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December 17, 2017
States pension loan plan criticized!!
Updated On: Aug 22, 2010

State's pension loan plan criticized!!

Some local governments say state's pension borrowing plan is too risky

 
The Journal News - White Plains, N.Y.
Author:Joseph Spector
Date:Jul 5, 2010
Start Page:A.1
Section:NEWS
Text Word Count:862
Document Text

ALBANY -- Municipalities are offering mixed reviews of a plan by the state Legislature and Comptroller Thomas DiNapoli to allow the state and local governments to essentially borrow from the state pension fund to lower huge spikes in retirement costs.

The measure, which has already passed the Assembly and awaits a vote in the Senate, would let state and local governments delay a portion of their pension costs into future years at an annual interest rate of about 5 percent, officials said.

Some local governments are praising the proposal as a way to help them better manage pension costs, which for local governments are expected to soar by 61 percent next year. But others view it as another borrowing scheme by the state to avoid spending cuts and limits on public-employee benefits.

Pension costs are rising rapidly in New York as the result of payouts to retirees and the continuing economic problems in the state and country.

"Rather than cut spending and try to reduce the money we spend, we continue to look at ways to borrow, to bond and just get ourselves deeper in debt," said Chemung County Executive Tom Santulli, president of the state Association of Counties.

Santulli said the county, which expects pension costs to rise about 40 percent next year from about $4.3 million to $6.1 million, would only enter the program if the county was desperate financially, saying the move would just delay payments and add interest to the costs.

Westchester County budget director Lawrence Soule said the county has concerns about the proposal, but hasn't made any determination about whether it would participate. Next year, the county's pension contributions are expected to increase from $55 million to $76 million, a roughly 38 percent increase.

"I would categorize it as borrowing. Essentially you are deferring a payment and you'll pay some kind of interest rate on it," he said.

Some counties, however, said they would likely enter the program, if approved, as a way to better manage pension expenses.

"I think it allows for governments, rather than have to absorb this big spike as far as pension costs go in one fiscal year, it allows us to smooth it over a few fiscal years," said Scott Adair, the chief financial officer in Monroe County.

In Monroe County, pension costs are expected to increase next year about 40 percent as well, from $20 million to $28 million.

According to DiNapoli's estimates without the program taking effect, local governments could be paying out a cost equal to 30 percent of their public payrolls to pay for pensions in 2015. For fire and police pensions, the rate could be 41 percent.

Taxpayers dole out about $2.5 billion a year for the state's pension system, but the growth would be capped under the pension plan. Local governments and the state could opt in or out of the program, which is expected to pass the Senate.

"This is not an ideal situation, but some counties are going to take advantage of the ability to spread out these increased costs -- because they have to," said Mark LaVigne, a spokesman for the state Association of Counties, saying counties continue to get hit with unfunded mandates.

Peter Baynes, executive director of the state Conference of Mayors, said the program would benefit many local governments.

"I think at the end of the day it's really just a fiscal-management tool that allows for local governments to try to control costs that are rising exorbitantly," Baynes said.

E.J. McMahon, executive director of the conservative Empire Center for New York State Policy, said the costs to state and local governments would be significant if the plan goes forward.

He estimated, based on state data, that in the first three years of the program, the state could be deferring $1.6 billion in pension costs while local governments would be deferring as much as $3.7 billion.

Gov. David Paterson proposed a pension-borrowing plan that only lasted six years. It also didn't include a DiNapoli initiative that would require local governments to put aside additional revenue when pension costs drop to help balance the fund when bad fiscal years return.

DiNapoli has faced criticism from his Republican opponent Harry Wilson, who is challenging DiNapoli, a Democrat, in the November elections.

Wilson, a former hedge-fund partner, has assailed DiNapoli as jeopardizing the roughly $133 billion pension fund by allowing state and local governments to borrow from it. He said the move, along with DiNapoli's estimate of an 8 percent return on the fund, would create an unneeded risk for the pension fund and lead to higher pension costs in future years.

"It's unequivocally borrowing from the pension fund. And I think that's wrong," Wilson said.

DiNapoli and his aides have argued that the proposal wouldn't be a form of borrowing, but instead an amortization of pension costs in which the payments are spread out over a longer period of time.

"It would provide for more stability, more predictability which will help local governments in managing this obligation," DiNapoli said Thursday on Talk 1300-AM in Albany.

The state pension pays benefits to about 350,000 retirees and has 650,000 members who are still working.

 

 
 
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