The State’s Ponzi Scheme

It reads like a joke, but it should make a taxpayer weep: State lawmakers, always willing to take the easy way out of a fiscal mess, have agreed on a plan that would allow Albany and local governments to borrow from their pension funds to make payments to … pension funds.

Yes, you read that correctly. Just when you think Albany couldn’t get much more irresponsible, lawmakers manage to find new ways to duck the consequences of their inaction. It’s tempting to assert that nothing can top this latest scheme, but bear in mind that the budget is far from finished. Who knows what scams will develop in the coming weeks?

The pension-borrowing plan will allow state and local government to borrow money already in the pension fund to help pay for ongoing contributions over the next three years. In theory, governments would repay the fund beginning in 2013-assuming, of course, that the economy recovers and governments have the money to make good on their debts. All told, state and local governments (except New York City, which has a separate pension system) will borrow about $9 billion from the pension fund.

This scheme is irresponsible in so many ways, but the most important issue remains scandalously ignored: New York (and nearly every other state) simply can no longer afford the retirement perks doled out to public employees in the past. Retirement ages are too low. Defined pension benefits are still the rule for many public employees, especially those in the uniformed services. While some government workers now have 401(k)-style accounts, funded through contributions from employee and employer alike, unions have fought off comprehensive pension reform for years.

The day of reckoning was yesterday. Today, we see the consequences of inaction and selfishness. Albany’s plan to borrow pension funds to pay pension funds sounds like something cooked up by Bernie Madoff.

We have heard a great deal over the past two years from politicians who professed to be scandalized by the excesses of Wall Street. We await similar outrage from political leaders with the courage to label New York’s pension system for what it is-a Ponzi scheme that could well be the ruin of the Empire State.