New York Civic: Mayor Tackles Pensions By Henry J. Stern

eHezi Archives 17 Comments

Stern_HenryJ Bloomberg Plans Assault on Rising Pension Costs,

Asks Koch to Lead Drive

Mayor Bloomberg's tenth State of the City speech was delivered this afternoon in a restored 1929 movie palace, the St. George Theater, named for the old neighborhood, an historic district close to the Staten Island ferry. A spinoff of the President’s State of the Union message, the State of the City is an annual ritual which, in prior years, has told listeners about the city’s condition, often as the administration at the time wished it to be.

You can click on the text of the Mayor's remarks here. If you prefer to watch the speech, click here. The video is an hour long.

The speech was well prepared and forcefully delivered, indicating that the Mayor is regaining his groove after a recent series of unfortunate events which are chronicled by aspirants to his office in an article in today's City Hall newspaper by Edward-Isaac Dovere.

One initiative proposed by the Mayor dealt with the pension system:

"In the weeks ahead, we will make pension reform our number one priority in Albany. And today, I'm glad to announce that a great New Yorker has agreed to take up our cause: Mayor Ed Koch. Last year, he formed a group – New York Uprising – that convinced a majority in both houses, and Governor Cuomo, to pledge their support for redistricting reform, something I strongly support, too. This year, he’ll expand his crusade and if you know Ed, he won't do it quietly. Thanks, Ed.

"Working with Ed and our partners in State government, we will work to pass several basic reforms to bring our pension system into the 21st century.

"First, we can save $8 million a year right off the bat by consolidating pension systems, an administrative reform that will not affect benefits at all.

"Second, we'll seek a new tier for employees hired in the future that would raise the retirement age to 65 for non-uniformed workers. That would produce billions in long-term savings, and bring our retirement age in line with the private sector, even as we offer far more generous benefits. We can also save another $200 million every year by eliminating, for future uniformed retirees, what is effectively a $12,000 annual bonus, paid on top of full pension benefits every year around the holidays. City taxpayers just cannot be expected to give substantial holiday bonuses when so many of them are out of work or having their own wages frozen or cut."The third piece of our pension reforms would overturn the State law that prohibits the City from negotiating pension as part of the collective bargaining process. Pension and health care benefits are a substantial part of a City employee's compensation, and so it only makes sense they should be part of the collective bargaining process.

"Right now, State elected officials are setting pension benefits for City workers, and sticking another group – city taxpayers – with the bill. Again, our message to Albany is: we'll pay the bills, but let us get better prices. And the only way we will be able to afford raises for City workers in the future is if we can find some savings in our pension and health care bills. That is not a negotiating stance. It is reality.

"And so today, I will make this commitment: I will not sign a contract with salary increases unless they are accompanied by reforms in benefit packages that produce the savings we need to continue making investments in our future and protecting vital services."

Pension costs are an enormous problem all over the country as, under pressure from public employee unions, governments have given public employees ever more generous pensions, earlier retirement ages, tax-free disability pensions without the necessity of incurring actual disabilities, substantial overtime in the year before retirement which is reflected in swollen pensions, and other abuses negotiated by the finest lawyers, and assisted by pliant actuaries who brazenly conclude that these enhancements come at no cost to the city, without disclosing that they were on union payrolls.

Public employees, like private sector employees, are entitled to decent pensions, and should have the opportunity to contribute to a retirement fund if they wish to receive enhanced benefits. The problem here is that in the classic tug of war between labor and management over wages and pensions, the unions' political strength has driven management into the mud of deficit and despair.

In one way, the City of New York has been attempting, with limited success, to reduce employee pensions for 37 years. The first benefit reduction came on July 1, 1973, when Tier One was superseded by Tier Two, slightly less favorable to employees. A sharper reduction came in 1977, after Fiscal Crisis One in 1974-75. We are now under Tier Five, which covers employees hired after January 1, 2010.  Governor Paterson promised the unions that in exchange for their not blocking the creation of the new tier, there would be no layoffs until 2011 at the earliest.

He almost kept that promise, delaying several hundred layoffs to December, which was practically 2011. Meanwhile, the state fiscal situation worsened due to reduced tax collections because of the Great Recession, Medicaid costs increasing by billions of dollars, and other billions going to supplement the pension fund, which is dependent to a considerable extent on the vagaries of the stock market. Although tax receipts and stock prices are now rising, they have a long way to go before the state's pension contribution can be reduced to an affordable level.

As an example of the way our top elected officials operate, Governor Paterson promised publicly that the state would not borrow any money in 2010 to balance its budget. However, the state deferred the payment of three billion dollars which was due to the pension fund. The result was the same as borrowing: the state has to pay interest on the three billion dollars it now owes the pension fund, and that will add to the state's debt service obligations for the foreseeable future. 

The argument that what happened is not borrowing is specious. Instead of borrowing the money from banks, which might be increasingly reluctant to risk their capital in a state approaching insolvency, he borrowed the money from the pension fund, which is under the sole control of State Comptroller Thomas DiNapoli, a loyalist who served twenty years in the Assembly where he was a trusted minion of the Speaker. That is why he was chosen for promotion to Comptroller.

Discussion of Albany leads to one outrage piled on another. It is hard to fault the unions for trying to enrich their members, when the people from whom they seek the handouts are themselves so hopelessly compromised. Yet reform must begin somewhere, for the simple reason that the current financial situation in which the State of New York is operating is not sustainable, barring an extraordinary turnaround in the economy, and even in that eventuality, relief would be short-lived.

Let me state that the people in Albany are usually (with some exceptions) not wicked or corrupt. They are part of a system in which they remain in power by pleasing others who support their campaigns and could, if they wished, support their rivals. 

The power of union retribution was shown in 2010 in the defeat of Frank Padavan, a state senator from Queens for 38 years, who had served with me in the Lindsay administration. Padavan had headed the Senate Committee on Cities and was an ally of successive New York
mayors. His downfall came after he supported a charter school bill, and the UFT, disregarding his prior fidelity to their interests, switched their endorsement to his opponent, former City Councilmember Tony Avella, who had run for mayor in the Democratic primary in 2009 but was defeated by City Comptroller Bill Thompson. Padavan's severed head could have been spiked and placed on one of the pillars that line the Appian Way, as a warning to other elected officials as to the power of the United Federation of Teachers.

We cannot predict what effect the recruitment of Mayor Koch to the cause of pension reform will have on the legislature. We believe he will try to shine the light of day on practices that have received little attention in the past, except from the beneficiaries of the special privilege. To achieve changes, it will be necessary to arouse public interest in the subject. With the Governors Cuomo, Mayors Koch and Bloomberg (and others if they care to join), a strong assault will be mounted against practices which have led New York and many other states – this is by no means a local problem – to the brink of insolvency.

Perhaps the State needs a Lehman Brothers experience to show the people the seriousness of the fiscal situations. Perhaps it can learn from the experience of others. Initially, the decisions will be made by the powerful three men in a room. But while they can borrow money, they can't print it.

Is the bubble bound to burst?

Henry J. Stern writes as StarQuest. Direct email to him at Peruse Mr. Stern’s writing at New York Civic.  

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eHeziNew York Civic: Mayor Tackles Pensions By Henry J. Stern

Comments 17

  1. the moose has plenty of thoughts of his own…the
    links are posted only to demonstrate that what I have
    been saying for several years is now coming to fruition
    go check the old posts yourself….

  2. Oh! you mean corporate welfare, when the rich pay $uck all and the peasants pay 40% and more. Public sector workers are part of the problem, but it’s the fat cats that need to be skinned first, and I mean big time. This cuntry needs a revolution and we need to take back the country and our government from the wealth and the lobby groups. From the NRA to the CIA, and the secret police, we need to take it all back.
    Vote them all out, especially incumbents who only promote themselves and the status quo.

  3. Right…… this has nothing to do with the cheaters and scammers who drove our banks into the ground, or the thieves who caused our housing market to burst. No one said a word when municipalities did not have to pay into public pensions for nearly a decade. Your tax dollars were mismanaged ! You have focused your attention on the wrong groups. How about printing how much of my tax dollars go to welfare and the like. I want to know how many people collecting welfare have $500 I phones and Blackberries. Don’t piss on my leg and tell me it’s raining. Start where the real fraud takes place. Public sector employees work for a living !

  4. This is not about murtaugh..its about the story on
    the front page of the times…and something I have
    spoken about for over a year…there is a move that
    is taking hold all over the nation for a controlled
    municipal bankruptcy…that is similar to what
    the government did with GM…states and counties
    and cities cannot declare bankruptcy in the true
    sense of the word by they can be permitted to
    re organize with a special master who would have
    the power to open contracts and cut spending obligations including giving a haircut to bondholders
    this is not a threat..this is where all of this is
    going because the unions are stonewalling…frankly
    i would prefer that they continue because once the
    contracts are opened and once the pensions can be
    modified..all of the abuses can be corrected…for
    example even those receiving benefits like pensions
    boosted by overtime could see their benefits cut
    to be in line with public policy…that is no pension
    could ever exceed a percentage of the higest years
    base pay…the unions are playing with fire and they
    don’t yet realize it

  5. Oh please! Murtagh is a political opportunist and a boob. He suggested 5% cuts to city workers salaries as a political stunt to influence suckers like you. He had no intention of fighting for that proposal, and he knew full well that even if he did fight for it the City unions would never agree to open their contacts up in such a manner. There is nothing noble about his call for salary cuts. If you don’t understand that your just as big a boob as Murtagh.

  6. You all better focus on the proposed state budget by Andrew Cuomo coming up in the next few weeks and its effect on Yonkers and other municipalities.Yonkers elected officials, public employee unions including the teacher unions should be making plans now, for reduced state aid along with cutbacks in federal aid (CBDG).John Murtagh was right in recommending five percent cuts across the board for ALL city employees rather than have layoffs.You can vilify Murtagh, spit in his face,throw lit cigarettes at him and let rats loose in City Hall but his way is the only reasonable answer.

  7. In any other envirnoment “stuffing” pensions like they do it in NY and then not paying taxes on it (a hush, hush, deal) would be fraud. And it’s the politicians who have allowed this charade to go on. All parties are guilty.
    One thing about Bloomberg is that he at least tries to protect us.

  8. The wall street journal knows exactly what its talking one is demonizing were struck
    and now the bill is coming due..the problem is that
    there is no money..states all over the US are taking
    action to ban public employee unions from collective Camden NJ they just laid off 100 cops
    why is it so unreasonable that to save their collegues
    jobs they can’t renegotiate their contracts, contribute
    to their health care like everyone else, contribute to
    their pensions like everyone else and stop the practice
    of stuffing ot into pensions to double their value..
    there is nothing unfair about any of this…and both
    republicans and democrats know it…read doug shoens
    article..he is the democratic pollster of record

  9. To assert that public employee pensions are what brought NY to the brink of insolvency is absurd. Shine a light on the entitlement racket instead. On a broader note this state has a ridiculous spending problem overall. Stop demonizing public employees!

  10. Amicone needs to read this, and do something about the abuse in Yonkers. …. He did do something he doubled our property taxes in 7 years, as a conservative republican. What a joke. Let’s see who the wonderful resident will replace this clown with, cause all the one running for Mayor are huge tax and spenders.

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