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Freeze Public-Sector Pay

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June 03, 2010


As New York State struggles to dig itself out of a budget hole approaching $10 billion, a growing chorus of voices is calling for an obvious and overdue reform: Freeze public-sector pay.  A legal brief that explains why the Legislature has the power to implement a freeze is available here.

Employee salaries and benefits are the major cost of operations for government at every level in New York.  Yet, public-sector compensation throughout the state has continued rising throughout the severe recession of the past two years – a time of low inflation, skyrocketing unemployment, and massive job losses in the private sector. 

Indeed, compared to the private-sector workers who underwrite government salaries, public-sector workers live on a different planet:

But New Yorkers are pushing back. 

Newspaper editorial writers and columnists throughout the state have been asking ever more insistently why a freeze isn’t on the agenda--and the reaction in the “comments” boxes of their online editions indicate their readers strongly support the idea.

On March 23, four Democratic state Assembly members wrote to the president of the statewide teachers union, urging the unions' members to voluntarily to forgo more than $1 billion in scheduled pay raises.


Former U.S. Sen. Alfonse D'Amato called for a pay freeze in a March 27 op-ed  The New York Times.


State Sen. John Flanagan, R-East Northport, introduced a bill that would impose a freeze on all public-sector wages in New York for one year.  He explained his reasoning in an Easter Sunday op-ed article in Newsday.


On April 7, a professor at SUNY Binghamton published an article calling on his unionized colleagues to forgo their scheduled 4 percent pay hike.

Mayor Michael Bloomberg announced June 2 that he would not offer a planned 2 percent salary increase to city teachers, and that he would use the savings to prevent up to 4,400 layoffs he said would otherwise be necessary to accommodate a cut in state education aid.  (However, eligible teachers with less than 22 years of experience would continue to receive annual longevity increments of up to 11.6 percent.)


The following section, excerpted from Empire Center’s Blueprint for a Better Budget, explains how a pay freeze could be imposed.


Freezing Public-Sector Salaries


New York’s fiscal crisis is in danger of becoming as severe an emergency as the New York City fiscal crisis of the mid 1970s, which prompted passage of the 1975 Emergency Financial Control Act and of later measures to remedy near-bankruptcies in Yonkers, Buffalo and Nassau County.

Taking their lead from the approach to prior local fiscal crises, the governor and Legislature should formally declare a statewide fiscal emergency, including an immediate statutory freeze on all public-employee salaries and wages at every level of state government. The freeze would cover both contractual pay hikes and the automatic step raises many employees get just for staying on the payroll another year. The freeze would expire in three years — if, and only if, the state has been able to balance its budget in the meantime.

Federal courts have twice upheld state-mandated wage freezes for public employees in New York. The most recent case came in 2006, when the US Second Circuit Court of Appeals ruled a freeze of Buffalo teacher salaries was "reasonable and necessary" despite the "substantial impairment" of the teachers' contract.(1)

In that case, the union argued that the city could have avoided the freeze by raising taxes or cutting services. But the court said, "We find no need to second-guess the wisdom of picking the wage freeze over other policy alternatives, especially those that appear more Draconian, such as further layoffs or elimination of essential services."(2)

The state government now faces similarly dire choices but on a much larger scale. After all, it has already dipped deeply into the revenue well. The 2009-10 budget included tax and fee increases of $8 million, including $1.75 billion on a regional basis to bail out the Metropolitan Transportation Authority. Yet the state still isn’t even close to a sustainably balanced budget. The actions necessary to close next year’s gap inevitably will have significant consequences for local governments dependent on state aid, especially New York City and local school districts elsewhere in the state.

State, local government and school district savings from a pay freeze would total roughly $1.6 billion in 2010-11 fiscal years, growing to over $2 billion a year by 2013.(3)  The greatest relief would be felt by school districts, which on average have three-quarters of their budgets tied up in salary and benefit costs that have been rising by an average of 5 percent a year. A salary freeze would save school districts (including New York City’s) more than $1 billion in 2010-11, lessening the impact of aid cuts that would otherwise result in significant staff reductions.

Holding the line on salaries is just a first step. State officials in New York also need to overhaul public pensions, negotiate less expensive health insurance for government employees and clear away laws that prevent local officials from doing the same. But in the short term, a freeze will provide much-needed breathing room for implementing essential reforms, especially in health care, which will take several years to generate significant recurring savings.

Above all, a freeze can be justified on grounds of basic fairness. Government employees throughout New York have continued to receive pay increases at a time when many private-sector workers saw their wages frozen or reduced (assuming they didn't lose their jobs altogether). Given the problem's size, a freeze can't completely prevent layoffs, but it's a way of preserving jobs and public services that would otherwise be jeopardized.


 

Endnotes:

  1. Buffalo Teachers Federation et., al. v. Tobe et. al, 464 F.3d 362, http://cases.justia.com/us-court-of-appeals/F3/464/362/617048/
  2. Ibid.
  3. Based on annual municipal reports filed with the Office of the State Comptroller, the estimated salary freeze savings are $49 million for cities, $63 million for towns, $24 million for villages and $158 million for counties, and $688 million for school districts outside New York City. Annual pay base growth, based on prior-year averages, is assumed at 3 percent for counties and municipalities, and 4 percent for schools. The city’s fiscal 2010 budget set aside $340 million for possible teacher salary hikes of 4 percent a year.