Mayor Michael Bloomberg wants cuts in new City workers’ pensions.
The front-page headline in the New York Post was short and to the point: “PENSION WAR.” After months of negative press coverage about City workers’ pensions, the Bloomberg administration is going on the offensive. In his January 19 State of the City address, the mayor vowed not to sign new City labor contracts with salary increases unless they contained major cuts in benefits. And on February 2, Bloomberg’s commissioner of labor relations held a meeting with City unions to present the mayor’s proposed pension changes.
The concessions they want include lengthening the time required to qualify for a pension from five years to ten for most new employees. New civilian employees’ pension contributions would rise to 5% for their entire service. (Currently most pay 4.85% for the first 10 years, and 1.85% after that.) They would not be able to collect until age 65, regardless of length of service. And overtime hours, historically a major part of pension calculations for uniformed workers, would no longer count toward calculation of salary in these employees’ final years, even if they had routinely worked overtime for decades.
The net effect would be to create a new tier of employees accumulating significantly lower retirement benefits than the present city workforce. Meanwhile, the mayor refuses to consider raising taxes, even for the wealthiest in a city with an inordinately wide income gap.
Leaders of unions whose members would be directly affected were angry. “The mayor just set back labor relations forty years,” said Harry Nespoli, head of the sanitation workers’ union and the Municipal Labor Committee, to the Daily News. “We’re fed up with this. [He’s] going to have a battle. We’re not just going to roll over.”
“The mayor’s saying we have to protect millionaires and at the same time take benefits away from municipal workers,” Michael Mulgrew, president of the United Federation of Teachers (UFT), told Crain’s NY Business.
Bloomberg is making demands of all five pension funds that cover workers in mayoral agencies, including the Teachers Retirement System (TRS), which covers public-school teachers. About one-third of Professional Staff Congress members are enrolled in TRS, but terms of their pensions are separate: for example, when the UFT cut a deal on pensions in 2009, pensions at CUNY were not affected. But if Bloomberg forces pension concessions across the board for employees of New York City, there is sure to be pressure for CUNY to follow suit.
PSC President Barbara Bowen, who attended the meeting with the City, commented, “Bloomberg’s proposals have nothing to do with balancing the City budget and everything to do with imposing economic austerity on working people and the middle class. The PSC will stand with the City unions as they resist these deceitful proposals.” She added, “Any benefit reductions at CUNY would reduce the University’s ability to attract the top-quality faculty and staff our students need.”
The Bloomberg administration claims that pension changes are a necessity due to the City’s current budget deficit. “This reflects the dire fiscal circumstances the city faces, the devastating impact of increasing pension costs, and the desperate need for aggressive reforms,” said spokesperson Marc LaVorgna. Last fall Deputy Mayor Stephen Goldsmith said layoffs of some 2,100 workers were “inevitable” due to high pension costs.
In fact, the changes the mayor seeks would have relatively little impact on the current budget crunch. Under New York’s constitution, basic retirement benefits cannot be diminished for current public-sector employees. Most of the changes Bloomberg seeks would only affect new hires, who would be forced to work longer and contribute more to earn smaller pensions. The City estimates that Bloomberg’s concessions package would save $200 million in the first year. But while savings would gradually increase over time, $200 million doesn’t go far toward cutting this year’s $2.4 billion shortfall.
The attempt to sell pension concessions as a budget fix is false, but Bloomberg’s interest in cutting pension benefits is very real – and goes back several years. The mayor is counting on the sense of crisis created by the economic meltdown to help push through benefit cuts now – even though pension costs didn’t cause the sudden shift in the City’s fiscal fortunes, and pension cuts won’t fix it. “Crisis creates its own opportunity,” Deputy Mayor Howard Wolfson said in an October speech on pension costs. “The winds of change are blowing.”
THE REAL DEAL
In fact, the current state of the City’s pension funds is not as dire as it’s sometimes painted to be. The 2008-09 stock market slump hit the funds savagely, causing an 18.3% decline in the market value of their assets. But the market has since bounced back and the pension funds have recouped most of those losses. In December, City Comptroller John Liu reported that the funds showed a 14.2% rate of return for the previous fiscal year ending June 30, 2010, and a 12% rate of return in the four months since then. That does not mean that the funds are out of the woods just yet: the City’s pension contributions are calculated through a five-year phase-in of the market’s ups and downs, so the crash of 2008-09 will require higher contributions for a while to come. But the sky is not falling.
Bloomberg claims that projected annual returns for public pension funds, which generally hover in the 8% range, are unrealistic – “The only one who’s done that well is Bernie Madoff,” he likes to say. The implication is that without deep cuts, a costly taxpayer bailout is inevitable. Not so, according to a recent study by the National Association of State Retirement Administrators: in the 25-year span ending December 2009, which includes the market collapse, the median return for state pension funds is 9.25%. The mayor also neglects to mention that the 8% target is based on the report of an actuary selected jointly by City management and unions.
The financial crash is not the only reason that New York has had to boost its pension contributions in recent years. In 2000, after several years in which the funds had built up a significant surplus, they opted to take account of these gains up front rather than phase them in over five years, and the City’s required contributions were markedly reduced. The surplus helped to fund some benefit improvements, including a limited inflation adjustment. It also made it easier for Mayor Giuliani, a firm supporter of the change, to reduce the City’s contributions and be able to cut taxes; Governor Pataki also supported the move. In 2003, when the tech bubble burst, slashing returns on its pension investments, the City’s required contributions started to go back up.
When Bloomberg contrasts pension contributions of less than $1.5 billion in 2001 to the nearly $7 billion the city had to pay this past year, the comparison is somewhat misleading: 2001 was an unusually easy year due to high investment returns and the resulting reduction in City contributions, and 2010 an unusually demanding one due to the market slump.
When the New York Times reports that “pension costs are now projected to eat up one of every eight city dollars next year, in contrast to 1 in 28 when [Bloomberg] took office in 2002” – a three-and-a-half-fold increase – the implication is that City worker pensions have skyrocketed to unaffordable levels. But that implication is false: City worker pensions did not grow by 350%.
Are public-worker pensions exorbitant? The mayor rarely talks about what typical City retirees actually receive. The average pension for retired members of DC37, the largest municipal union, is $18,000 a year. The average for retired teachers – including principals who began their careers as teachers – is $42,000. The limited cost-of-living adjustment is often targeted by right-wing policy groups and editorial writers as an unaffordable luxury, but they skip over how limited it really is: the adjustment is on only the first $18,000 of income, at the rate of half of the Consumer Price Index, up to a maximum of 3%.
Current pension benefits are in fact well within the City’s ability to pay. The real question is, who loses and who gains? Wall Street profits and bonuses have recently hit record levels, but Bloomberg has fiercely resisted all suggestions that the very rich should pay more.
The City Council’s Progressive Caucus has proposed an income tax surcharge on the wealthiest households that would roughly equal the effect of canceling the Bush tax cuts. Such a charge would raise an estimated $8 billion and eliminate the need for drastic cuts in services or worker benefits. Other revenue ideas include a surcharge on record Wall Street bonuses, or taxing hedge fund managers at the same rates paid by freelance writers and artists. Bloomberg has heaped scorn on all such proposals. Instead, he has set his sights on reducing future retirement income of City secretaries and janitors.
Press coverage has broken heavily in Bloomberg’s favor. The Daily News and the Post frequently run angry editorials with headlines like, “It’s the Pensions, Stupid.”
News coverage in the New York Times has been exceptionally one-sided, relying heavily on conservative business-funded policy advocates like the Manhattan Institute and the Citizens’ Budget Commission, and framing their views as if they were disinterested experts.
In August the Times reported ominously on page one that “the gap in the [City] pension funds could be as wide as $49 billion.” That figure, the civil-service newspaper The Chief pointed out, was the result of “a ‘what-if’ exercise…undertaken by City Actuary Robert North at the request of the Bloomberg administration.” North was asked to estimate the pension funds’ earnings “if their assets were placed in risk-free investments, rather than having a large portion of their portfolios in stocks.” Since that is approximately as likely as stuffing all the funds’ capital into a mattress, it is unclear what purpose this figure served beyond scaremongering.
The pension cuts Bloomberg is seeking are even deeper than those achieved by Governor David Paterson when he pushed through a new Tier V for most State workers in December 2009. The PSC successfully mounted an intense campaign against a similar reduction at CUNY, arguing that it would impede the University’s ability to recruit and retain faculty and staff. Bloomberg, however, can expect support for his proposals from both Gov. Andrew Cuomo and the Republican-controlled State Senate. Assembly Speaker Sheldon Silver has been cagey about his stance, though there are increasing reports that he may support at least parts of Bloomberg’s package.
Public-worker unions are determined to fight the attack on their members’ retirement income. To win that fight, they are moving to build alliances with community organizations around their common interests. “The labor groups want to reframe a debate that they believe has overemphasized service cuts and cast public workers as selfish and overpaid,” the New York Times reported on February 9.
Through coalitions such as New Yorkers for Fiscal Fairness and Strong Economy for All, unions and community groups are pushing for progressive tax measures instead of service and benefit cuts. Working together, they aim to focus public attention on what they see as the central questions: who benefits, and who will pay?
More Coverage / Viewpoint: Scapegoating Public Workers