Governor Cuomo: Fiscal Hero or Grandstander?

It's been a wrenching budget season for both the Scarsdale Schools and Village – with administrators making painful decisions about what to cut ... and risking public censure if they dare to propose adding enhancements that will further increase the budget.

Our leadership has been backed into a corner, trying to continue to provide the first rate education that brought most of us to Scarsdale as well as the excellent municipal services that we used to take for granted but now hold dear. Could it really come to pass that we will no longer have our garbage picked up? Will we now pay for water as well as a sewer fee for what's flushed out? Will there continue to be fireworks on the fourth of July? At school we're praying that our kids are not the ones to end up in the oversubscribed classes or find themselves eating lunch on the floor due to overcrowding in the cafeteria.

Residents are pointing fingers at administrators, board members, managers and each other. As Village Manager Al Gatta said, "everyone wants everything and no one wants to pay for it."

Sitting through these disturbing public budget forums I realized that we should stop putting the blame on our leaders in Scarsdale and direct it north to Albany where the blame is due.

Last year, our Governor won kudos when he passed a 2% tax cap, promising to bring relief to taxpayers. To some Westchester County residents, who have the honor of paying the highest taxes in the country, this was welcome news. They hoped that the village, the schools and the county would tighten their belts and pass the savings along to residents.

And they have tightened their belts, and squeezed the skin underneath.

In fact, the only group that failed to trim their costs was New York State, the same legislators who passed the tax cap. Rather than cut back on their budgets, they mandated wild increases in pension and retirement costs for municipal employees, and school personnel making a 2% tax increase laughable. Cuomo promised pension reform but failed to deliver. The state is requiring municipalities and school districts to make up for investment losses in the pension fund, asking for increases that far outstripped the 2% cap. In addition, Cuomo failed to negotiate with the unions to ask for increased employee contributions to the fund and for defined contribution plans rather than a defined benefit plans that guarantees employees a set payout despite the ups and downs of the market.

Cuomo has failed to take the unions on and passed the buck to local administrators and managers to make them look like inefficient spendthrifts.

How big are these increases in pension and retirement fund contributions? In both the Scarsdale Village and Scarsdale School budgets, these increases assume the lion's share of budget growth:

In the budget for the Scarsdale Schools, payment for the Teacher's Retirement Fund is estimated to go from $7,418,899 in 2012-13 to $12,173,493 in 2013-14, an increase of 64.09%. The Employee's Retirement contribution will leap from $2,538,377 to $4,013,220 or 58.10%. These increases account for 80% of the projected growth in the proposed $146,000,000 school budget.

At the Village, in the last four years from 2010-2011 to 2013-2014, the Village pension contribution has grown from $2,219,916 to a projected $4,827,665 for 2013-2014, or an astronomical 117.5%

In March 2012 the state did pass regulations for new employees that require them to contribute from 3% - 6% of their salary to their retirement fund and increased the retirement age from 62 to 63. It also reduced retirement benefits for those retiring before age 63. However, this did nothing to change the pension contributions for current employees so it will be decades before this new legislation has a significant impact.

We ask Assistant School Superintendent Linda Purvis if teachers and staff contribute to their pensions and here is her explanation:

"Some teachers and staff contribute; the majority do not. It depends on when you joined the systems. If you have less than 10 years of membership in the two retirement systems (teachers and employees) and are in Tiers III and IV (the largest tier) then you contribute 3% of your salary. Once your 10-year membership anniversary occurs (i.e., you joined September 1, 1998, and it is now September 1, 2008) you stop contributing. (A very generous gift from Governor Pataki and the NYS Legislature, as the original requirements of Tiers 3 and 4 were that the 3% contribution continued for the duration of employment.).) People hired before 1975 have never contributed anything towards the pensions, but those employees are mostly retired at this point. Recent hires may be members of the new tiers (5 and 6) and they contribute up to 6% of their pay (sliding scale) and have less generous pensions.

We also asked Scarsdale Village Manager Al Gatta whether the Governor has the power to force the unions to change the terms of their pension agreements to require current employees to contribute to their pensions. He said, "The question is whether it can be negotiated. When the 3% employee contribution was eliminated it was done by the Comptroller unilaterally and many people including myself were surprised because there was no reason for it. Thus the theory with some people, including me, is that the Comptroller can reinstitute it. Others believe that once the 3% relief was granted it has now become a constitutional issue as to whether it can be taken away."

In addition the state offers a defined benefit plan that guarantees a specific payout at to retirees despite the ups and downs of the market. Most private employers offer a defined contribution plan where the employee directs their investments in their retirement fund and benefits vary depending on the market.

We asked Purvis for her take on what could be done to solve the problem and here is what she said:

"I believe that in an ideal world every employee who belongs to these systems should contribute from their paycheck, as these plans provide a rich benefit. (Membership in the systems is mandatory for full-time employees.) Discontinuing the 3% contribution for Tiers 3 and 4 after 10 years was irresponsible, to say the least. It left employers shouldering the full impact of cyclical fluctuations in the financial markets. Ideally that contribution would be reinstated. Even better would be contributions that were adjusted annually just as employer contributions are. Currently I don't think that is possible under state law, but it's what makes sense.

Recent hires (Tier 6) as noted above contribute more, and have less generous pensions. The impact of this change will ultimately be substantial, but won't be felt by employers for a while.

Defined contribution plans are a popular idea and they would certainly stabilize employer costs. But I am very concerned at the idea of allowing employees who may know nothing about investments to manage what will be, at the end of their working years, a sizable amount of money that they will live on for the rest of their lives. Wall Street will sell them products of dubious value and/or charge them substantial fees to manage their funds. (We already see that happen with 403b plans and our employees.) So these plans can make employees vulnerable. A defined contribution option was added to Tier VI for higher-salaried employees, but it is not mandatory.

I think the key to managing the defined benefit plans is not to discontinue them but to share the pain more equitably between employers and employees. Individual school districts cannot change the way the plans work - we are charged based on a statewide rate - but that is something that should be taken up at the state level."

This year the 2013 state budget included no pension reform. When asked about the issue on March 8, 2013, Cuomo's response was nonsensical. He said, ""By definition, the unions don't want a reform that would diminish pension benefits, so the answer's always going to be, 'No.'"

Is Cuomo shying away from taking on the unions as it risks his political future or does he really have no more chips to trade with the unions?

In my view, rather than pressure our local officials to make even deeper cuts to our local budgets, let's put the pressure on Governor Cuomo. He owes it to the taxpayers to take on the unions and break this impasse. It's time for Cuomo to trade in some of his chips rather than put our local municipalities and schools in jeopardy.