The following appears in the February 22-28, 2013 issue of the Long Island Business News:
When Andrew Cuomo was sworn in as governor in January 2011, he promised to help fiscally struggling municipalities and school districts by championing unfunded mandate relief.
It now appears that Cuomo’s pledge has been nothing more than empty rhetoric. In his 2013 State of the State address, he did not bother to mention the topic.
A coalition of elected municipal and school district officials recently chastised Cuomo for having “sidestepped” this issue. Their spokesman, Westchester County Executive Rob Astorino, pointed out that nine state mandates consume 85 percent of Westchester’s property tax levy.
“Albany’s unfunded mandates,” Astorino said, “are making it impossible for municipalities and schools all across the state to provide their own services and that hurts everyone in their community. Albany needs to get its foot off the throat of local municipalities. We’re feeling like we’re going to drown unless something is done in a real way soon.”
To silence his critics, Cuomo proposed in his 2013-2014 state budget a scheme that would allegedly cut the costs of local governments fastest growing line item expenditure – pension contributors.
In a nutshell, the Cuomo plan would give municipalities and school districts the option to “immediately reduce pension contribution rates by up to 43 percent and lock in a stable pension contribution rate for a 25-year period.”
Pension contributions have been rapidly increasing in recent years due to overly generous benefits localities have given to its public employees. Total annual local government pension contributions have jumped from $190 million in 2002 to $2.2 billion in 2012. For school districts, in the same period, it has grown from $52 million to $1.6 billion.
On the face of it, this plan would appear attractive, but as always, the devil is in the details. Analysts have pointed out that the proposal could, in the short-term, underfund the system based on the false hope that the new Tier VI pension plan for future hires would save billions decades from now.
The Empire Center for New York State Policy has pointed out three basic problems with the idea:
Even under ideal, fair-weather economic and financial market conditions for as far as the eye can see, it’s likely to be a losing bet for employers, saving them less in the short term than it would cost them in the long term.
It weakens and increases the financial vulnerability of the pension funds in the short term, and in the long term is a big financial gamble for both their beneficiaries and their ultimate underwriters, New York’s taxpayers.
It may violate the state Constitution’s Article V, Section 7, prohibition on impairment of retirement benefits.
Officials from all sides of the political spectrum have questioned the plan because it sticks to future generations of taxpayers present operating expenditures. In other words it is another form of back-door borrowing.
Syracuse Mayor Stephanie Miner – also the vice-chairwoman of the state Democratic Party – said she found the proposal “puzzling.” She added, “Some would say it’s a gamble, others would say it’s a tradeoff. When you start looking at what the intangibles are, I would suggest one to be cautious about the plan on pension payments.”
Fortunately, the Office of the State Comptroller Tom DiNapoli has stated it has “serious concerns” about the Cuomo plan “in part because of its potential impact on the funding level of the state pension system and the balance sheets of local government.”
DiNapoli, as the sole trustee of the state’s $150 billion pension fund, has the final say on the Cuomo scheme. Let’s hope he steps up to the plate and rejects it.