Invitation To Union Mischief

Attacking Albany’s complicity in “the unchecked growth of pensions” for New York employees, Mayor Bloomberg last week said it was high time the city gained more direct control of its own retirement benefits.

Bloomberg’s ultimate goal is the right one – but his new approach to the issue is likely to drive pensions further in the wrong direction. Out of frustration with the state’s refusal to say “yes” to fundamental pension reform, the mayor effectively would make it easier for municipal-employee unions to say “no.”

There’s no denying the need to do something about pension costs. Annual tax-funded contributions to New York’s city-pension funds will total $4.7 billion in the current fiscal year – up a whopping $3.3 billion since Bloomberg took office.

Pension contributions alone have eaten up fully 80 percent of the phenomenal growth in city property-tax revenues during the real-estate boom of the past five years – which helps explain Bloomberg’s failure to do more tax-cutting. And pension costs are projected to rise another $1 billion a year by the time Bloomberg leaves office in just under three years.

Public-pension benefits in New York are shaped by state law, so the blame for this situation rests mainly with state officials. Then-Gov. George Pataki and the Legislature sweetened New York’s already generous public pensions right at the peak of the previous economic and stock market boom in 2000; the subsequent Wall Street slump depressed the retirement funds’ assets when it was time to start paying the bill. A pension-funding gimmick adopted under former Mayor Rudy Giuliani didn’t help.

Ignoring the impact on taxpayers, legislators have continued to rubber-stamp targeted pension enhancements sought by public-employee unions in recent years. Pataki vetoed most – but not all – of these increases.

“It’s no secret that the state Legislature has been giving away the store, getting no productivity in return and saddling our children with costly pension giveaways,” Bloomberg said Wednesday in his State of the City message. “It’s time for Albany to stop playing Santa Claus with the city’s money! If they want to fund pension increases, they should pay for it.”

The mayor’s solution?

“Let’s put the city’s pension decisions where they belong, on the collective bargaining table. That’s what accountability is all about!”


The foundation for today’s extravagant pension-benefits structure was laid back in the era when pensions were collectively bargained. Indeed, Mayor John Lindsay’s notorious 1966 pension-bonus giveaway to the transit workers’ union – later replicated for other city workers – was the first big mistake of his fiscally disastrous mayoralty.

That original city-pension-cost explosion wasn’t brought under control until the early 1970s, when the state Taylor Law was amended to prohibit collective bargaining of retirement benefits. The Legislature then created two new retirement “tiers” offering (slightly) less generous benefits to newly hired workers.

For some time now, the city’s automatic official position on bills increasing pensions has been that the matter should be collectively bargained. But the mayor will be inviting trouble if he actually pushes for a state law mandating that all future changes in pensions will be negotiated with unions: There’s a real risk the Legislature would take him up on it.

Do the municipal unions enjoy undue influence in the state Capitol? Of course. But their power is even more concentrated in City Hall. Bloomberg has done relatively well at holding down union pay increases while seeking productivity gains – but he won’t be mayor forever.

Indeed, Bloomberg himself has dabbled in the pension-giveaway game. Less than two years ago, to help settle the city’s previous contract with the United Federation of Teachers, the mayor agreed to form a labor-management committee to study the possibility of jointly supporting state legislation to let UFT members retire at age 55 after just 25 years on the job.

Pensions aside, the city is already straining under the burden of roughly $3 billion a year in (collectively bargained) health insurance for municipal workers – plus a $50 billion unfunded liability for coverage of retirees. But the unions have been unwilling to negotiate even a small offsetting employee contribution to health insurance.

Local officials across the state are grappling with higher pension costs for similar reasons, but Bloomberg has been virtually alone in publicly calling for a new pension tier offering reduced benefits to future workers.

Sure, state legislators are usually beholden to the unions – but history shows that when it comes to restructuring pensions benefits in either direction, the most effective driver of change has been the state’s chief executive.

So far, Gov. Spitzer has offered no encouragement on this front. But Bloomberg shouldn’t let him off the hook. He should push harder for real pension reform from the man who promised to change “everything” in Albany – and he should challenge his fellow mayors and county executives to get off the sidelines and join him.

If the governor puts his considerable clout behind a more balanced and affordable system of retirement benefits for public-sector workers, it may yet happen. If such a change requires union agreement at the bargaining table, it will simply never happen.

As for those two ill-considered sentences in his State of the City speech, Bloomberg should issue a two-word clarification: Never mind.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

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