A bill expanding the share of New York public pension funds that can be invested in complex, high-risk alternative assets such as private equity and hedge funds has been vetoed by Governor Andrew Cuomo.

New York’s existing “basket clause” limits to 25 percent the share of pension fund money that can be invested in alternative assets. The bill raising the limit to 30 percent, backed by state Comptroller Thomas DiNapoli and (primarily) New York City Comptroller Scott Stringer, was passed by overwhelming margins in both houses of the Legislature.

The bill had leadership juice behind it: it was sponsored in the Assembly by Herman “Denny” Farrell, D-Manhattan, the Assembly Ways & Means chairman, and co-sponsored in the Senate by John DeFrancisco, R-Syracuse, the Finance Committee chairman, and Diane Savino, D-Staten Island, who is both a close ally of labor unions and a leading member of the Independent Democratic Coalition.

Cuomo, who had never previously taken a public position on the issue, said in his veto message, “The existing statutory limits on the investment of public pension funds are carefully designed to achieve the appropriate balance between promoting growth and limiting risk.” He continued:

This bill would undermine that balance by potentially exposing hard-earned pension savings to the increased risk and higher fees frequently associated with the class of investment assets permissible under this bill. Therefore, I am vetoing this bill.

Alternatives made up 18.3 percent of the New York State and Local Retirement System’s $177 billion in assets at the end of fiscal 2014, although the fund has a stated long-term goal of a 27 percent allocation to alternatives. The New York City Employee Retirement System, largest of the city funds, had 17.2 percent of its assets invested in alternatives as of 2013. By contrast, the New York City Teachers’ Retirement System reported allocating just 8 percent to the same class, and NYSTRS had just 9 percent invested in alternatives last year.

Assuming the basket clause expansion had led to a full 5 percent boost in such investments across the board, it would have shifted at least $21 billion more into alternative investments for all the pension funds combined, based on their 2013 values.

As expected, Cuomo also vetoed several pension sweetener bills, including a measure restoring early retirement rights for uniformed state court officers. Another bill vetoed by the governor would have expanded the option of more expensive 20-year retirement for some police officers and firefighters. Cuomo vetoed the pension sweeteners as a group, saying they would collectively “require the State and its localities to pay an estimated $15 million in one-time expenditures and would impose recurring annual costs estimated at $7.8 million.”

Below is the entire group of rejected pension sweeteners, including some aimed at individual retirees, as reported on the Legislative Retrieval Service.

VETO MESSAGE – No. 548

TO THE ASSEMBLY:

I am returning herewith, without my approval, the following bills:

Assembly Bill Number 7862-A, entitled:

“AN ACT to amend the retirement and social security law and the
civil service law, in relation to university police officers
appointed by the state university of New York”

Assembly Bill Number 9162, entitled:

“AN ACT to amend the retirement and social security law, in relation
to an optional twenty-year retirement plan for members of the New
York state and local police and fire retirement system and to
amend chapter 504 of the laws of 2009, amending the retirement and
social security law relating to establishing police and fire
retirement provisions, in relation to special retirement plans for
members of the New York state police and fire retirement system”

Assembly Bill Number 9236, entitled:
“AN ACT granting retroactive tier IV membership in the New York
state and local employees’ retirement system to Brian Stebbins”

TO THE SENATE:
I am returning herewith, without my approval, the following bills:
Senate Bill Number 3867-A, entitled:

“AN ACT to amend the retirement and social security law, in relation
to the deferral of vacation days for certain members of the
retirement system”

Senate Bill Number 4888-A, entitled:
“AN ACT to authorize the New York City employees’ retirement system
to consider the application for disability retirement benefits
from Peter DiMario”

Senate Bill Number 5153-A, entitled:
“AN ACT to amend the retirement and social security law, in relation
to probation officers in the Suffolk county department of
probation”

Senate Bill Number 6757-A, entitled:
“AN ACT to amend the retirement and social security law, in relation
to accidental disability retirement for uniformed court officers
and peace officers employed in the unified court system”

Senate Bill Number 6937, entitled:
“AN ACT granting retroactive tier IV membership in the New York
state and local employees’ retirement system to Jill Alix, Chris
Karwiel, Jessica Strizzi and Taryn Ward”

Senate Bill Number 7176-A, entitled:
“AN ACT to amend the retirement and social security law, in relation
to accidental disability retirement”

Senate Bill Number 7757, entitled:
“AN ACT to amend the retirement and social security law, in relation
to eligibility for retirement benefits for certain members of the
unified court system”

NOT APPROVED

These bills provide various pension and payroll benefits to State and
local workers but provide no funding to pay for them.

Combined, these bills would require the State and its localities to
pay an estimated $15 million in one-time expenditures and would impose
recurring annual costs estimated at $7.8 million. Given such unfunded
costs and their ultimate imposition on taxpayers, I am vetoing these
bills.

These bills are disapproved. (signed) ANDREW M. CUOMO

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