Government revenues of all types—sales and income taxes, tolls, transit fares, casino vig, you name it—are dropping further and faster than at any time in history, thanks to unprecedented emergency restrictions imposed to minimize the spread of the coronavirus.
But while the federal government can effectively print money to finance deficit spending on stimulus and bailout packages, state and local budgets must be balanced. It’s painfully obvious that all those budgets will have to be cut, and by a lot.
This is an installment in a special series of #NYCoronavirus blog posts by Empire Center analysts, focused on New York’s state and local policy response to the Coronavirus pandemic.
There’s an obvious place to start in New York: Freeze state and local government employee pay. As detailed below, the combined estimated savings for every level of government will come to at least $1.9 billion in the next year. This action would help minimize disruptive layoffs and save jobs. And it would be fair to taxpayers who are either losing their jobs or likely to see their own pay frozen if not cut.
The powers that be
Governor Cuomo and the state Legislature could and should impose a pay freeze via state law—ideally as a provision of the state budget for the fiscal year that starts April 1. This would be a broader exercise of powers the state has authorized in the past on a more targeted basis—starting with the New York City fiscal crisis, and most recently for control boards overseeing Buffalo and Nassau County.
Article 1 of the U.S. Constitution prohibits laws impairing contracts, including union collective bargaining agreements. However, a series of federal court precedents have upheld temporary pay freezes to deal with fiscal emergencies in New York, provided they are supported by detailed legislative findings demonstrating that a freeze is needed to protect the public, as explained in this 2010 legal opinion commissioned by the Empire Center.
Previous pay freezes were designed to help close budget gaps that brought municipalities to the brink of bankruptcies after years of spending beyond their means. The coronavirus is something very different but more acute: as serious an emergency as New Yorkers have ever faced, outside wartime. It unfolded in the space of a few weeks, and its economic and fiscal consequences could linger for years.
A public-sector pay freeze is not a new idea, by the way. Following Cuomo’s election in 2010, the New York Conference of Mayors advocated a freeze as a way to help municipalities cope with his proposed property tax cap. Earlier that same year, Sen. John Flanagan, R-East Northport, now the Senate minority leader, introduced a bill that would have imposed a freeze on all public-sector wages in New York for one year.
Cuomo in 2011 used his first round of contract talks with state unions to impose a multi-year freeze on base pay and an increase in employee contributions to health insurance, but local employees generally felt minimal effect from the Great Recession, other than a belated slowdown in pay hikes for a few years.
The gathering deficit clouds
State Comptroller Thomas DiNapoli this week estimated state revenues in FY 2021 will be $4 billion to $7 billion below original projections. Comptroller Scott Stringer says New York City will lose $3.2 billion over the next six months. The loss in county government sales taxes this year is forecast to range from $350 million, or 4 percent, to $1 billion, or 12 percent. Most municipalities also will incur large revenue losses.
Meanwhile, in the private sector, hundreds of thousands of New Yorkers are likely to lose their jobs. Countless employers, especially in retail and hospitality fields, will face bankruptcy. Private sector workers who remain employed will consider themselves fortunate not to experience outright cuts in their pay and hours. Retirees and near-retirees are seeing their nest-eggs shrink as the stock market and interest rates crash in tandem.
But in the public sector, the outlook is very different.
Under current union contracts and civil service rules, the vast majority of state and local government workers across New York State can expect to receive pay increases this year—and next, and in many cases the year after that, too. Public-sector retirees ultimately can look forward to retiring with generous, constitutionally guaranteed pension benefits.
For many of these employees, an annual increase in base pay will be further increased by automatic seniority “step” increments. This is especially true for teachers, who typically spend their careers climbing pay ladders with 10 to 20 annual steps, capped by “longevity” increments at regular intervals after mid-career. For early-career teachers with bachelor’s degrees, initial step increases averaged 3.4 percent—or 8.6 percent for those moving to the M.A. lane—according to a New York State Schools Boards Association survey.
It all adds up. Applying current collective bargaining agreements and patterns, and assuming average annual increases of 2 percent to current salary bases for categories in which detailed employer contract terms are not readily available, scheduled public-sector pay increases over the coming year come to about $1.9 billion, including:
- $359 million for employees of state government, including state-operated SUNY and CUNY;
- $753 million for employees of New York City;
- $137 million for the Metropolitan Transportation Authority workers;
- $53 million for the New York City Health + Hospitals employees;
- $415 million for employees of school districts outside New York City; and
- $200 million for employees of counties, cities, towns and villages.
Basic fairness, as well as economic common sense, dictates that this spending should be put off.
Structuring a freeze
With the outlook growing dimmer by the day, with a widespread partial business shutdown likely to last for weeks to come, and with chaos reigning on Wall Street, all public-sector wages in New York immediately should be frozen at March 2020 levels. The freeze must cover base pay and all scheduled additional pay increments.
The temporary freeze period initially should extend at least through mid-2022, to cover counties and municipalities with different fiscal calendars, and the law should allow for a further one-year extension of the freeze if the Legislature finds that fiscal emergencies continue to exist. And importantly, it should include an important escape clause: a provision allowing unions to avoid the freeze to the extent they agree to other contract changes that demonstrably yield the same savings on a recurring basis.
The resulting estimated savings of at least $1.9 billion over the next year won’t be nearly enough by itself to close the gaping holes in any of the affected government budgets. Other cuts will surely be necessary as well. However, a pay freeze is a way of preserving government jobs and public services that would otherwise be jeopardized as a result of spending cuts that will now be absolutely essential to balance state and local budgets.
Beyond freezing pay, government officials need to ask unions to suspend or renegotiate contract provisions that hinder productivity, such as minimum-staffing levels found in some fire and police departments, as well as egregiously costly giveaways such as terminal payments for unused sick and vacation pay.
And the Legislature needs to give local governments more flexibility to manage pay and work rules in current contracts. That will require steps such as a cap on binding arbitration settlements, a proposal Cuomo floated but then abandoned early in his tenure, and the repeal of the state Taylor Law’s Triborough Amendment, which now locks in scheduled automatic pay increments and other provisions after a contract has expired.
Governor Cuomo has said the coronavirus requires a “wartime dynamic.” In wartime, business as usual needs to end—in both the public and private sectors.
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