In a news conference just before yesterday’s legislative adjournment, Governor Andrew Cuomo announced that he would grant the required “messages of necessity” to pave the way for a vote on amended versions of two New York City bills — one related to condo-coop tax abatements, and the other to a measure implementing an important technical change in actuarial assumptions for the New York City pension funds.

But hours later, the governor’s press office told Capitol reporters no messages would be granted, after all. Result: neither bill was passed before the Legislature left Albany last night. With regard to the pension issue, in particular, this could pose problems for the city, since the current law governing the pension system’s actuarial assumptions expires on June 30 (see end of this post for more background)

A message of necessity from the governor is required to permit a vote on bills that haven’t “aged” for the required three days on lawmakers’ desks. In the past, the message process repeatedly has been abused by governors (including Cuomo) to enable the Legislature to rush passage of complex and important legislation before its consequences could be fully weighed and understood by lawmakers and the public. The condo-coop bill – which evolved from a fairly simple four-page extender into a classic 20-page “big ugly” — would have fallen into this category.

The pension bill, by contrast, could serve as a classic illustration of why the message of necessity power exists, and of how it properly can and should be exercised.  The bill is not controversial; rather, it is needed to implement changes approved by the boards of all five city pension funds, including a much-needed reduction in the funds’ discount rate. Passage was delayed only because the Senate and Assembly sponsors failed (apparently inadvertently, although you never know) to attached the required fiscal note to the original bill text.  Once the bill was amended to include the fiscal note, it was within the three-day deadline and this required a message.

So why did the governor change his mind?  The Daily News quoted anonymous “Cuomo administration officials” as saying that “the governor decided against granting the messages of necessity because lawmakers kept trying to jam new eleventh-hour provisions into the bills.”  But by all accounts, that was not the case with the pension bill.

If the no-messages edict was intended to stall a larded-up condo-coop bill, and applied to the pension bill merely to avoid an appearance of inconsistency on the governor’s part, it calls to mind Ralph Waldo Emerson’s observation: “A foolish consistency is a hobgoblin of small minds, adored by little statesmen and philosophers and divines.”

And if the last-minute pension legislation holdup was a reaction to Mayor Bloomberg’s reaction to the governor’s compromise on the teacher evaluation bill, it was just plain small-minded on Cuomo’s part.

** PS — While the Legislature is expected to return to Albany in November, another possible explanation for the governor’s turnabout on messages is to create an excuse for a special session in July or August as well.**

Background on the pension bill:

The actuarial discount rate for New York City’s pension funds — a key variable in determining annual pension costs for city taxpayers — will be reduced from 8 percent to 7 percent under thelegislation that stalled in the Legislature yesterday.

The discount rate is the funds’ assumed rate of return on their investments; the higher the assumed rate, the less money is set aside now to cover benefits promised in the future.  As explained in my recent Newsday column:

Corporate pension plans also have ambitious return targets, but they must discount liabilities using a lower-risk “market” interest rate, such as the yield on AAA-rated corporate bonds. That’s typically 4 to 5 percent these days. By contrast, government accounting standards allow public pension funds to discount liabilities using the same high rate of return they hope to earn on their investments. That produces a trade-off — pay less now, but more in the future if the goals are not met.

Even an expectation of 7 percent returns is considered too high by many financial experts — Mayor Bloomberg himself has suggested it’s the sort of guarantee one might expect from Bernie Madoff — but it is at least less preposterous than 8 percent, and thus exposes taxpayers to somewhat less risk.

New York City’s pension contribution costs have risen by nearly $7 billion in the past decade; taken by itself, a lower discount rate might tend to push them even higher than they otherwise would be if no change was made.  However, as recommended City Actuary Robert North, the legislation also includes other important changes that will, effectively, re-set actuarial calculations in a way that moderates the budgetary impact. Adoption of the pension legislation is assumed in Mayor Michael Bloomberg’s financial plan, which projects that pension costs will remain level at roughly $8.1 billion from fiscal 2013 through 2016.


About the Author

E.J. McMahon

Edmund J. McMahon is a senior fellow at the Empire Center.

Read more by E.J. McMahon

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