State squeezes LI: Give us $90M more for pensions

Officials in Nassau and Suffolk counties say they're going to have to pay out about $90 million more in contributions to the state pension fund next year, despite reports of a fully funded state system that gained 26 percent on its investments in its last fiscal year.

In response to a 45 percent, or about $43.6 million, increase in Nassau's annual contribution for 2011, county Comptroller George Maragos wrote state Comptroller Thomas DiNapoli yesterday to request "immediate action" to alleviate the pension burden on the county. He asked DiNapoli for a full review of and justification for the increase.

"We can anticipate these types of increases to continue - and they are going to have a devastating effect on every local government," Maragos said in an interview. "This cannot go on."

In Suffolk, the county expects a $47-million increase in its pension contribution in 2011, nearly a 50 percent increase from 2010. "We're paying an inordinate amount of taxpayer dollars to sustain the unsustainable," Suffolk County Executive Steve Levy said. "It's hard to fathom how taxpayers can keep this afloat."

Payments to the pension system are legally mandated, and officials in both counties said they may need to resort to budget cuts and other moves to cover the costs. School districts, towns and villages across the region anticipate much larger pension contributions next year, too.

Nassau's 2011 contribution will likely surpass $140 million, up from $96.9 million in 2010. By comparison, the county's 2001 contribution was $12.3 million.

Suffolk's 2010 contribution was $97.4 million, versus $8.2 million in 2001. Its 2011 contribution is projected at $144.5 million.

Pension contributions are calculated as a percentage of the employer's payroll; for the Employee Retirement System, that percentage is expected to rise to 12.6 percent next year from 7.8 percent in 2010.

Growth, but not enough

The demands for large increases in contributions come in the wake of last week's announcement by DiNapoli that the state's retirement fund enjoyed a 25.9 percent rate of return for the fiscal year that ended March 31. Reports show the system is fully funded - meaning it has enough to make its payments to retirees.

The anticipated increase for 2011 stems from the market collapse in 2008 and 2009, said DiNapoli's spokesman, Robert Whalen. In 2009, the pension fund lost 26 percent of its value. In a process known as "smoothing," the impact of stock market moves is spread out over a five-year period, leaving local governments with what could be several more years of rising contributions.

"It's hard to know where we're going to be next year, but even if we have another strong year, you still have to live with that negative 26 percent for the next four years," Whalen said. "It's going to take time to get back to where we were."

Whalen said DiNapoli is proposing a plan to allow local governments to amortize their contributions over time, a move that might spread the pain out and provide some stability.

Levy, who is considering taking $30 million out of the county's tax stabilization fund to handle the contributions, backed that idea, but said it's not enough, especially with fiscal and economic unrest.

Numbers game

A February report by the Pew Center on the States said New York's pension system is one of the best in terms of funding. Critics, however, say the system's success is based on assumptions of 8 percent annual investment returns without enough attention to risk. Whalen said 8 percent was a reasonable expected annual return.

Using a more conservative approach would mean that the state's plan wouldn't be considered nearly as well-funded - perhaps as low as 56 percent, said Andrew Biggs of the American Enterprise Institute in Washington, D.C.

Biggs and E.J. McMahon, of the Manhattan Institute, a conservative think tank, called for a bigger change: moving from a defined benefit plan to a defined contribution plan, one like a 401(k). Said McMahon: "There's absolutely no - zero - chance of responsibly avoiding a huge increase in pension costs - huge with a capital H."

James Parrott, chief economist for the liberal Fiscal Policy Institute in Manhattan, suggested finding a way to limit the year-to-year contribution fluctuations, but said the plan was in good shape.

For now, local officials said they're stuck with the state's massive bill, which they must pay.

"We can lobby for a spreading out of the pain, and we can hope that they would allow us to take advantage of the 26 percent increase that has materialized recently, but they will probably say, 'You have to wait until 2012 to realize that benefit,' " Levy said. "In the meantime you're going under water in 2011 grabbing a life preserver. It's too little, too late."