Cuomo mandates reform of $140 billion state pension system

Hal Peterson

Gov. Andrew Cuomo is currently insisting that the state Legislature approve a new Tier VI pension plan that would require “future” government employees to pick between a defined benefit plan and a defined contribution plan that is similar to a 401(K).

The subject of pension reform is hardly a new concern. Back in June 2010 the Governmental Accounting Standards Board, that writes accounting rules for states and cities, proposed a number of new guidelines for pension disclosure to reflect the true cost of obligations. Why? Many states have consistently contributed less than their actuaries tell them they have to contribute, with imbalances often hidden in footnotes to financial reports. This problem made headlines three months later when Harry Wilson, then Republican candidate for state Comptroller asserted “if you do the math in the way any ordinary financial analyst or economist would, New York ‘s pension system is underfunded by tens of billions of dollars and, as a result, the state is essentially insolvent.” He also identified numerous retirement promises made to public employees that represent a “huge hidden liability for future taxpayers.”

The second issue identified questioned the GASB-endorsed use of unrealistic long-term investment returns often set as high as 8 percent. These returns have not been realized with many local governments (including school districts, villages and even libraries) now required, by law, to make up the difference. These dollars must be recovered through higher taxes.

Cuomo now considers pension reform to be the “central power struggle of Albany,” suggesting that if the legislature does not pass a budget that reflects the specific reforms he has in mind) by April 1, he might take the ultimate step of vetoing the entire budget.

Once again we witness the ongoing saga. Cuomo, when he was Attorney General, promised to “root out fraud and abuse in the New York State pension system” and now he seeks to restore sanity by imposing new rules on a declining number of new hires. He further promises improbable savings that will hardly be realized as budget offsets.

Current state pension obligations clock in at $140 billion. Cuomo expects to save $113 billion (over 10 years) if the changes he sees as necessary are implemented. It is a matter of record that vested public unions now consider Cuomo’s proposal an attack on the “middle class” claiming most new changes have already been implemented. Scott Reif, spokesman for Sen. Majority Leader Dean Skelos said “Senator Skelos has consistently said we need to enact pension reform to help local governments and school districts rein in skyrocketing pension costs.”

A reality check is in order. Pension agreements established with public employees are overgenerous by any reasonable standard. They have been authorized without consideration of their true costs and funding that is unsustainable. To even suggest that these concerns be addressed, no less stopped in the course of a budget exercise is ludicrous. It has never happened before and it is not likely to happen now. Let me know if you agree.