While the initial conflict over the New York City budget has been about teacher layoffs, the Mayor has said that the one agency that must be protected is the Police Department, and one can expect the City Council to propose additional spending cuts on other things to prevent the firehouse closings in the proposed budget. As it is, the head of the Police Benevolent Association and the Unformed Firefighters Association have let it be known that since New Yorkers are cutting their budget, they can expect to be left to be victimized by criminals and die in fires more often. So how much less will we citizens be spending in exchange for this lower level of protection? The spreadsheet attached to this post gives an indication.
And of course we are not paying less for less protection, we are paying more. From FY 2008 to FY 2011, when the Consumer Price Index increased 4.3% and many companies and families were forced to cut back due to the recession, total NYPD spending increased 20.6% and its Personal Services spending increased 20.9%. Total FDNY spending increased 16.3% and Personal Services spending increased 14.7%. And total Department of Corrections spending increased 10.4% and its Personal Services spending increased 9.5%.
And under the FY 2012 budget proposal, total NYPD spending would increase 1.9% with a 4.2% increase in Personal Services spending, and total FDNY spending would increase 2.7% with a 4.3% increase in Personal Services spending. Total Department of Corrections spending would increase 4.9% with a 4.2% increase in Personal Services spending. As of now, I haven’t read about the head of the Department of Corrections union threatening the city with jailhouse riots and prisoner escapes, but I assume that is coming. Despite no “cuts” at all.
Except in OTPS. The Mayor has proposed deep cuts in OTPS (Other Than Personal services) spending by the NYPD and FDNY, by 43.0% and 30.4% respectively. I hope he will be encouraging them to bring bicycles, because the city may not be able to afford the gasoline for them to drive to the scene of a fire or crime. OTPS spending is proposed to be far less in FY 2012 than it had been in FY 2008. At the Department of Corrections, OTPS is proposed to decrease 3.1%.
During the FY 2008 to FY 2011 period, wage and salary spending increased 20.8% at the NYPD and 13.8% at the NYFD, while pension spending rose 18.7% and 14.6%, and fringe benefit spending rose 24.7% and 17.5%. The heads of the police and fire unions are outraged at this inadequate increase in their compensation, with the head of the firefighters’ union implying that a senior citizen died because New Yorkers aren’t paying enough in taxes for firefighters. Now the hospital workers union has often run ads claiming it would let our babies die if Medicaid spending didn’t increase as much as they demanded, but harm to children hasn’t been considered a serious threat in New York City. In threatening harm to senior citizens, the firefighters’ union is showing it is serious. At the Department of Corrections, the increases for wages and salaries, pensions and fringe benefits were 5.1%, 9.5%, and 21.9%.
Under the FY 2012 budget proposal, pension spending is proposed to increase more in one year that it did in the prior three – by 20.6% for the NYPD, 20.8% for the FDNY, and 19.1% for the Department of Corrections. Fringe benefit spending is expected to increase as well, by 5.4%, 4.3% and 5.7% respectively. Despite higher spending on police, firefighters and corrections officers overall, therefore, spending on wages and salaries is proposed to decrease by 4.9% for the NYPD, 6.0% for the FDNY, and 1.1% for Corrections. And, as mentioned in prior posts, I don’t expect those who work in these agencies to work harder to make sure that, since their total compensation is soaring, the quality of services they provide is at least as good. I expect that quality to fall as fast as the decrease in wages and salaries, perhaps faster because public employees with less seniority are paid less but are expected to do more work.
New York’s police officers, firefighters and corrections officers receive a pension after working just 20 years, which they can draw for the rest of their lives. Two years in retirement for each year worked is more than a possibility for these city employees, and in fact according to a spreasheet from actuary John Bury the number of retired police and firefighters exceeded the number on the job by a substantial amount. I calculated that at the time they were hired, the pension that was promised police officers and firefighters now approaching retirement should have cost the taxpayer about 30 percent of payroll every year they worked, a large amount. If less was in fact contributed during some years, perhaps using the late 1990s stock market bubble as an excuse, then that money will have to be made up later, with interest, a crushing burden.
Police officers, firefighters, and corrections officers didn’t have their retirement age suddenly reduced as it was for New York City teachers, as it was low to begin with. But the 2000 pension deal added a very expensive inflation adjustment, and brought back the possibility of pension spiking through massive overtime, by basing pension payouts on the final year’s earnings rather than the last three years. Subsequent deals allowed more and more retirees to qualify for disability pensions with far greater payouts, even if the disabilities were not job related. And pension bonuses were added for corrections officers over the objection of then Mayor Giuliani, and soared in cost for police officers and firefighters far above the cost that had been admitted when those bonuses were added.
With a combination of unfunded, retroactive pension enhancements, cuts in employee contributions, and perhaps past taxpayer underfunding, there is a huge hole in these pension funds. Taxpayer contributions to the pension funds in FY 2012 are expected to equal 37.8% for the Department of Corrections, 66.7% for the NYPD, and 80.4% for the FDNY. Compare that with your employer’s 401K match.
And it may not be enough, because actuary Bury finds that New York City is very different when it comes to police and firefighter pensions, and not in a good way. While pensions for other types of pubic employees are underfunded throughout the nation, “with the glaring exceptions of New York, Chicago and Baltimore almost all the Police & Fire plans (even Los Angeles and Miami) have funded ratios around 100%. Maybe it’s stronger unions or that these professions are not in Social Security (at least that’s the case in New Jersey) but the politicians don’t seem to want to mess with this sector…yet.” Actually in New York retired public employees, including police and fire, do get Social Security in addition to their pensions, those employees contribute less to their pensions than public employees anywhere else, and those pensions are exempt from state and local income taxes at any age, but I digress.
Bury put the funded ratio of FDNY pensions 45.17%, and for police pensions at 68.02%. The pension payouts equaled 16.65% of assets for the FDNY and 10.05% for the NYPD. Payouts at 4.0% to 6.0% of assets are more like what they should be. For the pension funds to be funded at 100%, it would have to be possible for taxpayers to stop contributing to the pension funds today, with the funds nonetheless having enough money to pay for all the benefits for existing retirees to the day they die, and all the benefits current employees have already earned until the day they die. As it is, the FDNY pensions have about six years of money saved up. It’s the equivalent of a Ponzi scheme, with NYC taxpayers and service recipients likely to fare as bad as those who invested with Madoff.
So there are the changes in spending during the recession, and those proposed for next year. We are and will be paying more for less, even as politicians spout “do more for less.”
So how does New York’s spending in these categories compare with other places? According to March 2008 public employment data from the U.S. Census Bureau, New York City had 555 police officers per 100,000 residents, compared with a U.S. average of 211. That’s well more than double the U.S. average number of police officers relative to population. Comparisons for Fire and Corrections are not as direct, because not every state has the same requirements for housing people in local jails as New York, and many places have volunteer firefighters rather than professionals. But for what it’s worth, NYC had 179 firefighters per 100,000 residents in March 2008 compared with a U.S. average of 106, and 156 corrections officers compared with a U.S. average of 88.
As the pension disaster envelopes the country, leaders of some public employee unions are making the case that they have agreed to lower salaries in exchange for richer pensions. There are some New York City public employees who can make that case. Private sector workers in Downstate New York, excluding the overpaid financial sector, earn on average about on-third more than the U.S. average, including a 30.9% advantage in 2008. The cost of living here is higher in proportion. Payroll per employee for NYC police officers, however, was 1.9% lower than the U.S. average for police officers in March 2008, according to Census Bureau data. It was just 5.2% higher in NYC for firefighters.
This is offset by much richer than average pensions in New York. In Los Angeles, for example, even after a pension enrichment in 2000 police officers were required to contribute 8.0% of their salaries to their pension plans for their first 30 years of work (there is an employee share in NYC, but the city pays the employee share as well as the employer share for most officers). And Los Angeles police officers and firefighters can retire after 20 years as in New York, but their pension would only equal 43.0% of pay compared with 50.0% in New York. To get to 50% of pay (actually 52.0%), in Los Angeles 24 years of work is required. And the pay on which the pension is based does not include overtime in Los Angeles, limiting pension spiking. There is no pension bonus in Los Angeles, and while the cost of living increase is somewhat more generous in LA when inflation is high, it can also run in reverse. In New York retired public employees get a 1.0% pension increase every year even when wages and prices are falling. A 2009 revision made the deal for future Los Angeles police officers and firefighters even less generous.
Lower pay for those working, balanced by richer pay and benefits for those no longer working, seems a poor combination for attracting qualified and motivated workers. And indeed, the NYPD was affected when Mayor Bloomberg and the unions cut a deal to reduce the pay for new hires by 40.0% to pay for a better deal for those cashing in and moving out (and also agreed to blame it on an arbitrator). But by and large, the NYPD and FDNY have done their job in the past, even if they have required many more employees than similar agencies elsewhere to do it. We’ll see what they decide to give us next year.
But then again, it’s hard to imagine any salary reduction making up for pension funding at 67.0% or 80.0% of payroll, and perhaps even higher over the next few years. The pension contributions of and health insurance payments for those retired are likely to soar far above those wages and health benefits of those still working. Other cities are unlikely to every pay as much, and not just because their pensions aren’t as rich. Because it would bankrupt them.
Corrections officers in New York, meanwhile, earned 32.4% more than corrections workers nationwide in March 2008.
In the case of teachers, discussed in the prior post, they were as underpaid in New York as police officers in the mid-1990s. What New York’s children got in exchange was a revolving door the uncertified, the unmotivated, and those who could not get a job anywhere else, with better teachers either working in the suburbs to start with or moving there as soon as possible. As of March 2008 New York’s teachers earned 21.0% more than the U.S. average, but not all teachers are paid year round. New York’s teacher cash pay per student was $8,164 in FY2008, nearly double the U.S. average of $4,205. That’s nearly $100,000 in teacher pay for every 12 students, three years ago.