It seems likely the newly reconstituted Senate majority will take up and re-pass all the bills approved during its legally questionable June 30 “session,” perhaps as soon as this evening.  While the governor and others have described the bills awaiting Senate action for the past month as “non-controversial” and essential to the smooth running of government, that June 30 agenda also included what would amount to the largest open-ended borrowing authorization in the history of New York State — under the guise of a proposal to allow the state and local governments to “amortize” a portion of rising pension contributions over six years starting in 2010-11.

As explained here yesterday:

On June 22, the final day of its session, the Assembly passed a bill that would allow the state and local government employers to “amortize” a potentially large portion of their pension contributions for six consecutive years, starting in 2011.   Contributions for ERS members, which have been set at 7.4 percent for fiscal 2010, would be capped at 9.5 percent of payroll in 2010-11, growing to 14.5 percent in 2015-16.  Contributions for PFRS members, now 15.1 percent, would be capped at 17.5 percent in 2010-11, growing to 22.5 percent in 2015-16.

Amounts exceeding the caps would essentially be paid for through what would amount to a series of 10-year loans from the pension system, pushing pension obligations for the first half of the next decade all the way out to 2026.   This is similar to an approach originally recommended by Comptroller Thomas DiNapoli, although DiNapoli did not suggest any time limit on the number of years for which “excess” contributions could be amortized.

The bill, which also passed the Senate during its rump “session” on June 30, was introduced with a message of necessity from the governor on the same day as the Assembly vote, apparently after secret negotiations involving Paterson’s office as well as the comptroller.

So here we have a measure that would effectively authorize billions of dollars in new state and local borrowing over the next decade, which both houses of the Legislature have approved in a snap vote, without debate or a public hearing, and which the governor apparently is poised to sign as soon as he can.

What’s the rush?   While the 2010-11 pension contribution rate is set by the state comptroller in September, the contribution won’t be payable until early 2011.   Assuming the June 30 Senate vote was not actually valid, financially responsible lawmakers should slam on the brakes on this runaway train before it’s too late.

In case anyone in the Senate is still paying attention to substance after the dizzying events of the past 24 hours, here are some questions that could be posed in debate over this measure (and for the benefit of whoever leads debate on behalf of the Rules Committee, some correct answers are also included):

Has the comptroller or the governor supplied any projections of the likely pension contribution rates for New York state and local government employers during the six fiscal years covered by this bill?

If not, what was the basis for the contribution rate caps set forth in the bill?

When you allow a government employer to “amortize” a pension contribution above a certain amount, for up to 10 years, doesn’t this effectively amount to a 10-year note—i.e., borrowing from the pension fund itself?
(Note: “Amortize” means to pay off in installments.  As one does with a loan.)

If the money is not being borrowed from the pension fund, how would you describe what is being permitted here?

The bill says the amount of excess pension contribution “amortized” by government employers shall be repayable in 10 equal installments at a “fixed rate of interest … to be determined by the comptroller … which approximates a market rate of return on taxable fixed-rate securities with similar terms issued by comparable investors.”

What is the current market rate of return on taxable securities issued by municipalities and counties?
(Correct answer: current bond indexes indicate the market rate of return on taxable securities issued by municipalities and counties is typically around 5.5 percent.)

What is the pension fund’s target rate of return?
(Correct answer: 8 percent.)

So … if you are effectively borrowing from a pension fund that needs to earn an 8 percent rate of return, and you are repaying the pension fund at a lower rate, aren’t you short-changing the pension fund in the process?

If not, why not?

Is there any limit on the amount of pension contribution that can be borrowed from the fund and rolled into the future in this manner?

For example, the proposed limit on the pension contribution for 2014-15 is 13.5 percent.  However, under one investment return scenario simulated by the comptroller’s office and reported in the Times this week, the actuarial contribution rate for that year could be as high as 30 percent.

In other words, the state government alone could choose to delay payment of over half of its actuarially determined 2013-14 pension fund contribution—the equivalent of $2 billion, based on our current payroll. In fact, under this legislation, the state could end up borrowing $4 to $7 billion from the pension fund over a five-year period, depending on investment returns in the meantime.   Local governments could delay billions in pension payments of their own.

Therefore, in effect, won’t we be under-funding our pension obligations?

Under this bill, the last year for which pension contributions can be “amortized” — pushed forward for 10 years — is 2015-16.  But what confidence can we have that pension contribution rates will drop after 2015-16?
(Correct answer: No one can be sure pension fund contribution rates will need to move much further up or down after the next few years.  The scenario reported on in the Times, which would result in a tripling of pension contribution rates over the next five years, simulated a re-run of market conditions after the 1987 stock market crash.  The state pension fund rate of return from 1988 through 1993 were 1.6 percent, 13.4 percent, 13.9 percent, 11.7 percent, 10.7 percent and 12.5 percent, respectively.   Raise your hand if you believe the pension fund will reap similar returns between fiscal 2010 and 2015.)

So, therefore, this potentially amounts to an open-ended authorization to borrow from the pension fund over a 16-year period beginning in fiscal 2010-11 — yes or no?
(Correct answer: Yes.)

Will the Senate majority be taking up any legislation to restructure and limit public pension plans to make them more transparent, to relieve taxpayers of the financial risks imposed on them by the current system, and to establish greater parity between public-sector and private-sector retirement benefits?