New York State and City continue to put faux pressure on municipal unions to win cost-savings concessions on pensions and healthcare costs for state and city taxpayers. Coincidentally, bond-raters at Moody’s have just come out with a report that says that flexibility in municipalities’ fixed costs, including these labor costs, is “more important than ever.”
Moody’s notes that for municipalities with high fixed costs — like us! — “an ability to rapidly reduce expenditures may prove a better indicator of credit quality than the traditional measure of municipal credit risk.”
The agency’s traditional measures of creditworthiness — economic and revenue diversity and a higher-than average local income — are less important right now. Cash is quickly drying up and past economic success is not as certain as a predictor of future economic success.
“Certainly, those governments with greater expenditure flexibility will have an easier time adjusting to a new economic reality,” the raters conclude.
Moody’s specifically mentions “state labor laws” and “employee contracts” as important areas for flexibility on fixed costs in a crisis.
The good news?
New York State, for all of its moaning about uncooperative unions, does have great flexibility here, at least on pensions.
The state does not need any cooperation from state or city unions to achieve great savings on future labor costs for state and local workers.
All Albany has to is pass a law mandating higher pension contributions, lower benefits, and higher retirement ages for state, city, and public-authority workers.
Future pension benefits aren’t matters for labor negotiation. By state law, legislation, not contract provision, governs pensions.
And the certainty of future savings would help our long-term credit outlook now, even as short-term costs continue to rise to fund promises made long ago.
The bad news? The state doesn’t want to use this power, or even acknowledge it.
Mayor Bloomberg should run a fancy ad explaining to the public that the state has the power to cut future taxes for state and city residents and businesses with two votes and and a penstroke.
We can do this with or without the unions’ help.