What’s On Local 1199’s Mind?

The hospital worker’s union was the only big union to back Bill DeBlasio in the primary for Mayor, so after a brief period out of power it seems that they are once again our overlords.  So what do they want? They would probably have us believe that they want better health care, but despite their reversal on health care reform between the early 1990s (against) and the late 2000s (for), I’m not inclined to believe them.  We might suspect that their real issue is more jobs for members, and thus more dues revenue for the union, but I have reason to believe something else is on their minds.  Something like this from the U.S. Department of Labor:


Notice of Critical Status for the 1199SEIU Greater New York Pension Plan:  This is to inform you that on March 29, 2013, the Plan actuary certified to the U.S. Department of the Treasury, and also to the Plan sponsor, that the Plan is in critical status for the Plan Year beginning January 1, 2013. Federal law requires that you receive this notice. The Plan is considered to be in critical status because it has funding problems. More specifically, the Plan’s actuary determined that the Plan has an accumulated funding deficiency for the Plan Year beginning January 1, 2013.  This 1199 plan, one of three plans the union runs (as best as I can determine), is number one on the critical list.  Additional commentary is below.

Continuing with the notice:

Federal law requires pension plans in critical status to adopt a rehabilitation plan aimed at restoring the financial health of the plan. This is the fifth year the Plan has been in critical status. The law permits pension plans to reduce, or even eliminate, benefits called “adjustable benefits” (described below) as part of a rehabilitation plan. On May 31, 2009, the Trustees adopted a rehabilitation plan that includes two options, a Preferred Schedule and a Default Schedule. Under the Default Schedule, the Plan reduced or eliminated adjustable benefits.

On April 30, 2009, you were informed the Plan is not permitted to pay lump-sum benefits (or any other payment in excess of the monthly amount paid under a single life annuity) while it is in critical status. If the Trustees of the Plan determine that further benefit reductions are necessary, you will receive a separate notice in the future identifying and explaining the effect of those reductions. Any reductions of adjustable benefits (other than a repeal of a recent benefit increase, as described below) will not reduce the level of a participant’s basic benefit payable at Normal Retirement Age. In addition, any reductions may only apply to participants whose benefit commencement date is on or after April 30, 2009.

That doesn’t sound good.  So how did Local 1199 get into this mess?  In the public sector, we know that during the three recent temporary stock market bubbles (we are now in number three), temporarily inflated asset prices were used as an excuse to retroactively enrich the pensions of those cashing in and moving out, and for taxpayers to underfund the pension plans.  The relative level of guilt between the unions with their retroactively enhanced pensions, and past taxpayers with their underfunding, varies from place to place.  In some places, generally those where the public employee unions were less guilty, benefits are being cut to try to get the plans out of the hole.  In other places, generally those where the public employee unions were more guilty (such as NYC), local residents face ongoing tax increases and service cuts stretching into the future.

But Local 1199 represents employees of private sector hospitals, nursing homes and home health care agencies, and those in the private sector are generally not allowed to commit as much fraud as public sector entities and unions did with their pension plans.  And those in private pension plans have every reason not to raid the funds for short-term gain, because they can’t simply force less well off people who don’t even have pensions to pay up in taxes when the plans get in the hole.  Or can they?

Over the years I didn’t hear of any cases of Local 1199 retirees getting their pension payments retroactively increased, or current workers getting their contributions retroactively cut, or years knocked off their required years of work or retirement age, or near automatic qualification for more lucrative disability pensions.  As for NYC’s public sector pensions.  That doesn’t mean it didn’t happen, but I didn’t hear about it. So what is the problem?

Did the hospitals intentionally underfund the pension plan?  Well they don’t run it, Local 1199 does, so why would the union let them get away with it?

The usual union/political solution for pension underfunding, when it occurs, is to ensure that there are no sacrifices for those older people who caused and benefitted from problem.  Instead, future workers are cheated and left worse off than those who came before, while being forced to pay dues.  That’s why there have been multiple tier contracts in both the public and private sectors for more than 30 years.  This may explain why Local 1199 is concerned about falling hospital industry employment – fewer future victims.

The fact is, however, is that while the number of wage and salary employees working in New York City in industries with workers represented by Local 1199 may have leveled off, it hasn’t really gone down. As shown in this spreadsheet, with data from the Bureau of Labor Statistics.

Local 1199 Industries Employment

The spreadsheet starts in the early 1990s, when the city’s health care industry was given an unlimited budget via the Medicaid program, and somehow exceeded it.  Local 1199 has a separate pension plan for home health care workers, and the number of home health care workers has soared over the past two decades.  But it is mostly known as the hospital workers union, and I expect the pension plan for hospital workers is the one in trouble.  Comparing the most recent August data for NYC with the previous 20 years-plus, one finds that after the early 1990s hospital employment leveled off – but it did not fall.  In fact, August 2013 is a record employment high for the industry in NYC.  The BLS provides a little more detail for the sector.  The General Medical and Surgical Hospitals industry hit a record employment high in August 2001, but it was only 0.6% below that peak in August 2013.  Meanwhile employment in Specialty Hospitals has increased.

Local 1199 also represents workers in Nursing Homes.  Because of their high cost, and the fact that most nursing home care is funded by the public sector, there has been a concerted effort to shift people out of that kind of care, one reason home health care employment has soared.  The August high for employment in New York City’s Nursing and Residential Care Facilities industry was August 2002.  But in August 2013, employment was only 2.2% below that level.

Of course there have been shifts within the hospital industry during the past 20 years.  Hospitals have formed networks led by the rich and prestigious hospitals in Manhattan.  Local hospitals in the outer boroughs now provide basic care, but more complicated cases are sent to the mothership.  Some hospitals have closed, while others have grown.  But despite a growing belief that much health care would be better provided in other settings, employment in industries associated with Local 1199 pension plans can best be described as stable.

If you run your pension plan as a Ponzi scheme, however, with those who get in (and out) early getting a great deal and those who come later left holding the bag, stable employment isn’t good enough.  The number of new victims has to keep going up to pay for the deal those who got in early received.  In a legit pension plan it shouldn’t matter whether employment is going up or down, because retirement benefits for each cohort of workers are supposed to be pre-funded while they are working.  Very few pension plans, however, have been run in a legit way.  Instead the funds are raided when the stock market goes up, with everyone looking for someone to hold the bag when the stock market goes down.  Until the hole is so deep that there is still a crisis when the stock market is up, as it is today.

As of 2013, meanwhile, the hospitals are being made to pay up.  According to the DOL:

The law requires that all contributing employers pay to the Plan a surcharge to help correct the Plan’s financial situation. The amount of the surcharge is equal to a percentage of the amount an employer is otherwise required to contribute to the Plan under the applicable collective bargaining agreement. With some exceptions, a 5 percent surcharge is applicable in the initial critical year and a 10 percent surcharge is applicable for each succeeding plan year thereafter in which the Plan is in critical status. The surcharge ends for an employer once its collective bargaining agreement incorporates one of the options of the rehabilitation plan.

One big issue in the recent Mayoral campaign was the possible closing of two hospitals in Brooklyn.  The so-called Brooklyn hospital crisis.  But if you look at the distribution of hospitals that would remain after the two hospitals close, and the availability of health care in general, there is no crisis from a health care consumer perspective.  You have some affluent communities that want an emergency room nearby – rather than one slightly farther away — but prefer to get their health care in Manhattan otherwise.  Even delivering their babies in the borough of millionaires, something I never understood.  And you have another community where if a private hospital closes the locals would have to go to one of three nearby hospitals run by the city and state.  That’s it. In fact, as health care has shifted out of hospitals the city has been left with excess capacity.  So every hospital that closes makes the other hospitals better off by increasing their revenues.

There are only two reasons to be concerned about this trend.  One is the possibility that for some people the emergency room would be too far away, something I don’t see yet.  The second is the possibility that if New York City is the victim of a terrorist attack, or a deadly epidemic as we move into the post-antibiotic age, the city might suddenly need more hospital capacity that it normally does.

With regard to the second problem, perhaps the city should acquire Interfaith Hospital (which would be cheaper to buy than Long Island College Hospital) and mothball it, stuffing it with as many beds as possible.  While requiring the other hospitals around the city to send staff there one week a year for training, so it could be reactivated in a crisis and manned by staff on overtime and volunteers.  Perhaps Homeland Security money might be made available for the acquisition.  Perhaps part of the Long Island College Hospital campus could be used for a modern medical office building, a type of space that is growing elsewhere in the U.S. but has shrunk in Brooklyn given the conversion of the Williamsburg Savings Bank building to condos.

More likely, however, this whole discussion is irrelevant.  What I have learned over the years is that the issue isn’t really the issue.  Take the Congress, where the executive/financial class rather than the political/union class rules.  Does anyone still believe that the successful push for financial deregulation and a lower tax rate for capital gains were about jobs, innovation, and America’s leadership in the world?  If so the policies failed, because the U.S. has buried itself under a mountain of debt.  More likely, the entire purpose of much of what went on for 30 years was redistributing income upward.  But those who would benefit certainly couldn’t announce that fact, could they? They had to lie, to the rest of us and perhaps even to themselves so they wouldn’t feel so bad about what they were doing.

And what about the New York City education crisis?  What was the result of the Campaign for Fiscal Equity lawsuit, Mayoral control, and the huge increase in public school spending per child?  Earlier retirement with richer pensions after paying less in.  Only Mayor Bloomberg still claims there was a different result, but every other candidate for Mayor, advocacy groups and even the teacher’s union deny this.  Are we to believe that for those who are really in charge, anything else was even on the table?  Anything else mattered? As soon as the retirement benefits were retroactively enriched, the whole fiction that the NYC schools were getting better, or could get better, was dropped.  All that was left was an 18 percent increase in property taxes (so far), cuts in classroom and after-school programs, and cuts in other (non-educational) services.

And so I suspect the reality is here.  What’s on Local 1199’s mind is what’s on the United Federation of Teacher’s mind.  The pension, and nothing else.  The UFT, whose members already got in retirement benefits than more than virtually anyone else, wanted still more.  Local 1199 might be looking for someone to pay for retroactive pension increases, or perhaps just someone to pay for the pensions its members had been promised to start with.  I don’t know which, but someone should find out, and this situation should be out in the open.  Because if less well off people who don’t even have pensions are eventually forced to pay for this too, it won’t cost nothing – as would almost certainly be claimed when whatever deal is done.  For a change there out to be a discussion of what is fair, a discussion that includes the reality that money won’t drop from the sky. Rather than just having those on the inside grab money off the top, and later deny responsibility when the losses are allocated down line.