Gov. Andrew Cuomo faced two public-sector labor relations challenges when he took office.  The first was to negotiate contracts with state employee unions that would produce both short-term and recurring savings to help stem the flow of red ink in his state budget.  Saturday’s tentative deal with the Public Employees Federation (PEF), coming on the heels of Cuomo’s nearly identical tentative agreement a few weeks ago with Civil Service Employees Association (CSEA), means the governor is another step closer to accomplishing that.

However, Cuomo has yet to tackle a second big labor relations challenge — on behalf of taxpayers at the local level, where unions have substantially greater leverage over their employers. County executives, mayors and school boards have been clamoring for relief from state collective bargaining provisions, such as the Triborough amendment, that make it harder for them to successfully press their unions for concessions.  The governor, so far, has turned a deaf ear to this.

Cuomo did recently propose further reductions in pension benefits for future employees, which he has indicated will be a priority next year. However, his approach fails to include fundamental reform to the fatally flawed defined-benefit pension structure.

In the meantime, the governor’s five-year CSEA and PEF deals set a pattern local officials can at least try to emulate.  Base salaries (but not “step” increments) will be frozen for three years, followed by 2 percent base pay hikes in the final two years.  PEF members will temporarily give back a portion of their last pay hike in the form of five unpaid furlough days in fiscal 2011-12 and four furlough days in 2012-13,  but will be reimbursed for that second round of furloughs in the form of a cash payment in 2013-14.  The employee share of health insurance premiums will rise for the first time 30 years, from current levels of 10 percent for individual coverage and 25 percent for family coverage to a maximum of 16 percent and 33 percent, respectively, for the highest paid PEF members. Other “design” changes in health benefits also are expected to generated recurring savings.

From management’s standpoint, furloughs are a better option than lag pay, which was the way similar temporary savings were achieved in the early 1990s.  The permanent increase in the health insurance share for employees is a real plus, which will reduce the state’s fast-rising outlays in this category by about 10 percent for the two union memberships.  The health care redesign changes may also be significant, but details right now are too sketchy to say for sure. It’s also significant that Cuomo’s no-layoff promise does not preclude staff reductions related to agency consolidations or facility closures.

For PEF, as for CSEA, Cuomo’s hard bargain represents an inevitable day of reckoning. PEF members, like their CSEA brethren, had sailed virtually unscathed through a severe recession and fiscal crisis, receiving 14 percent base pay hikes plus longevity increments and increased geographic pay differentials under their last four-year contract.