Newly minted Deputy Mayor Stephen Goldsmith wants to stick a pin in the city's ballooning pension costs, but unions think he is full of hot air.
Goldsmith, the former mayor of Indianapolis turned City Hall right-hand man, has made curtailing the cost of the city's pension system a major goal of Mayor Michael Bloomberg's third term, angering the city's labor leaders in the process.
In the name of government efficiency, the new deputy mayor and his political counterpart, Deputy Mayor Howard Wolfson, have pledged to force city unions to trade in their "unsustainable" pension system for a more fiscally palatable arrangement.
"We are reducing expenditures and probably employees who are currently serving the citizens of New York in order to keep up with our pension obligations," said Goldsmith in an interview with Gotham Gazette last week. "And every year, as far out as we can see, that dynamic gets worse."
He has the statistics to back him up. According to projections from the Office of Management and Budget, the city's annual pension allocation could increase by more than 360 percent from 2002 to 2013 -- the likely length of Bloomberg's tenure. Pension costs in the city's operating budget have skyrocketed from $1.75 billion in 2003 to more than $7.6 billion this fiscal year.
To fill the gap and cut down on costs, the Bloomberg administration is drawing up a dramatic overhaul of the pension system for consideration in Albany, including a proposal that would allow pensions to be negotiated at the collective bargaining table -- a power it lost in 1973. It promises, officials say, to be a major step toward saving the city from deficits and fiscal demise.
Unions blame Wall Street and the recession for the pension funds' recent poor performance. And now the city's top labor leaders make it abundantly clear they will battle any effort to change the current pension system.
"Let's buckle our seatbelts," said Norman Seabrook, the president of the Correction Officers' Benevolent Association, "cause we're going for a ride."
In 2006, stocks were up, unemployment was down and surpluses were the norm.
The city's pension funds were then worth $95.5 billion, according to the city comptroller's office. Four years later, their market value is $103.7 billion, falling far short of the approximately 8 percent growth necessary per year to keep the funds balanced.
The current so-called crisis exists, in part, because the amount the city owes its approximately 300,000 retirees is not subject to the ebbs and flows of the Dow Jones Industrial. If the funds do not meet their expected growth per year, the city -- and its taxpayers -- must make up the difference.
Labor cites this fact when arguing against any change in the pension system.
"We are concerned that there is a misinformation campaign underway to portray our pensions as the cause of the nation’s economic problems and that is not true. It is well known that we are in this recession as a result of unregulated and unbridled corporate greed and that the decline of the market has hurt everyone, including the earnings of our pension funds," said Patrick Lynch, the president of the city Patrolmen's Benevolent Association. "For a century, the city has been using the promise of modest, defined benefit pension to lure candidates into low paying, dangerous jobs. Our pension benefits have remained virtually static for over 100 years and have remained intact through boom and bust."
Fiscal experts argue Wall Street does not deserve all the blame for the city's rising pension burden. There are pension padders -- individuals who spend their last few years on the city payroll working copious overtime. The last one to three years of salary, including overtime, determines an employee's pension.
There is also life expectancy. When the city signed its first pension check decades ago, police officers, firefighters and teacher did not live as long as they do today. The number of police officers, firefighters and sanitation workers retiring on disability also increases the cost of the city's pension system.
Some critics also allege the administration lost an opportunity to push for savings during the 71 labor contracts it has signed since 2002.
"There were missed opportunities with the mayor spending his first two terms giving up to the unions," said Nicole Gelinas, a contributing editor to the Manhattan Institute's City Journal. "The mayor gave them all pretty much good raises. He never cut head count."
Despite the criticism, for much of Bloomberg's second term pension reform was high on the agenda. For years, the mayor lobbied the State Legislature to approve another pension tier for city employees, which could effectively reduce the money employees get upon retiring and save the city cash.
All pension changes must be approved in Albany and are not the subject of collective bargaining.
The administration successfully convinced Albany to create another pension tier last year for teachers hired after 2009. But the deal was reached only after the United Federation of Teachers and the administration announced it would work together to get the tier approved in Albany.
Much of the rest of the city workforce was left untouched.
Ultimately, experts, the city comptroller's office, the Democratic and Republican gubernatorial candidates, and both houses of the State Legislature say the cost of pensions statewide is a serious problem and threatens our financial stability.
"What are we supposed to do, go to Bank of America and insist they pay into the pension fund?" asked Carol Kellermann, the president of the Citizens Budget Commission. "The question is not what's causing it. It's what are you doing about it?"
Goldsmith says he's ready to take them on.
Sitting in a small conference room in the west side of City Hall last week, the Republican, whose resume includes the privatization of city services in Indianapolis and multiple books on urban governance, said the city has to tackle these pension problems or it will have no choice but to lay off more workers and reduce services.
Declining to go into specifics, Goldsmith said the administration is now defining and studying the issue. Asked if the administration would consider private, 401k plans for non-uniformed public employees in attempt to cut costs, Goldsmith said "sure."
"Recession, lack of job growth, increased benefits, lack of city control. They all add up to we have to do something," said Goldsmith. "The city can't afford everything."
For now, nothing appears to be off the table. And even without a detailed plan in place, city unions are balking at the possibilities.
"In 2009, the average DC 37 retiree received an annual pension of just $17,166," said Lillian Roberts, the executive director of the city's largest municipal labor union, DC 37. "Our members’ modest retirement benefits represent deferred compensation over many years and are funded by their contributions. Now, our billionaire mayor is mounting a media blitz blaming them for the city’s budget deficit. He should be ashamed of himself."
All DC 37 members hired after 1983 contribute about 4 percent of their salary for the first 10 years of employment, but nothing after that. They can retire at around 55 after 20 years of clocking in.
According to the city comptroller's office, the average firefighter collects $53,347 a year, while the average teacher gets $54,268. According to the Patrolmen's Benevolent Association, the average newly retired police officer's pension is approximately $43,500. That does not include officers retiring on disability -- a figure the association could not provide.
Most city employees, according to the Citizens Budget Commission, contribute 3 percent of their salaries to their pensions. Nationally, the average for state and local employees is 6.3 percent, according to the commission.
For employees who bend over backward to serve the city -- literally -- the idea of losing benefits is unconscionable.
"The type of work we do tears our body down," said Harry Nespoli, the head of the Uniformed Sanitationmen’s Association and chairman of the Municipal Labor Committee. "The longer we work after 20 [years], the less life expectancy we have."
Nonetheless, Nespoli, like Goldsmith, recognizes escalating pension costs create a problem.
"It's easy to say it's costing too much, but they have to target in on where it's costing too much," said Nespoli. His members contribute 9 percent of their annual salary to their pension and can retire after 20 years, he explained.
But would sanitation workers, whose city contract expires next year, be willing to make concessions to save the city money? Nespoli responded tersely: "No."
It isn't just labor unions the city has to contend with.
It's also the State Legislature.
Any changes in city pensions must be approved by the Legislature, where many members are not likely to support a pension proposal opposed by labor.
The administration has also said it wants to remove Albany's influence in the city pension process by allowing pensions to be negotiated at the bargaining table, which would also have to be approved by the State Legislature.
Much of the Bloomberg administration's success in the next session will hinge on who is holding the reins in Albany. Both Attorney General Andrew Cuomo and Republican gubernatorial candidate Carl Paladino have said they would seek to control pension costs if elected.
Though the only victory for Bloomberg in the pension battle came when Democrats were in charge, the perception still exists that the mayor has a better working relationship with Senate Republicans. So far, the parties seem locked in a fairly close contest for control of the Senate.
Spokespersons for the Democratic majority and the Senate Republicans said pension reform would be on the agenda next year.
"As part of our efforts to reform and reinvent government and make it more efficient and more effective, it's certainly an idea that will be discussed by members of the conference," said Austin Shafran, the spokesperson for Senate Democrats.
The city will likely see a tougher battle in the Assembly, where members are closely aligned with city unions. Speaker Sheldon Silver refused to comment on the administration's proposals.
Regardless of who wins in November, the Bloomberg administration is settling in for a long debate -- one they think they can win.
"I think reasonable people of both parties would concur that this problem has to be resolved," said Goldsmith. "It's just not sustainable."
This is the first in a series of commentaries Gotham Gazette will run between now and Election Day on the charter proposals appearing on the November ballot.
From a public finance perspective, the final report of Mayor Michael Bloomberg's 2010 Charter Revision Commission is half-hearted, superficial and ultimately reactionary. The unhappy result is embedded in one of the seven disparate proposals tossed together in what will appear as Question 2 on the November ballot. (Question 1 will be the much better known term limits proposal.)
The one finance-related proposal in that package would create a new mayor-dominated commission, this one to eliminate reporting requirements. Any new mayor-dominated commission, though, flies in the face of recommendations to the commission by elected and private individuals.
Many experts argued the city needed a countervailing force to balance the mayor’s broad budget powers. The proposal buried in Question 2 would instead give the mayor new powers. He could eliminate what he considers outdated city reporting requirements as well as advisory boards through a new seven-member commission that he would control. Bloomberg has been pursuing this goal, unsuccessfully, for at least seven years.
Further, in spite of the furor that followed the successful push by Bloomberg and Council Speaker Christine Quinn to extend term limits, the commission apparently saw no irony granting the mayor and a council speaker a new power to quietly get rid of reports and boards whenever it suits them.
At the same time, the final report did not act on suggestions for changes that would have made the city's budget process more democratic and transparent as well as providing better information on New York's fiscal situation. The report also ignores substantial issues relating to public finance – mayoral budget accountability in particular -- that the mayor's 2005 charter revision commissiondeferred but urged be considered again.
The commission’s final report summarizes a number of interesting public finance ideas proposed during public hearings. Those ideas aimed to offset the strong fiscal powers of the mayor. For instance, some of the borough presidents proposed that they receive an "independent" or guaranteed budget, rather than depend on annual political decisions by the mayor and council.
The presidents used as their model the Independent Budget Office, which every year, under the 1989 charter revision, receives a budget (approximately $3 million in recent years) equal to 10 percent of whatever the mayor's Office of Management and Budget gets. Quinn proposed that the Civilian Complaint Review Board and Conflicts of Interest Board also have an independent guaranteed budget.
Mark Page, director of the mayor’s Office of Management and Budget, testified in opposition to independent and guaranteed budgets for municipal officials. According to the commission's final report, he "cautioned against devising fixed formulas that the city would have to accommodate for years to come and argued that it is difficult to devise a formula that can take into account the evolving demands faced by the city."
On the mayor’s current exclusive power to make city revenue projections, City Councilmember Lew Fidler and City Comptroller John Liu argued that the comptroller, rather than the mayor, should have that power.
On the question of fiscal transparency -- the public's ability to understand how the city’s budget works – critics like Councilmember Gale Brewer continue to argue that the so-called units of appropriation -- total funding for, say, specific program areas -- are often so broad that it's impossible to trace where the money actually goes. The commission passed on that idea passed on any notion of breaking down such massive chunks into smaller and, more understandable blocks.
One of the least transparent parts of the city budget is its contract budget, now representing over $9 billion, or over 14 percent of the city’s $63 billion in spending for 2011. Steven Newman of the Human Services Council, an organization that represents non-profit firms that receive city contracts, argued that city agencies should submit an annual contract plan and create multiyear budgets for non-profits. He also recommended the city require a single audit for organizations that have several contracts. The commission ignored those proposals as well.
The charter revision commission’s focus on the review commission is not simply disappointing. It is a step backward in terms of the issues discussed in the testimony, raising the likelihood of more self-serving executive actions and further marginalizing the City Council as an effective counter-weight to the mayor.
Reviewing the city's reporting requirements from time to time is certainly reasonable. City needs and functions change, data changes. But what this commission has done is bow to the Bloomberg administration's distaste for inside or outside accountability measures that it cannot control.
The distaste was apparent in the 2003 Bloomberg charter revision commission's failed effort to eliminate the Preliminary Mayor's Management Report, one of the two charter-mandated reports that ask the mayor to list fiscal and program goals and measure progress toward meeting those goals. Since the public's defeat of the 2003 ballot proposal, the mayor has simply not paid much attention to either the preliminary or final Mayor's Management Report.
The 2005 Bloomberg charter revision commission also tackled the question of how to reform city reports, but it ultimately deferred action after extensive research. It also gave serious attention to -- but again did not act upon -- several public finance reforms that the 2010 commission never touched. For instance, it urged looking at the way recent mayors have used the surplus revenues sometimes called "rainy day funds" and how the city could provide information on budgets and programs that would improve transparency and fiscal accountability.
It was the 2005 charter review commission that considered creating a model board to review public reports and advisory boards -- what it called a Commission on Public Reporting and Accountability.
That commission would have essentially been controlled by the mayor, with six of the nine members either his ex officio appointees or people specifically named to the commission. But the City Council, city comptroller and public advocate would at least have had the other three seats.
Under the 2005 model, the review commission would have to solicit comments on any proposed elimination of a report or board and hold public hearings. If the commission voted to waive a report requirement or abolish an advisory board, it would be eliminated. The City Council could, however, restore the requirement or board by passing a new law.
The 2010 charter revision commission proposal for report and advisory board review takes a narrower, more insular track. Its title itself suggests a retreat from a public-interest perspective: Gone are 2005’s “public reporting” and “accountability.” The new title -- "city reporting requirements and advisory bodies" -- is neutral and apolitical.
The makeup of the commission repudiates any notion of a balance of powers in city government. The mayor controls four of seven seats -- the ex officio heads of his budget, operations, legal and technology offices. The council speaker would get a seat and would appoint two other council members as well. The mayor's head of operations would be the chair. Gone are the public advocate, the city comptroller and any private member.
The process as well as the makeup of the commission has all the earmarks of an insiders' club. The commission reviews all report requirements and advisory bodies. In the event it chooses to eliminate one, the chair and the commission shall solicit feedback "to the extent practicable" from those who "the chair or commission reasonably determines are the subject of or are otherwise affected or benefited by the requirement under review." Not exactly a public process.
The review of commission's decision also seems minimal and undemocratic. Any proposed elimination is posted in the city record and on the city’s website and any solicited parities are to be informed of the decision. The City Council has 120 days in which to approve or disapprove the commission's decision. If it does not act during that time, the decision takes effect automatically.
In other words, a mayor and a council speaker could simply agree to the elimination of whatever reports or advisory bodies their tightly controlled commission chose without any legislative action at all.
The commission also was not completely forthcoming about the effects of its proposal. The final report says that key fiscal reports required under the charter, such as the preliminary and executive budgets and the mayor's management report could not be eliminated. But the legal language, which will not appear on the ballot, exempts only part of mayor's management report requirement: The preliminary mayor’s management report, which Bloomberg first tried to do away within 2003 could be eliminated.
That this mayoral-dominated new commission proposal will be presented to New York voters as part of Question 2 should be an embarrassment to the charter revision commission and the mayoral administration whose heavy hand is all over its architecture.
Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001.
The recession pushed an additional 100,000 people into poverty in New York City in 2009. This number would have been about three times as great had it not been for the relief provided by President Barak Obama's economic stimulus package.
New York City's poverty rate rose by 1.2 percent in 2009, increasing from 20.1 percent in 2008 to 21.3 percent in 2009, according to estimates by the Fiscal Policy Institute. Last year 1.8 million city residents lived below the poverty threshold, and half of that number had incomes below 50 percent of the poverty threshold.
Despite the fact that the city lost proportionately fewer payroll jobs than the nation in 2009, the poverty increase in the city easily matched the national poverty rise. For the nation as a whole, poverty rose from 13.2 percent in 2008 to 14.3 percent in 2009). In the 50-year history of the federal poverty estimates, there was only one year (1980) when the U.S. poverty rate increased by more than it did in 2009. The city's poverty rate remains about one and a half times the national rate.
The federal government pegs the poverty threshold for a four-person family at slightly under $22,000 ($21,954) for 2009. More adequately measuring poverty would undoubtedly put the rate higher than 21.3 percent in New York City since the current federal poverty measure does not adjust for regional cost of living differences nor has it been adjusted for changes in household spending patterns over the past 50 years. Housing costs in the city, for example, are much higher than the national average, and families today spend a much greater share of their income on child care and health care than they did in 1960.
Using an alternative methodology recommended by the National Academy of Sciences that addresses these and other shortcomings, the city's Center for Economic Opportunity figured that the New York City poverty rate for 2008 was 22.0 percent. The city has not yet estimated the poverty rate for 2009 using this alternative method.
The 2009 poverty rate for the city estimated by the Fiscal Policy Institute uses the Current Population Survey's Annual Social and Economic Supplement released earlier this month. The population survey is the source of the official poverty rates.
The Census Bureau will release poverty, demographic and other data based on a different survey on Sept. 28. These poverty numbers will utilize the same method that has been used for 50 years, but applied to a different survey, the American Community Survey. The Census Bureau has been phasing in the community survey to provide communities with more timely social and economic data, and the numbers may differ from the population survey's poverty estimates. The year-to-year changes likely will be very similar.
Not surprisingly, poverty usually rises during economic downturns. Family income from wages drops when people lose their jobs or have their hours cut back when the economy falters.
Unemployment soared as the recession swept across New York City, rising from 5.4 percent on average in 2008 to 9.5 percent in 2009. This meant an additional 163,000 New Yorkers were without work. This unemployment jump far exceeds any previous one-year increase in a data series dating to 1976. Moreover, total wages paid in the city fell by 5.5 percent in 2009, a drop of $9.4 billion. Because Wall Street compensation levels frequently swing wildly from year-to-year, these figures exclude the extremely highly paid financial sector to provide a clearer picture of the recession’s impact on typical New York workers.
Some of the unemployed receive unemployment insurance benefits, but those make up for only a portion of their lost income. In New York state, unemployment insurance pays a benefit of half the recipient's wages up to a maximum weekly benefit of $405. The state has not raised that maximum level since 1999 although since then consumer inflation has risen by one third and the cost of living, as measured by the change in typical family budgets, has increased by 40 percent.
The Obama Recovery Act provided a $25 weekly supplement, and the federal government has funded extended unemployment benefits beyond the 26 weeks provided by state unemployment programs.
The unemployment insurance supplement and extended benefits were among a number of key public benefits programs and the expansions made to them under Obama's American Recovery and Reinvestment Act (Recovery Act). Poverty rates across the country would have risen much more had it not been for these measures. The official poverty measure reflects the impact of some benefit programs that the act temporarily expanded, such as unemployment insurance, but not other programs, such as food stamps and tax credits.
Using the broader measure of poverty recommended by the National Academy of Sciences, several Recovery Act programs kept over 250,000 city residents out of poverty in 2009, according to an analysis prepared for the Fiscal Policy Institute by the Center on Budget and Policy Priorities. In addition to the extended and supplemental unemployment insurance benefits mentioned earlier, these programs include the Making Work Pay Tax Credit; an expansion of the Child Tax Credit; an expansion of the Earned Income Tax Credit for people with low incomes; an increase in the monthly food stamp benefit; and a one-time $250 payment to seniors, veterans and people with disabilities.
Various other Recovery Act programs, including fiscal relief to states to avert more damaging budget cuts, infrastructure spending and things like biomedical research grants, also helped save or create tens of thousands of jobs in New York City, and thus further moderated the poverty increase. Following the method utilized by the President's Council of Economic Advisors to estimate the act's state-by-state employment impact, the Fiscal Policy Institute estimates that the Recovery Act saved or created over 88,000 jobs in New York City. The Center on Budget and Policy Priorities' estimate of 250,000 New Yorkers kept out of poverty by certain Recovery Act programs does not fully reflect the total employment impact of the wide range of the act's programs.
Despite the act, though, the recession in 2009 had a devastating effect on many New Yorkers. Not only did poverty increase rapidly in 2009, but more and more of those below the poverty threshold fell further, into "deep" poverty. People in deep poverty have incomes that are less than one half the poverty threshold -- that is, less than $10,500 for a family of four. New York City's deep poverty rate rose from 9.0 percent in 2008 to 10.5 percent in 2009. This means that nearly half of the 1.8 million New Yorkers enduring poverty in 2009 were below 50 percent of poverty.
Deep poverty rose much faster in the city than in the nation last year. For the U.S. overall, deep poverty rose from 5.7 percent in 2008 to 6.3 percent in 2009.
New York's statewide poverty rate increased even faster than the nation's overall or New York City's alone. Poverty rose from 14.2 percent in 2008 to 15.8 percent in 2009. The number of New York state residents in poverty jumped by 284,000 to a little over 3 million. Only once since 1980 -- from 1989 to 1990 -- has New York state's poverty rate risen more than it did in 2009.
Poverty in the Empire State was the 12th highest among all states in 2009, and the highest among Northeastern states. The 10 states with the highest poverty rates are all Southern or Southwestern states. New York had a poverty rate slightly lower than Indiana's and slightly higher than West Virginia's.
As people in the city and state lost their jobs, many also lost their health insurance. The recently released census data show that the percent of New York state's population without health insurance rose from 14.1 percent to 14.8 percent. The uninsured rate rose faster for the nation overall, reaching 16.7 percent in 2009. Over 2.8 million New Yorkers lacked health coverage in 2009, the most since 2002.
New York state was able to keep its uninsured rate from rising faster by significantly increasing the number of people covered by Medicaid. The percent of New Yorkers with employer-provided health coverage dropped from 58.7 percent to 53.7 percent in 2009, while the portion covered by Medicaid rose from 19.3 percent in 2008 to 22.2 percent in 2009. One million New Yorkers lost private employer-provided health insurance while Medicaid rolls grew by 500,000 in 2009.
New York's children were among the main beneficiaries of expanded Medicaid coverage. The Medicaid coverage of children rose by almost four percentage points since 2008 to over 40 percent.
While the recession has been declared to have officially ended in June 2009, and the city has begun to experience some job growth, most economic forecasts expect the unemployment rate to stay far above pre-recession levels at least through 2012. This means that it is unlikely that the city’s poverty rate can be expected to ease much from its current level of over 21 percent anytime soon.
James Parrott is deputy director and chief economist of the Fiscal Policy Institute. He has been studying and writing about the New York economy since he landed in New York City a quarter century ago.