Earlier this afternoon, Mayor Bloomberg presented his updated budget proposal for next year, which starts in July.
One thing that stands out, besides his request that Albany hike the city sales tax by half a percentage point: it’s likely that over the next 10 years, the city will spend more on pensions alone than it does on capital investments.
The mayor said that despite a long-term 27 percent reduction in physical infrastructure investment, New York will still spend $62 billion on such projects over the next decade.
That works out to $6.2 billion a year.
But next year, pension costs will exceed $6.5 billion. They’ll go up to $7.6 billion three years from now.
When New York factors in health care costs, conservatively speaking, we’ll spend over twice the resources on worker benefits in the future as we do on infrastructure investments.
To see what a toxic effect such legacy costs — and the poor management of them, since they didn’t come out of nowhere — have had in the auto industry, read the 4/27 issue of The New Yorker.
Says new GM chief executive Fritz Henderson to the magazine’s Peter J. Boyer:
We invested more than a hundred billion dollars, over a fifteen-year period, to provide resources for both U.S. pension funds and U.S. post-retirement health care. This is a staggering number. And the burden of that … has been borne by our balance sheet. If you say, Where did the resources go?, they went to make sure that we funded our benefits …. That’s O.K., but it means those resources weren’t invested elsewhere, or they … didn’t provide liquidity in the balance sheet for us to make investments or for us to withstand a moment like this.*
In the auto industry, every dollar spent on a pension was a dollar not spend on the future technology necessary to pay these promised benefits — hence, bankruptcy.
In the public sector (New York), every dollar spent on a pension is a dollar not spent on the infrastructure needed to support the private-sector economy that must pay these promised benefits — hence, well, something, in the future.
The mayor is still asking Albany to create a new pension tier for future workers that would save $200 million annually right away, and much more later on. But the mayor also said that Albany was unlikely to approve such a thing without the union’s cooperation.
It might have been easier — though not easy — to secure such cooperation if the mayor hadn’t just finished giving everyone 4 percent raises.
And the mayor has given up, at least for the next 14 months, on the one thing that he had hoped to achieve through direct pressure on the unions — a request for them to pay some of their own basic healthcare premium costs.
*We do not have a link; it is on p52 in the old-fashioned magazine that costs $4.99.