New York - We Too Could Run Out of Money

[2&2 Slider To Leyritz]

What type of ROI does NYC get from getting the garbage picked up?

Garbage colleciton is not an investment generating return, it is an expense. It is a baseline municipal service, the absence of which would cause them to fall off the map but the inclusion of which doesn't add any value over any other city. I don't know of anyone (other than those looking to dispose of bodies) who has traveled to NYC expressly because the garbage was picked up.

 

[PhDeac]

Garbage colleciton is not an investment generating return, it is an expense. It is a baseline municipal service, the absence of which would cause them to fall off the map but the inclusion of which doesn't add any value over any other city. I don't know of anyone (other than those looking to dispose of bodies) who has traveled to NYC expressly because the garbage was picked up.

I think tourism would suffer if garbage wasn't picked up.

 

[Deacon923]

NYC doesn't get an ROI out of the new Yankee stadium either. They gave away the extra taxes that would have been charged on the increased value, and there is no way that the marginal increases in hotel and food taxes over those created by the old stadium will ever pay back the billion dollars they spent with anything like an ROI that a private investor would accept. This has been studied over and over again and the conclusion is the same every time.

 

[Wrangor]

"scrape the underside of the overpass of gross negligence"

Lenox, is that you?

Hahaha

 

[DeacMan]

Simple math also shows there are plenty of other items in city budgets besides pensions and benefits.

LOL. That is the statement of someone who has never, once, been responsible for managing a budget beyond paying his mortgage. The number 1 line item cost in any budget is personnel.

So here's some actual math for you.

New York has an annual operating budget of about 70 billion USD. In 2012 it had unfunded retirement health liabilities of about 83 billion USD - an amount that increased almost 15% in just the previous 2 years. It's annual contribution to ensure it could fund current pension obligations grew from 1.3 billion in 2002 to over 8.3 billion in 2012 - an increase of over 500%. Inflation during that same time grew 33%. Pensions and retirement benefit payments represented over 80% of all personnel costs in 2012. In 2002 that number was around 33%. Personnel costs in 2012 represented over 55% of New York's operating budget. Debt service, mandated agency actions (medical assistance, public assistance, etc.) they are required to fund by Federal or state law (while aid provided by those governmental agencies continues to drop) and legal actions represented another 20% of their operating budget. That left about 24% of their budget to deal with capital spending, general upkeep of buildings, etc., etc., etc. You know, the stuff the city workers use to do their jobs.

How has NYC dealt with the pension issues that they see looming? Well, over the last decade they've reduced their city workforce. That includes cuts in police staffing of over 12%, cuts in fire staffing of over 7.5% and cuts in education staffing of over 9%. They've done remarkably well. Fire deaths are down, crime is down and the schools are still surviving. But that isn't sustainable over the long haul.

So not only is the current liability structure dumb and unsustainable, it is either cutting out younger workers or not replacing older workers who retire (either way the young lose). Did I mention that the deal with the teachers' union provides that any cuts in staff will be done on a last in, first out basis? In other words, it doesn't matter if you are a great young teacher. If cuts are needed it is your job, the one that is the least expensive, that must go first.

New York projects a 5 billion shortfall in its operating budget for 2014 and about 5.3 billion in 2015. And that presume the economy keeps growing so that tax revenues are fairly robust. Who knows what it looks like if we hit another blip.

So that brings us back to our 24% that you would cut first - stuff like having squad cars that work and fire engines that are operational and buildings with heat and electricity. That stuff costs about 17 billion a year.

By law it must balance its books.

Only someone who doesn't look at the actual facts would try to pretend New York can cut only from the 24% of its budget that is discretionary without bad impacts to its residents (not to mention its workforce), that it can keep funding the pension and retiree benefits beast that has grown at over 12times the rate of inflation in the last decade and that there already haven't been real impacts in terms of city staffing (hurting younger workers to fund the older ones). Because the math makes it really obvious that isn't the case.

New York has to do something about its pension and benefits structure.

 

[Deacon923]

DeacMan, this is a good post and actual facts are always appreciated. My only quibbles with the post are (a) I'm not sure anyone here has suggested that NYC should "cut first" anything, so that's a bit of a strawman, and (b) nowhere in your post is there any mention of raising more revenue. NYC is certainly quite capable of raising more revenue without moving seriously along the Laffer curve. It has the highest taxes in the nation and rich people are still moving in, in droves, and buying property there like gangbusters. Doubt a few percentage points shaved off some ultra-mega-billionaire's property tax on his $300,000,000 penthouse overlooking Central Park are going to drive him out of the Big Apple.

 

[DeacMan]

DeacMan, this is a good post and actual facts are always appreciated. My only quibbles with the post are (a) I'm not sure anyone here has suggested that NYC should "cut first" anything, so that's a bit of a strawman, and (b) nowhere in your post is there any mention of raising more revenue. NYC is certainly quite capable of raising more revenue without moving seriously along the Laffer curve. It has the highest taxes in the nation and rich people are still moving in, in droves, and buying property there like gangbusters. Doubt a few percentage points shaved off some ultra-mega-billionaire's property tax on his $300,000,000 penthouse overlooking Central Park are going to drive him out of the Big Apple.

I believe Ph (and others) try to insinuate NYC can find the money elsewhere.

And NYC has raised more revenues - hence the reference to their 5 billion shortfall for 2014 occuring when times were projected to be flush and ripe for tax revenue. But even the most tax and spend among you aren't going to keep pace with their liability issues. And those issues have already hurt the city's workforce - something folks always want to overlook as well.

 

[PhDeac]

DeacMan, that's informative. Twenty years without a Democrat in charge has really hurt NYC.

Oh yeah, personnel costs includes a lot more than pensions and benefits. Simple math, bro. If you're going to include personal jabs, read what the person said first.

 

[Deacon923]

I believe Ph (and others) try to insinuate NYC can find the money elsewhere.

And NYC has raised more revenues - hence the reference to their 5 billion shortfall for 2014 occuring when times were projected to be flush and ripe for tax revenue. But even the most tax and spend among you aren't going to keep pace with their liability issues. And those issues have already hurt the city's workforce - something folks always want to overlook as well.

No question. All I'm trying to say is that when time comes to negotiate, the unions are going to point out that there should be revenue raises to go along with the pension cuts, and in my opinion they will be correct. Just like it's going to take revenue raises, along with entitlement cuts, to pay for all the Baby Boomers to get old on a national level. Right now, a lot of people on both sides of the aisle (in NYC and nationally) are living in a state of denial that we can solve this basic problem and only gore the ox of the "other guys". They're wrong, but apparently it's going to take some real scary event to make any of them get serious.

 

[DeacHead]

I'd advise against throwing out pension funding numbers unless you really know how they're derived. "Cost" is attributable to a number of factors, very significantly including investment performance. Now, I can say with certainty that the FDNY and NYPD have extraordinarily generous pensions, which would blow away the best any of us have, that is in the unlikely case you're covered by one. In no way am I disagreeing that they don't have a serious pension issue, but saying "cost increased 500% vs 35% for inflation" is nonsensical. Cost could have decreased 50% given the right environment including investment return, assumed interest rates and salary increases.

And to the poster that took exception to the term "underfunded", that is the term an accountant or actuary would use. You can use whatever term you want for your agenda, but it's the wrong term in the industry.

 

[EatLeadCommie]

you're exactly right, it was overpromising. that's the problem with public sector unions being allowed to negotiate with politicians they helped to elect. It shouldn't be allowed and shouldn't have been done.

Nonetheless, it was done, and cities like Detroit have more obligations than they have cash. They can respond to that in two ways - reduce obligations, or increase cash. In Detroit, everyone played pass (and borrow) the buck long past the point of blowing up the Laffer curve and long after it should have been apparent to everyone that the merry-go-round was slowing down. Like, decades past that point.

NYC is in a very different position - it's got some of the highest property values and richest people in the world, and it's on the upswing, not the downswing. The unions have a right to sit at the table and ask who else is going to share the pain of fixing the city's finances - reduce union obligations, sure, but go find some cash somewhere else too. Expecting the unions to just roll over because Bloomberg has decreed it's the right thing to do is unrealistic.

I'd be very curious to know exactly how much revenue they expect to raise through local increases. Ask folks who live out of NYC but with NY state, and they're apt to tell you that the abundance of state taxes are so high to pay for a lot of the shit in NYC. It makes me wonder how much the rest of the state is propping up NYC. Of course, NYC does account for half the population of the state, so...

 

[EatLeadCommie]

DeacMan, that's informative. Twenty years without a Democrat in charge has really hurt NYC.

lol

 

[DeacMan]

I'd advise against throwing out pension funding numbers unless you really know how they're derived. "Cost" is attributable to a number of factors, very significantly including investment performance. Now, I can say with certainty that the FDNY and NYPD have extraordinarily generous pensions, which would blow away the best any of us have, that is in the unlikely case you're covered by one. In no way am I disagreeing that they don't have a serious pension issue, but saying "cost increased 500% vs 35% for inflation" is nonsensical. Cost could have decreased 50% given the right environment including investment return, assumed interest rates and salary increases.

And to the poster that took exception to the term "underfunded", that is the term an accountant or actuary would use. You can use whatever term you want for your agenda, but it's the wrong term in the industry.

That's great, but the increase in costs is simply a fact. And, just to be clear again, this isn't referencing unfunded pension obligations. This is referencing what the city has funded for pension costs each year. The city has seen a 520% increase in its annual pension funding costs vs. 2002 levels. And referencing inflation is merely being done by the mayor (and others) to note the fact that these cost increases far outstrip cost increases generally. You're correct it isn't "relevant" to their problem. But it is emblematic of just how severe the issue is for them. And while the market collapse of 2008 obviously sucked, the fact is NYC was seeing costs rise before the collapse and after it as well. Never mind the fact markets were delivering healthy returns before the collapse and have delivered healthy returns since it as well (which doesn't eliminate the pain of the collapse - a huge hole out of which to climb no doubt).

Here are their funding numbers for the last 11 years.

1.3 billion 2002
1.5 billion 2003
2.3 billion 2004
3.2 billion 2005
3.8 billion 2006
4.7 billion 2007
5.6 billion 2008
6.2 billion 2009
6.6 billion 2010
6.8 billion 2011
8.3 billion 2012

Pensions and fringe benefits as a percentage of all personnel costs have gone from 34% in 2002 to 77% today - and are expected to rise to 84% by 2015. Not surprisingly the city is now budgeting for salaries to remain flat into the foreseeable future. If that comes to pass it means more personnel cuts. It is pretty funny when guys like Ph defend the unions so staunchly without taking note of the fact that union members lose their jobs as a result (never mind the lack of new jobs).

Note none of the pension numbers take into account the cost of retiree health benefits that have to be taken care of as well. Those have risen 15% in the last two years.

Let's face it. Baby boomers are retiring and people are living longer. The models (whatever they were) that promised all these benefits obviously were flawed. But the bills still come due. It's a mess.

 

[DeacMan]

No question. All I'm trying to say is that when time comes to negotiate, the unions are going to point out that there should be revenue raises to go along with the pension cuts, and in my opinion they will be correct. Just like it's going to take revenue raises, along with entitlement cuts, to pay for all the Baby Boomers to get old on a national level. Right now, a lot of people on both sides of the aisle (in NYC and nationally) are living in a state of denial that we can solve this basic problem and only gore the ox of the "other guys". They're wrong, but apparently it's going to take some real scary event to make any of them get serious.

Yes. I agree, we'll all have to pay because we'll have no choice. But the unions want to live a dream world where everyone else covers the obligations and they have to offer up nothing in return. And they will fight tooth and nail to defend this position. Look no further than Wisconsin's little battle. That was in response to two things. First, a request that union members fund a modest amount of their own healthcare. Second, a repeal of mandatory union participation by public sector workers. Remember all the outrage at the WI state capital? Remember the recall election - where he ended up winning more of the vote than he did in his first election? And what has happened to union participation since the law went into effect? Their membership has plummeted because members would rather keep their dues money and not join the union.

 

[ONW]

That's great, but the increase in costs is simply a fact. And, just to be clear again, this isn't referencing unfunded pension obligations. This is referencing what the city has funded for pension costs each year. The city has seen a 520% increase in its annual pension funding costs vs. 2002 levels. And referencing inflation is merely being done by the mayor (and others) to note the fact that these cost increases far outstrip cost increases generally. You're correct it isn't "relevant" to their problem. But it is emblematic of just how severe the issue is for them. And while the market collapse of 2008 obviously sucked, the fact is NYC was seeing costs rise before the collapse and after it as well. Never mind the fact markets were delivering healthy returns before the collapse and have delivered healthy returns since it as well (which doesn't eliminate the pain of the collapse - a huge hole out of which to climb no doubt).

Here are their funding numbers for the last 11 years.

1.3 billion 2002
1.5 billion 2003
2.3 billion 2004
3.2 billion 2005
3.8 billion 2006
4.7 billion 2007
5.6 billion 2008
6.2 billion 2009
6.6 billion 2010
6.8 billion 2011
8.3 billion 2012

Pensions and fringe benefits as a percentage of all personnel costs have gone from 34% in 2002 to 77% today - and are expected to rise to 84% by 2015. Not surprisingly the city is now budgeting for salaries to remain flat into the foreseeable future. If that comes to pass it means more personnel cuts. It is pretty funny when guys like Ph defend the unions so staunchly without taking note of the fact that union members lose their jobs as a result (never mind the lack of new jobs).

Note none of the pension numbers take into account the cost of retiree health benefits that have to be taken care of as well. Those have risen 15% in the last two years.

Let's face it. Baby boomers are retiring and people are living longer. The models (whatever they were) that promised all these benefits obviously were flawed. But the bills still come due. It's a mess.

Agreed it is a mess, but I can't name one industry, business etc. whose costx have decreased year over year even excluding inflation. The models were made to secure someone's election/re-election. They knew they wouldn't be around to see the consequences and now live in the Hamptons paying lower taxes than we do. And I can't name one person who would sacrifice their benefits for the sake of others without them. We're fucking selfish, that's what got us to the top of the predatory chain.

 

[Deacon923]

Yes. I agree, we'll all have to pay because we'll have no choice. But the unions want to live a dream world where everyone else covers the obligations and they have to offer up nothing in return. And they will fight tooth and nail to defend this position. Look no further than Wisconsin's little battle. That was in response to two things. First, a request that union members fund a modest amount of their own healthcare. Second, a repeal of mandatory union participation by public sector workers. Remember all the outrage at the WI state capital? Remember the recall election - where he ended up winning more of the vote than he did in his first election? And what has happened to union participation since the law went into effect? Their membership has plummeted because members would rather keep their dues money and not join the union.

Absolutely. "Closed shops" are BS. We just took over a facility in a right to work state that was unionized because prior management borrowed money from the union pension fund and had to let the union in as a condition of the loan. One of the first things we did was end the union's ability to automatically deduct union dues from pay checks. Guess what - suddenly not a whole lot of people are interested in paying the dues.

I think unions are important in industries that treat human beings like machine parts, especially where working conditions are dangerous (mining comes to mind) or workers are systemically underpaid (fast food comes to mind). These industries "deserve" to have unions, and the workers need them. Most big American industries have evolved past this, or have outsourced the line jobs that fit this description. In most service industries a team concept has set in and unions are actively deleterious to this concept.

Public employee unions are something of a round peg in a square hole. Some public employee jobs do treat humans like machine parts (sanitation, a lot of low level bureaucrat jobs, to some extent even police and fire and teachers). I support public employee unions to be able to negotiate over work conditions and work rules and protect the safety of their members. Allowing them to create a "closed shop" or negotiate over wages and benefits is a bad idea, because it allows politicians to buy votes on the backs of future generations and it sets the employees interests directly at odds with the interests of the people they are supposed to be serving (the taxpayer).

 

[2&2 Slider To Leyritz]

DeacMan, that's informative. Twenty years without a Democrat in charge has really hurt NYC.

Oh yeah, personnel costs includes a lot more than pensions and benefits. Simple math, bro. If you're going to include personal jabs, read what the person said first.

Actually, it's the Union contracts from Dem mayoral control in the 70s and 80s (Lindsay, Beame, Koch, somewhat Dinkins) that are sinking the City. Starting with Dinkins and then more into Rudy and Bloomberg, most of the contracts were updated to scale back (relatively speaking) the pensions as well as overtime limits. The problem was that, for those workers who were under contracts effective from the 70s and 80s, the only way the new contracts would apply would be if the worker accepted a promotion, as that would put them under the new contract. If they stayed at the same job level, then they stayed under the old contract. Obviously, the union reps told the workers this, so many guys in that era just never applied for or took promotions because it resulted in a net decrease in pay and benefits. That is what is causing this enormous bubble, as pretty much all those guys are now retired with massive obligations owing to them, and increasing life expectancies.

My father in law is prime example of this. He was under a union contract from the 70s, and therefore never applied for or took any promotion because it would push him out of that contract. As a result, he retired at age 50 after putting in his 25 as a rank-and-file shortly after 9/11, and since then the City has paid him well over $1 million, PLUS the City pays for all healthcare for him and his wife for life. Over $1 million, and still rolling the register for the next 10 to 30 years with set COLA increases, to sit in his condo on the beach in Florida, watch Fox News, eat peanuts, and complain about his property taxes. Kudos to him for playing the game the right way, but that is ridiculously unsustainable from a fiscal solvency perspective.

 

[ImTheCaptain]

thanks, Boomers!

 

[PhDeac]

Oh no doubt, so what have the last two mayors done about it over the last 20 years?

 

[2&2 Slider To Leyritz]

Oh no doubt, so what have the last two mayors done about it over the last 20 years?

As I said, they've scaled back the current contracts to have less of a defined beneift component for new and promoted employees. But they can't re-write the contracts that were in place before they got there.