NYC’s $7.8 Billion Budget Liability
NEW YORK—Mayor Michael Bloomberg will give the next mayor of New York City a balanced budget to begin the new mayoralty, however, what is missing from the balance sheet could present the most trouble for his successor. Over 100 contracts with unionized city workers have not been renegotiated for years, and liabilities are accruing for the city.
Auto-renewing of the contracts have keep city services going, but workers have not received pay raises or other benefits due to a series of failed negotiations. Tight finances beginning with the 2008 economic downturn broke a cycle of regular pay increases, setting the scene for today’s growing conundrum, where Bloomberg is insisting the city does not have the money to pay for raises not awarded in years past.
The unions want retroactive pay raises—at an estimated cost of $7.8 billion. Labor wages, health benefits, and pensions for city workers as a whole represent 55 percent of the fiscal year 2014 budget.
Bloomberg has offered a raise going forward, albeit smaller than what the unions want, but he refuses to consider paying out billions in back pay. The fiscal year 2014 budget includes $265 million set aside in the city’s labor reserve for union raises of 1.25 percent.
“The city does not have the monies to do anything more than that at the moment,” Mayor Bloomberg said at his May 2 budget announcement. “As a matter of fact, we are struggling to be able to do what we have an obligation to do.” Bloomberg also suggested due to timing constraints the finalization of new contracts will likely fall on the next administration to complete.
This leaves the next mayor holding the burden of responsibility to deal with the issue of retroactive raises, and still no source of money in which to pay the billion-dollar lump sum—a figure that only grows with each passing year a new contract is not put into play.
“It would be an enormous challenge and very daunting to be able to balance your budget in the context of a fiscal year and have to deal with multi-billion dollars in the deficit by them paying out these retro wages,” said Maria Doulis, director of New York Studies at Citizens Budget Commission.
Times Have Changed
As candidates hit the campaign trail, they are beginning to pitch priorities for a new administration: more police officers, improvements in transportation, and major reforms in education and child care. All these initiatives will require city funding, and the new administration faces a projected budget deficit in fiscal year 2015 of $2.2 billion.
“Even if the next mayor is someone who is supposedly more friendly to the unions, the money is just not there,” said Nicole Gelinas, senior fellow at the Manhattan Institute.
“Whatever is their priority, it is probably not just giving raises to unions for nothing more gained,” said Gelinas.
When Gov. Andrew Cuomo took office in 2010, he too was faced with a multibillion-dollar budget deficit. When he negotiated the outdated state labor union contracts as his first order of business in 2011, he offered no raises for the first three years and 2 percent raises for the two remaining years of the contract. This set a new precedent in the state, one Bloomberg has looked to under the current fiscal climate.
Gelinas said following the economic crisis of the 1970s, Wall Street brought New York City back from the economic brink. The financial sector generated sizable tax revenue from 1982 to 2007 until the Great Recession hit.
The additional revenue allowed the city to pay for inflated pension, health care, and generous union contracts, but Gelinas believes those times are over, at least for now.
Regardless of the balance sheet, the next mayor will have to clear up the contracts very quickly after assuming office.
“Once the new person is in, the union leadership will be under pressure from its members to get the deal done,” Doulis said.
The unions have grown tired of negotiating with Bloomberg, noted Doulis, as evidenced by the continued rejection of his proposals. The latest offer to unions, announced by Deputy Mayor Cas Holloway on April 17, included no retroactive pay, and required workers to pay for a portion of their health care.
“It’s a total disgrace of negotiations,” Harry Nespoli, the chairman of the Municipal Labor Committee, which represents about 500,000 union employees through a coalition of 100 unions, told Crain’s New York.
Both Doulis and Gelinas believe the unions are banking on negotiating a better deal with the next mayor, but both experts agree finding money to settle the issue of retroactive pay appears out of reach.
Doulis said alternately, the unions may try to negotiate for a longer term deal to at least guarantee a better outcome going forward.
Gelinas said the next mayor could also punt the back-pay issue by making Bloomberg the scapegoat. The new mayor could continue to refuse retroactive pay, and negotiate only for the years going forward.
“If I were a union voter, I would not necessarily think that if the next mayor is a Democrat, we will get huge raises,” Gelinas said. “The fiscal reality is likely going to prevent that.”