State boosts pension contribution rates

State Comptroller Thomas P. DiNapoli Wednesday announced another big increase in employer contribution rates to New York's pension fund, meaning local governments and schools could be paying nearly $400 million more toward their employees' retirements next fiscal year compared with this year.

The comptroller said stock market losses from 2008 and 2009 are still being felt. The pension fund, which is spread out in numerous investments, lost more than $40 billion during the economic downturn and hasn't fully recovered yet. Employees' retirement funds are effectively held harmless during such downturns, forcing employers to pay more into the fund to make up for the losses.

"The Common Retirement Fund has had two consecutive years of strong investment returns," DiNapoli said. "However, we are still incorporating the market loss of 2008-09 into our employer contribution rates."

In addition, the pension payment increases could make it tougher for some communities to deal with the state's newly enacted property-tax cap.

DiNapoli said local governments will pay on average 18.9 percent of salaries into the state's Employee Retirement System for the 2012-13 fiscal year, up from 16.3 percent the previous year. Contributions to the Police and Fire Retirement System will be 25.8 percent of salaries -- up from 21.6 percent.

While the increases are almost precisely what analysts predicted, it still marks the highest contribution rate since the early 1980s.

"It is very difficult to sustain a government when we keep getting buffeted with these types of increases," said Islip Town Supervisor Phil Nolan. "We keep getting handed these blows, yet we are expected to deliver a town government."

"This is bad news for local governments," said Stephen Acquario, executive director of the New York State Association of Counties.

The new tax cap limits governments from increasing their tax levy by more than 2 percent annually. It allows a partial exclusion for a rise in pension costs: any contributions above a 2 percent increase won't count against the local levy. But contributions up to 2 percent will count.

Acquario calculated that pension-fund increases alone would put many counties at the tax-cap limit -- meaning they will have to cut from other areas. Many are already facing increases in labor costs and Medicaid, he said, further limiting the amount of leeway they will have in constructing their budgets.

During the stock market boom, local governments enjoyed many years during which they paid nothing into the pension fund because the fund's value was growing fast enough to cover any increases.

DiNapoli tried to point to the bright side: the 2.6 percent jump for the upcoming year wasn't as bad as the year before, when employers saw a 4.4 percent increase. He added: "I remain confident that our long-term investment strategy will help us to weather this volatile economic environment."

But Hempstead Town spokesman Michael Deery said, "It seems disingenuous for the state to impose tax caps on local governments while at the same time asking municipalities to increase their contribution by an amount greater than the cap. Despite that, Hempstead Town is freezing taxes."

One analyst said the increased demanded from employers isn't surprising -- and the trend isn't changing.

"The rate is the highest it's been in 30 years and it's going to keep going up," said Edmund J. McMahon of the Empire Center, which advocates for a "defined contribution" or 401(k)-style pension system for public employees. "Basically, we're still trying to dig ourselves out of the hole."

The Common Retirement Fund is valued at $146.5 billion, according to a report from DiNapoli last month. It had dipped all the way to $110 billion in March 2009.

With Yamiche Alcindor

and Aisha al-Muslim