New York residents will pay almost $90 billion in added taxes over the next two years if the federal government plunges over its fiscal “cliff” with no changes to current law, according to a timely report issued last week by Comptroller Thomas DiNapoli. The scheduled tax changes outweigh the impact of scheduled “sequestration” cuts to federal spending, which would cost the state and local governments $5 billion over the next nine years, including a $600 million hit to the state budget in fiscal 2013.
State Comptroller Thomas DiNapoli has announced a “fiscal stress monitoring system” to provide an early warning of problems in local governments and school districts, which can only be a good idea. DiNapoli’s office also issued a report analyzing economic and fiscal trends in cities from 1980 to 2010.
Citiy governments throughout New York “are stressed and have to work hard to keep their fiscal houses in order,” says a new report from the office of state Comptroller Thomas DiNapoli. Unfortunately, while it includes some useful new data and compelling findings, DiNapoli’s report on “new fiscal realities” facing local governments focuses almost exclusively on the recession and declining revenues. The spending side of local budgets is implicitly treated as fixed and immutable.
In the room, but unacknowledged
The report doesn’t let localities (including counties) off the hook for contributing mightily to their own problems. For example, it notes that previous audits by the comptroller’s office have identified at least 17 local governments “that have such poor financial systems that they do not know their current financial condition or are unaware of how their actual expenditures compares to what they have previously budgeted.” These localities, including Rockland County and the Village of Freeport in Nassau County, have had declines in fund balances or actual deficits totaling more than $68 million in fiscal 2011-12.
The New York State and Local Retirement System (NYSLRS) closed its most recent fiscal year with a return of just 5.96 percent — well below the 7.5 percent target rate used to discount its long-term liabilities.
Seeking to accentuate the positive, a press release from Comptroller Thomas DiNapoli (”DiNapoli: State Pension Fund Posts Strong Gain”) points out that the fund’s total asset value of $150 billion as of March 31 was the “highest since the global economic meltdown in state fiscal year 2008-2009.”
But here’s another way to look at it: the fund is still $6.3 billion below its level at the end of fiscal 2006-07, a period in which benefit payouts have risen nearly $3 billion. The below-target return for 2012 alone represents a shortfall of about $2.2 billion — i.e., the fund’s asset values would total $152.5 billion if it had earned 7.5 percent, and would still be about $4 billion below the fiscal 2007 level.
New York State’s 2010-11 2011-12 fiscal year appears to be off to a good start. Tax collections for the first quarter of the year were nearly $800 million above Governor Andrew Cuomo’s initial budget projections, according to the June cash report posted today by state Comptroller Thomas DiNapoli.
On the other side of the ledger, disbursements for April through June appear to have been about $1 billion below projections. Significantly, this includes lower-than-forecast spending of $260 million on Medicaid, an area over which the governor now (temporarily) enjoys unprecedented administrative control. The spending figure needs to be taken with a grain of salt, however. DiNapoli said spending was below projections “primarily because of the timing of local assistance payments.” County executives around the state already have been complaining that Cuomo’s Division of the Budget (DOB) has been slowing down aid payments to an extraordinary degree.
“New York has always paid its pension bills on time,” state Comptroller Thomas DiNapoli boasted yesterday, in announcing the state pension fund’s 14.6 percent return on assets during the fiscal year that ended March 31.
But in fact, under a 2010 law championed by the comptroller himself, the State of New York is not paying its pension bills on time.
It’s official: after a decade in which the New York State pension fund’s annual return on assets averaged less than half its target rate, the fund will need to jack up its taxpayer-funded contribution rates next year, Comptroller Thomas DiNapoli announced today. DiNapoli said the rate in 2011-12 would rise from 11.5 percent of salary to 16.3 percent for members of the Employee Retirement System (ERS) and from 18.2 to 21.6 percent for members of the police and Fire Retirement System, (PFRS).
This is no surprise. In fact, almost precisely the same rate of change in pension contributions was projected by Governor Paterson’s Division of the Budget (DOB) eight months ago, in the 2010-11 Five Year Financial Plan (see table on page 59).
State Comptroller Thomas DiNapoli yesterday issued a happy talk news release touting the state retirement system’s 26 percent return on investments in fiscal 2009-10, which ended March 31.
“The Fund remains one of the strongest in the U.S.,” DiNapoli said. “We’ve come through one of the toughest recessions in modern times, and now the Fund is well positioned to benefit from the national economic recovery we hope is taking hold. We’re not all the way back yet, and as we’ve seen in recent weeks, there are still challenges in the marketplace. But our foundation is strong. We’re moving in the right direction.”
In fact, even after that gain, the pension fund as of March 31 was nearly $56 billion below the level it would have attained if it had achieved its 8 percent target rate of return for the past five years. The blue line in the chart below shows returns at the targeted rate; the red line shows actual returns, including the fiscal 2009-10 gain the comptroller is boasting about.
As for those marketplace “challenges” DiNapoli mentioned: since March 31, the Dow Jones Industrial average is down 8 percent, while the S&P 500 has dropped 8.6 percent.
State Comptroller Thomas DiNapoli today issued a “Strategy for Fiscal Reform” that focuses on the budget process, but his most significant and potentially valuable recommendation deals with debt.
New York is running out of cash, Comptroller Thomas DiNapoli reported today. The situation would be worse if Governor Paterson had not ordered delays in portions of some local aid payments, prompting the New York State United Teachers union to file a lawsuit against him.
But don’t worry–these guys will soon be bailing us out.
Or maybe not.