As Pension Costs Grow, Some Local Governments Turn To Borrowing

1:51 PM, Jan 5, 2013   |    comments
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By Joseph Spector, Albany Bureau Chief

ALBANY - Some local governments plan to borrow to pay their pension bills this year as a way to stave off growing retiree costs.

Local governments, including for the first time the city of Elmira and Westchester County, said the amortization of pensions costs may not be the most prudent course, but it's their only remedy to balance their books. Monroe County also plans to amortize some pension expenses.

"This pension system in New York is just out of control," said Dave Vandermark, Elmira's financial officer.

According to the state's Comptroller Office, 87 public employers indicated last month that they will borrow $185 million from the state's pension fund to pay for a portion of their annual pension tab.

The records also show restraint by the majority of local governments, who have long railed against the growing cost of retiree benefits. The state has about 3,400 local taxing entities, and most are paying their pension costs in full each year.

"I think it's interesting the number that has resisted doing it," said E.J. McMahon, senior fellow at the fiscally conservative Empire Center for New York State Policy. "A lot of credit goes to those governments that have resisted for as long as they could."

Some local governments said they would rather cut services or raise taxes than have to borrow to pay for their pension expenses.

In Western New York, at least six public employers have chosen to amortize portions of their pension obligations, according to the Comptroller.

The NFTA confirms it currently has $3 million in pension obligations amortized. Spokesman C. Douglas Hartmayer says the alternative would have been to lay off workers, cut service, or raise fares; all options which the NFTA found less palatable than borrowing.

The City of North Tonawanda has amortized $1.2 million of its $3.7 million pension obligation for 2013.

Accordeing to mayor Robert Ortt, it was the only way to balance the budget without seeking to raise property taxes beyond the state imposed cap of 2%.

"I don't want to exceed that cap,...the people of this community are taxed enough," Ortt told WGRZ-TV. 

The City of Niagara Falls, The Niagara Falls School District, the Town of Niagara, and the Buffalo Urban renewal Agency have also deferred paying a portion of their current pension obligations through the amortization program.

A review by Gannett's Albany Bureau last March found that pension costs will skyrocket 59 percent this year compared to 2011, to a total of $3.5 billion for local governments. That's $224 per person in the state.

"All you are doing by amortizing it is pushing those costs out for future years. I'm not sure you are solving your problem long term," said Marie Kalka, the budget director in Broome County.

The county hasn't amortized its pension costs.

In 2010, the state Legislature approved at the urging of Comptroller Thomas DiNapoli to let local governments and the state essentially borrow from the state's roughly $150 billion pension fund to pay for a portion of the annual cost, called amortization.

Governments are charged interest - this year it is 3 percent - and have to pay back the fund over 10 years.

The goal, advocates said, is to prevent major spikes in pension costs. As pension bills have grown, more municipalities have entered the program.

Fifty-seven did so in 2011 at a cost of $53 million. About $216 million was borrowed in 2012 when about 170 employers entered the program.

For state government, $782 million was borrowed this year, in addition to $813 million in the prior two years, according to a report last month from former Lt. Gov. Richard Ravitch and former Federal Reserve Board chairman Paul Volcker.

The report warned that the "reliance on 'amortization' is a slippery slope from the perspective of the governments involved."

The list last month of 87 employers for 2013 is only a partial one. Governments can also enter the program in February, but they will lose about a 1 percent discount they would have gotten if they had paid their pension expenses in December.

Monroe County plans in February to amortize as much as $17.3 million of its total $49.4 million pension tab, which pays for the pensions of retired local workers and police and fire officials. Without the program, the county would have struggled to have a balanced budget, officials said.

"We're committed to maintaining a flat property-tax rate here in Monroe County and this is one of the vehicles that allow us to do that," said Scott Adair, the county's chief financial officer.

Westchester County Executive Robert Astorino has railed against the amortization program, saying it's fiscally imprudent to borrow for annual expenses.

But as pension costs grew nearly 15 percent over the past two years, from $69 million to $79 million, the county agreed last year to borrow for about one-third of the expense.

Otherwise, the county would have had to cut additional staff and services; it's already cutting 161 positions.

"It's an untenable situation," Astorino said. "The state has basically made it where there's no way out, except through their trap door, and that is to amortize."

What also irks Astorino is that he said the interest rate from the Comptroller's Office is higher than what municipalities could get on the open market. If the county went out to the bond market, they could probably get an interest rate at about half the state's 3 percent rate, he said.

"Money is cheap -- except through the state," he said.


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