(Patrick and Cahill have some xplainin to do. – promoted by Rob “EaBo Clipper” Eno)
The state’s pension obligations next year are set to cost taxpayers about $900 million more than the current year, and Karyn Polito yesterday asked the Patrick administration why this information was not disclosed to investors when the Commonwealth went to market over the summer with its most recent bond sales.
Polito sent a letter to Governor Patrick on Wednesday noting that the anticipated $900 million increase in the state’s pension operating budget subsidy is much more than administration officials previously expected. In the letter, Polito questioned why financial prospectuses released by the administration over the summer projected a much smaller increase, and further requested that the administration clarify its disclosure in future bond deals. Polito also asked the Governor what plans he has to address the funding gap in the context of the $2 billion budget gap already projected for next year.
The full text of Polito’s letter follows:
October 20, 2010
Dear Governor Patrick:
According to the State House News Service (“State facing soaring pension funding gap,” October 14, 2010), the state will have to raise the pension fund operating subsidy next year from $1.4 billion in fiscal year 2011 to $2.3 billion in fiscal year 2012 to stay on a 2025 funding schedule.
A $900 million increase would have a devastating impact on the state’s already-fragile operating budget, which before this revelation was estimated to have a $2 billion structural deficit by your own Secretary of Administration and Finance, Jay Gonzalez. It is also alarming because it would create a new baseline for future years.
This increase in the pension fund appropriation is troubling. Over the summer, the state issued or refinanced over $500 million of debt and published two new official statements that did not disclose this information. However, despite noting in a table that official forecasts of a $1.5 billion pension subsidy were subject to a new schedule that was being worked on, the administration did not make any other suggestion of the potential significance of the increase. I would have expected that at least the table would have been flagged to investors as out-of-date, and that the administration was projecting a $800-$900 million increase in fiscal year 2012 and beyond.
Having initially failed to disclose the impact that the loss of assets will have on the pension fund and future funding schedules, you have now apparently instructed the Secretary of Administration and Finance to form a task force to begin developing strategies and recommendations for a new triennial schedule to be adopted for fiscal year 2012. I’m concerned that your re-election campaign is causing you to put off discussion of this topic until after the November 2 election.
I think it is important for the public and investors to have confidence that they are getting the whole fiscal picture from their Governor and state government. I am deeply concerned that state government act in a manner that is fully transparent and which completely discloses material information to the public. Therefore, I am formally requesting that you address this issue in your disclosure to investors whenever our state next borrows money. And, more importantly to taxpayers, I request that you immediately inform the public of your recommendations to deal with this pension fund issue and its effect on the fiscal year 2012 budget.
This issue was also the subject of a story in the Boston Herald today: “Budget-buster pensions”.