Since 2008, several American cities have emerged from obscurity to become national bywords for fiscal calamity — California’s Stockton, Vallejo and San Bernardino all declared bankruptcy, as did Central Falls in Rhode Island.
In New York, a number of towns may do the same, and Gov. Cuomo has floated the idea of a state government takeover.
One of these cities is Yonkers — already the target of two state emergency control boards since 1975.
The cautionary tale of Yonkers is the same as Stockton and Central Falls; an economic disaster caused by unsustainable spending on employee benefits and overly generous and restrictive union contracts. The result of which could be closed schools, more crime and certainly higher tax bills. Which leads to fewer residents and a continued spiral into disaster.
People rightly worry over the national debt, but it’s the local debt that will have the greatest impact on our lives — wildfires dotting the nation one small town at a time. Yonkers will run out of money in the next few years unless drastic measures are taken; it’s the same in Binghamton, Jamestown, Lackawanna, Newburgh and countless other cities.
As goes Yonkers, as goes the nation, and it’s not pretty.
IT SHOULDN’T BE THIS WAY
On a purely economic basis, it’s hard to understand why Yonkers should be threatened with bankruptcy or state control.
Yonkers’ recession-era unemployment rate never reached double digits and now stands at 9.3%. Nothing to boast about, but it’s still about 2 percentage points lower than New York state’s three other midsized former industrial cities, to which Yonkers is often compared, Buffalo (12.3%), Syracuse (11.1%) and Rochester (11.9%). Buffalo and Rochester’s unemployment rates have been above 10% almost every month since 2009.
The contrast with upstate is even more striking in terms of property values. Zillow.com’s current median list prices for homes in Rochester, Buffalo and Syracuse are all below $100,000. For Yonkers, it’s $400,000.
During the second half of the 20th century, many old, cold former industrial cities in the Midwest and Northeast experienced catastrophic population declines, but not Yonkers. The city’s population is down only 4% from its 1970 peak (204,000) and has remained the same for a decade. It now stands at 196,000.
These economic and demographic signs of life reflect Yonkers’ obvious geographical advantages. It’s part of affluent Westchester County and only a 30-minute train ride from midtown Manhattan. Other mill towns grew up around natural assets that have since become economically obsolete, such as a port or waterway. These cities now face the daunting challenge of restoring economic self-sufficiency on an entirely new foundation. But unlike Buffalo or Cleveland, Yonkers is not on its own. So long as the New York City region continues to thrive, Yonkers will benefit.
Which is not to say that the economy is thriving. One weakness that Yonkers shares with the rest of urban America is a heavy reliance on direct and indirect government spending to stimulate development.
While government-funded projects like the “daylighting” of the Saw Mill River, the restoration of the historic Beaux-Arts train station and new main library have done much to enhance the downtown waterfront area’s attractiveness, their fiscal benefit has so far been negligible.
For-profit development certainly exists in Yonkers — notable recent examples being the expansion and renovation of the Cross County Shopping Center and opening of the new Forest City Ratner-developed Ridge Hill mall — but tax breaks and other public subsidies reduce the benefit that these projects will provide to the city’s bottom line.
Ridge Hill was also tainted by scandal: A city councillor was convicted of taking bribes to change her vote for the project.
Too bad, because it’s a bottom line that can use all the help it can get. If Yonkers’ economy paints an “it could be worse” picture, there is nothing encouraging to say about Yonkers’ finances.
Last October, Moody’s cut Yonkers’ credit rating by two notches, down to Baa1, only three above junk status. The city’s shortfall for the current fiscal year was $89.3 million, and this figure is expected to grow to $210 million by fiscal year 2016.
A SELF-INFLICTED WOUND
How did Yonkers get here? One word: spending. Yonkers’ budget is an astounding $1 billion a year, for a city of barely 200,000. And 80%-85% of that budget is taken up by salaries and benefits.
In large measure, the roots of Yonkers’ predicament lie in its knack for signing strikingly generous union contracts.
Under the terms of their current contract, which Mayor Mike Spano describes as “the most generous contract of any fire department in America,” the starting salary of a Yonkers’ firefighter is $71,000 — $20,000 higher than that of a New York City firefighter.
Police overtime abuse has been the target of four different media and government investigations since 2007. Even without overtime, a Yonkers police officer is guaranteed a base salary of $81,111 after only four years on the job.
But public-safety costs are a pittance compared with the Yonkers public schools, which composes half of all annual expenditures. Enrollment is up by 2,000 students since 2006-07, to nearly 27,000, and the number of teachers down by over 300, to 1,574.
Why the decline when the need is there? The problem is that teachers have become extremely expensive. The average salary for a Yonkers public-school teacher is more than $100,000. Under the terms of their most recent contract, which expired in June 2011, any teacher with a master’s degree and 15 years of experience earns a salary of $113,674.
And that’s just what the school district is paying its current employees. Forty percent of the Yonkers public-schools annual health-care expenditures goes to teachers who are retired.
All told, city government’s total long-term retiree health-care liability is $1.6 billion, or $21,512 per household. The median household income in Yonkers is $55,715. Again, that’s higher than upstate but hardly enough to justify compensation packages like these.
Retired teachers, police officers and firefighters would battle any change to their retirement benefits, of course, meaning it’s the current generation that will suffer the fallout.
PUTTING OFF THE PAIN
Even when Yonkers politicians realized that these promises were unsustainable, they avoided renegotiating contracts in favor of various one-shot gimmicks. They took “spin up” advances on the following year’s state aid, and, in 2006, sold the library building to balance the school district’s budget.
And all of this has been going on despite Albany’s oversight of Yonkers’ finances, which goes back almost 40 years.
New York state government’s long involvement in Yonkers began in 1975. Much like New York City in that same year, Yonkers risked bankruptcy because it could not refinance its short-term debt. The state put in place an emergency financial control board for the next three years. By 1984, Yonkers had fallen back into its old, insolvent ways, necessitating a bailout, the imposition of yet another control board and special authority to levy an income tax. (Yonkers and New York City are the only communities in the state with local income taxes.)
The control board briefly seized control of city government in 1988 at the peak of the housing desegregation crisis, when Yonkers narrowly escaped bankruptcy.
Yonkers had been placed under a court order to build public housing in certain white middle-class neighborhoods. When the city council voted to defy this order, Judge Leonard Sand retaliated with a fine that began at $100 and doubled every day, a rate that threatened literally to bankrupt the city within weeks. As Lisa Belkin’s book “Show Me a Hero” dramatically recounts, the control board took over city government until the city council relented and voted to allow the housing.
The second control board was formally dissolved in 1998, since which time the state comptroller has functioned as the city’s “fiscal agent.” The comptroller must approve the city’s budget and issue an annual audit report that evaluates Yonkers financial practices.
These reports show that: 1. Yonkers faced gigantic budget shortfalls even during the good years before the recent recession, and 2. Somehow, the city has always managed to pull through.
Annual, recurring deficits of tens of millions of dollars? Yonkers has been there many times before. So what’s different this time?
According to John Larkin, the Republican minority leader of the city council, what’s different now is that the state has its own problems: “We used to try to look to the state to assist us, and we can’t do that as in the past.”
THIS TIME WE REALLY MEAN IT
This is also the view of Mayor Spano. “When the economy was good, the city could get by, but we’ve maxed out on all the credit cards. There are no more buildings left to sell,” Spano said.
A former Republican, now Democrat, Spano served nine terms as a state Assemblyman and worked as a lobbyist for Forest City Ratner. A member of a well-connected local political family, Spano was elected in 2011 with strong support from public employee unions.
In other words, he’s not exactly what you would expect from a fiscal reformer. Nevertheless, Spano says that responsible self-government is possible in Yonkers. In his 2012 State of the City Address, he vowed to “step up and right the wrongs of the past in the city’s finances and make the tough choices now that will provide for a brighter future.”
Spano has backed these words up with many actions. Some are symbolic, such as auctioning off a few dozen city-owned cars that had been perks for high-level employees. Others have aimed at bringing transparency to Yonkers’ problems, such as issuing a four-year financial plan and convening a special “Commission of Inquiry into the Finances of the City of Yonkers,” led by former Lt. Gov. Richard Ravitch and former state Assemblyman Richard Brodsky.
And Spano has pushed for reforms that would provide real savings in the near-term, such as instituting a hiring freeze and picking a very public fight with the firefighters’ union.
Brodsky, among others, is impressed: “He’s done some very tough-minded things.”
But it’s still far too early to give credit to Spano for saving Yonkers. More generally, it may be too late. The city is past the time where its fiscal problems could be remedied through better planning and more transparency.
Immediate fiscal relief will only come through cutting spending, which means either reducing compensation or staffing levels. Spano is intent on avoiding layoffs, “We need cops, we need firefighters. We need to keep as many of them working as possible.” But this outcome depends entirely on unions’ willingness to make concessions.
FACING THE REAL PROBLEM
For decades, the citizens of Yonkers have been told that the sky is falling, fiscally speaking. This time it may actually be true.
Short of a bailout, what value can the state add? Expert management? Good government? Fair enough, but the city has been moving on these fronts already, and it’s not as if Yonkers’ problem has been incompetence. If anything, the city has been too clever for its own good.
Yonkers may soon face insolvency, but right now the crisis is better understood as one of inflexibility. Yonkers needs more flexibility in contract negotiations and to manage its benefit costs. State government could provide this by, for example, repealing New York State’s Triborough Amendment, which allows pay to continue to increase after contracts have expired, or limiting public-safety unions’ ability to force binding arbitration when contract talks stall.
When asked why he robbed banks, Willie Sutton explained “because that’s where the money is.” To stabilize city budgets, both local and state governments must look at where the money is, which means personnel costs. Teachers, firefighters and police officers spent decades getting lucrative promises out of cities across the nation. Now that the bills are coming due, will the unions kill the golden geese?
Yonkers is trying to confront the problem, but, if its contract negotiations fail, another control board may be the only solution left for the city. Control boards are often ineffective and always controversial. If the crisis is inflexibility, then a more logical solution would to empower local governments to deal with their spending problems, not take them over.
Stephen Eide is a senior fellow at the Manhattan
Institute’s Center for State and Local Leadership.