This is an old posting from 2009. Someone recently asked me a question about this issue. I realized I had withdrawn this posting. The content is still relevant today except for the change in the interest rate from 8% to 7% as of July 1, 2011 and that we now know that any decision Martha Stark was involved with must be viewed with skepticism. Also in an unsettling way this subsidy has grown. In FY-2012 NYCERS paid the Comptroller's Office $1.98M.
In 2004, Martha Stark and the other NYCERS trustees decided to start paying the NYC Comptroller’s Office for investment functions which the city had previously funded through the regular city budget process. See NYCERS resolution R#1 adopted on April 27, 2004.
These payments to the Comptroller show up in his city budget as non-governmental grant revenues. It appears that other city pension funds have also adopted this payment scheme. As a reference, this “grant” money to the Comptroller's Office was $4,167,779 in FY-2010 and $4,169,799 in FY-2011.
The city, however, must by statute reimburse NYCERS two years later for these payments to the Comptroller along with 8% interest per annum.
Correction: These payments to the Comptroller are being considered investment expenses under Setion 13-705.b of the NYC Admin. Code. See quote below. The impact of this interpretation is that these payments are blended into the city's annual pension cost and spread out over long periods of time. After eleven years of these payments, however, the annual charge is getting close to full replacement in the following year.
b. Notwithstanding any other provision of law to the contrary, such expenses as may necessarily be incurred by a retirement system in acquiring, managing and protecting investments of its funds may be paid from any income, interest or dividends derived from deposits or investments of such funds.
If this all sounds confusing to you, that is because it is confusing.
It is also deceptive. When the City Council sees a non-governmental grant in an agency’s revenue budget, the Council correctly concludes that the tax payers of the City of New York are not funding that revenue stream. In this case, however, the taxpayers are in fact not only funding this revenue stream but also incurring a debt which becomes due in future years with an 8% or 7%(net of fees) annual interest rate.
Why would the mayor’s representative on the NYCERS Board agree to this distorted budget scheme, saddle the city with an 8% debt, and create this deception in the city budget. Why not just let OMB allocate the necessary funds to the Comptroller’s expense budget to cover the statutory investment work?
Maybe OMB thought that the Comptroller already had sufficient funds to do the work. Maybe OMB didn’t know that NYC Admin. Code mandates that the city repay the “grant”, with interest, to NYCERS. Maybe the “grant” funding allows the Comptroller to escape some types of oversight, like salary limitations. Maybe city hall, in fact, didn’t know about this payment scheme at all. Maybe, maybe, maybe…
Of course, once the NYCERS trustees decided to start paying for these investment services, shouldn’t the board have sought open bids or issued an RFP for these investment services? The trustees could also have hired internal NYCERS staff to perform the investment functions. Both of these approaches are covered by state statue and would not have distorted the city budget.
There is, however, no statutory way for NYCERS to enter into a contract with the Comptroller who is a also a NYCERS trustee. There is, also, a blatant conflict of interest in the fact that the Comptroller is the legal auditor of all NYCERS expenditures including these payments to the Comptroller (NYC-AC Section 13-103.g).
Listed below are actual payments from NYCERS to the Comptroller’s Office for the period from April, 2008 to March 31, 2010.
| Period | Total | PS | Fringe | Fringe Adj. | OTPS |
| April-June, 2008 | $405,967 | $235,981 | $91,985 | $44,202 | $33,798 |
| Post June, 2008 | $33,814 | $20,541 | $8,007 | $0 | $5,266 |
| July-Sept, 2008 | $294,917 | $208,957 | $81,452 | $0 | $4,508 |
| Oct-Dec, 2008 | $302,206 | $210,237 | $81,951 | $0 | $10,018 |
| Jan-March, 2009 | $390,613 | $253,171 | $109,674 | $17,921 | $9,848 |
| April-June, 2009 | $351,700 | $240,901 | $104,358 | $0 | $6,440 |
| Post June, 2009 | $17,976 | $236 | $102 | $0 | $17,638 |
| July-Sept, 2009 | $331,533 | $232,050 | $90,453 | $0 | $9,030 |
| Oct-Dec, 2009 | $307,236 | $217,659 | $8,843 | $0 | $4,734 |
| Jan-March, 2010 | $343,716 | $243,217 | $102,686 | -$4,730 | $2,543 |
These figures are a detailed accounting of what money NYCERS is giving to the Comptroller's Office. There is, however, no detail of how the Comptroller is actually spending the money.
For example, which of the Comptroller's employees are being billed to NYCERS, what are their salaries, what are their duties, how many hours a week are they doing NYCERS work, what are their qualifications, what is their work product and how is that work product evaluated. This all would have required the preparation of a detailed scope of services and this was never done.
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