NEW York politicians are still congratulating them selves on getting billions in federal money from the stimulus package. But the windfall doesn’t solve the city’s problem. It does, however, present a chance to address out-of-control pensions and benefits costs for its workers.
Our budget woes won’t be over until we get the city’s outlays down to match its income, which the Wall Street meltdown has drastically lowered for the foreseeable future.
The city could get nearly $8 billion from the stimulus. Of that, it could use $5 billion or so for operating costs over two years.
New York had faced a roughly $3.6 billion budget deficit for the year that starts in July. To close that gap, Mayor Bloomberg proposed service cuts and a $1 billion sales-tax hike. He also asked for more than $550 million in benefits givebacks from the unions, including a (slightly) less generous pension plan for new workers and a requirement that all workers pay 10 percent of health premiums.
But Washington’s gift of as much as $2.5 billion for this year goes a long way toward filling that $3.6 billion hole. With the sales-tax hike, there’d be no need for layoffs or benefits changes that cause pesky union fights in an election year. Right?
Wrong. The stimulus just kicks the problem down the road another year. In 15 months’ time, the city will face a nearly $7 billion deficit. Our leftover stimulus money – the other $2.5 billion – won’t cover even half.
That sales-tax hike? It would bring the gap down to around $3.5 billion – still pretty big.
Service cuts? Even the cuts that the teachers union and others blanched at would have saved a billion, at most.
The stimulus can’t fix New York’s fundamental problem. Wall Street, its economic engine, is no more – but we’re still spending like it’s 2005.
It’s conceivable (if unlikely) that most of the country will have moved on 15 months from now, adjusting to a smaller financial sector. But New York will have a much harder time making the shift, because Wall Street’s been so central to the local economy and tax base.
But adjust it must – starting with labor costs. A super-bubbly Wall Street allowed New York to offer its workers pensions and health benefits more generous than in the rest of the US public sector, let alone the private sector. But the bubble was, in effect, a lie – so the city simply can’t afford to be so generous.
In a year’s time, pension and benefit costs will grow to more than $13.5 billion, consuming nearly a third of city taxes.
Funding these costs decimates the city’s ability to deliver core services – starting with the NYPD. Plus, the stimulus law requires us to spend well over 70 percent of our windfall on education and health care – two bloated parts of the budget that we should be cutting.
Bottom line: The mayor must not give up on his drive to require workers to contribute to their own health plans, saving $357 million a year.
And the city needs him to keep pushing the unions and Albany to agree to a new pension plan, requiring new workers to make higher contributions, and raising the minimum retirement age for uniformed workers to 50.
Bloomberg must not yield to the temptation to shut up about these issues – not even if Albany powerbrokers try to make that a condition for getting our fair share of the stimulus cash.
In fact, he should push for more: Asking civilian workers to work ’til 62 would save money – as would stopping the $100 or so monthly payment for retirees’ Medicare premiums.
Plus, as The Post recently reported, nearly three-quarters of city firefighters are retiring on disability – and thus getting pensions of three-fourths of full pay rather than half. (And no, 9/11-related injuries don’t explain this – the trend started before the terror attacks.)
City Hall should start poring through pension-fund data to see if these disability rates are borne out by lower life expectancies. More, it needs to start facing another big problem that The Post report brings up: Pensions are calculated from a retiree’s last few years of working income, and city workers often put in tons of overtime in those final years – vastly boosting their retirement income.
As the city’s Independent Budget Office notes, only 6 percent of US state and local employees get overtime counted toward their pensions.
Pension benefits are supposed to replace part of a worker’s lifetime income, not reward people who exploit the rules. Bloomberg should start lobbying Albany for a big change here. More, he needs to make sure that workers aren’t gaming the system – that’s a management issue, not an Albany issue.
These reforms, taken together, would save hundreds of millions in their first few years – and far more later on. But if our leaders use the stimulus as an excuse, and opt to wait, we’ll find ourselves in even worse trouble very soon.
Nicole Gelinas is a contribut ing editor at City Journal.