The stock market has lost more than a quarter of its value since COVID-19 spread around the globe. On top of losses in personal retirement portfolios, municipal pension funds have also taken hit. This could lead to tax hikes and layoffs if the downturn persists.
Pension plans are typically structured to handle swings in the stock market so that when times are booming, counties and towns still have to pay into the fund. But when the market drops, there’s far less ground to make up with tax revenues. This is why New York State Comptroller Tom DiNapoli said earlier this week that New York will be able to weather this financial storm.
“We went into it as almost a virtually funded pension plan, so even if we have a temporary setback, we are positioned for the long haul.”
Connecticut however…
“Connecticut is not in very good shape.”
Liz Farmer, a fellow at the Rockefeller Institute of Government who covers pension funds, says since the financial crisis of 2008, Connecticut has pulled all the levers it could to bring its pension fund to healthy levels. But it’s still precariously situated.
“If they haven’t rectified it by now, they don’t really have a lot of options going forward for what is going to be some significant loses if these trends continue.”
After the 2008 crisis, Connecticut, and New York to a lesser degree, raised taxes, laid off workers and got concessions from state employee unions. If the stock market doesn’t regain value, lawmakers will likely be faced with similar decisions....after they manage the pandemic and balance the state budgets.
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