Is New York state insolvent?

As the New York Times reported on Sept. 11, at the insistence of the S.E.C. “New Jersey agreed never again to fraudulently hide its underfunding of the state's public pension system.” Hide or not, many states (including New York) have invested too little money in public pension funds. This represents a huge hidden liability for both current and future taxpayers.

This underfunding has a number of root causes. The first, and most often noticed, reflects commitments made without consideration of cost. The second cause is even more insidious. Accounting rules set by the Government Accounting Standards Board offer at best only the illusion of transparency. This has allowed governments to base their budgets on average values and overly optimistic investment returns. Harry Wilson, the Republican candidate for state comptroller, asserts that if you do the math using Generally Accepted Accounting Principles, New York state would come up with a $30-80 billion deficit, and find itself a lot less solvent.

Needless to say, the pension funding issue has broad ramifications, once again illustrating the absence of business-like practices and policies necessary for efficient government. Addressing this concern will require the use of state-of-the-art accounting techniques that truly focus on performance rather than intent. I intend to tackle this subject in more detail in a future column.

Beyond public reporting, there is an obvious need to also examine how effectively public agencies deliver services to New Yorkers. Let’s begin by examining the role of Industrial Development Agencies (IDAs) that have been granted legislative power to subsidize business projects through tax exemptions and tax exempt bond financing. In layman’s terms, they have been established to lure industry to locate, remain in the state and create jobs.