Talk about Chutzpah! Democrats in Albany are looking to borrow from the State pension fund to pay for the pension fund. From the New York Times:
Gov. David A. Paterson and legislative leaders have tentatively agreed to allow the state and municipalities to borrow nearly $6 billion to help them make their required annual payments to the state pension fund.
How is this accomplished? Here’s how:
And, in classic budgetary sleight-of-hand, they will borrow the money to make the payments to the pension fund — from the same pension fund.
Pension costs for the state and municipalities are soaring, a result of enhanced retirement benefits for public employees and the decline in the stock market over the past two years. And, given declines in tax revenue and larger budget shortfalls, the governments are struggling to come up with the money to make the contributions.
Under the plan, the state and municipalities would borrow the money to reduce their pension contributions for the next three years, in exchange for higher payments over the following decade. They would begin repaying what they borrowed, with interest, in 2013.
But Mr. Paterson and other state officials hope the stock market will have rebounded to such a degree by that time that the state’s overall pension contribution burden will have been reduced.
The interest payments for this bonanza is around $2 billion at an interest between 4.5 to 5.5 per cent:
The maneuver would cost the state and local governments about $1.85 billion in interest payments, according to an estimate by the State Senate, though a number of factors could drive interest payments up or down.
Another oddity of the plan is that the pension fund, which assumes its assets will earn 8 percent a year, would accept interest payments from the state that would probably be 4.5 percent to 5.5 percent.
Republicans react incredulously:
As word of the plan spread, some denounced it as a shell game and a blatant effort by state leaders to avoid making difficult decisions, like cutting government spending or reducing pension benefits.
“It’s a classic Albany example of kicking the can down the road,” said Harry Wilson, the Republican candidate for comptroller, who holds an M.B.A. from Harvard.
Special Thanks: Hugh Hewitt