Mandate relief still kicking around

by E.J. McMahon |  | NY Torch

Although his proposed property tax cap will put pressure on counties, municipalities and schools to reduce their costs, Gov. Cuomo has punted the related issue of mandate relief to a “redesign team” comprised of stakeholders including representatives of local governments (which really need and want mandate relief) and public employee unions (which oppose any mandate relief that affects their members; i.e., any meaningful mandate relief at all).

Cuomo Administration mandate relief strategy

Late yesterday, the Mandate Relief Redesign Team — or, more accurately, its coaches and trainers in the governor’s office — issued a report that essentially punts the issue back to … the team itself.

The report was couched as “preliminary,” promising quarterly updates, to conclude with a final report a little over a year from now. “Going forward,” the report promises, “the Team will continue to review recommendations proposed by Team members, state agencies, local governments, school districts and the public, and consider them for advancement.”

In the meantime, the hopelessly divided “Team” seems destined to spend a lot more time scrimmaging around the 50-yard line.  The Triborough amendment and employee benefits, to cite just two factors driving up local costs, were mentioned by the report in passing, only as “complex issues” requiring further study.

Suffolk County Executive Steve Levy immediately blasted the report as “78 pages of nothing.” This was a slight exaggeration. There was something in there about pensions, for example:

In order to help municipalities and school districts address their rapidly escalating pension costs, a new pension tier is recommended. Its reforms should include increasing employee contributions, raising the minimum retirement age, reducing the pension multiplier used to determine pension allowances, requiring employees to work for a longer period of time before they qualify for a pension, and excluding overtime from the calculation that determines employees’ pension allowances.

This sounds an awful lot like the state’s last “pension reform” — the incremental, distinctly non-transforming restoration of the status quo ante known as Tier 5.

However, almost as an afterthought, the section on pensions concluded with this sentence:

The savings estimate for Tier 6 for the local governments and school districts is nearly $50 billion over a 30 year period.

All long-term cost and savings estimates associated with changes to government pensions tend to be misleading, verging on useless, because they are based on unstated assumptions (never, ever, released in detail) about long-term pension fund returns and liabilities. But that $50 billion target is intriguing: it’s nearly twice the estimated $27 billion “savings” allegedly generated by Tier 5. No wonder the state government’s largest union immediately complained.

The state comptroller’s office has pegged the “expected, long-term rates” paid by taxpayers through the employer share of Tier 5 pensions at 20 percent less than the comparable rates for Tier 3 and 4 pensions. Can the savings target in the mandate relief report be read to imply that Tier 6 pensions will be 40 percent less expensive than Tier 5 pensions? Or Tier 4 pensions?  Was this figure pulled out of thin air, or what?

Unfortunately, the language of the report steers carefully clear of mentioning the main problem with the current pension system: the unpredictability of taxpayer-funded employer contributions; the huge, open-ended financial risks imposed on taxpayers; and the repeated success of unions in clawing back reductions in benefits before any employee comes close to reaching retirement age. Those problems can only be addressed through a fundamental break with the defined-benefit pension system—by shifting to a defined-contribution retirement accounts or a hybrid pension plan. The Cuomo administration is, as yet, clearly unwilling to go that far. But it’s still not shutting the door, either.

The report also included these general recommendations:

Prohibit New Unfunded Mandates — The promise not to heap more costs on an already overwhelming burden for local taxpayers is every politician’s favorite substitute for pledging any actual change in mandates.  Taking this proposal on its own terms, it is vague in defining what would constitute “unfunded mandate.”  Would the ban include further costly pro-labor amendments to the Taylor Law?  Decisions by the Public Employees Relations Board that raise expenses for local governments by hemming in their managerial flexibility?  Executive orders paving the way for forced unionization of casual day-care providers?

Require Independent Cost Analysis of Mandates— See above.

“Improve the Wicks Waiver” – Previous governors, including Mario Cuomo, sought outright repeal of the Wicks Law and its indefensible requirement for costly multiple subcontracts on public works projects. “Local governments and school districts have long complained that the Wicks Law makes public works contracting and project management significantly more complex and more expensive,” the mandate relief team report points out. The law survives because it is supported by construction unions and unionized contractors.

Former Gov. Spitzer and the Legislature tried to finesse the issue in 2008 by raising project thresholds for Wicks and setting up a procedure for local governments to bypass Wicks by agreeing to substitute project-labor agreements. As the report notes, “A PLA is essentially a collective bargaining agreement negotiated between the local government or school district and the construction trades unions that establishes the terms and conditions of work on a specific public works project. Once a PLA has been negotiated, all contractors and subcontractors bidding on a project must agree to comply with the PLA.”

The report suggests addressing the Wicks issue “by developing regionally-negotiated PLA templates that together can reduce the costs of public works projects by 15 percent or more.”  Which begs the question — 15 percent compared to what?  Measured by whom?   This is not a prescription for significant savings.

- E.J. McMahon is the President at the Empire Center for Public Policy.