New York Eyes Pension Fund To Increase School Aid

By Michael Newman — May 16, 1990 3 min read

Despite strong opposition from teachers’ unions, New York State officials last week were looking to the state teachers’ pension fund to help increase aid to the schools.

State leaders have proposed reducing the state’s contribution to the fund and giving the resulting windfall--estimated to be between $300 million and $470 million--to the schools.

Lawmakers, educators, and aides to Gov. Mario M. Cuomo were still negotiating details of the plan late last week. But it appeared likely that it would be part of a larger strategy aimed at erasing the state’s projected $4-billion budget shortfall.

As of last week, the proposal called for the pension-contribution savings in effect to be given to schools in addition to their state-aid payments. Governor Cuomo has proposed a $240-million increase in state aid to schools, which would be substantially less than the average annual increase of recent years.

The legislature is expected, however, to approve a state-aid increase of about $300 million, sources said.

Teachers’ groups criticized the pension proposal. “We’re opposed to this,” said Connie Eno, president of the National Education Association-New York. “If the state lowers its contribution rate, it will make it more difficult to increase benefits.”

Ms. Eno also said some districts might not funnel the money to the schools, but instead use it to reduce local tax rates.

But other educators said they thought the plan was a viable option for a state in difficult fiscal straits.

“This is more money for schools, and in a way that won’t hurt the system at all,” said Lou Grumet, executive director of the New York State School Boards Association.

“We don’t do this every year, and I don’t think we should,” Mr. Grumet said. “But without [money from the pension fund], this year’s increase in state aid will be the lowest it’s been in years, and that would cause a lot of districts very serious problems.”

The state would reduce its contribution by increasing the “interest-rate assumption” for the pension fund. The state currently assumes that the fund earns a 7.5 percent return on its investments. Officials want to raise that rate to 8 percent.

The teachers’ pension fund earned a return of about 10.5 percent last year, according to state analysts.

“It’s a very well-run system,” said Mr. Grumet. But its managers “may be a little overcautious,” he said, in asking the state to assume such a low rate of return.

But some experts said that public pension funds historically have earned far less than New York’s.

“I think there should be a caveat of caution here,” said Cathie Eitelberg, a lobbyist with the Government Finance Officers Association.

“You can’t just look back at the last 10 years,” she said. “If you go back 60 years, you’ll find that the average is about 5 percent for pension earnings in general.”

New York City’s Concern

Educators and lawmakers from New York City have expressed a different concern. The city has its own teachers’ pension fund.

Technically, contributions to the state pension fund are allocated through districts. By changing the interest-rate assumption, the proposal would allow the districts to use for programs money that would have otherwise been deposited in the pension fund.

Since New York City has a separate system, however, its schools would not benefit from the change.

But city lawmakers and educators argue that their fiscally pressed system also needs additional aid.

City teachers--who last year agreed to a reduction in the city’s contribution to their pension fund--said they were concerned that the city receive its “fair share” of aid.

Susan Amlung, a spokesman for the United Federation of Teachers, said union officials were lobbying for additional state aid.

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A version of this article appeared in the May 16, 1990 edition of Education Week as New York Eyes Pension Fund To Increase School Aid