“New York has always paid its pension bills on time,” state Comptroller Thomas DiNapoli said recently.
We’ve heard that boast from the comptroller before. Unfortunately, that’s only technically true. Under a 2010 budget provision championed by DiNapoli himself, the state is now delaying payment of significant portions of its pension bills.
The state deferred $249 million of last year’s $1.6 billion pension contribution and $635 million of this year’s $2.1 billion contribution. The Division of the Budget expects to delay payment of another $4.4 billion in pension contributions over the next six fiscal years. Throughout this period, annual pension contribution increases over 1 percentage point of payroll will be stretched out in the form of 10-year notes payable to the pension fund -- which will book these virtual loans as fixed-rate assets.
DiNapoli is more accurate when he says the New York State and Local Retirement System, which covers all county and municipal employees outside New York City, is in better shape than most public pension funds. That’s mainly because New York officials, hardly renowned for their fiscal responsibility in other areas, have been kept on a tight leash by judges mindful of the state’s constitutional prohibition on impairing pension benefits.
But keeping the system relatively well funded has been extremely costly to taxpayers in recent years.
While employee contributions are fixed and minimal (ranging from 0 to 3 percent of salary for most current workers), the taxpayers’ share has risen sharply to make up for losses during the recession and financial crisis. The average employer contribution rate to the state and local retirement system will hit 16 percent of payroll in 2012 -- more than double the 2010 levels. It’s expected to top 20 percent by 2015.
As pension costs began to rise a few years ago, DiNapoli invited the state and local governments to defer a portion of their rising contributions on the grounds that it would smooth out volatility in investment returns, even though a “smoothing” mechanism is already built into the system’s complex actuarial assumptions.
The comptroller bridled at the suggestion that this was tantamount to borrowing from the fund, insisting that it amounted only to “amortization.” Former Lt. Gov. Richard Ravitch wouldn’t play that game, saying: “Call it what you will; it’s taking money from future budgets to help solve this year’s budget.”
Fortunately, Gov. Andrew M. Cuomo seems to get it. Although DiNapoli’s pension deferral option was already locked into law when Cuomo took office, the governor has just vetoed a bill that would have allowed school districts to issue bonds to cover a portion of their contributions to the Teachers’ Retirement System over the next few years.
“This legislation would burden local property taxpayers and businesses -- both current and future -- with up to 15 years of long-term debt without their approval,” Cuomo said.
School districts finding themselves caught between Cuomo’s new tax cap and sharply rising pension bills will now have little choice but to press teacher unions to share in the burden. In the long run, that’s a better outcome for taxpayers.
DiNapoli, meanwhile, was able to announce some good news of his own: During the fiscal year ended March 31, the state and local retirement system enjoyed a 14.6 return on assets, double its target rate. Still, this will make little short-term difference in the system’s funded status. It’s still in the hole, even by its own lenient accounting standards, and taxpayers will be backfilling that hole for years.
The comptroller, whose 2010 re-election bid was strongly supported by public employee unions, has consistently defended the traditional public pension system as the best of all worlds for workers and taxpayers alike. He’s certainly entitled to his opinion. But he should stop pretending the system is easily affordable -- or sustainable in tough economic times.
Original Source: http://www.newsday.com/opinion/oped/mcmahon-ny-s-unaffordable-pension-system-1.3053516
