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Local Governments to Borrow $368M to Pay for Pension Costs

12:55 AM, Feb 15, 2013   |    comments
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By Joseph Spector
Albany Bureau Chief

ALBANY - Local governments are borrowing $368 million to pay for pension costs this year, an 81 percent increase from 2012, state records show.

The state's largest county governments, including Westchester and Monroe counties, have entered the amortization program offered by the state Comptroller's Office, as have many libraries, cities and towns.

In all, 137 public employers are borrowing through the pension fund this year to pay for the annual expense, up from 50 that did so two years ago. Last year, 133 local governments borrowed about $203 million to pay for pension costs.

"The primary reason local governments are opting into the amortization program is to protect their taxpayers, because it creates more predictability in one of their largest costs," said Peter Baynes, executive director of the state Conference of Mayors.

The program, adopted in 2010, has been criticized for letting local governments borrow for costs that should be paid annually. It allows municipalities to borrow off the pension fund at about a 3 percent interest rate and lower their payments.

"Kicking the can down the road is never a good idea," said former Assemblyman Richard Brodsky, D-Greenburgh, Westchester County.
Some local leaders said the program isn't a good policy but said they have no other choice, because pension costs have soared. To pay the entire tab upfront would mean layoffs and service cuts or tax increases, they said.

Monroe County's pension expenses have risen 141 percent since 2010, County Executive Maggie Brooks said. The county has entered the program, and this year is amortizing $17 million in pension costs for local workers.

On Long Island, Suffolk and Nassau County are amortizing more than $117 million this year, and Westchester County is borrowing $25 million, records from the Comptroller's Office show.

State government is the biggest employer in the program: It is amortizing $778 million this year and $858 million in the coming fiscal year, which starts April 1.

"I don't think that's good policy. It certainly helps counties, and we're not alone in amortizing, but I don't think that's the answer," Brooks said last week in Albany.

Gov. Andrew Cuomo said he is offering a more attractive proposal to local governments and schools. He wants to let them smooth out their pension costs over 25 years at a flat rate of 12.5 percent of payroll.

The state, counties and municipalities this year are contributing an average of 20.9 percent of salaries into the state's $150 billion pension system. For the state Teacher's Retirement System, schools are paying 16.25 percent next school year, which starts July 1.

The cost is rising 37 percent for schools, and it's up 11 percent for local governments after increasing 37 percent in 2012.

Cuomo said his program would alleviate the immediate pension increases and make up the cost with savings in future years -- when new employees are hired under the less generous retirement system adopted last year.

"Basically what we put on the table is a loan program where if you know the costs are going to come down in 10 years, you could basically finance those savings," Cuomo said Tuesday in Poughkeepsie.

He said the program is optional, but some local leaders are criticizing it as a scheme.

In a scathing op-ed piece Thursday in the New York Times, Syracuse Mayor Stephanie Miner said the proposal would not help local governments. Comptroller Thomas DiNapoli, who would have to sign off on the program, has also raised concerns. The proposal would need legislative approval.

"The plan, put forward last month, would not increase state aid to cities or do much to reform tax, pension or labor laws," Miner wrote. "Instead, it would let municipalities push payment of today's ballooning pension costs into the future, in what amounts to an accounting gimmick."

Dutchess County Executive Marcus Molinaro said he doesn't support either the amortization program or Cuomo's new proposal, saying annual expenses should not be deferred.

"It's just not a tool that I hope we'd be forced into considering," he said last week.

Some business and local government groups, however, are backing Cuomo's plan. The Conference of Mayors and the Association of Counties are supporting it, as are the mayors of Rochester and Yonkers.

In a statement, two business groups, the Rochester-based Unshackle Upstate and the National Federation of Independent Business, knocked Miner's criticism.

"Unless people want to come to the table with additional thoughts and ideas on how we can minimize the impact of pensions on local governments, then they should stop pointing their finger and snubbing their noses at the only option that is under discussion," the groups said.

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