Borrowing from One Pocket to Lend to the Other

Public pensions funds are the key budget challenge facing many state and local governments. Why? Because it’s been easy for officials to promise future pension benefits without setting aside enough money to pay for them (the same problem afflicts corporate pension plans and Social Security).

The New York Times has a front-page story describing New York’s latest plan to put off pension funding:

Gov. David A. Paterson and legislative leaders have tentatively agreed to allow the state and municipalities to borrow nearly $6 billion to help them make their required annual payments to the state pension fund.

And, in classic budgetary sleight-of-hand, they will borrow the money to make the payments to the pension fund — from the same pension fund.

Perhaps not surprisingly, some leaders are hesitant to refer to this as borrowing:

Those pushing the plan are taking pains to avoid describing it as “borrowing,” saying they are seeking to amortize or “smooth” pension contributions. That is in part because they have distanced themselves from a plan proposed by Lt. Gov. Richard Ravitch that would have the state borrow as much as $6 billion for general operating expenses over the next three years in exchange for budget reforms.

“We’re not borrowing,” said Robert Megna, the state budget director and one of the governor’s top advisers.

Mr. DiNapoli, the comptroller, said: “We would view it more as an extended-payment plan.”

Asked about the pension plan, Mr. Ravitch said, “Call it what you will, it’s taking money from future budgets to help solve this year’s budget.”

Mr. Megna, when reminded that the plan envisioned delaying an obligation today and eventually paying it back with interest, softened his view in the process of a lengthy interview.

“I’m not going to sit here and characterize it as not a borrowing,” he said. “But it is an annual, relatively small borrowing we’re doing this year that were doing to get a modest savings.”

Of course, those “savings” are only of the temporary, political variety. The plan does nothing to add actual savings to New York’s underfunded pension plan.

3 thoughts on “Borrowing from One Pocket to Lend to the Other”

  1. Let’s face it — no one in America has any money — the banks are broke — the pension funds are broke — the insurance companies are broke — social security is broke — Medicare is broke — the states are broke — the cities are broke — everyone is broke.

    The reason that no one has any money is that there is no money around — I mean, if the government wanted people to have money, they would make more of it and just send money to the people, right?

    Has anyone seen any big stacks of money recently? There’s no money to earn, to spend, to loan, to borrow, to play with, there’s simply no money anywhere — the reason for this is that the government is trying as hard as it can to get rid of money.

    I trust the government — I know that the experts in the government have the peoples’ best interests at heart — I know that the government has good reasons to get rid of all the money — it’s important!

    I hope the government has quit printing money — afterall, the government could at least do its part by making sure no more money is printed.

    Here’s another idea — make money illegal — then no one will be allowed to carry money or they will be arrested — I hope the government makes money illegal soon.

    My children asked me why we don’t have any money, and I told them that the government has decided that good people and good children have too much money already, and so the government is working as hard as it can to get rid of money — they understood perfectly.

    This economics stuff is easy once you put your mind to it…

  2. Hey, it worked well when the Greenspan Commission did it–borrowing from pension funds to finance fiscal impropriety is the gold standard.

    Then you just need to form a Commission to address the “problem” of having to pay back those funds.

  3. New York just needs to do it one more time after this so they can have a $6 billion surplus.

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