Cash-starved cities like Buffalo are being shortchanged under a pension savings measure -- passed by the State Legislature last week -- that has been hailed by state officials as "reform" but derided by critics as nothing more than smoke-and-mirror finances.
With governments across New York facing soaring increases in payments for their employees' pension plans, Gov. George E. Pataki and legislators last week announced a deal to delay until February nearly $1 billion in payments due by local governments this December to the state retirement system.
By doing so, they shift the tab to the next fiscal year, thereby allowing local governments to cut the red ink they face this year. Erie County hailed the measure as helping to erase $25 million from its projected deficit this year, though there are some new questions whether the county can really push the liability onto next year's books.
But Buffalo, as well as Rochester, Syracuse and Yonkers, have different fiscal years, meaning the chief component of the legislation cuts them out because it merely delays by two months payments otherwise due in their current fiscal year.
"It doesn't benefit us whatsoever," said Buffalo Comptroller Andrew A. SanFilippo. He criticized state officials for not devising a long-term solution to the pension expense crisis.
SanFilippo joins other fiscal watchdogs, including the respected Citizens Budget Commission, with concerns that the measure also allows municipalities to go deeper into debt to cover a sizable portion of higher pension costs -- criticized as a fiscal gimmick because it OKs 10-year loans to cover current operating costs.
"We understand localities are facing big payments, and we recognize the desire to ease the pain, but we really believe stretching the payment out over 10 years is ill conceived," said Marcia Van Wagner, chief economist at the Citizens Budget Commission, a Manhattan non-partisan group that analyzes the state budget each year.
"It's a quick fix that will cost more money in the long run," Van Wagner said. Her group on Tuesday urged Pataki to veto the measure.
"I question the fiscal responsibility of such a program," added SanFilippo. "It's like the state giving the localities a credit card to pay for current year pension obligations. It's short-term relief but long-term grief on local government budgets."
A few years ago, thanks to a booming Wall Street, localities paid nothing into the main state retirement system for their employees' pension. That began shifting in 2002, after a decline on Wall Street, where the pension fund invests much of its money, and localities that year had to pay $168 million to the retirement system. By last year, the tab rose to $650 million, and this December $1.75 billion is due, according to the New York Conference of Mayors.
Adding to the costs, according to a 2003 analysis by The Buffalo News, was a series of election-year sweeteners added to the state and local government retirement system in 2000 to benefit retirees and current employees.
Local governments had been pushing for a better pension deal. The mayor's association wanted the pension cost increases capped at 2 percent per year. This year's pension costs were set to rise to 12 percent of payroll for most government workers and 17 percent for police and fire. The New York Association of Counties, meanwhile, is cautioning its members that the measure is merely a way to "ease the transition to the higher pension rates" counties are facing.
"It's not as helpful as what could have happened, but it's certainly better than doing nothing, which is probably a normal Albany solution," said Edward Farrell, executive director of the mayors group.
There are more potential problems with the bill. Accounting companies and government budget officials have raised concerns about allowing counties to not count their 2004 pension obligations this year even if the pension payment isn't made until February. The issue matters because the fiscal integrity of local finances are on the line, which can affect everything from bond ratings to interest rates on borrowing.
The question being asked by government and private accountants is: Shouldn't places like Erie County be required to still list its 2004 pension obligation as a liability for this year? If it did, that would erase any of the budgetary benefits -- being able to say, for instance, that its deficit is cut by $25 million -- that county officials are now claiming.
Dorothy Johnson, president of the New York Government Finance Officers Association, said there are "strong arguments on both sides" of the debate. Johnson is also executive director of Buffalo's control board.
Into the debate has stepped the Governmental Accounting Standards Board, which sets accounting procedures used by governments across the United States. A decision on the issue is expected later this week, GASB officials said.
Officials with the office of state Comptroller Alan Hevesi, who supports the pension measure, have drafted provisions to let counties push the liability into next year, sources said. Daniel Weiller, a Hevesi spokesman, said the recommendation will be released when Pataki signs the bill.
For his part, Joseph Passafiume insists the deferred pension payments don't have to be taken as a liability this year. That gives the county two extra months to pay $25 million, but it also rolls the liability into next year.