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What you need to know for 01/19/2018

Cuomo's pension plan a calculated risk

Cuomo's pension plan a calculated risk

Editorial: Not the best deal, but a lot of down-and-out municipalities may take it

It wasn’t the big increase in state aid, or mandate relief, that many mayors, supervisors and school superintendents were hoping for, but Gov. Andrew Cuomo’s plan that would allow them to reap savings from the newly adopted Tier VI pension savings decades before they otherwise would may be the next best thing. It’s a shell game of sorts, but may be better than the current madness.

Unpredictable pension costs are wreaking havoc with local government and school budgets. This year, for example, they’re going up roughly 15 percent and will equal nearly 21 percent of non-uniformed personnel’s salaries, 16.5 percent of teachers’ and 29 percent of police and firefighters’.

They’re currently that high relative to historic levels for two reasons: more-generous benefits and a decade of mixed stock market returns. Last year’s pension reform law — the creation of Tier VI — will help bring payments down, but only minimally until older workers with less lucrative benefits start retiring, in about 15 years.

Cuomo’s plan would keep municipalities’ pension payments level for most of that time, and at more manageable levels — 12 percent of non-uniformed personnel’s salaries, 12.5 percent of teachers’, and 18.5 percent of police and firefighters’.

The catch is that municipalities would have to lock in. Thus, if there were a prolonged bull market and pension profits skyrocketed (as they did during the 1990s) such that localities’ contributions could be cut back to historically low levels, municipalities that had locked in wouldn’t benefit.

It would be a gamble — a “gimmick,” in the words of Manhattan Institute for Policy Research spokesman E.J. McMahon — but even if municipalities lost, they’d benefit to some degree from having predictable, flat payments that they could budget for a lot more easily than yo-yo payments. As long as the increases at the end of the 25-year tunnel aren’t that large, municipalities should give this option some thought.

As for the long-term stability of the pension system, the state has to make sure that if annual stock market returns don’t average the 7.5 percent forecast, or the Legislature sweetens benefits (raising costs) as it has so many times in the past, the money it’s getting from municipalities on the level payment plan will be enough to keep the system solvent.

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