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Opinion: City Services are Tattered, and Mayor Adams is Prepared to Make it Worse

1 Comment

  • Scott Baker
    Posted November 16, 2023 at 6:45 pm

    The author – like almost everyone – is ignoring the Fiscal Elephant in the room: the Pension funds (5 of them!). From Crain’s March 9, 2023 issue: https://www.crainsnewyork.com/politics/nycs-pension-fund-system-inefficiencies-create-growing-costs
    “Last year, the city contributed $9.6 billion to the funds, which have about $250 billion in assets. Employees contributed about $2.5 billion, according to the funds’ financial statements.”
    Then there are spiraling management costs:
    “Last month, New York City Comptroller’s Brad Lander called on the state’s Department of Financial Services to review the pension fund for schools’ non-teaching staff, where spending has grown about 170% in five years. New York City’s Board of Education Retirement System’s $35 million budget exceeds the budget of the police pension, which has almost twice the membership…More than a decade ago, former New York City mayor Michael Bloomberg and then Comptroller John Liu proposed consolidating the investment management of the five pensions into a single independent investment board. Managing money internally would save the city $1 billion a year, they said. That proposal was pulled because some unions wouldn’t be represented on the new board and individual pensions wanted to maintain control over investment decisions.”
    Together, this is well over $10 billion, more than the deficit that would accrue if current spending patterns were left in place in FY 2024.
    But savings on pension management and “catch-up” contributions when the city has a bad year, like 2022, which are inevitably paid AFTER the asset markets have bottomed and asset prices have risen again, spread over several years. This is billions of dollars and dramatically undercuts the stated ROI over long periods.
    In fact, former Comptroller Scott Stringer produced a report that showed zero ROI over a 10-year pension period ending in 2015, when he included $2.5 billion in management fees: https://comptroller.nyc.gov/newsroom/comptroller-stringer-billions-in-pension-fund-fees-paid-to-wall-street-have-failed-to-provide-value-to-taxpayers/. Then, as now, suggestions were made to consolidate the 5 pension funds. Then, as now, they were ignored.
    But again, this misses the big picture. Most pension funds, after fees and deducting employee contributions too, barely generate positive returns at all.
    The roughly $250 billion dollar question then, is: Why do we need pension funds at all?
    The pensioners are NOT the problem. They can, should and would be better off, if they were paid a guaranteed amount equal to what they get now, with equally guaranteed COLAs every year. This could be guaranteed in the City Charter, or for state pensions (another roughly $250 billion), in the state Constitution. Lawyers and unions can figure out what legally binding agreement to use.
    Then, a bunch of expensive investment managers – who, collectively, rarely beat the S&P 500 index, could be laid off. The Comptroller’s staff would shrink and he could focus on fiscal management of the city without the gross conflicts of interest that investing in commercial enterprises brings.
    Then, the pension fund could be gradually sold off, say, in 5 years. Some of that could pay down city debt, immediately raising the city’s credit rating and lowering borrowing costs, which alone could pay for the absence of whatever marginal gains the pension funds might actually make.
    The rest of the money might go to:
    – A city Public Bank ($50 billion in deposits) that would replace the loans that the decades long disappearance of small, community banks used to lend out. Underbanked does not mean undeserving, and lending to small businesses and individuals at competitive rates – and working with existing community banks – would boost employment, security and the tax base.
    – NYCHA repairs. Let’s be real. The federal government hasn’t contributed its fair share since president Reagan’s term and is unlikely to ever do so again. NYCHA can’t spend this amount all at once, but, say, $30 billion would go a long way to closing the funding gap.

    That leaves $180 billion, depending on the ROI over the ensuing five years the fund is sold down. Properly managed, the city could set itself up to never have fiscal deficits or austerity again.

    – Scott Baker,
    Senior Advisor to the Public Banking Institute,
    President, Common Ground-NYC
    CEO/Founder, RiverArch Ventures LLC

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