

Now we know Cuomo has already threatened to "break" what he termed the "public school monopoly" and has stated he believes more must be done to remove "bad teachers" from the system, so it's possible that the reference to teachers pensions in his statement is more a hit at Albany for not taking on teachers than anything else.

But I must say, that statement unnerved a lot of people on social media, and even as news broke that Governor Cuomo's father, former New York Governor Mario Cuomo, died yesterday, I still saw a lot of people retweeting and remarking on the Andrew Cuomo/teachers pensions attack from the second inauguration speech.

Ralph Ratto had a series of tweets, both before and after the Mario news, that sums up the reaction many teachers had to Andrew Cuomo's attack on teachers and their pensions yesterday:

@NYGovCuomo any attempt to touch public service workers' pensions will result in this state getting shut down..
— rratto (@rratto) January 2, 2015

@NYGovCuomo looking for a street fight.. Attacking pensions is the way to get it..
— rratto (@rratto) January 2, 2015

RT @rratto: @NYGovCuomo went to Buffalo and he thought he became Scott Walker of Wisconsin
— rratto (@rratto) January 2, 2015

Cuomo sends out a tweet attacking teacher pension on the day his father passes... classless
— rratto (@rratto) January 2, 2015

I too heard the pension attack as a warning shot (see here) and I agree with all of the sentiments Ralph Ratto expressed in his tweets.

That said, Cuomo can't attack just teachers pensions without taking on the whole system, as Harris Lirtzman pointed out in this comment:

Yes, he/they really do hate teachers.

But, deep breath, neither Cuomo nor the Legislature can change one city pension plan without changing all of them--in terms of benefit contributions, vesting and retirement calculations. Nor do I believe they can change the requirements for NYSTRS and NYSLERS at the state level, separately.

Cuomo may look to do "pension reform" again, push for new "tiers," or try to do away with pensions for future workers altogether and go with some sort of 401(K) plan.

But coming off a less than convincing re-election victory where he outraised his opponent 9-1 and still won the fewest votes of any sitting governor seeking re-election in New York since FDR in 1930, with a full Legislature pissed off at him that he didn't make a deal to raise their pay for the first time since 1999 and an Assembly controlled by Democrats looking to pay him back for some of his spiteful treatment of them, does he really have the political muscle for pension reform?

I'm dubious that he does.

In fact, if the teachers unions would just buckle down and fight him on his education reform agenda instead of signaling that they're ready to cave on the charter cap and teacher evaluation revisions, I think Cuomo could be beaten on his entire agenda this time around.

He's at the weakest point of his governorship and his allies in the State Senate hold a slim majority (though it may be enhanced by the turncoat IDC Dems like Jeff Klein and Tony Avella) while Assembly Dems actually picked up seats last election.

In addition, his functionaries in the administration have been quitting at a rapid pace and he hasn't been able to replace them - he's going into the second term with the second and third string running things for him.

Less-than-impressive re-election numbers, a slim GOP majority in the State Senate, Assembly Dems pissed at him, and an administration running with second and third string figures at the helm - this is not the most promising environment for a governor to push something as heavy as pension reform.