ATTORNEY GENERAL CUOMO'S "PENSION PADDING" INVESTIGATION EXPANDS WITH LETTERS TO 25 LOCALITIES ACROSS NYS
Investigation Aimed at Artificial Inflation of Compensation to Boost Pension Payout
Yesterday, Attorney General Andrew M. Cuomo announced that his investigation into the manipulation of salary and overtime payments that leads to inflated pensions at the expense of taxpayers, known as "pension padding" or "pension spiking," has expanded to include more than two dozen additional localities across New York state.
Cuomo, whose investigation into pension padding commenced in March, is sending letters to 25 additional entities that have some of the highest proportions of pension costs in the state. The letters seek payroll and related data for pension recipients from localities in Western New York, Rochester and surrounding areas, Central New York, the Southern Tier and the Capital Region. A full list of the 64 localities that have received letters thus far can be found below.
"As the state and nation are gripped by the current economic crisis, we must make sure that taxpayers are not saddled with any artificially inflated bills," said Attorney General Cuomo. "My office will continue our efforts to ensure that our pension system, which controls $130 billion and serves more than 1 million people across the state, is efficient and waste-free."
According to recent census data, New York State had an overall pension cost of $486 per resident in 2007, which was the highest in the nation. The New York State Common Retirement Fund ("CRF"), which funds the Employees' Retirement System ("ERS") and the Police & Fire Retirement System ("PFRS"), has assets of approximately $130 billion and covers more than 1 million members and retirees from more than 3,000 government employers. The CRF is primarily funded by taxpayers who pay an estimated $2.5 billion to the fund each year.
Pension payments to retirees in ERS and PFRS have increased from $3.5 billion in 1999 to more than $7.3 billion in 2009. New Yorkers end up bearing the burden caused by excesses in pensions through increases in their property taxes. New Yorkers already face some of the highest property taxes in the nation. Although pension costs typically make up only about 2 percent of expenditures in cities, towns, counties, and villages, in certain localities pension costs represent over 7 percent of expenditures.
In light of these rising pension costs, state and local employers will be required to make significantly higher contributions to fund the state pension system starting in 2011. For public employers participating in ERS, their mandated contributions will increase from 7.4 percent of payroll to 11.9 percent of payroll; for those participating in PFRS the costs will go from 15.1 percent to 18.2 percent.
There is currently a striking variance in levels of retirement benefits paid across the State. The average annual public pension payment in New York State is approximately $25,000, but pensions paid to some individual retirees top $300,000 per year and some retirees end up receiving more in pension than they received in salary.
Some examples of inflated salaries that can lead to inflated pensions include:
- A water department worker took in more than $30,000 in overtime and extra pay in addition to his $40,000 salary for a total salary of almost $74,000.
- A county animal control officer took in more than $19,000 in overtime in addition to his $38,000 salary for a total salary of more than $57,000.
- A police officer earning a base salary of $74,000 took in $125,277 in overtime in his final year, bringing his total income to almost $200,000. Based on this inflated final year's salary, he then received a $101,333 annual pension.
- A sanitary district official saw his annual salary increase from approximately $150,000 to over $200,000 through raises, bonuses, and special payments.
Boosting a final salary has compounding effects on a pension because it increases the ultimate, repeated payouts over the pension's term. For example, if a public employee with 20 years of service and an expected 20-year payout period gets an average salary inflation of $50,000 in overtime in the final years of employment, that adjusted pension could cost taxpayers as much as an additional $500,000.
Furthermore, if merely 1 percent of the pension costs in 2009 were improperly inflated by pension padding, elimination of those practices could potentially save taxpayers close to $500 million over twenty years.
New York State Association of Counties Executive Director Stephen Acquario said, "Attorney General Cuomo's pursuit of pension padding is an endeavor that will ultimately help taxpayers. It's no secret that property taxes are a heavy burden for families across the state. That is why we must remain vigilant to make sure that taxpayer-funded expenses are fully vetted and scrutinized. This is a tough issue that has been discussed for years, and I applaud Attorney General Cuomo for taking it on."
Broome County Executive Barbara Fiala said, "We are eager to work with Attorney General Cuomo's Office in his effort to find a solution to protect taxpayers from paying for pensions that are grossly inflated. While we believe that public employees are deserving of fair compensation for their hard work, we must also protect the taxpayers who contribute significantly to these payouts, as their hard-earned dollars are equally important."
Erie County Controller Mark Poloncarz said, "As Erie County Comptroller, it is my responsibility to root out waste, fraud and abuse on the county level, and Attorney General Cuomo's pension investigation initiative will do the same all across New York State. His investigation will shed light onto a problem that has been on the back burner for too long and help us determine whether any improper pension-padding practices are adding costs to the pension system and to our taxpayers. I am pleased to join him today and support his investigation."
Rochester Mayor Robert Duffy said, "Attorney General Cuomo has shown a real commitment to helping residents and taxpayers who are already feeling the pinch of an economic downturn. The City of Rochester will continue to partner with the Attorney General's Office to identify problems and create solutions that provide relief for taxpayers."
Syracuse Mayor Stephanie Miner said, "I am proud to partner with Attorney General Cuomo to help identify ways to protect taxpayers while making sure that pensions for public employees are paid in a fair and just manner. Attorney General Cuomo's investigation will shed light onto a problem that has been on the back burner for too long and help us determine whether any improper practices are adding costs to the pension system."
Curbing all types of pension abuse and manipulation is a top priority for Attorney General Cuomo. One ongoing investigation conducted over the past three years with respect to the CRF has led to a number of criminal charges to date, including charges against political advisor Henry "Hank" Morris, former CRF Chief Investment Officer David Loglisci, former Liberal Party Chair Raymond B. Harding, and investment advisor Saul Meyer. Loglisci, Meyer, Harding, hedge fund manager Barrett Wissman, and unlicensed placement agent Julio Ramirez, Jr. have pled guilty to Martin Act securities fraud charges for conduct related to the pension fund. Elliott Broidy, a venture capital fund manager, pled guilty to charges of rewarding official misconduct arising from his role in the pension fund investigation. Morris is presumed innocent until he is proven guilty in court.
To date, eleven investment firms have agreed to sign the Attorney General's Public Pension Fund Reform Code of Conduct to resolve their roles in the Attorney General's investigation into pay-to-play practices involving the CRF. Those firms are: The Carlyle Group; Riverstone Holdings LLC; Pacific Corporate Group Holdings, LLC; HM Capital Partners I; Levine Leichtman Capital Partners; Access Capital Partners; Falconhead Capital; Markstone Capital Group LLC; Wetherly Capital Group; Freeman Spogli & Co.; and Ares Management, LLC. The firms have agreed to return over $90 million to the CRF. Payments from individuals bring that total to over $120 million for the CRF and New York State. Cuomo also issued subpoenas in May 2009 to investment firms and their agents after his investigation found that 40 to 50 percent of agents obtaining investments from New York pension funds were unregistered.
In a separate ongoing investigation, Attorney General Cuomo uncovered abuses by independent contractors throughout the state who defrauded the pension system by holding themselves out as public employees entitled to pension benefits, resulting in the return of over $1.9 million to taxpayers through actions involving the conduct of more than 70 attorneys and other professionals. As a permanent fix, the Attorney General spearheaded legislative reform to curb pension fraud and rein in double-dipping. Another investigation explored abuses of federal disability benefits by Long Island Rail Road retirees.
The Attorney General's pension padding investigation is being conducted by Assistant Attorneys General Lauren Ellis, Renée Jarusinsky, Jessica Silver, and Director of Economics Kitty Kay Chan, under the supervision of Deputy Bureau Chief Monica Stamm of the Public Integrity Bureau and Special Deputy Attorney General for Public Integrity Ellen Nachtigall Biben.
The Attorney General's office urges individuals with knowledge of any questionable pension padding practices to contact the Attorney General's Public Integrity Bureau by telephone at 212-416-8090 or by e-mail at public.integrity@ag.ny.gov
Letters sent April 1
• Town of Cheektowaga (Erie)
• Town of Lancaster (Erie)
• Town of Tonawanda (Erie)
• Town of West Seneca (Erie)
• Town of Ellicott (Chautauqua)
• City of North Tonawanda (Niagara)
• City of Dunkirk (Chautauqua)
• City of Buffalo (Erie)
• City of Olean (Cattaraugus)
• Village of Depew (Erie)
• Village of Kenmore (Erie)
• St. Paul Boulevard Fire District (Monroe)
• Henrietta Fire District (Monroe)
• Ridge Road Fire District (Monroe)
• City of Rochester (Monroe)
• Town of Laurens (Otsego)
• Town of Pittsfield (Otsego)
• City of Cortland (Cortland)
• Village of Herkimer (Herkimer)
• City of Syracuse (Onondaga)
• City of Norwich (Chenango)
• City of Binghamton (Broome)
• City of Cohoes (Albany )
• City of Schenectady (Schenectady)
• City of Watervliet (Albany)
Letters sent March 24
• Westchester County (Westchester)
• City of Yonkers (Westchester)
• Town of Clarkstown (Rockland)
• Town of Orangetown (Rockland)
• Town of Ramapo (Rockland)
• County of Rockland (Rockland)
• Fairview Fire District (Westchester)
• Greenville Fire District (Westchester)
• Hartsdale Fire District Commission (Westchester)
• Town of Stony Point (Rockland)
• Westchester Health Care Corporation (Westchester)
Letters sent March 18
• Nassau County (Nassau)
• Suffolk County (Suffolk)
• City of Glen Cove (Nassau)
• Village of Old Westbury (Nassau)
• Village of Hempstead (Nassau)
• Lewis County (Lewis)
• Village of Lynbrook (Nassau)
• Fairview Fire District (Dutchess)
• Town of Massena (St. Lawrence)
• Saratoga County (Saratoga)
• Ulster County (Ulster)
• Putnam County (Putnam)
• Steuben County (Steuben)
• Wyoming County (Wyoming)
• Broome County (Broome)
• City of Utica (Oneida)
• Erie County (Erie)
• NYS Department of Health
• NYS Department of Transportation
• NYS Department of Correctional Services
• NYS Power Authority
• NYS Teachers Retirement System
• Nassau Health Care Corporation
• Pilgrim Psychiatric Center
• Port Authority of NY & NJ
• Roswell Park Cancer Institute
• SUNY Health Science Center Brooklyn
• Thruway Authority