New York Attorney General Andrew Cuomo, along with three state senators, announced legislation that would fix some of the glaring problems with the way the state’s $116 billion pension fund is managed.
The announcement follows a two-year probe that uncovered an elaborate system of kickbacks and pay-to-play at the nation’s third largest pension fund. The corruption case — which we’ve been tracking— centered on two staffers to then-Comptroller Alan Hevesi. So far, four people have pleaded guilty to a range of fraudulent conduct, involving paying bribes and doing favors in return for large investments from the fund.
Among the proposed reforms: It would no longer be entirely up to one person — with no oversight — to dole out tens or even hundreds of millions of dollars invested to pay for public employees’ retirements. Cuomo’s plan calls for a new 13-member board of trustees to manage the fund, bringing it in line with virtually every other public pension fund in the country.
(Fun fact: One of the only other state funds with a sole trustee is Connecticut. Their former treasurer, Paul J. Silvester, wound up behind bars in 2003 for his role in a scandal that strongly resembled the scams in New York.)
Private money managers looking to win big business from New York’s pension fund would also no longer be allowed to pay people for "introductions" to pension staffers.
The legislation would also bar investment managers from showering the Comptroller — or any of the members of the new board — with campaign contributions. Otherwise they’ll be frozen out of bidding for pension fund business for two years.
The legislation would make a number of other changes, including cracking down on the "revolving door" that is endemic to the pension fund world, where public staffers take much higher-paying jobs at firms that bid for business with the fund.
Cuomo’s bill steps on the turf of current New York State Comptroller Thomas DiNapoli, whose office oversees the pension fund. DiNapoli issued a press release that generally welcomed the reforms, but was lukewarm on creating a new board.
"The viability of a board should be put on the table," he wrote. But, he continued, there are a number of factors that could make it difficult to enact the law, including "the make up of a board, how board members would be selected, what is the fiscal impact and cost of the new system, and perhaps most significantly, the constitutionality of this kind of change."
We’ve put in some calls to see whether others have concerns about the constitutionality of the proposed bill. If we hear something interesting, we’ll report back.
Meanwhile, Cuomo’s team has so-far clawed back $60 million in penalties from companies who managed investments for the state, and who signed a voluntary code of conduct that would in effect implement many of the changes Cuomo is seeking through the new laws.
But the total cost of the corruption is hard to quantify.
For instance, it’s virtually impossible to tell whether the corruption led to qualitatively worse investments than occurred in more transparent systems in other states. That’s because the corruption centered around a notoriously opaque part of the business world, called private equity, where companies have virtually no public reporting requirements and investments are expected to take up to ten years to pay off.
The investigation continues into other firms and individuals suspected of involvement in the bribery scheme.