The so-called smoothing or amortization rules – first introduced by the state in 2010 – are intended to give municipal governments facing huge increases in pension costs some wiggle room. Pension contribution rates, which have been soaring after pension fund assets were depleted during the 2008-2009 financial crisis and as interest rates have fallen, are based on defined future payouts that pension funds have to make to members.
As former New York Lieutenant Governor Richard Ravitch sees it, this system of “pension smoothing” is “nonsense”: “They’re contributing promissory notes to the pension fund and that is what’s called in my world kicking the can down the road, and I consider it highly irresponsible, highly risky.”Ravitch has a point. Delaying payments to pension funds may seem like an appealing idea now, but these are exactly the sort of decisions that have driven Stockton and San Bernardino to the brink of bankruptcy. In New York, cities like Niagara Falls have followed this dangerous strategy and are nearly insolvent as a result.It’s become obvious that many of these struggling cities simply can’t afford the generous pensions they promised in the past. Rather than putting off the tough decisions about the future of their pensions, cities should instead look to readjust their programs and reduce their obligations to something they can pay (and, hopefully, shift away from defined-benefit plans for the future). Any such plan is bound to be opposed by those who have paid into the current system, but a reduced pension is better than a bankrupt city and potentially much harsher cuts imposed by a bankruptcy judge. Here’s to hoping that prudence and discipline prevail before New York falls off the cliff.Here’s also hoping that the harrowing consequences of the series of lies and delusions that New York’s political class and union leaders colluded in for many years will wake the state’s voters into a new sense of reality.