Mayor Sees Opportunity And He Takes It

Chief Leader - December 23, 2008

by RICHARD STEIER

Over the past two weeks, Republican U.S. Senators and Governor Paterson and Mayor Bloomberg have used genuine financial crises as grounds to take swipes at employee compensation, implicitly drawing unions into the circle of blame.

The more-blatant indulgence came from the primarily southern GOP Senators who blocked a $14-billion temporary bailout for the Big Three auto companies, guided by an "Action Alert" that advised them that opposing it should be used as a "first shot against organized labor," a pre-emptive strike in the coming battle over the Employee Free Choice Act.

Their intransigence not only deepened the crisis for the auto industry, it was a kamikaze political move on a couple of different fronts.

Wasting Away in Herbert Hooverville

Vice President Cheney, of all people, suggested it was "Herbert Hoover time" for the Republican Party if it was ultimately viewed as having let the domestic auto industry go down in flames, which is probably why President Bush found the money Dec. 19 - which was just two percent of what was committed to the Wall Street bailout.

And according to the left-leaning Economic Policy Institute, among the states that would have been hardest-hit if the worst had come to pass were two whose Senators led the anti-Big Three-bailout charge, Richard Shelby of Alabama and Bob Corker of Tennessee.

Last week's effort by a Democratic Governor and a Democrat-turned-Republican-turned-independent Mayor to use the state's fiscal crisis to reduce pension rights for future state and city employees proved you don't have to be trying to put the idiot in ideology to start a grease fire in labor's kitchen. But their joint proposal, trumpeted by a front-page New York Times story Dec. 17 even as the tabloids barely mentioned the idea, came accompanied by a question they'd rather not have to answer: why tackle this issue now when the proposal would do little to address the short-term fiscal situation?

Although the Mayor said they would save the city $540 million annually after 20 years, if the bills covering the city pension "reforms" were passed by both the City Council and the State Legislature, they would not produce any savings until July 1, 2010 at the earliest. Any adjustments in city pension contributions are made two fiscal years after a "snapshot" of changes in the funds' fiscal conditions is taken. And so even if the reforms were enacted as part of the state budget to be adopted by April 1, city contributions would not be reduced immediately. In other words, there would be no savings until at least three months after end of the period in which the state has to make up a $15.4-billion deficit, part of which it will do by reducing its aid to the city.

"Obviously these pension reforms are not going to provide any immediate relief to the city and state," Uniformed Fire Officers Association President Jack McDonnell said in a Dec. 18 phone interview.

That reality led Uniformed Sanitationmen's Association President Harry Nespoli to say of the Mayor, "He's taking advantage of [a crisis] to make a change."

Mr. Bloomberg has long lamented the portion of the city budget that is consumed by pension costs, and has tried without success for nearly five years to persuade one or more unions to accept a less-generous pension system for new members.

City Goes After Cops, Fire, Too

The Governor's determination to downgrade pensions for future state workers prompted the city to produce a companion piece that had an added twist: it went after the pension rights of cops and firefighters. If the other changes weren't already too difficult a sell to make to legislators who count on union support for re-election, this figured to guarantee that the package becomes, in the words of one union official, "a non-starter."

Although the Mayor, in tandem with the Times, has been on a seven-month crusade against pension benefits that were granted after the unions made end-runs around the city, virtually all the changes he is seeking are rollbacks of improvements that resulted not from union/legislator coziness but through negotiations with some of his predecessors.

A big chunk of those - Tier 4 members not having to contribute to their pensions after 10 years on the job, Tier 2 cops and firefighters having their contributions cut from 5 to 2 percent and gaining the same right as Tier 1 members to have pension allowances based on final year's earnings rather than an average of their last three years' pay, and the right to have pensions vest after five years of service rather than 10 - were negotiated with the Giuliani administration in 2000. In return, the unions agreed to allow the city to use $850 million it otherwise would have had to keep in the pension systems for other purposes. That was the year in which the retirement systems were so flush with surplus funds resulting from their profits from stock-market investments that the state granted a permanent cost-of-living adjustment to state and local government employees.

The proposal to have Tier 4 members work until age 62 to qualify for a full pension would also undo past deals that were made between the city and its unions to reduce the retirement age that were then enacted into law by the Legislature and the Governor, which gave the same right to state workers.

Last Crisis Spurred Lesser Perks

The more-onerous benefits were products of the wave of pension reforms adopted beginning in mid-1973 with the adoption of the Tier 2 system and kicking into overdrive when Tier 3 took effect in mid-1976, at the heart of the city's fiscal crisis. (Tier 3 largely dissolved into Tier 4 in 1983 at the time that the Legislature approved a bill ending the reduction of pension allowances based on retirees' Social Security earnings.)

Mr. Paterson and Mr. Bloomberg are essentially looking to turn back the clock to the late 1970s for most new state and city workers, but the Mayor is getting even more medieval when it comes to cops and firefighters. His proposal would for the first time require those groups to work at least 25 years before qualifying for a full pension, and they would have to be at least 50 before they could collect it. It would also deny them the right to a Variable Supplements Fund, a benefit linked to stock-market earnings that has existed since the early 1970s and currently pays retirees in those services an additional $12,000 a year.

If those changes weren't enough to devalue the financial benefits of police and fire jobs, Mr. Bloomberg had one more trick in his bag: the city-backed legislation would bar the use of overtime earnings in calculating pension benefits for all future municipal workers.

UFA Leader: 'A Mistake'

The city can make plausible arguments for the extended service and age requirements: a greater general life expectancy has made it increasingly costly to continue the 20-and-out standard that allows cops and firefighters to begin collecting full pensions by the time they are 41 years old in some cases. And those getting close to retirement almost invariably seek to pile up the overtime in order to pad their pension allowances.

Uniformed Firefighters Association President Steve Cassidy countered with a more emotionally compelling case.

"We had one catastrophic event that changed everything in the Fire Department pension system when we lost 343 employees," he said in a Dec. 19 phone interview. "We think it's a mistake" to make firefighters remain on the job longer in order to qualify for and collect pensions.

While some firefighters come on during their early 20s, Mr. Cassidy said, many others join the FDNY in their 30s, meaning that some would have to stay until close to 60 to qualify for the 25-year pension.

"Firefighting is one of the most dangerous and physically demanding jobs there is," he noted. "Trying to extend their careers will only increase the risk of illnesses or heart attacks. Nobody wants to see a world where you have a bunch of 60-year-old firefighters carrying 130 pounds of gear into a building and up flights of stairs. It doesn't benefit the city or the people we serve, and it's a disservice to firefighters because of the effect it would have on their health and safety."

PBA: Benefits Tied to Job Risks

And PBA President Pat Lynch quickly made clear that, notwithstanding his willingness twice in recent years to accept lesser compensation for future employees in order to get more for incumbents, he was not about to acquiesce to screwing the unborn when only the city would be the beneficiary.

He noted in a statement that the superior pension rights granted to cops and firefighters because "the rigors of emergency service work are far greater than those of other government workers" had become even more justifiable "given the constant threat of terrorist attack [and] the stress of fighting crime in the world's most complicated and diverse city ... The existing pension benefits recognize the added danger, pressures and responsibilities of the police job."

Further complicating the terrain for the Mayor is the fact that Mr. Paterson has not sought similar pension restrictions for future members of the State Police. At a time when control of the State Senate will be precarious at best, the chances of either Republicans or Democrats inviting the police and fire unions to campaign against them when they seek re-election in 2010 are, as one government official understated, "remote."

Shouldn't Count on Council

The chances may be equally slim that any of the pension reforms affecting city employees get out of the City Council, which would have to approve a home-rule message before they were forwarded to Albany. A majority of Council Members may have lined up with the Mayor to extend term limits, but their doing so would seem rather pointless if they put their re-elections in jeopardy by standing with the Mayor against the union pressure that will be coming.

"We're going head over toes on this," said Mr. Nespoli, who is also chairman of the Municipal Labor Committee. "This destroys everything the unions have put together - these pension [rights] were paid for by negotiations."

From a hiring standpoint, he continued, "It's going to hurt recruiting for municipal workers." Noting his own experience as an employee who joined the Sanitation Department in the early 1970s, was laid off during the fiscal crisis, and then rehired as a member of an inferior pension plan to the ones offered to those who had more seniority, he said, "There was always animosity" about the disparity in benefits.

'Not Sacrificing for Wall St.'

Mr. Nespoli cited a portion of the Times article in which it spoke of paring pension benefits so that they more closely adhered to those granted in private industry. His voice rising in exasperation, he said that on Wall Street, "You got guys with $180,000 salaries getting $5-million bonuses, a guy making $120,000 and getting a $250,000 bonus. In good times, the city doesn't pay its workers any more money - all we're getting is the money they defer and call it a pension. When you sign up for civil service, you do it looking for a steady paycheck and the hope you'll be around for a full career so you can collect a pension."

State AFL-CIO President Denis Hughes echoed that point, saying, "We really have to fight to make sure we're not sacrificing the economic security of working men and women because of the excesses of the financial industry."

Notwithstanding the ties the unions have cultivated with legislators, he said they had to take the proposed reforms as a serious threat because "pensions are generally under assault from [virtually] every editorial board in the state."

He quickly added that the move in recent years by many private companies to give workers 401k plans rather than pensions has lost much of its justification with a stock-market crash that is likely to mean it will be years before the 401k's again emerge as reasonable alternatives.

"Probably the worst thing you can do in bad economic times is make life harder for working people," Mr. Hughes said.

Mr. Nespoli remarked, "The economy is going to come back within a few years. You can't come in now and destroy the civil service."

He and Mr. McDonnell both said the unions were ready to discuss changes that would offer the city immediate relief, but were unwilling to give up hard-won benefits when the city would reap major dividends only in the long term.

Well-Timed Thrust

Mr. Bloomberg has always been someone who took the long view; it is one reason the city so far has weathered the current crisis without major pain, although the service cuts he has prescribed could begin to change that by the summer. Though his image continues to be that of a non-politician, his attempt to overhaul the pension systems shows a politician's flair for trying to take advantage of a climate change to do something that in ordinary times would be too tough a lift.

Most elected officials, however - and those he would need to pass his reform proposal fit in that group - usually look no further than the coming election cycle. And while that won't help Mr. Bloomberg in his bid to gain large recurring savings on pension costs, it levels the playing field as the Mayor and the Governor marshal the editorial boards to try to stampede their way to what, for them, anyway, would be a new and improved pension system.

Once upon a time - ironically enough, to satisfy demands from Wall Street for proof that the city had learned the error of its profligate ways - Mayor Beame and Governor Carey made drastic changes that went far beyond the less-favorable pension plan they pushed through in Albany, among them tens of thousands of city layoffs.

Long-Term Harm Done

The reduced payroll also produced recurring savings, but Mr. Bloomberg more than once has decried the impact those major service cuts had on the quality of life in the city in areas that ranged from police and fire protection to education and sanitation collection. Mr. Nespoli suggested that sharply scaling back pension benefits could produce similar damage, referring to the proposal as "The Dangerous, Dirty Streets Bill."

We've learned the hard way from Wall Street what an overreaction to current conditions - whether unusually rosy or suddenly dire - can do to the financial system. That should be a cautionary tale against making drastic pension changes in the middle of a budget crisis, where the consequences - starting with the employment recruiting difficulties union leaders warn of - could be felt long after the urgency of the situation has faded from memory.