Will Albany borrow from pension fund, in order to pay into it?

ALBANY - With state and local governments facing big spikes in retirement expenses, Gov. David A. Paterson and legislative leaders are negotiating a plan to allow those entities to borrow from the state pension fund to make required contributions to it.

The plan would save New York more than $200 million in the 2010-11 fiscal year, helping close a projected budget deficit of $9.2 billion. However, it was unclear Saturday night whether local governments - such as Nassau and Suffolk counties - could borrow funds under this plan to pay their 2011 pension contributions.

State Sen. Diane Savino (D-Staten Island) said the plan would allow governments to borrow nearly $6 billion from the Common Retirement Fund. They would have 10 years to pay the money back plus interest of between 4.5 percent and 5.5 percent, said Savino, her chamber's top negotiator on pensions.

Long Island's governments, along with others across the state, have been hit with whopping increases in pension payments for 2011 as the state pension fund seeks to recoup stock-market losses from a couple of years ago and pay for more generous retiree benefits. Nassau's 2011 pension costs are expected to be 45 percent higher than a year ago. Suffolk's will grow by nearly 50 percent.

Savino said she believed the relief plan being hammered out won't offset these expenses.

"It's too late for [local governments] because they've already received next year's bill," Savino said. "They can take advantage next year [for 2012 contributions]."

But aides to state Comptroller Thomas DiNapoli said they thought municipalities would be able to take advantage of the plan for 2011 payments - assuming it becomes law. They also said most governments probably already have factored pension costs into their budgets and may not need to borrow.

Financial burdens

Senate officials said a deal - part of negotiations over the still-unfinished 2010-11 budget - had been reached on the relief plan between Paterson and lawmakers.

"We have a tentative agreement on pension amortization," said Austin Shafran, a spokesman for the Senate's Democratic majority.

Paterson aide Morgan Hook would not confirm the deal, first reported by The New York Times. "The governor continues to work with the legislature to reach an agreement on a fiscally responsible budget," Hook said.

Sisa Moyo, a spokeswoman for Assembly Speaker Sheldon Silver (D-Manhattan), didn't immediately return a telephone call seeking comment. This year's budget is now 74 days late.

Deferring a portion of New York's pension costs is crucial as leaders grapple with lower tax revenues. The plan would defer more than $200 million in costs this year into the future.

Paterson, DiNapoli and both legislative houses recognize the financial burden placed on New York and local governments from spiraling pension costs. Each has outlined plans where governments would borrow money from the pension fund to make contributions to it and then pay back the loan.

Borrowing would be permitted once the pension contribution exceeded a threshold. For example, participants in the State and Local Employees' Retirement System could borrow money for the portion of their contribution that exceeds 9.5 percent of their payroll this year, 10.5 percent next year and 11.5 percent in the third year.

The thresholds are higher for the State and Local Police and Fire Retirement System. Together, the systems are called the Common Retirement Fund, which is managed by DiNapoli.

Savino said the plan doesn't impact contributions from employees, and retiree benefits wouldn't be interrupted.

Protecting the fund

The plan under discussion doesn't include a requirement that governments set aside money for future spikes in pension contributions affected by stock market fluctuations. Savino said DiNapoli's proposals included such reserve funds, which she continues to back.

DiNapoli spokesman Dennis Tompkins said the comptroller believes his proposals would help local governments and "protect the fund from raids."

This is not the first time state leaders have debated borrowing from the pension fund. In 2004 and 2005, the state borrowed $655 million; more than $400 million remains to be paid back.

Some fiscal experts expressed concern about borrowing from the pension fund, which is among the nation's most stable. To keep the fund solvent, E.J. McMahon of the conservative Empire Center for New York State Policy said it would be better to close it to new employees.

Nassau Comptroller George Maragos conceded the plan would spare the county some financial pain. But he said, "I don't think it's a good idea to continue pushing expenses into the future. I think it's a terrible idea."

With Martin C. Evans