New York Gov. Cuomo's Pension Proposal Puzzling

Gov. Andrew Cuomo's proposal to let municipalities short their pension payments for the next quarter century uses fuzzy math, writes Governing's Jonathan Walters.
by | January 29, 2013
 

For a governor who has prided himself on avoiding classic New York State budget gimmickry (the Empire State wrote the book on budget balancing “one-shots”), Gov. Andrew Cuomo’s proposal for reducing municipalities’ budget woes by allowing them to short their pension plan payments for the next quarter century is puzzling, to be most generous about it.

Under Cuomo’s plan, announced during his budget address last week, municipalities would be allowed to pay a flat percentage into their employee pension funds for the next 25 years rather than what would be required annually by actuarially sound accounting practices, effectively reducing payments by millions of dollars a year. After 25 years, the municipalities’ payments would  rejoin reality.

The fuzzy math on this one: In 25 years, when the tab comes due, new employees with less generous pension plans will have replaced older workers with more costly plans so all will be fiscally well with the world.

But as states and localities nationwide have found out the hard way, shorting contributions to employee pension plans is a calamitous way to save money; it’s why states like Illinois and New Jersey are in such pension trouble now. Playing catch up, as numerous states and localities have learned, is both painful and virtually impossible, short of declaring some sort of politically unpopular fiscal emergency in order to get out from under promised pension obligations.

The math becomes even fuzzier though when one takes into consideration the fact that the Cuomo plan counts on a new tier of employee who, in theory, will be collecting less money than current retirees when they leave government service in 25 years or so. The problem is that as new tiers of employees begin to populate government employment rolls and gain political power, and as fiscal times get better, legislatures -- including the New York State legislature -- have a tendency to agree to add back benefits.

Democrat Syracuse Mayor Stephanie Miner, for one, has take a very visible and politically gutsy stand on this one, openly questioning the fiscal soundness of the Cuomo plan, and suggesting that cities and the state need to work on a more sustainable, rational approach to closing municipal budget gaps.

Legislative hearings on the Cuomo budget this week and one can hope that the New York State legislature -- a group that hasn’t exactly distinguished itself for brilliant displays of fiscal discipline – will summarily kibosh this one. But you have to give the governor this much credit: When he kicks the can down the road, he makes sure it’s a very powerful kick and a very long road.

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