EDITORIAL: State needs to pin down pension costs
Pensioners may have the advantage of age and wisdom. But New York's thinking about its pension fund is old - and it may not be so wise.
New York State Comptroller Tom DiNapoli insists that state pensions are fully funded even after the economic devastation of the past two years. He says that the $133-billion fund covering state and local workers, as well as many police and firefighters, will be adequate to meet their retirement needs - even after a $44-billion loss to the fund in 2009 alone.
That stock market loss will mean an estimated $90-million spike in pension payments from Nassau and Suffolk County governments in 2011, an increase of 45 to 50 percent. Long Islanders would be obligated to make that up through much higher property taxes, otherwise the pension costs could mean layoffs and crowd out services like public safety, substance abuse treatment and food pantries.
Also, DiNapoli is assuming an 8 percent average return on investments - an overly rosy idea on which recent comptrollers' math has been based. Lower that assumption, and the cost hike for Long Island taxpayers will be far greater. A review of the math may also find an underestimate of future costs. Fruitful days will be needed to compensate for the current ditch.
The comptroller needs to be more realistic. Even corporate pension funds assume no higher return than about 6 percent today. As DiNapoli's office confers this week with a committee of independent actuaries, the comptroller must justify its expectations - to this group, and to the public.
If what's coming is a lower rate, and more bad news for local taxpayers, the public should know soon. These realities, and how to navigate them, should be prominent in this year's election of a state comptroller.
Also, the contracts of the state's two largest employee unions - the Public Employees Federation and the Civil Service Employees Association - expire next spring. The negotiations should be based on a clear picture of the pressure faced by pension funds.
DiNapoli and the State Legislature are already moving ahead with a plan to ease the pain for localities. The Assembly has approved allowing municipal and county governments to delay a portion of their payment and to spread it out over 10 years. The State Senate could take up the question, which is part of its revenue bill, if it returns to session this week.
The plan is being derided by critics as borrowing from the pension fund, to pay the pension fund. That's not entirely fair; no one is taking money out. But there will be an interest cost. DiNapoli's Republican opponent, hedge fund manager Harry Wilson, says the cost could top $3 billion over six years. DiNapoli says such estimates are impossible to calculate.
DiNapoli's borrowing plan may be the only way to get New York over this hike in pension costs. But the sharper reality may be that New York can no longer afford its generous public pensions. Unlike the legislature and public employee unions, we prefer to confront this reality now and stop layering the burden on future generations.
Even more worrisome is that DiNapoli's two funds don't include teachers or New York City workers - they have their own pensions facing mounting costs. Layer on top of that health benefits for retirees - an estimated $56 billion for state workers alone - are being paid by today's workers. There is no big pension-like savings account to cover them.
Other states are in much worse shape. New York has one of only four fully funded pensions in the country - if the underlying assumptions are correct. Twenty states expect their funds to be broke by 2025 if nothing changes. Six states and the District of Columbia, to lower their costs, have begun offering employees a 401(k)-style plan.
About half the states, including New York, have made modest trims, but only for future workers. Reforming pensions is painfully slow, because the pensions of existing workers are legally protected - in New York it's written into the state constitution. But some states are challenging just how broad those guarantees are. Minnesota and Colorado cut cost-of-living adjustments and are facing lawsuits.
Political reality also hinders reform. Unions help elect candidates to office. And once elected, they become members in New York's pension system. Elected officials should be the first to opt for a less gilded plan and void this conflict of interest. The days when officials protect some workers while subjecting all other constituents to fiscal pain must end.
When they meet, the comptroller and his Actuarial Advisory Committee should come to some speedy and accurate conclusions. The measure of New York's trouble must be taken, admitted and fully debated. hN
The cold facts about pensions
- Nassau County's 2010 contribution to the state pension system: $96.9 million; projected for 2011: $140.5 million
- Suffolk County's 2010 contribution: $97.4 million; projected for 2011: $144.5 million
- States that include 401(k)-style pensions for public employees: 6, plus the District of Columbia
- State pension funds projected to run out of cash by 2025: 20
- State legislatures that voted in 2010 to reduce benefits, increase monthly contributions or both: 9
