By Briana Vannozzi
Correspondent
With $44 billion in pension debts, lawmakers are getting creative with methods for funding. Senate President Steve Sweeney has a plan. It’s partisan legislation allowing the newly replenished Transportation Trust Fund to sell bonds directly to the the state pension fund.
What does that mean? Instead of bonding to a hedge fund or in a private investment, the TTF will borrow from — and pay interest to — the state pension fund.
“This is a safe bet. This is not a risk and we don’t want to risk people’s pension funds,” Sweeney said. “But we also want to take advantage of the fact that if we go out and bond right now, the TTF, someone’s going to buy it and we’re going to pay them we figure 5 percent. So why pay someone else 5 percent when we can pay ourselves?”
Right now there’s a cap on investments — the state can’t own more than 10 percent of any single bond sale. The bill lifts that limitation for TTF investments only and, according to Sweeney, cuts down on underwriting fees. The state investment council recently cracked down on investments with hedge funds and other alternative trusts.
“We are guaranteeing a rate of return for our pension system, while avoiding fees,” said Sen. Dawn Addiego.
Sweeney admits it won’t be a cash windfall.
If the TTF borrows $1.2 billion as expected, at an interest rate of 5 percent, that generates about $60 million annually.
“It’s not a lot of money but every penny you can squeeze is a lot of money to put the pension back into fiscal health,” Sweeney said.
“The bottom line is we should be doing everything we can to strengthen our pension fund and our Transportation Trust Fund. In this instance I think we can do both,” said Assemblyman Adam Taliaferro.
Investment expert and Seton Hall Professor Scott Rothbort says it’s another Band-Aid on a system that needs to be completely revamped.
“What really needs to be done is that an entire review of the pension fund and probably resorting to get out of these non-traditional assets. A lot of these are hedge funds, and hedge funds under perform dramatically and their fees are extremely high. You really need to put the money back into traditional money management where you just buy stocks and bonds and maybe even index to the market,” he said.
Sweeney says the repayment is guaranteed thanks to the new gas tax. He’s also anticipating the governor will sign a proposal that breaks pension payments up quarterly instead of one lump sum at the end of the fiscal year.
“It’s the state investment council’s decision, at the end of the day. It’s just that you don’t want to put handcuffs on them when they have opportunities to make investments that could help them with their assumption rate,” Sweeney said.
The bill is more of a tool for the investment council — should it pass and should they want to use it. We reached out to several of the state worker unions for their response.