New York Municipalities Borrow $200 Million From State’s Pension System - Bloomberg

 Borrowing money from the pension plan to pay for today's expenses sounds like a great fiscal policy. What could possible go wrong?

New York's local governments have borrowed about $200 million this year from the state’s retirement fund, $156 million more than last year, when the program to spread out pension costs was implemented. 

About 165 of more than 3,000 local governments, school districts and agencies opted into the program, which requires that they pay interest to the $140.3 billion fund on the deferred portion of their pension payments, Eric Sumberg, a spokesman for Comptroller Thomas DiNapoli, said in an e-mail today. The state also plans to use IOUs for at least $562.9 million as part of the program this year, Sumberg said. 

“While the state’s pension fund is one of the strongest performers in the country, costs have increased due to the Wall Street meltdown in 2008-2009,” DiNapoli, a 58-year-old Democrat, said in a statement. “Amortizing pension costs is an option for some local governments to manage cash flow and to budget for long-term pension costs in good times and bad times.” 

New York’s retirement fund, the third-biggest U.S. public pension, had 101.5 percent of the money needed to pay its obligations in 2010, better than any other state, according to an annual study by Bloomberg Rankings. To keep it funded after losses incurred in the financial crisis, the system has increased the payments made by local governments.

Rising Costs

By 2015, 35 percent of local budgets will be consumed by pension costs, up from 3 percent in 2001, Governor Andrew Cuomo said yesterday at a meeting of the New York State Conference of Mayors and Municipal Officials in Albany, the capital. 

Under similar circumstances, other states, including Illinois, have issued bonds to fund their retirement plans.

New York Municipalities Borrow $200 Million From State’s Pension System - Bloomberg