The pension benefit chickens have come home to roost in New York state, and politicians are scratching to find ways to ease the pension contribution burden on state and local governments.
In a fit of political ambition, former New York Comptroller Carl H. McCall, who was then planning and later ran for governor, proposed indexing the pensions of all public employees in the state to inflation. The Legislature, mindful of the upcoming state election, quickly passed the measure, and Gov. George E. Pataki quickly signed it.
That indexation greatly boosted pension costs for state and local governments, just as investment returns on pension fund assets plunged. Now Gov. Pataki and other state politicians are scrambling for ways to relieve the burden they foolishly imposed.
The most important of the governor's relief proposals would cap the contribution rate for the state and local governments at 6.5% of payroll next year. That is, he would allow the state and local governments to contribute less than the true cost. That's foolish. It merely postpones and deepens the problem.
Comptroller Alan G. Hevesi argued the governor's proposals are unconstitutional, and proposed instead that state and local governments delay their contributions by six weeks, pushing them beyond many local governments' fiscal years but keeping them within the state's fiscal year.
That proposal, Mr. Hevesi argued, would cost the pension fund nothing.
Oh really? Mr. Hevesi assumes the state fund would earn nothing on the contributions, which would total almost $1 billion.
One way to measure the cost is to see how much it would cost the state and local governments to borrow that money for those six weeks. That's the minimum cost. It could cost the fund much more, if the money could have been invested in stocks and bonds in rising markets.
And that doesn't include the costs of Mr. Hevesi's other proposal, that the governments delay paying deferred contributions until 2005 — another opportunity loss for the fund.
This foolishness shows the danger to taxpayers and others when pension benefits and the pension fund become political footballs.