It's hard to get motivated to write about the city budget, given that it's too late to do anything about most of the things that have bothered me for so long. The vested interests are vested, powerful and insatiable, and its time to give up on public services for anyone else in the future, or even the basic needs of the less well off, even though this will still be a relatively rich country when it is through getting poorer. It's also hard to say something worth saying, given that what is out there as a proposal may bear little resemblance to what actually occurs from July 2009 to June 2010, and is misleading about even what is expected at this point. So rather than spend time to write a long analysis few people will read or care about anyway, I'm going to make just one point. As predicted and oh-so-predictable, the Mayor's proposal under-funds the massively costly pension benefits the powerful have promised to themselves, deferring while increasing their cost until after his re-election. Just as is happening elsewhere in the country. Are there any philosophers or theologians out there who can assure me that people actually have free will?
In a "win for children," in the words of UFT head Randi Weingarten when describing the deals that led up to this, pension spending at the Department of Education is proposed to rise by $167 million, and debt service by $106 million, while salaries for those providing services fall $568 million. You’ll be paying more taxes, but the money will go to the past, not for education or any other public service. The city may indeed see enough federal "stimulus money" to offset part of that, although I agree with the Mayor that the state legislature is unlikely to give NYC its pro-rata share with so many employees added to the school district payroll elsewhere in the state. In every budget crisis, the city’s share of state school aid is cut, and in some its school aid is cut outright while being increased elsewhere in the state. I expect a repeat. Did you notice that STAR aid was cut out of this state budget for only one place in New York State? Guess which one. Of course, they say they’ll make up for it in the next state fiscal year before the city’s fiscal year ends in June. Presumably in exchange for the city giving up something else.
But if you think that $167 million is the actual amount of money in additional pension contributions the NYC schools will actually have to divert out of the classroom, consider this. The Mayor budgets a decreased amount of city pension contributions for other agencies for FY 2010, at a time when the pension funds are shrinking rapidly due to investment losses in the face of an assumed 8 percent return. That’s right, the city will somehow be able to contribute less to the pension funds while the Mayor is running for re-election despite massive investment losses.
How is it that the city is being allowed to contribute less rather than much, much more (and massively more for teachers, given the recent pension deal)? The explanation you get in the budget documents is this: "pension expenses for 2009 and beyond are based on valuation estimates prepared by the Office of the Actuary and reflect current funding assumptions adopted by the trustees and supported by state law." I guess getting a job as the head of the Office of the Actuary is kind of like Moody’s, S&P and Fitch getting a contract to rate or mortgage bond — you have to be prepared to tweak the assumptions a little.
Might you think this is the result of the phase in of results, good and bad? Hardly. The Mayor predicts a very modest rise in pension expenses after FY 2010, from $6.5 billion to $7.5 billion in FY 2013. Salaries and wages are proposed to be lower, which means many less workers providing many less services, since productivity never goes up. Could the Mayor really manage to keep pension contributions that low for that long, and then dump a fiscal disaster on his successor the way Giuliani did on Bloomberg (and the rest of us)? Or does he just want to get through November?
Does the Mayor’s proposal for lower pension benefits for higher contributions by new hires explain the limited pension costs? No. The Mayor proposes to save a mere $200 million per year by reducing the take home pay and pension benefits of future public employees. Perhaps he plans to make the unions even happier by slashing starting pay again, and then cutting the work expectations of those hired. But no matter how much you cut the compensation of future public employees, it isn’t going to make a significant dent in the costs up front. And pension proposals that would reduce the costs up front, which I would propose, no one is talking about.
Mayor Bloomberg has repeatedly sold out our future, but he did do one thing to reduce the extent to which our future is diminished — contribute money to fund for retiree health benefits, so future New Yorkers would not be expected to sacrifice to pay for the services (and tax breaks) received by past New Yorkers. Instead, that entire fund will be used “to help pay off pension liabilities that arose unexpectedly due to the sudden downturn in the capital markets.” Unexpected by whom?
If you aren’t getting the idea that things are about to become “unexpectedly” worse for most New Yorkers after November 2009, and again after the Governor, state legislature, and federal Congress are re-elected in November 2010, consider that the Mayor’s budget attempts to justify loading the city with variable rate debt on the grounds that it will be cheaper in the short run — perhaps all the way until the Mayor’s re-election. Variable rate debt is always cheaper in the short run, because the city bears the risk of rising rates. For bonds issued today, the city may be paying 2% variable instead of 4% fixed, so it is cheaper to issue variable rate debt. A year from now, it may be paying 5% variable instead of 7% fixed, making it once again cheaper to issue variable rate debt in 2010 even though we are being crushed on the variable rate debt from 2009. A year later, as it becomes clear to foreign creditors that we cannot pay our debts, the city may be paying 15% on its variable rate debt from 2009, which it could have been paying a fixed 4%. At that point, Wall Street might make a few more campaign contributions and have the city lock in at 17% fixed before interest rates fall, so it can make more money. Sorry Bloomberg, where is no excuse for variable rate debt with fixed rates as low as they have been. You (and many others) sold out the future, pure and simple, and you are raising our taxes and cutting our services to pay for it.
The point of variable rate debt, however, is to postpone even more sacrifices until after November 2009. Which is all that can be done at this point, as state and local governments are through handing out additional benefits, other than even more pension enhancements.
As predicted, the budget is a prescription for a diminished future, permanently. So there really isn’t much point about writing about it now, or in June. The real budgets come later. And no press release will be issued, no presentations given. Just a few references to the “unexpected” and “uncontrollable.”
And forget any reference to what any tax increases are for. The 18% higher property taxes were are paying were supposedly to improve education, but they will be used to pay for teachers to retire at 55 instead of 62, with the return of the quality of education to the level the powers that be find acceptable for the inferior people perhaps delayed until the stimulus money runs out. And those tuition increases at SUNY? The state has decided to have 10% go to reduce service cuts at SUNY, with the rest going elsewhere, presumably to debts and pensions. That's what future city service cuts and tax increases will be for, too. If we don't pay it now, we will surely pay even more later.