New pension plan allows for lower short-term bills

ALBANY -- Budget critics Friday assailed a new pension contribution plan agreed to by the governor and the comptroller to allow cash-poor local governments to try to borrow their way out of fiscal problems.

Under a tentative budget deal, the state would offer a voluntary "pension smoothing" plan for local governments and school districts. Essentially, those struggling to make their full contributions to the state's Common Retirement Fund or the Teachers Retirement Fund would be able to lower their short-term bill -- and make up the shortfall over time.

The plan will be included in a 2013-14 budget that state legislators expect to pass by next week.

While municipalities can choose whether to participate in the plan, not everyone likes the option. "We cannot solve the fiscal crisis facing the local governments of New York by borrowing," said Syracuse Mayor Stephanie Miner, co-chair of the state Democratic Party, who earlier this year criticized Gov. Andrew M. Cuomo's original pension smoothing idea as a "gimmick."

Cuomo budget director Robert Megna said the compromise plan gives localities the stable contribution rates they need for planning without damaging the pension fund's viability. "We believe we achieved those goals," he said.

Cuomo first proposed the idea in January, saying it would help communities in a pinch before long-term pension savings, enacted just last year, would kick in. Critics likened it to a balloon mortgage payment.

Since then, state Comptroller Thomas DiNapoli, the sole trustee of the $151 billion Common Retirement Fund, fashioned a compromise that mitigated some of the most-criticized aspects of Cuomo's original proposal.

Under the first year of the compromise plan, localities would pay only a 12 percent pension-contribution rate for workers compared to a 20.5 percent rate they would otherwise owe.

The rate can only rise by half a percentage point a year, starting in the third year. Any amount that is deferred must be repaid within 12 years -- or less if the stock market improves and pension investments grow.

Cuomo's plan had the same initial 12 percent rate, but localities could make up the shortfall over 25 years or longer, depending on market conditions. And the comptroller could have raised rates 2 percentage points only after five years and after 10 years.

There would be different terms for the $88 billion Teachers Retirement Fund, which is run by a board. For each of the first seven years, school districts can defer some of their contribution -- but must start repaying them in the sixth year.

Also, there is less of a gap between the smoothed rate and the actual rate -- 14 percent versus 16.2 percent -- in the first year.

But E.J. McMahon, a senior fellow with the Manhattan Institute, a conservative think tank, said, "The best that could be said for this is that it's not nearly as reckless and irresponsible as what Cuomo proposed."