NYC Deputy Mayor Steel Combats Comptroller in Plugging Pension Hole

(July 15, 2011) — New York City has been pushed to tweak its investing mix to reduce the size of its pension hole.

According to Deputy Mayor Robert Steel, New York City’s pensions are overweighted in US stocks and bonds and should invest more heavily in other assets, such as US Treasuries, Reuters has reported.

Specifically, Steel asserted that in order to afford more than $80 billion of contributions over the next decade, the city should allot more cash to international equities and fixed income, inflation-protected bonds, commodities, currencies, and real estate to boost returns.

Steel’s comments indicate his dissatisfaction  with Comptroller John Liu’s oversight of the city pension funds. In a speech before the Citizens Budget Commission (CBC), he challenged Liu’s recent assertions that the city’s five funds had achieved a 20% return over the last fiscal year. “In fact, over this same period, when we earned 20%, the S&P was up over 30%,” Steel said, according to the New York Post. “So while 20% is an attractive number, when you compare it to what we should or would want to be achieving, it certainly seems to be a little bit light.”

“Pensions are to the City of New York what entitlement reform is to the federal government,” Steel noted. “These are difficult, hard issues that require political risks to be taken to make the hard choices that we need.”

New York City Mayor Michael Bloomberg has also criticized the Comptroller’s oversight of the city’s schemes. A recent study commissioned by Liu predicted that the city’s pension costs will spike in 2016 at roughly $8.3 billion, before heading into a gradual decline, yet the Mayor indicated major flaws in the report. The report by Liu, a potential 2013 mayoral candidate, contrasted with Bloomberg’s position that spiking pension costs are hindering the city’s ability to balance its budget.

According to the report — titled “Sustainable or Not? NYC Pension Cost Projections through 2060” — pension costs will grow at a slower rate than the city’s economy from 2016 through 2040 and beyond, using up significantly less of its budgeting resources. “Poor market performance over the past decade means we still have a few tough years ahead as those investment losses catch up to us. However, significant reforms already implemented in recent years will drive down costs for decades to come,” Comptroller Liu said in a news release. The Comptroller attributed today’s high pension costs partly to stock market losses.

aiCIO investigated New York City’s underfunded pension system in its Spring issue, revealing the tension between the Mayor and Comptroller. Bloomberg’s goal to reform the City’s pensions operation has not been universally applauded. While Liu is responsible for overseeing New York City’s pension management, Bloomberg hired the City’s first chief investment advisor last year and brought on another senior professional to help run the system’s five pension boards. Insiders claim that Bloomberg favors greater attention to risk management and asset allocation and less emphasis on selecting asset managers, which is primarily Liu’s domain.