Pension Costs May Widen Budget Gap in New York

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Pension Costs May Widen Budget Gap in New York

By AL BAKER, NY Times

February 8, 2003

ALBANY, Feb. 7 — Because of sharply rising pension costs, next year's state budget gap could be $700 million larger than the Pataki administration had expected, according to figures released today by the state comptroller, Alan G. Hevesi.

Mr. Hevesi has estimated that the state will have to pay $1.1 billion to the public employee pension system next year. That compares with the $400 million that Gov. George E. Pataki had planned to spend on the system in his budget for that fiscal year, which begins on April 1.

Mr. Hevesi said his prediction was based on the value of the pension fund through the end of last month. The actual cost will be determined by the value of the fund on March 31.

Prolonged sluggishness on Wall Street has reduced the total value of the fund, known as the New York State and Local Retirement systems, to about $97 billion on Jan. 31, from a high of about $127 billion in March 2000, state officials said. That decline is forcing the state to increase its contributions to cover the employees' pension costs.

If the stock market's poor performance continues, and Mr. Hevesi's estimate holds relatively steady, increased pension costs will further strain a state that is facing a combined $11.5 billion deficit in the current and coming fiscal years.

"Obviously, this is regrettable news for state and local taxpayers and is another reason why it is so critical that the state has policies that restore economic growth and create more jobs," Kevin C. Quinn, a spokesman for the state Division of the Budget, said today.

He said the Pataki administration would encourage Mr. Hevesi to examine every option to reduce the impact on the state and local governments. "And we would be willing to work with him to do that," he said.

Mr. Hevesi notified the Pataki administration of his estimate today. He said that local governments around New York, already grappling with budget gaps of their own, would face higher-than-predicted pension costs as well.

Though dollar amounts for those local costs have not yet been determined, Mr. Hevesi said that local governments would have to contribute about 11 percent of payroll costs to the pension fund for a majority of public employees, rather than the current 1 percent.

"For police and fire employees, rates would increase from zero to 15 percent of payroll," Mr. Hevesi said in a statement. "Actual costs for any individual local government are often higher because they include local options such as retirement incentives and other options."

He added that retirees' pension benefits were secure and that the fund had enough money to cover the cost of benefits.

The value of the state pension fund, which is the second largest in the nation and which serves about 945,000 participants (including about 300,000 retirees), had experienced robust growth during the recent record periods of prosperity on Wall Street. During that market boom, governments did not have to pay into the fund at all. But now, those contribution rates have begun to edge up.

The state decided to pay the added pension costs over two years, although with a roughly 8 percent interest rate on the second year's payments, officials said. Because Mr. Hevesi's notification is merely an estimate, the state has not made a final determination on how it will address any potential shortfall.