Economic Laws, Pensions And Gravity Lead Andrew Cuomo To A Hard Fall

From Arithmetic for the Economically Challenged Idiots:

First, the rose colored government accounting system: 
     A report in the August issue of Governing, called New York State, the nationwide pension leader with Pension liability: $141 billion; Percent funded: 107.38%; Employees in Pension Plans: 1,343,524.
Compared to California's  Pension liability: $454 billion; Percent funded: 86.89%; Employees in Pension Plans: 1,995,169   But, Government Accounting Rules allow state pension plans to calculate their obligations using an assumed long-term yield of 8%.

Second, the law of economic reality, which like law of gravity cannot be ignored:

Economic reality:
     1. what safe investments earn 8% return in  our present economy?
     2. Pension plans -- including California, New York and Florida -- invest some of their pension funds in BP stock,
     3. Guess what?    NY Comptroller Di Napoli will reduce his hope to earn 8% percent a year to 7.5%.  Except for  Madoff, who guarantees a 7.5 percent rate of return?  Or 7 percent?  Or 6 percent?  No junk bonds allowed.   NY's real rate of return was less than 4% for ten years.
     4.  Comptroller Thomas DiNapoli proposes for the state government and local governments a  pension “amortization” (i.e., borrowing) plan where the 7.5% rate won’t necessarily affect annual pension fund contributions, because they can borrow their higher payments from the pension fund. Only the Government could imagine being able to use your credit card to charge your credit card payment.
     5. And it gets better, "after a decade in which the New York State pension fund’s annual return on assets averaged less than half its [8%]target rate, the fund will need to jack up its taxpayer-funded contribution rates next year, Comptroller Thomas DiNapoli announced today."  That's you, the taxpayer, paying a 42% rise in your share (11.5% to 16.3%)  See * below for changing the rate from 7.5% to 2.5% that would need a 420% increase in the taxpayer share.


 Third, a Cuomo cheerleader, the NY Times, agrees and had  "How to Cheat a Retirement Fund", an "approach that assumes, as economists generally do, that even corporate accounting standards in this area are too lenient, public pension underfunding is about $3.5 trillion, or one-quarter of gross domestic product."


  Fourth, from Arithmetic for the Economically Challenged Idiots,  here's the advice a parent must give a child who believes in a 7.5% safe return on investments, in maintaining the value of his BP stock investments, and asks whether you should make your credit card payment with your credit card.    The answer: Tough love; First, No; then a good Cry; then Stop Spending.

  Fifth,  Economic real world thinking: "Private pension plans must discount their liabilities based on a market rate—typically, a corporate or U.S. government bond rate—which is often much lower than the plans’ projected returns." 
*Return US Treasury: 10-MONTH NOTE 10-15-2010 2.475%
  There appears to be a large difference between 2.475% and 7.5% and DiNapoli's assumed drop from 8% to 7.5%.


  Finally, "New York’s state budget gap for 2011-12, the first year of the next gubernatorial administration, is now projected at nearly $8.2 billion[up from $5.4 predicted earlier]" and that doesn't include the corrections reported above. 
   Sorry, Andrew and Thomas (DiNapoli), using the laws of Economic Arithmetic or the law of gravity equals a hard fall.
You're Bankrupt, your game is over.