Listening to some mayoral candidates, you’d think that New York City’s biggest challenge was how to spend billions of dollars in spare revenue. But no matter how big the spending dreams, the city’s next mayor may well face a fiscal nightmare.
New York’s budget has grown hugely over Mayor Bloomberg’s 12 years in office, and it may finally have outstripped the Wall Street-generated tax revenues that drove it.
Spending from city revenues has risen from $28.9 billion when Bloomberg took office to $47.5 billion in fiscal year 2012; it will be an estimated $50.2 billion in 2013.
Much of this spending has gone to rising compensation, and especially benefits, for city employees. The annual price of financing workers’ pensions grew from $1.8 billion in Bloomberg’s inaugural budget to $8 billion in 2012. The tab for workers’ and retirees’ health care nearly doubled.
The city’s debt has also soared. According to the Citizens Budget Commission, total city debt hit $105 billion last year — almost double what it was when Bloomberg entered City Hall.
As a result, pensions, health care and debt service alone now take more than 40 cents out of every dollar in taxes and fees city residents pay.
New York’s budget absorbed some of these spending hikes during Wall Street’s go-go years. But since 2008, the city has closed budget deficits with a series of one-time revenue tricks that are getting harder to duplicate.
The good news is that the next mayor could start taming a swollen budget without cutting deeply into services. The bad news is that the only way to do it is to rein in worker-compensation costs by wringing savings out of the unions — not a strategy that the mayoral candidates have embraced so far.
The health plan for New York’s workers is one of the best and most expensive in the country for employees of major cityies, and nine out of 10 city New York workers don’t have to contribute a dime toward their premiums. Further, the city pays the full cost of health care for retirees and their families.
City workers in other places like Boston, Houston, and Phoenix contribute from 20 percent to 27.5 percent of their premiums, while New York state employees cover 16 percent or 31 percent of the cost. Most municipal governments also require their retired employees to contribute to health premiums.
The Independent Budget Office estimates that if New York City workers contributed just 10 percent of their premiums, and if city retirees on Medicare paid for 50 percent of their Part B premiums (which would amount to about $1,000 a year), the city could save $650 million in 2014. If New York instead required its employees with family coverage to pay for 25 percent of their premiums and asked retirees too young for Medicare to pay half their premiums, as Chicago does, the annual savings would rise to $1.8 billion.
In a recent Zogby poll commissioned by the Manhattan Institute, 60 percent of those surveyed said that city workers should contribute to their health premiums at a typical private-sector rate. Only 28 percent disagreed.
The next mayor may be unable to do much about the city’s skyrocketing pension costs, since the state, not the city, controls them. But he can certainly try to pay for employee benefits by negotiating productivity savings with unions on everything from hours worked to anachronistic pay incentives like “wash-up time.”
Skeptics might claim that such negotiations are doomed by New York’s restrictive collective bargaining rules. But the key to bargaining is presenting other, less palatable, cost-saving options to unions.
When Mayor Rudy Giuliani took office in 1994, the sanitation union refused to yield on staffing changes, even though recycling had cut the workload so sharply that many collectors only had to work half-days for full pay. So Giuliani promised to privatize city sanitation routes if he didn’t get savings, and the union finally compromised, saving the city hundreds of millions of dollars.
The need for cost-cutting comes as the tax burden has risen under Bloomberg to a 20-year high relative to size of the city’s economy, according to research by the Manhattan Institute’s E.J. McMahon. New York takes, on average, about $900 a year more in taxes on a family earning $50,000 a year than the average of other big cities, according to a study by the chief financial officer of Washington, DC, and nearly $1,800 a year more from a family earning $75,000 annually.
The mayoral contenders have largely avoided talking about the city’s impending budget crisis. They are banking on citizens bringing a false sense of complacency into the voting booth. But sooner or later the city will have to confront its darkening fiscal picture.
Adapted from “After Bloomberg: An Agenda for New York,” the new special issue of the Manhattan Institute’s City Journal, where Steven Malanga is a senior editor.