Monday, December 30, 2013
Linking The State 2011 Contract With The Proposed Five Year City Contract Is Like Comparing "Apples To Oranges".
I am somewhat astounded that anybody with a bit of intelligence believes that the Bloomberg Administration's proposal that follows the pattern set by the State back in 2011 is a realistic proposal. There are many reasons why the City's contract proposal is not an appropriate starting point for negotiations for the next five year contract.
First, let me remind the readers what the State contract with their unions ended up to be. The five year contract gave the unions a total of 4% in raises (0,0,0,2,2) for the length of the contract. The City decided that this pattern was still too expensive and wants to give the Municipal workers a 2.5% increase for the five years (0,0,0,1.25,1.25). I guess it was Mayor Bloomberg's way of "twisting the knife" by proposing such an insulting contract. Why I believe using the State contract is not an appropriate pattern for the next City contract? Let's do the analysis.
The economy back in 2011 was slowly crawling out of a deep recession and there were fears of a "double dip recession". The State economy was in shambles with high unemployment and local governments laying off thousands of employees. The State was talking about 9,800 layoffs and layoff notices were actually sent out in some cases. Furthermore, the State cut budgets across the board and imposed a 2% property tax cap on local governments and school districts, while cutting State aid. Under this dismal economic cloud, it was paramount for the State unions to negotiate a contract that protected its members.
In 2011 there was a projected $10 billion dollar deficit. The State responded by cutting budgets an average of 2% throughout the State and had to adjust to receiving reduced federal funding. Combined with rising unemployment, less income and sales taxes coming in, the State was in poor financial condition. The result was a deficit that must be closed to obtain a "balanced budget". Therefore, the State made a compelling case to the unions that "job security" was better than laying off the members.
Even in good economic times, the State unions have little leverage when it comes to contract demands. This is especially true when the Republicans controlled the State Senate. Usually, the only time the State unions can obtain a generous contract is when the three political entities, the Governor, The Assembly, and the Senate decide, for political reasons to grant one.
Now lets compare the City of New York financial condition in 2014 with New York State of 2011 and see why its "apples and oranges", when it comes to using the New York State contract as a pattern.
The New York City economy weathered the recession quite well and entering into 2014, the City has been a magnet for economic growth and is the tourist mecca for the world. The City coffers are full and more people are entering the workforce as the City continues to grow in population. Furthermore, the stock market has risen over 30% and bonuses in the financial district will increase between 5%-10% this year. The economic outlook globally is expected to improve in the next couple of years, this can only further improve the City's finances since the City is one of the main areas that benefits from a rising global economy.
Unlike the State, the City has a projected two year budget surplus of $4.3 billion dollars based on projections by the conservative Independent Budget Office. This surplus is based upon the existing level of unemployment, economy, and tax base. However, if the economy continues to improve, as it is expected to do, the City surpluses may be significantly higher than estimated.
There is little doubt that the Municipal unions have more clout than their State counterparts. Police, Fire, Sanitation, and Teachers are an important component on how a City is evaluated by. The support by unions can "make or break" a politician and the labor connection is an important consideration for politicians who want to succeed in office. The poor showing by the Republican Mayoral candidate Joe Lhota shows how important it is to have labor support, he had none. Even billionaire Bloomberg needed to "buy the unions silence" by making sure they didn't oppose his third term power grab for it to succeed.
For the City to claim that the State contract with their unions is the pattern is simply "apples and oranges" and not appropriate. The best way to start negotiations with the Municipal unions is to use the actual City inflation rate for the first four years (1% - 2.5%) of the contract (now 2.2% for 2013) and an estimate for the last year as a starting point to establish a new "City pattern".