Wage Freeze Picks Up Steam in Albany

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New York State’s leading organization of municipal officials today called for a temporary statewide freeze on public-sector wages, reform of the state’s pension system and other significant changes to public-sector labor laws as essential steps to help localities cope with a property tax cap proposed by Governor-elect Andrew Cuomo.  The changes proposed by the  New York Conference of Mayors (NYCOM) Task Force on Mandate and Property Tax Relief draw heavily on research by the Empire Center for Public Policy.

E.J. McMahon, senior fellow with the Empire Center, said the mayors deserved credit for “taking an intelligent and realistic approach to the issue.”

“A much-needed cap on property taxes will put intense added pressure on local governments to control rising employee compensation costs,” McMahon said.

“While a tax cap must come first, NYCOM has described the toolkit our local officials will absolutely need to make the cap work. These recommendations deserve priority treatment from our next governor and the Legislature.”

The NYCOM task force said a one-year wage freeze would enable municipalities to save at least $44 million. “Such savings are not insignificant, as this amount equates to allowing city leaders to avoid up to a 4.6% increase in property taxes, avert layoffs of up to 400 firefighters or police officers, or pay a majority of their $53 million increase in pension costs,” the NYCOM Task Force said in its report.

NYCOM also called for important changes to the state’s pension system, citing the Empire Center’s recent estimate that pension contribution expenses will double over the next five years. In the short run, the mayors said, the Legislature should restore the 3 percent employee pension contribution, which was eliminated for many workers under a pension enhancement bill adopted in 2000.

“The state must also undertake a thorough analysis of the benefits, funding methodology and oversight structures of our public pension system,” the Task Force said. “Going forward, the state must offer new hires the option of a defined contribution plan – like nearly every private business in New York – which will provide greater stability and predictability in determining local government pension costs, while shifting the risk of investment losses from the employer/taxpayer to the employee.”

NYCOM also called for repeal of the so-called Triborough amendment, which automatically extends longevity pay increments even after a labor contract has expired; mandated employee and retiree contributions to health insurance premiums; and reform of compulsory arbitration for police and firefighter contracts.

The Legislature’s authority to impose a statutory wage freeze, notwithstanding local labor union contracts, was explained by labor law experts Terry O’Neil and Howard Miller in an opinion commissioned by the Empire Center last May.

The urgent need for pension reform was highlighted in “New York’s Exploding Pension Costs,” a report issued by the Empire Center last week.  Another recent Empire Center report, “Iceberg Ahead: The Hidden Cost of Public-Sector Retiree Health Benefits in New York,” documented unfunded retiree health care liabilities of more than $200 billion at the state and local level.   The public-sector labor issues cited in today’s NYCOM report were explained in a 2007 report by O’Neil and McMahon, “Taylor Made: The Costs and Consequences of New York’s Public Sector Labor Laws.”