[lbo-talk] NY discovers 70s book-keeping

Michael Pollak mpollak at panix.com
Sat Jun 12 15:40:13 PDT 2010


[i.e., the kind of thing that led NYC to go bankrupt. But here we're building on the already Alice in Wonderland math of the our state pension scheme -- their solvency is premised on 8% annual returns?]

[If there's a lot more of this around, this state pension crisis is going to be allowed to build up into a quite a thunderhead]

http://www.nytimes.com/2010/06/12/nyregion/12pension.html

The New York Times

June 11, 2010

State Plan Makes Fund Both Borrower and Lender

By DANNY HAKIM

ALBANY -- 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.

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.

But Mr. Paterson and other state officials hope the stock market will

have rebounded to such a degree by that time that the state's overall

pension contribution burden will have been reduced.

The maneuver would cost the state and local governments about $1.85

billion in interest payments, according to an estimate by the State

Senate, though a number of factors could drive interest payments up or

down.

Another oddity of the plan is that the pension fund, which assumes its

assets will earn 8 percent a year, would accept interest payments from

the state that would probably be 4.5 percent to 5.5 percent.

<end excerpt>

Michael



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