After months of flailing, floundering and stalling on desperately needed cuts to New York City’s pandemic-ravaged budget, Mayor de Blasio just made a smart and appropriate move to save money—in the process defying one of New York’s most powerful government employee unions.

From this morning’s New York Post:

The de Blasio administration has canceled a long-scheduled $900 million deferred compensation payout to current and former teachers, citing the coronavirus-induced financial crisis.

UPDATE: “Canceled” was an overstatement in the Post’s report. The actual letter from First Deputy Mayor Dean Fuleihan to UFT President Michael Mulgrew consist of three paragraphs stating only that the city “is unable to make a lump sum payment to active and retired UFT employees” as had been scheduled for October, and that going forward with the retro pay would be “fiscally irresponsible.” Fuleihan does not flatly say the payment won’t be made, period. If Mulgrew prevails in a promised arbitration of the issue—presumably on the not-insubstantial grounds that the mayor has no legal authority to suspend a contractual obligation—this move by de Blasio will have been merely symbolic gesture, albeit one that demonstrates the urgent need for state action to freeze city labor contracts prospectively requiring pay hikes in general.

The need for action

The city’s financial plan for fiscal 2021, which began July 1, was technically “balanced” only by counting $1 billon in labor savings that haven’t materialized, and the real gap is probably closer to $2 billion or more.

With prospects uncertain for another federal stimulus package including aid to states and local governments, de Blasio was scheduled this month to pay another $900 million in retro raises to teachers (and, although it’s not clear, also some other city employees)—while at the same time preparing to lay off thousands of city workers.

Just in the nick of time (the UFT retro raises were due to start flowing next week), de Blasio decided that preserving the jobs of mostly lower-paid city employees is more important than delivering on a promise to well-compensated members of the UFT.

Given the city’s wrecked economy and uncertain recovery prospects, some municipal layoffs appear inevitable sooner or later in any event. However, withholding the retro pay hike can at least reduce the number of city workers affected. Continuing from the Post:

The payout due this month — the last in the series of five stemming from union negotiations between 2009 and 2011 — was called off as the city attempts to limit the number of administration-wide layoffs, First Deputy Mayor Dean Fuleihan wrote to the teachers union Thursday.

“It is the city’s desire to avoid the necessity for layoffs, and to make a retroactive payment at this time would therefore be fiscally irresponsible,” Fuleihan wrote in a letter to Michael Mulgrew, president of the United Federation of Teachers.

Note those years: 2009 and 2010. Michael Bloomberg was still mayor back then, running for and then beginning his third and final term. In the aftermath of the Great Recession, which had caused a sharp drop in city revenues, Bloomberg ruled out pay raises to the United Federation of Teachers (UFT). Rather than negotiate with the term-limited lame duck mayor—for whom UFT had little affection in any event—the union waited for his successor to take office in 2014.

Early in his first year, de Blasio obliged with a generous package that included what was described as a retroactive payment of raises the UFT had felt entitled to receive all the way back to 2009, when its previous contract expired. Over strong objections from the departing Bloomberg administration, the payout for the pre-de Blasio years was pushed into the future as a series of escalating payments due every October from 2015 to 2020, under a payment schedule detailed on this UFT web page. As City Journal‘s Nicole Gelinas points out, this was effectively a loan from teachers to the city—borrowing to pay operating expenses under another name.

The UFT predictably is not happy.

Mulgrew said the union will go directly to arbitration to fight for the wages and that an arbitration hearing was scheduled for Friday.

“I will go into arbitration tomorrow. We will present that case, which is very simply: We want the money that you owe us now,” Mulgrew said in a video message to union members.

Why is de Blasio finally showing a little spine?

First, as noted above, he would find it difficult to defend layoffs of lower-paid essential city workers (many of whom, unlike teachers, have continued showing up for work since the March lockdown) in order to finance a retro pay increase for many of the city’s best-paid employees, who have generous health insurance and pension benefits in addition to base salaries topping out at roughly $125,000.

The mayor is no doubt also hoping that cancelling (more likely suspending) the retro pay—which is most valuable to the UFT’s most senior and thus highest-paid members—will get Mulgrew an incentive to join in lobbying Albany as part of de Blasio’s push for state legislative authorization of $5 billion in deficit financing. Governor Cuomo has been resisting that idea, indicating that he would prefer it be subject to approval by the state Financial Control Board, which he chairs.

Not coincidentally, FCB members agreed in August to schedule a highly unusual November meeting to review the city’s first-quarter modifications. Cuomo seems willing to push for a renewed state control period over city finances—which, if accompanied by a wage freeze, could give de Blasio (and, starting in just over a year, his successor) more leverage to reshape unaffordable labor contracts. My recent report for Manhattan Institute lays out a strategy in which FCB could play a pivotal role.

While there is no doubt a good deal of political calculation behind his UFT retro pay move, de Blasio nonetheless deserves a lot of credit for doing the right thing.

It shouldn’t end here, though. Instead of looking to borrow, the mayor should ask Cuomo and the Legislature to statutorily impose a wage and step increments freeze. By all means, if federal aid ends up flowing to the state and city—either under a last minute pre-election deal between President Trump and congressional Democrats, or (as more likely) initiated by a Biden administration early next year—the money should be used to preserve essential services and jobs, not for pay hikes. This would include the $405 million annualized cost of the UFT’s next contractually scheduled 3 percent pay hike, due in May 2021.

Other school districts and local governments should be inspired by New York City’s example. Collectively, the economic impact of the pandemic shutdowns has left them facing the worst multi-level governmental fiscal crisis since the Great Depression. At a time when millions of New Yorkers have lost their jobs, and many of those still working in the private sector are facing pay cuts while worrying about job security, public employees shouldn’t be counting on business-as-usual increases in their compensation.

Cuomo should wholeheartedly support de Blasio’s decision today, and call for more of the same.