Let’s say a state has a big problem in paying its pension benefits, thanks to a very bad couple of years on Wall Street. The underfunded pension can’t support the mandated payouts in the next few years. The solution would either be to unilaterally start trimming benefits, which would send its public unions into strikes immediately, or borrow the money to pay the short-term costs. But who has the kind of deep pockets required to offer that kind of loan to the pension fund?
How about … the pension fund?
Gov. David A. Paterson and legislative leaders have tentatively agreed to allow the state and municipalities to borrow nearly $6 billion to help them make their required annual payments to the state pension fund.
And, in classic budgetary sleight-of-hand, they will borrow the money to make the payments to the pension fund — from the same pension fund.
Er … isn’t that the same thing as using one credit card to make payments on another? More than a few people think so:
As word of the plan spread, some denounced it as a shell game and a blatant effort by state leaders to avoid making difficult decisions, like cutting government spending or reducing pension benefits.
“It’s a classic Albany example of kicking the can down the road,” said Harry Wilson, the Republican candidate for comptroller, who holds an M.B.A. from Harvard.
Pension costs for the state and municipalities are soaring, a result of enhanced retirement benefits for public employees and the decline in the stock market over the past two years. And, given declines in tax revenue and larger budget shortfalls, the governments are struggling to come up with the money to make the contributions.
Under the plan, the state and municipalities would borrow the money to reduce their pension contributions for the next three years, in exchange for higher payments over the following decade. They would begin repaying what they borrowed, with interest, in 2013.
Now I find this timing interesting. The deal essentially makes a big bet that the markets will rebound strongly enough in 2013 for the pension funds to start getting into the black on the ledger sheets. What else happens in 2013? Hmmm. It’s right on the tip of my tongue … It looks as though New York is tossing the dice that someone else other than Barack Obama may be in the White House in time to allow them to back up their little shell game.
The citizens of New York should not be fooled. This is a complete failure of leadership. The pension fund obligations need to be reviewed; where cuts can be made, the legislature and Paterson should take action. For the rest of the shortfall, New York needs to cut its spending. In tough times, everyone’s belts get tightened, and that should include the public sector. Instead, Paterson and the Empire State are putting their financial standing at even greater risk in order to avoid confrontation with the public-employee unions, which hardly amounts to leadership.