The New York City Budget and the Great Recession: Health and Welfare

High local spending on health and welfare functions has long differentiated New York City from local governments in the suburbs and elsewhere in the United States.  Much of that money is not paid for in city taxes, but instead merely passes through the city’s books after having first been collected by the federal and state governments, which also set the rules.   There are huge issues and possibly huge changes in health care finance, but most of these involve the federal and state governments, not the city and not the Mayor.

On the other hand even leaving aside required local contributions to New York State’s Medicaid program and the Health and Hospitals Corporation, which I discussed in the initial post in this series, New York City’s health and social services infrastructure is huge.  As proposed for FY 2014, the city’s Administration for Children’s Services, Department of Homeless Services, Department of Health and Mental Hygene, and Department of Social Services (excluding welfare and Medicaid payments) combined are expected to spend $7.9 billion.  Of this amount, less than one-third is to be spent on city personnel, with the rest going to health and social service contractors, generally in the non-profit sector.  Given that we have just been through a national economic calamity, and given that the City of New York is facing an ongoing fiscal crisis, one might expect that spending on programs for the poor would have increased strongly.  But did it?

Of course not.  From FY 2008 to FY 2014, while the inflation rate is expected to have risen by 11.9%, spending on these services combined is projected to have increased just 3.8%, far less than inflation.  Virtually that entire increase, moreover, is in the “Personal Services” category, on payments to city employees. This is projected to increase by 9.8% from FY 2008 to FY 2014, while other spending – mostly on contracts with service providers – is expected to not increase much at all.  And not because the city has hired more health and social services employees to do more work in house, either.

The total wages and salaries paid by these agencies, if the Mayor’s proposal were to be adopted, would have increased just 1.3% during the FY 2008 to FY 2014 period, with much of that trend in the past and already locked in.  That is a substantial cut in payroll relative to inflation.  Taxpayer pension contributions by these agencies, however, will have increased by 61.9%, and fringe benefit payments will have increased 30.6%.  Together, pensions and fringe benefits for public agency employees will have accounted for $280 million of the increase of $288 for these agencies since FY 2008, during the Great Recession and its weak growth, high unemployment aftermath.

New York City’s children, particularly those children who do not have affluent and/or connected parents advocating for them, have traditionally been a low political priority.  The city had an adults first political culture before it had a “seniors and those with deals” first political culture.  To this day, the Administration for Children’s Services is the first agency to be cut when money gets tight, and from FY 2008 to FY 2014 wages and salaries spending for this agency was cut by 11.5%. 

The next step in this agency’s repeating cycle is rising caseloads for social workers, and a horrific and (more importantly) highly publicized death of a child, in a case those social workers were never able to catch up with.  The following step is a funding restoration.  I don’t recall the specific case this time around, but there must have been one, because wage and salary spending at the Administration for Children’s Service, if the Mayor’s budget were adopted, would have increased 12.2% from FY 2008 to FY 2014, nearly eliminating the prior cut (except for the real cut caused by the 11.9% inflation).

Where did the city get the money to restore some wages, and thus some workers, to the Administration for Children’s services?  Following earlier increases, wage and salary spending for the Department of Homeless Services will be unchanged from FY 2008 to FY 2014 under the Mayor’s proposed budget, with such spending falling 11.5% at the Department of Health and Mental Hygene and 3.9% at the Department of Social Services.

As for New York City’s teachers and uniformed employees, retroactive pension deals were primarily responsible for soaring pensions costs.  When they were hired, retired and soon to retire employees of these agencies, generally represented by DC37, had been promised a half-pay pension at age 62 after 30 years of work, with no inflation adjustment and a 3.0% employee contribution.  In 1995, under a deal cut by former Mayor Giuliani that claimed to “save money” (it actually cost lots of money, but only after Giuliani was out of office), such employees were allowed to retire at age 57 after 30 years of work.  But only if they contributed an extra 1.85% of their pay to the pension plan, not only from that year forward (like the teachers) but also buying back rights for the years they had already worked.  Since that money had not been there in the past, however, it had not earned investment returns in the past, and thus did not come near covering the pension cost of the five extra years in retirement – let alone the cost of eight years of retiree health benefits before Medicare shared the burden rather than three.

DC37 workers also benefitted from the 2000 pension deal, which eliminated pension contributions for those with ten or more year’s seniority (or cut them to just 1.85% of pay for those going for retirement at age 57), facilitated pension spiking by basing the amount on the final year’s pay rather than the final three, and included a partial inflation adjustment that provided the most benefit to those who were already long retired.  Moreover, over and over again in the 1990s the state passed temporary “pension incentives” to allow even earlier retirement, or retirement on richer terms, without additional pension contributions.

Despite these deals, the general New York City pension fund, while in trouble, is not in as much trouble as the separate funds for police officers, firefighters, and teachers.  According to a recent report from the Center for Retirement Research at Boston College the New York City Employees Retirement System, which also covers workers at New York City Transit and the Department of Sanitation among others, was 77.2% funded in 2011.  The reality is worse, since this estimate incomes both an expectation of high future returns and temporarily high assets prices due to rock bottom interest rates engineered by the Federal Reserve.

In FY 2011, according to the NYCERS annual report, city taxpayers put about $2.4 billion into the pension fund, while the pensioners took about $3.6 billion out.  Another $1.2 billion per year in taxpayer contributions was required to get the fund out of the hole, while setting aside the contributions of current employees for their own retirement.  Some of that increase may have already occurred, although pension benefit payments continue to escalate as well.  In the unlikely event that the right thing was done, this fund would get out of the hole sooner than the others, allowing wage increases and service restorations.

Like the other unions, DC37 is a full and willing participant in the “screw the newbie, flee to Florida” cycle.  Under a deal cut with Mayor Bloomberg in his first term, the starting pay for future city workers was cut by 15.0% compared with the pay of those hired earlier, to pay for raises (and thus higher pensions) for those cashing in and moving out.  Although far more city workers are involved, this union doesn’t get the press attention of the police, firefighters, and teachers, so I can’t recall any more “screw the newbie” provisions in subsequent contracts.  But I’m sure they were there.

Then there is Tier VI.  Whereas those now retiring with much more lucrative pensions after lower contributions were originally told they would have to pay 3.0% of their salary to the pension funds during their career, Tier VI members would have to pay at least 3.0% with progressively higher amounts for those who earn more and $45,000.  And whereas those cashing in and moving out were promised a full pension at age 62, those soon to be hired would be a full pension at age 63. With a 6.5% reduction in their pension payment if they start collecting at age 62, which is what recent and soon to be retirees were originally promised.  And a 39.0% reduction if they retire at age 57, which is what those now cashing in and moving out eventually got.  And a 52.0% reduction for those retiring at age 55, which is the deal NYC teachers got in 2008.

Beyond the cycle of deals for city workers, what about the city’s poor themselves and services for them? 

On the health side, Mayor Bloomberg focused on campaigns for people to better look after their own health, and tax increases and bans on harmful products and practices.  With some success, as the city’s life expectancy has risen and is now higher than the national average.  While the city’s poverty rate remains higher than the U.S. average, and the share of its adults who are in the labor force – working or looking for work – remains below the U.S. average, those gaps have closed in recent years.  Crime is another measure of social problems, and New York City is now below the national average.

At the same time, critics have deficiencies to point to.  Funding problems have led to food shortages at the city’s food pantries, which more and more New Yorkers have found themselves relying on during the recession (there have been worse problems elsewhere).  The homeless population has increased, or so I have read.  The city’s unemployment rate remains above the national average.  The teacher’s union, which previously blamed low funding – which is to say New York City’s taxpayers – for the quality of education in the schools, now blames poverty and social problems – which is to say New York City’s parents – as well.  Some point to the city’s high level of income inequality, relative to other municipalities.  And with poverty still relatively high, labor force participation still relatively low, and the destitute and the hustler still visible in the streets and subways, conservative critics might find reason to question whether the city’s huge investment in social work over the decades has produced a reasonable return.

What the apologists and critics, navel gazers all, fail to acknowledge is that as just one small part of a very big country in a very big world, a place where people move in and out of in huge numbers all the time, New York City’s economic and social conditions are determined far more by national and international trends – and in a relative sense by who happens to be moving in and moving out – than by any of its own policies.

In the 1960s and 1970s, the middle class that had found economic opportunity in the city moved to the suburbs, leaving older generations – which were poorer than younger generations back then not the other way around – behind in the city.  Other people moved in from the South and Puerto Rico who were generally worse off than the people they replaced in the same aging housing units.  In general housing units seem to get passed down to those less well off when they reach about 50 years old. 

More recently, despite the decades of failure in the city’s schools, the city has gained a well-educated and prosperous labor force.  Not because it has helped large numbers of its own residents advance, as it did before 1970.  But because people have moved in from the suburbs, the rest of the U.S., and other countries, and brought those skills with them.  Now the people moving into NYC housing units tend to be slightly better off than those they replace in large parts of the city, enough for it to do a little better than break even in is economic statistics.

New York City has inequality, moreover, because it has continued to find a place for the poor while also remaining attractive to the affluent.  If every neighborhood were a separate municipality, as in the suburbs, then each would have less inequality – just as those in Bronxville and Newark tend to be equal.  Inequality has become greater in New York City because it has become greater in the U.S., but NYC has always had more inequality than the U.S. average.

New York’s health and social services, for the most part, are there to cope with health and social problems, not to solve them.  If you have the poor, you have the problems, and when the arise there needs to be someone to call.