New York pension fund does not need a federal bailout

Some conservative federal lawmakers continue to oppose sending more money to New York and other states hard-hit by the new coronavirus. 

The chairman of the House Freedom Caucus, Rep. Andy Biggs, R-Ariz., and some of his colleagues sent a letter to President Donald Trump. More federal funding for states forces citizens of one state "to pay for the poor decisions made in another state," Biggs wrote, according to a story about the letter in The Hill. 

"States like New York, Illinois and California have been vocal in their demands for funding to bail out their pension systems, which were failing long before the COVID-19 outbreak, and other programs that aren’t related to this crisis. While these states in particular prove the negative impacts of poor budgeting, bloated spending, and high taxes, the federal government should not be further backfilling the budget of any state or local government," Biggs wrote, according to The Hill. Biggs shared the story on his Facebook and Twitter accounts. 

Like Biggs, other Republican politicians, including Senate Majority Leader Mitch McConnell and Sen. Rick Scott of Florida, criticized requests for help from states with high rates of infection. We wondered if Biggs was correct in saying that New York has been demanding federal funding to "bail out" its pension system, which was "failing long before the COVID-19 outbreak, and other programs that aren’t related to this crisis." 

The National Governors Association, a bipartisan organization, is calling for $500 billion in federal funding for states, and New York supports that request, said Freeman Klopott, press officer for the state Division of the Budget.  

Biggs said New York’s pension system was "failing long before the COVID-19 outbreak." 

An analysis of the pension systems in all 50 states in 2017 by the nonpartisan Pew Charitable Trusts, released in June, found that New York was one of only eight states that had at least 90% of its pension obligations funded. New York had assets to cover 94.5% of its pension obligations.

E.J. McMahon, who analyzes state finances at the conservative Empire Center for Public Policy, said no bailout is needed for New York’s pension system, "which by public-sector standards is among the best-funded in the nation."   

New York State Comptroller Thomas DiNapoli, who oversees the pension fund, has called the fund "well-funded and strong," despite the economic disruptions related to the pandemic.

DiNapoli said in a statement that a bailout is not needed and has not been requested. 

The pension systems in other states Biggs mentioned, Illinois and California, have different situations. Illinois has one of the three worst-funded systems, at 38.4% funded, and officials there have asked for a bailout of the pension fund. 

California's is close to being funded at the average ratio of all the states, at 68.9%, according to Pew, but it has since suffered. Biggs' home state of Arizona trails New York and California, at 62.2%, according to Pew. 

We were also interested in the second part of Biggs’ claim, regarding "other programs not related to this crisis," because of reports that New York’s finances were precarious before the pandemic. According to the nonpartisan Citizens Budget Commission, before the coronavirus, New York faced a $7 billion budget gap. The subsequent economic downturn has worsened the state’s finances.  

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"The shortfalls the state is experiencing in the current year are caused by tax revenue shortfalls attributable to the current crisis," said Dave Friedfel, director of state studies at the Citizens Budget Commission. Friedfel, however, criticized some of the state’s budget priorities, which pre-date the pandemic, including state aid to wealthy school districts, "ineffective economic development programs," and spending more on Medicaid than the budget authorized. 

Before the pandemic, the state was expecting a 7% increase in revenue, but now it is expecting a 14% decline in revenue, said Klopott of the state Division of Budget. 

A state estimate on April 25 puts the loss of revenues at $13.3 billion this year and $61 billion over the next four years. 

"In the absence of federal funding to offset that loss, we’re preparing a plan to reduce state spending by $10.1 billion, which will reduce support for hospitals, police, firefighters, teachers, and the not-for-profits that provide services to the most vulnerable New Yorkers, including the elderly, children, and the homeless," Klopott said. 

In an op-ed for the New York Daily News, DiNapoli pleaded for billions in unrestricted aid for New York, writing that lost state revenue as a result of the state’s weakened economy "stands to trigger significant reductions to schools, hospitals and a broad range of other vital services — cuts that would add to the human and economic damage brought on by COVID-19." 

Other experts we consulted said that states' financial struggles are attributable to the current crisis. 

Lucy Dadayan, who leads the nonpartisan State Tax and Economic Review Project at the Urban-Brookings Tax Policy Center at the Urban Institute, said that all states, regardless of the affiliations of their political leadership, will need federal funds, because all states are affected by lost tax revenue due to closed businesses. 

Richard Auxier, also with the Urban Institute-Tax Policy Center, said state and federal governments turned off the economy, cutting revenues to pay for everything that states pay for, such as public health, education, police protection, and roads and bridges. 

We reached out to Biggs’ spokesperson to ask for evidence to support this claim three times through email and left a telephone message with his office. We did not receive a response. 

Biggs said that New York was one of several states demanding federal funds to bail out pension funds. He also claimed that New York and other states want federal funds to pay for programs not related to the pandemic. 

New York’s pension fund was one of the strongest in the country, according to a nonpartisan, nationwide analysis published in 2019, before the crisis hit state budgets. The New York state comptroller said that the pension system has not requested federal funds. 

The other part of Biggs’ statement – that the funding will pay for programs not related to the pandemic – is correct but misleading. The tax receipts that fund the full range of state governments have been sharply reduced by the pandemic. The federal funding sought by states would partly offset those pandemic losses.

We rate this claim False.