Budget-Cut ABCs
Mayor Must Squeeze Unions
MAYOR Bloomberg says that balancing the city’s budget in tough times requires “shared sacrifice” -- meaning combined tax hikes and spending cuts. Yet (as is so often the case in New York), it’s the taxpayers who get stuck with the lion’s share of the sacrifice -- this time, nearly $1 billion in tax hikes on top of what is already the heaviest tax burden among major cities in the nation.
The city’s budget-cutting, by contrast, is exceedingly modest. In fact, Bloomberg isn’t really cutting the city’s budget in the new fiscal year; he’s merely slowing (slightly) its rate of growth.
According to the Independent Budget Office, city-funded spending to provide services will grow $1.6 billion, to $46.9 billion, in the new year. That’s a 3.3 percent rise, once you include outlays that the city has already paid with surplus funds from the Wall Street boom.
By contrast, inflation in the greater New York area is running at zero percent.
Of course, city spending has grown significantly faster than inflation throughout the Bloomberg era. But this year is different: Facing the possibility of a long-term Wall Street decline, the mayor will need to consider real budget-cutting and restructuring of city services.
HE could start by reducing city spend ing growth to zero next year -- as Mayor Rudy Giuliani managed to do in his first, tough year in office.
In fact, Bloomberg could do that in one fell swoop by pursuing a wage freeze for city employees, who are scheduled to get 4 percent raises because of his generous contract deals. The Citizens Budget Commission has estimated that a one-year freeze -- a concession that has become common in the private sector -- would save $1.2 billion. That’s enough to halt spending growth and prevent a tax hike next year.
Is such a wage freeze politically feasible in the face of strenuous public-sector union opposition? Only if the mayor is willing to play hardball -- by proposing other, even tougher cost-cutting measures that the city would impose if the unions refuse to give.
Governors and mayors across the nation have used similar threats to get workers to agree to everything from wage freezes to brief, unpaid furloughs. For example, Bloomberg could take a much tougher line on the growth of the city’s workforce.
In his budget presentations, the mayor typically lists employee-benefit costs, such as pension and health benefits, as “uncontrollable,” because they’re subject to state mandates and fixed by contract negotiations. But one way the city adds to those costs is letting the city-worker headcount drift up.
SINCE 2003, the city payroll has grown by some 41,000 workers, including over 16,000 paraprofessionals made full-timers at the Department of Education and the Department of Parks. At an average cost of more than $100,000 per worker in salaries and benefits, workforce size matters.
Scrambling to keep up with sinking revenues, the city committed this year to 2,644 layoffs, and projects leaving another 8,200 or so slots unfilled. But for next year, the mayor is calling for only 1,115 more layoffs and some 2,700 further reductions through attrition -- part of a paltry $324 million in new spending cuts by city agencies.
Even Mayor David Dinkins, hardly a hard-nosed fiscal manager, did better than that. When the city went through a prolonged recession in the early 1990s, Dinkins cut the headcount far more than Bloomberg contemplates.
Another source of leverage against the municipal unions is one that Bloomberg has strangely rejected throughout his tenure: a threat to put city services up for competive bidding. (And, while you’re at it, look at selling off assets the city has no business owning.)
In refusing to consider competitive bidding for services now handled by public employees, the mayor has removed a valuable bargaining chip with the unions -- which is one reason he’s struggled to win productivity gains when negotiating contracts.
In his first year in office, Giuliani used the threat of privatizing residential-garbage collection to gain productivity concessions that saved the city $300 million a year. Bloomberg has achieved nothing to compare.
BLOOMBERG’S own experience should have taught him valuable les sons about privatizing. Soon after he took office, he reversed Giuliani’s long-time effort to privatize the city’s Off-Track Betting parlors -- scotching what The New York Times estimated would have been a $250 million sale of the parlors to private owners.
The new mayor promised to install new management and make OTB run better. Instead, OTB’s performance deteriorated, costing the city cash in the form of budget subsidies. Finally, the city last year finally pushed the state to take over the 60 city parlors -- with zero money going to City Hall.
With added leverage, the city could pursue a host of workforce savings. It could negotiate to increase the 35-hour workweek that city employees now enjoy, thus allowing the city to hire fewer replacements as workers retire.
The Independent Budget Office estimates that going to a 40-hour week -- standard issue for federal and state employees, as well as much of the private sector -- would save the city some $130 million next year, $267 million by fiscal year 2011, and $411 million by fiscal year 2012.
The mayor could also target the single biggest beneficiary of the Wall Street-driven revenue surge: the Department of Education.
The schools budget has swollen under Bloomberg from nearly $13 billion to $21 billion -- a more than 50 percent jump. The city now spends a whopping $20,000 per student -- far more than the average for public education in America. A modest, mandated rise in class sizes (adding just two to four students) would save between $190 million and $380 million a year.
THE mayor and his supporters object that reforms of this sort aren’t easy to accomplish in New York. Of course not. But that’s the thing about times of great fiscal stress -- you’ve got to be ready to upset apple carts to achieve what’s difficult but necessary.
Hugh Carey -- governor of New York in the 1970s, when the state had to deal with Gotham’s near-bankruptcy -- was such a fighter and reformer. He handed the mantle to Mayor Ed Koch, who was a tenacious and transformative fiscal manager in his first term. Later, Giuliani took office facing a $2.3 billion gap in a $30 billion budget. Resolving not to raise taxes on citizens hit hard by state and local tax increases in previous years, he threatened and cajoled and maneuvered until he had achieved a number of major reforms.
Bloomberg has preferred to make his name on environmental issues (such as pushing for “green” cabs and a pedestrian-friendly Broadway) and lifestyle changes (like his smoking and trans-fat bans). Meanwhile, the city budget has soared.
But now (as noted economist Luigi Zingales argues in City Journal), New York’s financial preeminence is under serious long-term threat. The good times aren’t coming back anytime soon to bail out the city government. A new budget dynamic is necessary.
This piece originally appeared in New York Post
This piece originally appeared in New York Post