City Comptroller John Liu was asked at a Crain’s NY Breakfast last week whether he would favor shifting future municipal employees from a defined-benefit pension system to a 401(k)-style defined-contribution system.  His reply, according to Crain’s Insider:

“There’s no difference between the cost of benefits, whether they’re defined benefits or defined contributions. There is a difference in who bears the risk,” Liu says. “In defined benefits, the government bears the risks but also enjoys the fruits [if returns are robust]. For defined contribution plans, it’s the participant who bears the risk. To provide the same level of benefits in the long term, it’s cheaper for a large sponsor to pay because of economies of scale and because a large sponsor can ride out fluctuations in the markets.”

Liu says the current system, which pools risk, is more cost-effective than having individuals bear risk. It is more efficient for one investor to manage $1 billion than for 10,000 investors to manage $100,000 each. In any case, he says, “The idea of getting rid of the risk for municipalities and shifting it to retirees is silly.”

“Silly”?  The city’s pension fund contribution for fiscal 2011 is now projected at $7 billion—more than 10 percent of the entire budget, and a sevenfold increase since 2001; this directly reflects the cost to taxpayers of “riding out the fluctuations in the market” on behalf of employees who can retire early with generous benefits constitutionally guaranteed against diminution or impairment.  (more…)

“Changes in the timing and structure of financial services sector compensation, which have resulted in lower than expected personal income tax [PIT] revenues” led to a $1 billion state PIT shortfall in January, which in turn has helped add $750 million to the projected state budget gap for fiscal 2010-11, Governor David Paterson announced today.

In other words, Wall Street has not come to Albany’s rescue.

Opponents of Governor Paterson’s proposed mid-year budget cuts last fall were buoyed by hopes that financial sector bonuses would prop up the state’s finances for at least a while longer.  They were wrong.  Firms like Goldman Sachs decided to award some bonuses this year in the form of stock options, which won’t be fully exercised (and thus taxed by Albany) for years.

Paterson was already planning to push $500 million of the current year deficit into next year, contributing to a $7.4 billion budget gap that his 2010-11 Executive Budget was designed to close with a mix of spending restraint and tax increases.  Now that gap has grown to $8.2 billion.  Paterson said his 21-day budget amendments, to be released next Tursday, will include proposals for closing the additional hole.

The net added 2010-11 shortfall of $750 million consists of these elements:

• A revenue drop of $550 million through the end of 2010-11, including the recurring elements of a $1 billion shortfall in PIT collections in January, which was expected to be the biggest bonus payment month.
• Additional Medicaid expenditures of $400 million due to higher-than-expected Medicaid enrollments.
• Offsetting savings of $200 million in “areas outside Medicaid.”

As part of the White House’s $3.8 trillion 2011 budget, President Obama has proposed making the “Build America Bonds” program permanent. Build America Bonds have offered states and localities a quick fix since Washington created them in the stimulus package last year. But access to the bonds discourages municipalities from addressing their budget problems head-on, so that they can cut borrowing, not add to it.

Under the program, states can issue taxable bonds, with the federal government subsidizing the extra cost. The new proposal would cut the feds’ subsidy to states and localities from enough to cover a 35 percent tax rate to enough to cover a 28 percent tax rate. (more…)

Employee compensation in the state and local government sector increased at twice the private-sector rate during the 12 months ending in December, according to national data released today by the federal Bureau of Labor Statistics.

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New York is running out of cash, Comptroller Thomas DiNapoli reported today.  The situation would be worse if Governor Paterson had not ordered delays in portions of some local aid payments, prompting the New York State United Teachers union to file a lawsuit against him.

But don’t worry–these guys will soon be bailing us out.

Or maybe not.

In 2000, state and local governments collectively owed $1.5 trillion (adjusted for inflation to 2009 dollars). Today, they owe $2.3 trillion, a 53 percent increase.

Over the same time period, American consumers and homeowners hiked their own debt by 55 percent, and pretty much bankrupted the world’s economy doing it. (OK, it wasn’t all their fault.)

Data source: Federal Reserve.

The Senate today also passed the so-called Public Authorities Reform Act previously approved by the Assembly and backed by Governor Paterson–complete with a form of super card-check for unions seeking to organize authority-sponsored hotel and convention center development projects.

The headline on the Senate’s Majority press release announcing the bill’s passage deserves a special niche in Albany’s jam-packed Pantheon of Preposterous Claims.

What does a tiny Arab emirate have in common with the NBA’s worst team, which currently plays in New Jersey?  And why should the answer matter to a taxpayer in Buffalo or Syracuse?  Nicole connects the dots in a timely op-ed in today’s New York Post.

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It looks more and more like Chicago’s parking-privatization deal was a bad deal for the city and a good deal for Morgan Stanley, the concessionaire. Under the 2008 deal, Morgan Stanley bought the rights to the city’s parking-meter revenue for 75 years – including the right to make massive rate hikes — in exchange for paying $1.15 billion to the city of Chicago upfront. (more…)

A few thoughts on the late-breaking Albany deal to pass the so-called Public Authorities Reform Act, now stalled for good reason in the Senate after passing in the Assembly:

Not for the first time, some of New York’s well-meaning good-government advocates are being suckered by a bill title.  Like most legislation trumpeted as “reform” in Albany, this measure’s modest virtues are being grossly exaggerated even as its negatives are being ignored, minimized or overlooked.

The bill stems from the pretense that public authorities are, as Assemblyman Richard Brodsky (D-Harrison) put it, “Soviet-style bureaucracies” that amount to a “secret, shadow government.”

In fact, because they are subject to the discipline of the bond market, the state’s major public authorities are far more transparent than the typical state agency.

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