Loss could mean bigger tax hit for property owners unless reforms are made by 2011
State pension fund’s value drops $44 billion
ALBANY — Investments of New York’s giant pension fund for state and local government workers plummeted by more than 26 percent over the past year, with the fund’s value losing $44 billion, State Comptroller Thomas DiNapoli said Friday.
That loss eventually will hit property taxpayers in the thousands of municipalities that pay their employee pension benefits.
Pension costs already consume 20 percent of property tax revenues for medium-sized cities in New York, said Peter Baynes, executive director of the New York Conference of Mayors. And that cost will rise sharply if pension costs go up, as expected, in 2011, and there are no reforms to the system by then.
“They have to create new pension tiers immediately that municipalities can afford. If we’re not going to do it now, when will they ever have the will to do it?” Baynes said of the State Legislature.
DiNapoli, who is the sole trustee of the New York State Common Retirement Fund, acknowledged that “it has been a tough time.”
The fund’s investment performance brought the total value at the end of its fiscal year on March 31 to $109.9 billion, down from $153.9 billion the previous year — a nearly 29 percent drop.
The plunge leaves the fund down sharply from its historic high of $154.5 billion in 2007.
The announcement came on Friday — Albany’s traditional day to drop bad news.
Most New Yorkers are keenly aware of their 401(k) accounts but may have never heard of the Common Retirement Fund. The fund’s performance finances the pensions of millions of local and state government retirees across the state. But when the fund does poorly, it hits home for everyone.
How well the fund does affects how much nearly all local government entities — from towns and cities to libraries and police and fire departments — pay into their employees’ pension accounts.
In good years, there can be savings. But in bad performance times, the hit on localities — and, therefore, local property taxpayers — can be punishing.
Earlier this decade — after the high-tech bust, fallout from the 2001 terrorist attacks and generous new pension benefits given by Albany to unionized public employees — localities across the state saw their pension bills leap tenfold.
The comptroller used the release of news of the fund’s poor performance to warn of a sizable hike in the amount of money the state and localities must contribute to their employees’ pension accounts. Those contributions lag behind the performance of the fund, so the big hit will be coming in early 2011.
DiNapoli called on state lawmakers and Gov. David A. Paterson to act now on a plan he is floating to essentially smooth out pension payments over the years to avoid the dips and spikes that now make it uncertain what the contribution levels will be from year to year.
The plan, according to people briefed on the provisions, will permit localities to voluntarily amortize over several years their big balloon pension payments that will kick in during 2011. Also, DiNapoli wants to put a “collar” on future pension dips and spikes by having localities pay more than they otherwise would in “good” performance periods to act as a reserve for the bad years.
“We’re going through some difficult times and we’ll certainly have challenges ahead,” Di- Napoli said in a conference call with reporters.
Localities next year will be paying 7.5 percent of their payrolls, on average, to pension costs. That is expected to rise to at least 11 percent the following year, DiNapoli estimated.
DiNapoli’s plan will be helpful in the short term, said Baynes, of the New York Conference of Mayors.
“It’s not going to solve the problem,” he added.
Localities are worried that Paterson’s efforts to create a new pension tier for newly hired state and local workers is facing obstacles in the Legislature. Lawmakers already beat back that plan during budget talks in March, though Paterson is still trying.
The Paterson effort would require new employees to pay a greater share of their pension contributions as a way to cut costs for the state and municipalities.
The Democratic comptroller said the fund performed better than major U. S. stock indices, such as the 40 percent drop in the Standard and Poors 500 during the same 12-month period. He credited the fund’s diversification with helping the fund “weather the storm better than most.”
The fund, one of the world’s largest public pension systems, remains safe and fully funded to pay out benefits, the comptroller said.
The fund’s one million members include 350,000 retirees drawing pensions. DiNapoli called its performance over the past year the “worst year in anybody’s memory.”
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