The following was written by David Paterson, on his last day as Governor, for the Daily News:

There is a new crisis on the horizon that threatens the solvency of local governments and the recovery of the U.S. economy: teetering public pension funds on the verge of insolvency, with the retirement security of millions of working Americans hanging in the balance.

In 2011, the health of these public funds will take center stage with the very real possibility of significant write-downs in pension asset pools at a time when most funds can ill-afford it. And while these problems were not created in a single year, immediate action will be required to avoid driving our economy deeper into the ditch of recession.

The structural problems of our public pension funds have started to emerge, and no amount of wishful thinking can replace the hard work of reforming them. We all have a stake – employers, employees, organized labor, government, regulators, lawmakers, investors and investment managers. Yet there exists no consensus, or even an informal dialogue, on how to proceed.

What is indisputable is that those solutions will require shared sacrifice.

However, I believe that all parties can rise to the occasion and that innovation is often borne from crisis. Pension managers must consider possible revenue expansion ideas in addition to difficult changes to their benefit plans. Union leadership must be prepared to support radical reform of plan benefits and the administration of those benefits – no long-term fix is possible if the structural challenges continue to be ignored. And public officials need to stop avoiding tough choices if their goal is long-term solvency. Rhetoric will not ensure the survival of the public pension funds and defined benefit plans.

No one will be immune if the public pension funds suffer a meltdown. It will have a devastating ripple effect, straining already underfunded government programs due to increased caseload and taking badly needed spending out of an economy that needs every penny of it. For its part, Wall Street should recognize that a public pension fund is not simply a large attractive pool of capital, but a collaboration of countless contributors; a tapestry of lifetimes of work sewn together by millions of working Americans. And far from demonizing the financial sector, labor unions should recognize the important role Wall Street can play in providing creative ideas and solutions to improve fund returns and overall health.

Wall Street versus Main Street is a false binary. The true solutions lie in their imaginative intersection. As New York’s governor, I know all too well that government administrators and pension managers need astute and trusted financial partners. They need experts who can help mitigate long term solvency risk, who don’t exploit each situation for maximum gains and who distinguish between their personal financial incentives and the greater needs of society.

Solving the public pension fund crisis is both a financial and moral challenge. We can neither dun the taxpayer for past irresponsibility nor abandon working people in the sunset of their lives. It is incredible and unfortunate that many still refuse to recognize that another financial disaster awaits. Have we learned nothing?

(Source: NY Daily News)