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Hevesi warns of impending pension-cost hike for localities

By: Joel Stashenko, Theithacajournal.com

 March 17, 2003 

State Comptroller Alan Hevesi is urging government leaders to be prepared for a lingering escalation in local taxpayers' cost for public employee pensions.

"This is not likely to be a short-term problem," Hevesi warned some 2,800 government officials last week in a letter obtained by The Associated Press. "While we all hope for a recovery of both the stock market and the economy, there is good reason to believe that the market will remain depressed for some time."

Where most local taxpayers were assessed nothing for pension costs at the height of the stock market boom, which wound down starting in the latter part of 2000, Hevesi said they should now expect to pay annual contributions in excess of 10 percent of payroll costs for the foreseeable future.

"Prudent budgeting requires recognition of this obligation," Hevesi cautioned.

The government employee pension fund that Hevesi, as comptroller, is sole trustee of, has become a sudden but extreme complication to the fiscal woes faced by the state and most local governments.

Where local taxpayers are contributing about 1 percent of their workers' payroll costs to the pension fund in the current fiscal year, they were warned by Hevesi's predecessor, H. Carl McCall, in August 2002 that their share would probably rise to 3.8 percent of payroll in the next fiscal year.

In February, Hevesi revised that estimate, telling localities that their contributions would be about 11 percent when the payments are due in December 2003.

In dollar terms, the local contributions will jump to $1.1 billion if current projections hold -- money that most local governments say they don't have.

Hevesi said he continues to talk to local government officials, labor leaders and retirees, trying to craft a solution to the problem that will both protect the viability of the pension fund and ease the payment spike for taxpayers.

The state is facing a similar jump in its contribution to the pension system, with an additional $660 million due in December above budgeted payments. That is further complicating the state's budget crisis, where leaders are trying to close revenue gaps of at least $11.5 billion over the current and upcoming fiscal years.

The revenue shortfalls are blamed on the national recession, the stock market slump and on the Sept. 11 terrorist attack.

Hevesi said he has to proceed cautiously with a solution to the pension contribution crisis.

"Lawsuits have been successfully brought by my predecessors to stop prior actions that were seen as attempting to use the pension funds purely to solve budget problems," he told local officials. "Therefore, any proposal for change must be designed solely to strengthen the pension fund and not for the purpose of providing fiscal relief to state and local governments."

By law, Hevesi also cannot deny pensioners benefits previously granted them, such as automatic cost-of-living adjustments approved by Gov. George Pataki and the state Legislature during the bullish stock market year of 2000.

Pataki has proposed stretching this year's pension payments by governments out over five years. Hevesi told local officials he'll take that under advisement, along with other proposals.

Nearly 1 million current and former government employees are covered by the pension fund, which has assets of about $98 billion. That is down from a high-water mark of $127 billion when the stock market was at its peak.

The fund administered by Hevesi does not cover New York City employees, teachers, firemen or police officers, who have their own retirement systems.

'This is not likely to be a short-term problem.'

-- Alan Hevesi, state comptroller, in a letter to government officials 


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