Salaries, pensions and health benefits for city employees make up over half of New York’s total municipal budget—and nearly 70 percent of the expenditures the city most directly controls.[1] Faced with the most severe municipal fiscal crisis in a generation, Mayor Michael Bloomberg must curb these “personal service” costs if he is to have any hope of closing huge budget gaps without imposing economically devastating tax hikes.

This challenge, while daunting, brings with it a fresh opportunity to urgently pursue long-overdue labor management reforms. Over the years, analysts both inside and outside city government have identified a number of ways New York could realize potentially huge savings by boosting labor productivity, increasing the flexibility of work schedules and scaling back on its generous benefits structure for city workers.

Just a few of the most commonly cited reforms, as outlined below, could save a combined total of more than $1.2 billion a year when fully implemented. But they can’t be enacted with the stroke of Bloomberg’s pen—they must be negotiated with municipal unions during the upcoming round of contract talks.

In better times—as during the roaring economic boom of the late 1990s—such changes were usually discussed in terms of the “gain-sharing” possibilities they offered the city and unions. In other words, it was assumed that a portion of any money saved by the city as a result of productivity enhancements should flow directly to union members in the form of higher salary increases than they otherwise would have received under previous contract provisions.

But given the dimensions of the city’s budget problem over the next four years, Bloomberg needs to save as much as possible now and talk about sharing later. To be sure, union negotiators could dig in their heels and refuse to make any cost-saving concessions unless their members are rewarded more amply than the city can afford. In that case, the Mayor will need to make it clear that the alternative will be a wave of involuntary layoffs on a scale unseen since the 1970s.

The zero option: Only a starting point

Given the city’s looming budget gaps, the comparative generosity of its most recent round of wage settlements and the shaky outlook for the New York economy, Mayor Bloomberg will have strong justification for offering no pay increase at all in the next round of contract talks. Indeed, his budget already assumes there will be no net pay increase for city employees after fiscal 2003.

In the spring of 2001, a group of municipal employee unions under the umbrella of District Council 37 accepted an average pay increase of 9.26 percent over 27 months. The Uniformed Coalition of ranking police officers, sanitation workers and correction officers subsequently agreed to pay increases of 11.9 percent for a period of up to 30 months. These raises, it should be noted, are roughly double the current regional rate of inflation[2] and required no offsetting givebacks by unions, other than provisions allowing the city to award even higher pay increases to workers with superior performance records.

Members of the United Federation of Teachers (UFT) and the Patrolmen’s Benevolent Association (PBA) have been holding out since 2000 for salary hikes more than twice as large as those offered by the city. The UFT recently has indicated it would accept a 15 percent raise recommended in early April by a state labor fact-finder and is now in negotiations with the Mayor. The PBA is awaiting the result of its first-ever binding arbitration proceeding before the state Public Employment Relations Board, from which it is seeking a pay hike of 34 percent over three years.

Even under Bloomberg’s most affordable scenario, all city workers will retroactively receive real (inflation-adjusted) pay hikes of 4 to 6 percent to cover the two-plus years since their last contracts expired in 2000. In all likelihood, teachers and police officers will end up receiving considerably larger raises—although it’s not clear where the money will come from.

Looking ahead, the zero-increase option by itself will not be enough to balance the city’s budget, but it is an essential starting point for serious negotiations. Indeed, even assuming no pay hike after 2003, the mayor is projecting budget gaps of $3 billion in subsequent fiscal years. To close these gaps, he will have to take a hard line in negotiations, insisting on contracts that allow the city to do more with less.

Where the bucks are

Other than holding the line on wages and salaries, Bloomberg can achieve the greatest amount of budgetary savings by pressing unions to begin sharing the growing burden of costs associated with their health insurance, and to change restrictive work rules and staffing requirements.

1. Sharing the cost of health insurance

Unlike the overwhelming majority of all workers in public and private sector[3], New York City employees and retirees are not required to co-pay a portion of the premiums for their basic health insurance coverage. And the overall cost of the city’s health insurance plan has been rising steeply—up by $343 million, or more than 26 percent, between 1997 and 2001, and expected to rise by another $350 million, or 21 percent, in fiscal 2002 alone.[4]

New York State workers, by comparison, pay for 10 percent of the cost of individual coverage and 25 percent of family coverage. And the highly regarded Federal Employee Health Benefits Program requires a worker co-pay of 25 percent for most plans.

If New York City workers and retirees were required to pay for the same proportion of their coverage as federal employees, the city would save $508 million a year by fiscal 2006.[5] Moreover, employees would have an added incentive to join the city in promoting more careful control of rising health care costs.

In addition, as the Citizens Budget Commission has pointed out, New York pays more than it should for health insurance because the city has yet to join the growing ranks of large private and public sector employers who use their purchasing power to force health plans to compete for their business.[6] Instead, the major health plans offered to city employees all charge the same rate as the HIP Health Plan of New York, a company created by the city government in 1947 to serve municipal employees. HIP, in turn, charges the city the same state-regulated rate as its other large customers. Based on projected increases in health insurance costs as of 2000, the CBC estimated the city could realize cumulative annual savings reaching $300 million after four years if competitive pricing resulted in level insurance rates during that period.

2. Extended classroom hours and an end to paid sabbaticals for teachers.

New York’s teachers work 6.33 hours a day, including a duty-free lunch break and preparation period. That’s a half-hour less than the average for all New York state school districts, most of which require teachers to work at least 7 hours[7]; it’s also shorter than the teacher workday in other large cities including Chicago, Philadelphia and Los Angeles.[8] Because the teachers’ workday is shorter than the students’ school day, New York City needs to hire more staff to achieve full “coverage” of all classes.[9]

A state Public Employment Relations Board fact-finder recently recommended that teachers work an extra 20 minutes per day, extending their day by 6 percent, in exchange for an additional 6 percent pay increase (on top of the 9.26 percent “pattern” already accepted by other civilian unions).

But 20 minutes—less than half a 50-minute period—is arguably a token change, especially given the dimensions of the fiscal crisis faced by the city and the teachers’ salary demands. Requiring teachers to work afull additional classroom period would generate annual gross savings of $691 million by eliminating the need for nearly 10,000 teaching positions, according to the Independent Budget Office.[10] Even if, as IBO suggests, 30 percent of this amount were used to increase teacher salaries, the city would save $484 million a year from the longer workday.

An additional $74 million a year could be saved by eliminating contract provisions that entitle teachers to a one-year sabbatical for study or “restoration of health,” at 70 percent of regular pay plus full benefits, for every 14 years of service. Teachers with between 7 and 14 years of service can take six-month sabbaticals at 60 percent of pay.

With three months of paid vacation per year, plus a generous schedule of school holidays, it can fairly be argued that teachers already have ample time to study or restore their health.

3. More staffing flexibility for the Police and Fire Departments

The PBA contract currently restricts the Police Department’s ability to assign officers to one-person patrol cars in low-crime areas, which is a common practice in many other jurisdictions. It also provides 18 “chart days” of paid time off, in addition to vacation and sick leave, to compensate police officers for time spent beyond their normal eight-hour shift changing into uniform, attending roll call and receiving training. As a result, the average officer works only 200 days (equivalent to 40 weeks) per year.[11]

Allowing more one-person patrols has been a recurring proposal—most recently advanced among other “options” by the IBO, which says this step could produce annual savings reaching $196 million by 2006, even after 30 percent of the gross savings are distributed as bonuses to the officers involved.

Moreover, as the Citizens Budget Commission once documented,[12]  if chart time was eliminated and the work shift shortened by 20 minutes, officers could be required to work 10 more shifts per year—the equivalent of 1,600 more officers. At current pay rates, that would represent a productivity boost worth $80 million a year in salary savings alone, plus millions more in benefits.[13]

Police productivity in New York City is also hampered by inadequate, outdated and, in some cases, non-existent information technology. Unlike departments in many other jurisdictions, the NYPD does not use computers in patrol cars and has been slow to equip patrol officers with hand-held wireless devices for checking criminal histories and motor vehicle information. The department’s main investigative report form, the DD5, is still typed on paper with carbon copies.

Troubled by the situation, Commissioner Raymond Kelly is taking steps to overhaul and upgrade the department’s technology. This inevitably should make the department more efficient, freeing administrative resources now devoted to paper record keeping for law enforcement duties.

The New York Fire Department, meanwhile, “is trapped in an archaic system of staffing facilities and equipment,” a mayoral advisory panel[14]  noted nearly a decade ago—and nothing has changed since then to alter that assessment.

Current Fire Department work rules require, among other things, a constant, around-the-clock level of staffing for all firehouses, even though more major fires occur during the day. A few years ago, the Citizens Budget Commission suggested detailed changes in Fire Department staffing patterns that could cut costs by at least $24 million, with additional savings to be shared with firefighters. More recently, the IBO has projected that $44 million could be saved, entirely through attrition and without closing any firehouses, by modifying the Fire Department’s constant staffing provisions and by using more modern, multipurpose fire trucks.[15]

4. Reduce paid vacation and leave allowances

New York City employees are eligible for 12 paid holidays, at least two more than the average for all other workers.[16] In addition, most city employees are contractually entitled to a full three weeks of vacation after just one year on the job, which rises to four weeks after the fifth year and five weeks after the eighth year. After 15 years on the job, most city employees are eligible for 27 days of vacation.

The vast majority of other public and private employers offer much less vacation time. Indeed, outside New York City government, most workers need to put in at least 15 years of service with the same employer before they receive four weeks of vacation, and few (other than teachers, of course) ever qualify for five weeks of paid vacation plus holidays.[17]

Reducing paid vacation and holiday time for non-educational city workers would ultimately make it easier to reduce the city employee headcount without affecting services. In a municipal government as huge as New York City’s, even a one-week increase in the average work-year could yield significant savings.

For example, if a reduction in vacation time made it possible for all mayoral agencies other than the Board of Education, Police and Fire Department (which would be covered by the productivity proposals cited earlier) to reduce their staff by an average of just 1 percent, the city would save nearly $50 million a year in salaries without changing any other work processes or procedures.[18]

The strategic challenge

In his budget presentations to date, Mayor Bloomberg has been careful to strike a warm and conciliatory note in his references to city employees. In contrast to his predecessor, who initially took office with a much more adversarial approach to labor-management issues, Bloomberg has emphasized that he expects the municipal unions to work in partnership with city government to find solutions to New York’s budget problems.

The first test of the Mayor’s hoped-for partnership will come soon—because Bloomberg’s budget calls for $216 million in health insurance cost reductions that will require otherwise unspecified union concessions.[19]  If these concessions are forthcoming, they will be a promising first step—but only a down payment on the much larger permanent savings the city will need to realize to put its fiscal house in order.

Originally Published: FISCALWATCH MEMO

Notes

1. The “city funded” portion of the Mayor’s proposed budget, excluding state and federal grants, is $29.14 billion for fiscal 2003.  When city-funded debt service, Medicaid and welfare costs are subtracted, the remaining total is $22.2 billion. City funded personal service costs (wages, salaries and benefits) total about $15 billion, or 68 percent of the controllable portion of the budget.
2. The regional Consumer Price Index rose by 2.5 percent in 2001 and will increase by 1.6 percent in 2002 and 2.7 percent in 2003, according to the economic forecast in Mayor Bloomberg’s Executive Budget.
3. U.S. Department of Labor, Bureau of Labor Statistics, “Employee Benefits in Large and Medium Private Establishments, 1997.”
4. Figures from 1997 through 2001 are from the city Comptroller’s Annual Financial Report; the 2002 estimate is from Mayor Bloomberg’s budget. Although the city Health Insurance Plan (HIP) announced a rate hike of 11 percent for this year, the total cost was driven up further by other factors including the cost of Medicare Part B coverage for retired city employees, according to officials familiar with the issue.
5. This figure is derived from savings estimates for a smaller health insurance co-pay suggested by the Independent Budget Office in its “Budget Options” report.
6. Citizens Budget Commission, “The Citizens’ Stake in Collective Bargaining: Recommendations for the Current Negotiations with the Municipal Employee Unions,” December 13, 2000, p. 41.
7. New York State School Boards Association, 2000 Survey of Teacher Benefits and Workday.
8. These figures are based on research by Dr. Michael Podgursky at the University of Missouri; cf. New York Post, “City Teachers Get Early Passes,” July 26, 2000, p. 14.
9. For example, the Board of Education assumes for planning purposes that 1.2 teachers are needed for every classroom in the elementary grades.
10. New York City Independent Budget Office, “Budget Options for New York City,” April 2002, p. 16.
11. Citizens Budget Commission, “The State of Municipal Services in the 1990s: The New York Police Department,” p. 38, December 1997.
12. Ibid.
13. Based on an average police salary of $50,000 as of 1999, according to the Office of Management and Budget.
14. “Presentation to the Mayor on Eliminating the Structural Budget Imbalance,” Dec. 1, 1993, Donald D. Kummerfeld, Dall W. Forsythe and William H. Gray III.
15. Independent Budget Office, op. cit., p. 17.
16. U.S. Department of Labor, Bureau of Labor Statistics, “Employee Benefits in Large and Medium Private Establishments, 1997.”
17. Ibid.
18. The average salary for the agencies cited as of 2002 is $42,607, multiplied by an estimated headcount of 109,673 workers, based on figures compiled by the Office of Management and Budget in December 1999 briefing materials for the last round of contract negotiations.
19. 19 See pp. 224-225 of the Mayor’s 2003 Executive Budget.