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Long IslandPoliticsSpin Cycle

Call it borrowing or something else, plan stalls pension expense

Critics color it as a stealthy and unhealthy borrowing that will push taxes upward in coming years.

State officials sell it as a sound long-term way to impose order on a particularly volatile public expense.

This clash of descriptions concerns legislation approved this week at the state Capitol. A long-awaited $1.75-billion revenue bill allows state and local governments to “smooth out” some of the payments it owes the Common Retirement Fund — and thus put off some of their pension expenses.

Whether to describe this as a borrowing of billions may sound like a quibble over semantics.

And it is.

But given today’s economic troubles, the ‘B’ word seems to make all the difference to the players.

Gov. David A. Paterson boasted on WOR-AM yesterday of the state’s closing a $9.2-billion gap. “There were people who were saying the legislature can’t cut that much, that we’re going to have to borrow,” he said. “Well, we didn’t borrow and we closed the deficit.”

Lt. Gov. Richard Ravitch’s original fiscal reform plan included borrowing, but was rejected.

Comptroller Thomas P. DiNapoli, the sole trustee of the massive pension funds, has a bigger stake than Paterson. DiNapoli on Wednesday said that despite the budget’s lateness, “the legislature did avoid massive borrowing to close the deficit ... ”

State Sen. Diane Savino (D-Staten Island), who chairs the Committee on Civil Service and Pensions, said critics have misconstrued the measure as borrowing. “You think there would be any money in the pension system if we could borrow from it?” she said,  “That’s like giving an alchoholic a job as a bartender.”

From the opposing side, Harry Wilson, Republican challenger for comptroller, traveled to Hauppauge yesterday to stand with Suffolk Republicans, including Sen. John Flanagan,  to declare the plan not just a back-door borrowing scheme, but a “DiNapoli tax” that will add to Long Islanders’ property taxes.

He charged DiNapoli with making over-optimistic assumptions about future investment returns and kicking current costs into later years.

Beyond the fight over the B word, details are just beginning to come into focus.

By law, state, local and municipal governments must ensure adequate pension-funding levels. Taxpayers must make up the difference if the retirement fund’s investments fail to produce enough income .

In the fat years, the portfolio produced enough surplus for the public employers to pay nothing or very little into the pension system. When investments all over crashed two years ago, however, those employers owed big, just as tax revenues were plunging due to the reeling economy.

The plan approved this week allows part of the money owed the system by the governments to be paid out over a longer period, perhaps 10 years, than it would otherwise be due. The government would have to establish a reserve fund for the crisis periods.

Regina Calcaterra, Democratic state Senate candidate in Suffolk, is a corporate fraud attorney with a background in pension practices. She said Thursday, "the pension fund should not be used as a piggy bank to balance the budget of municipalities and localities that fail to set aside money for pension liability.... Localities and municipalities in the past got a free ride when the pension funds were doing well, and now have to dig into our pockets to make up for the fact that pension funds aren't doing well."

The Legislature, in looking to even out payments year to year, "needs to manage the expectations of municipalities and localities, and localities and municipalities need to manage how much it is asking taxpayers to pay in hard times," Calcaterra said.

As some incumbent officials explained it, the current plan is like an individual putting off payment of part of his utility bill. It will be paid, but later, and with interest.

“We call it pension contribution amortization, or pension smoothing,” said Paterson budget spokesman Erik Kriss. “To us, borrowing means going to markets to sell bonds and getting money from bond sales. This is different — though it does involve deferring a current obligation into the future.”

Borrowing? Deferred cost? Amortization? Scheme?

The preference is in the politics.

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