Cuomo Budget Calls for New Pension Tier, Partial State Medicaid Takeover

Local governments and school districts can expect to see some big reforms in their biggest state mandates under Gov. Andrew Cuomo's proposed budget.

Cuomo, a New Castle resident, unveiled his 2012-13 budget proposal on Tuesday. The major mandate relief components include tackling the employee pension system, which is a significant cost driver in local property taxes. Under his budget, which requires state legislature approval, a Tier VI would be implemented for new hires that is projected to save $79 million over the next 30 years. The new tier would raise the retirement age, remove overtime as a factor in calculating payments to retired employees and create an optional defined contribution alternative similar to a 401(k) plan. The later has long been called for by local officials who view the current defined benefit system as costly to property taxpayers and financially unsustainable.

"The defined contribution option offers a portability and vesting feature not currently available, and requires both employees and employers to share in the risks and rewards of market volatility," the budget statement reads.

Cuomo, in his address, noted that SUNY college professors already have this option, and emphasized the portability and quicker vesting of a defined contribution plan.

“Why wouldn’t you want to give the person the option?” Cuomo was recorded as asking in his address.

The proposed changes, however, won't necessarily bring major savings immediately because they don't affect current employees. The pension reforms are more likely to benefit municipalites, school districts and counties in the long run as employees with the older tiers gradually leave.

Counties could see a second major cost reduction with Cuomo's proposed state takeover of their Medicaid cost growth. Under the budget, there will be a phaseout period, with counties seeing their growth in Medicaid costs reduced to two percent for 2013-14, with one-percent reductions from that point on until 2015, when the state's assumption will be complete. Currently, counties pay up to a three percent in the annual growth rate.

The budget notes that such a takeover will create economies of scale. Savings are projected to be $1.2 billion over the state's next five fiscal years.

Cuomo stopped short of calling for a complete state takeover of the counties' share, noting that the state can't afford to do so. In total, it's about $8 billion for the counties' portion," he said.

Schools will see additional mandate relief in areas of special education. They include changing the early intervention program for kids with severe disabilities through program changes and fixing local reimbursement to save $99 million over the next five years.

On the other hand, Cuomo called for a more stringent evaluation system in order to avoid be possible revocation of roughly $700 million in federal Race to the Top funds. School districts that fail to comply could see their state aid limited.

“If we are serious about education, we really have no choice," Cuomo was recorded as saying in his address.

During his Tuesday State of the State address in Albany, Cuomo unveiled his proposal and noted that spending growth has flatlined. This year, his budget calls for spending $132.5 billion, slightly down from $132.7 billion last year and $134.8 billion two years ago.

Cuomo noted in his speech that this is done without new taxes, fees or asset sales.

“It’s not a cracker jack box," he was recorded as saying. "You’re not going to find anything at the bottom of it.”

For more details, check out the copy of the budget summary, which is here on Cuomo's website.