The passage of a 2 percent cap on local property-tax growth in New York should have been the crowning achievement of Gov. Cuomo’s first legislative session — complementing an austere budget to set a more fiscally responsible tone for the Empire State.
But even before the tax cap finally came to a vote in Albany yesterday, the Legislature was making a mockery of the governor’s objectives. Lawmakers approved a bill that would allow school districts to borrow money to cover a portion of their growing teacher-retirement costs — the same costs that will be partially excluded from the tax cap, under a concession Cuomo made last month to secure the support of Assembly Speaker Sheldon Silver.
School boards opting to bond out their teacher-pension contributions could thus have it both ways. They could stretch a coming “spike” of pension costs into 15 years of installment debt — which, unlike other forms of school borrowing, wouldn’t require voter approval. Meanwhile, thanks to Silver’s partial exclusion, they could squeeze taxpayers for bigger property-tax increases (in some cases, much bigger) than Cuomo’s original bill would’ve allowed.
The net result: less pressure for contract concessions from members of New York teacher unions, who are constitutionally shielded from being directly required to share in the rising cost of their generous retirement benefits.
Small wonder, then, that the bill had strong support from the New York State United Teachers. In fact, the measure was drafted and introduced at NYSUT’s behest more than two months ago, but stealthily lurked in legislative committees until the final days of the legislative session, when the union’s friends in the Senate Republican conference swiftly moved it to a vote late Thursday.
Cuomo has ample reason to veto the bill — and not just because it runs counter to the intent of his cap. Permitting schools to bond out pension costs would also amount to a classic New York fiscal abuse — converting an operating expense into debt, compounding future financial risks for the same already overburdened taxpayers the governor has sworn to help.
If the coming increase in tax-funded teacher-pension contributions was truly just a two- or three-year blip on an otherwise smooth and predictable path, as the bill’s supporters implied, a borrowing option for districts might actually be defensible. But in the wake of the pension fund’s massive losses during the 2007-09 bear market, tax-funded contributions to the New York State Teachers Retirement System haven’t even risen halfway up a very steep slope that is likely to peak at more than twice its current level no earlier than 2016.
Districts issuing pension bonds would push a growing expense into the middle of the 2020s, gambling (with taxpayers’ money) that taxpayer-contribution rates will fall sharply in a few more years. For that to happen, however, returns on pension-fund asset will need to exceed the fund’s already optimistic 8 percent yearly target through out the next decade.
Meanwhile, by the time their borrowed money is exhausted in 2014, districts that have borrowed to cover pension increases will have fallen even further behind in meeting their actual current pension expenses.
That is, the bonding option could easily become “a millstone rather than a life raft,” as state Assemblyman Jim Hayes (R-Amherst) put it in yesterday’s floor debate on the bill.
So now the spotlight turns to Cuomo. For the moment, his tax-cap triumph has been tarnished by the Legislature’s end-of-session union pandering. The governor needs to let lawmakers know that he’ll reject the pension bonding bill as soon as it arrives on his desk, whenever that might be.
And he’d better keep his veto pen sharp, because there’s plenty more where this came from. Attempts to undermine what is destined to become known as the Cuomo Tax Cap will now become a virtually permanent feature of the legislative process. The sooner the governor makes it clear he won’t play this game, the better.
E.J. McMahon is a senior fellow at the Manhattan Institute’s Empire Center for New York State Policy.