Since the documents I am using as the basis of this analysis of the New York City budget are in the “Budget Summary” documents, a large number of agencies have ended up lumped together as “Other,” and that is how they are listed in the spreadsheet attached to the first post in this series. The largest among the included agencies are the Department of Environmental Protection, which manages water and sewer infrastructure, the Department of Transportation, which manages the city’s streets, Parks, Libraries, Cultural Affairs, and Housing Preservation and Development. A host of smaller agencies that could best be described as the bureaucracy. The budget proposal for these agencies, and the city-funded portion of the City University, are discussed in this post.
Like the social services and health care agencies, many of the agencies in the “all other” category have most of their work done by private companies, generally the construction industry and non-profit organizations such as the city’s museums, zoos, botanic gardens, and other cultural institutions. In fact much of their spending fall under the capital budget rather than the operating budget, even if it is little more than repaving existing streets and replacing existing water and sewer mains on an ongoing basis.
Of the $9 billion these “Other Agencies” are proposed to spend in FY 2012, therefore, $3.75 billion is for agency OTPS (Other than Personal Services) including contracts and purchases of supplies, and $2.6 billion is for Debt Service on debts run up for capital spending, and “capital spending.” Personal Services spending – on New York City public employees – accounts for just $3.3 billion, or just over one-third of the total.
From FY 2008 to FY 2011, total spending increased by 13.1% for the “other agencies” while the Consumer Price Index increased just 4.3%. Personal services spending increased 11.7%. Like the Departments of Homeless Services and Health and Mental Hygene, but unlike agencies such as Education, Police, Fire, Sanitation, and Correction, the “Other Agencies” are proposed for real cuts in total spending from FY 2011 to FY 2012 – at 6.0% in total spending. Overall spending by the City of New York is proposed to increase 3.6%.
The FY 2012 Budget Summary does not include more detail on reductions in total spending, but on page 18 there is more detail on the reduction in “city funds” (ie. not federal and state aid), not in actual dollars, but compared with some expected baseline increase. The already experienced reductions for FY 2011 are just 2.8% for Education, 0.9% for Police, 0.4% for Fire, 0.4% for Correction, and 1.7% for Sanitation. Among the “other agencies,” in contrast, the already experienced reductions are 5.1% for Housing Preservation and Development, 4.9% for Transportation, 5.4% for Libraries, and 5.4% for Cultural Affairs. The Parks Department got a 1.6% increase, and has been a higher priority for the Bloomberg Administration and the current City Council than it had been in the Dinkins and Giuliani years.
But under the FY 2012 budget proposal, Parks and Recreation would be cut 11.6%, along with another 8.0% for Transportation, 8.0% for Libraries, 7.9% for Housing Preservation and Development. The overall decrease is 4.1%, because Education, Police, Fire and Corrections are being reduced less than that.
Within the Personal Services category, the “Other Agencies” followed the pattern of rising spending on the retired, and rising and then falling wages for those still working. From FY 2008 to FY 2011, wages and salary spending increased 8.3%, with taxpayer pension contributions up 28.6% and fringe benefit costs up 16.2%. And under the FY 2012 proposal, wages and salaries in these agencies are proposed to be reduced by 8.5% — to less than in FY 2008 – while taxpayer pension contributions soar another 29.2%, to 20.5% of payroll. Fringe benefits are proposed to fall 0.7%, with increases for the retired presumably offsetting reductions for the fewer people still working.
When those NYC public employees now approaching retirement were hired, they were promised a full pension at age 62 after 30 years of work with employee contributions at 3.0% of salary, with a not inflation-adjusted pension based on the final three-year’s pay. I estimated that those pensions should have cost the taxpayer 8.8% of payroll throughout those employee’s careers out of a total cost of 11.8%. If the city paid less in some years, perhaps using the stock market bubble as an excuse, that’s an off the books debt past city residents have shifted to future city residents. One among many debts. This accounts for some of the soaring cost of pensions today.
Like the sanitation workers as described earlier, most NYC public employees benefitted from the 2000 pension deal which eliminated their pension contributions after ten years, provided an automatic inflation adjustment (retroactive for already retired workers), and reintroduced the possibility of pension spiking by basing the pension amount on the last year’s pay.
But city workers have been repeatedly allowed to retire much earlier than promised under “pension incentives” for early retirement to “save money,” which end up costing money when their replacements are hired. And in a 1995 deal by Giuliani, most NYC public employees were allowed to retire at 57 instead of 62. This too was described as a money saver, in that the employees were required to contribute an additional 1.85% of their pay to qualify. And unlike in the 2008 deal for teachers, when 55-year-olds were allowed to walk out the door without contributing a dime, or previous and later pension “incentives,” under the 1995 deal city workers were required to “buy back” past years of work at 1.85% of their pay, so that level of contribution (but not investment returns on it) would have been present from the start of their careers.
But I have calculated that not even including the cost of retiree health care, the new Tier IV would have required 20.4% of payroll to be deposited into the pension funds rather than 11.8%, and even with the higher share contributed by the employee, the cost to taxpayers rose from 8.8% of payroll to 15.6% of payroll, or nearly double. And the city is now covering the cost of retiree health insurance for seven years before Medicare picks up most of the tab, rather than just three. How could that “save money?” Easy. They didn’t pay for it then, so it saved money then, but we sure are paying for it now.
The pension situation has also affected what taxpayers can expected in public services in a way that most of those following state and local government haven’t heard about, because it has been a national issue. Over the past then years the cost of construction for the City of New York, and the MTA, has soared. That could be explained by competition from private projects during the housing bubble, but not now. So what is going on?
Construction workers tend to be hired for individual projects, and work for many employers in their careers. So the construction industry and unions have set up multi-employer pension plans to secure their retirement. Like public employee unions, many construction unions put in place irrevocable retroactive pension increases during the stock market bubble. The union leaders of the time and their generation of workers then merrily headed off for Florida (on in the case of some unions, jail) years earlier than they had been originally promised. The result is a funding crisis for the multi-employer plans. And while the public employee unions can force people to pay for their pensions in taxes or risk going to jail, the employers in multi-employer plans can only raise prices so much or consumers will take their business elsewhere, or not buy at all. And when some of those businesses go under, the burden of past underfunding on the rest increases.
The result has been a frantic search for a patsy to pay for those who departed for Florida early. The first losers, from what I heard from NYC construction workers a few years ago, were the workers still on the job, who had their own pension contributions increased to cover the earlier retirement of the predecessors – something Mayor Bloomberg, the New York Post, the Daily News etc. are unwilling to contemplate for public employees. Next, the unions had to try to squeeze the employers, which worked when they had plenty of private work but didn’t work as well when the housing bubble burst and lots of construction companies went belly up. So who is left?
The possibility of a federal bailout of multi-employer plans was brought up in Washington, but the Federal Government was busy with Wall Street. So here we are. Did I mention that the prices the city and MTA pay for capital projects has soared? We aren’t just getting less for more from public employees.
A few notes on C.U.N.Y. In New York’s government of, by and for the seniors and insiders, public higher education — C.U.N.Y. in New York City and S.U.N.Y. in the rest of the state — has been a particular target of budget cutters. During and after recessions, it is common for students to take much longer than four years to graduate, because cuts in teaching staff mean required courses, as for majors, are not offered. While private colleges and universities have combined reduced teaching loads with luxury-class student amenities, New York’s public universities are bare bones – with underpaid adjuncts instead of cosseted tenured professors. Unlike in most other public services, the state legislature had emphasized affordability and squeezed costs in higher education. And students in the Northeast are far more likely than those elsewhere to attend private colleges and universities, limiting the political clout of public higher education.
I would expect that S.U.N.Y. and the state-funded portion of C.U.N.Y. have absorbed some real budget cuts, although the state budget is not presented in a way that is intended to be understood, so I generally don’t bother to look at it. Looking back to March 2008, local government higher education – generally community colleges – employed 109 full time equivalent workers per 100,000 U.S. residents, compared with 87 in New York City and 156 in the rest of the New York State. The payroll per employee in this category was 4.8% below the U.S. average for instructional workers in New York City, and 27.1% above average for non-instructional. The average private sector worker, excluding Wall Street, earned 30.9% more than average that year. Generally, community colleges are classified as local government by the Census Bureau and public universities and colleges as state government, because that is who runs them and subsidizes them. I assume it is the same here.
Turning to the New York City Budget Summary documents, the City of New York has apparently spared CUNY thus far, with an 18.2% increase in total spending from FY 2008 to FY 2011 that exceeds the 10.1% increase in city spending as a whole. The Personal Services increase was 21.1%, with a 14.7% increase for wages and salaries, a 46.2% increase for pensions, and a 38.5% increase for fringe benefits. OTPS increased just 10.4% while debt service spending fell 8.3%.
Under the FY 2012 budget proposal, however, the community colleges would once again be cut disproportionately – by 4.2% for total spending (compared with a 3.6% spending increase overall), 0.7% for personal services, and 18.1% for OTPS. Somehow the city expects Fringe Benefits spending to fall 17.6% as pension spending rises 19.3%, a change that I have double-checked more than once (perhaps it is an error in the city’s documents?). The “city funds” reduction on page 18 of the new Budget Summary shows a cut of 8.0%, in line with perpetual targets such as Parks and Recreation, Libraries, and Transportation.
In FY 2012, the pension costs of NYC’s community colleges are proposed to equal 16.3% of wages and salaries, compared with 32.8% at the Department of Education. I wonder if it would be cheaper to provide every NYC senior with a year of community college, rather than another year of high school?