Time to check in on Albany. With two weeks left before the MTA Board gathers to vote on the proposed Doomsday budget, the State Senate remains deadlocked, and Senate Majority Leader Malcolm Smith, as I noted yesterday, is prepared to blow the MTA-imposed March 25 deadline.
Meanwhile, the Democrats find themselves fractured over tolls and taxes. Some NYC-based representatives oppose tolls and support a payroll tax while most of the Senators from outside the city are pushing back on the tax issue but have no problems with the tolls. It is, in other words, a typical effort by the State Senate to address a vital part of the state economy.
As part of the never-ending attempts by State Senators to find some politically feasible deal, two more Senators have proposed their own half-cooked bailout plans for the MTA. Carl Kruger, one of the men opposing tolls, wants to create a convoluted borrowing scheme. E.J. McMahon at NY Fiscal Watch doesn’t buy into this plan. Kruger’s plan would consist of:
Legislation .., enacted to create an asset management group — a public benefit trust which would then own the free bridges. This new state agency would borrow $4.25 billion through the issuing of a 30-year bond, give about $1 billion of that sum to the MTA and invest the remaining $3.25 billion with the state’s common retirement system.
McMahon’s analysis follows:
To pay debt service on $4.25 billion in bonds issued at, say, 5.25 percent, a back-of-the-envelope estimate suggests a $3.25 billion “investment” in the pension fund would need to return 8.7 percent a year. But Sen. Kruger seems unaware that the retirement fund’s “historical rate of return” is … history.
During the fiscal year ending June 30, 2008, the pension fund gained just 2.6 percent–well short of its 8 percent target rate. As of Dec. 31, the fund had lost 21 percent of its value, according to state Comptroller Thomas DiNapoli. Since then, needless to say, its asset values have plummeted further. At the rate things are going, the fund will be lucky to hold its losses to 30 percent in the current year. And the recovery outlook isn’t great: Wall Street economist Henry Kaufman is not alone in predicting returns of just 4 to 5 percent over the next five years. In that case, tax-funded employer contributions to the pension fund will be skyrocketing.
If the fund’s returns fall short of Kruger’s expectations, his bridge bonds could only be serviced by siphoning more cash from the same shrinking pension pool–which, come to think of it, means this idea probably violates the anti-impairment clause (Article V, Section 7) of the New York State Constitution.
I personally don’t feel that the MTA should be borrowing against it and the city’s future to cover its current deficit. That doesn’t seem like sound economics to me.
Meanwhile, Senate Transportation Committee Chair Martin Dilan believes that a gas tax is the cure for what ails the MTA. As Elizabeth Benjamin notes though, a one-cent gas tax would generate $24 million in revenue for the MTA. To cover a $1.2 billion budget gap, then, the state would have to impose a 50-cent tax. Somehow, I don’t think that’s politically possible.
The Senate heads back to the drawing board as the Ravitch plan remains the most equitable and most realistic plan. Hopefully, the Senate will soon realize that itself.