People’s expectations around the DeBlasio Administration remind me of the incoming administration of Chicago Mayor Rahm Emanuel in Chicago. All the great things he said he would do, just as soon as he finessed a few financial issues! Of course it didn’t turn out that way, as the Chicago Tribune reported recently, since Emmanuel inherited a bankrupt city. That city has reached the point where Wile E. Coyote realizes he has run off the cliff, and there is nowhere to go but down, despite (in the case of Chicago) an economic boom downtown (which may be sputtering out now that people are realizing what the future holds). I suggest that DeBlasio give Emanuel a call and ask for advice. That advice would probably be much better than it would have been two years ago.
If you can’t be a “progressive” by giving things to people, how about being a “progressive” by taking things away from people? That doesn’t cost anything. Here is where the new Mayor has a chance to really set the tone. I suggest cutting the pay of the management team he is going to hire — the Commissioners, Deputy Commissioners, Deputy Mayors, Chairpersons, Directors, Counsels, Public Information Officers and the like, the top 300 or 400 people in city government – by 50 percent compared to the pay level under the Bloomberg Administration. That is the official salaries – I’m not suggesting Mayor-elect DeBlaiso himself work for 50 cents. A quick review of city salaries on See Through New York shows that these sorts of positions currently pay $180,000 to $250,000. Under this proposal, the pay level would drop to $90,000 to $125,000 for the same work, or whatever the new hired had been getting paid in their previous job, whichever were less.
The 50 percent reduction would be consistent with my estimate that the average high level executive in the private sector is overpaid by 50 percent, given that the excuse for soaring executive pay over the past 20 years – “shareholder value” – turned out to be an illusion. That of course is the average, with some high level executives worth every penny. I proposed that executive pay should be cut by 50 percent on average, with the savings used to increase dividends. The S&P 500 dividend yield paid to stock investors has been less than half its long-term average for 15 years. Those first in line for the chop would be those who earned more than the President of the United States, including any bonuses, stock options, and other deferred and hidden compensation.
Of course, the typical top manager of a New York City agency, and the staff in the Office of the Mayor, earn far less than those in the private sector today, even without a reduction. Does it make sense to cut their pay further when the city is trying to recruit competent leaders? Does it make sense to cut the pay of those who are already low-paid? But that’s pretty much besides the point, isn’t it? DeBlaiso has proposed raising taxes on those earning $500,000 or more, without cutting taxes for anyone else, in city that if it were a separate state would have the highest overall state and local tax burden of any state in the country, mineral extraction taxes in a couple of small states aside. Cutting the pay of those whose pay is not high is consistent with raising taxes in a place where taxes are high already. It sends the message DeBlasio has promised to send. If New York City, with its high tax burden, can raise taxes, then surely low-tax areas can raise taxes too. If New York City, with its low management salaries, can cut them in half, then other organizations should also.
It would also send the message that Bill DeBlaiso and his management team do not wish to separate themselves from typical city residents. The median work earnings for employed New Yorkers was $34,000 in 2012 according to the American Community Survey. For full-time, year-round workers, the medians were $48,893 for males and $45,081 for females. He total median work earnings per household fell 6.9% from 2008 to 2012, after adjustment for inflation. There is the political/union class, which negotiates deals for higher pension benefits with itself and then forces taxpayers to pay. There is the executive/financial class, which negotiates higher pay with its cronies on private sector boards of directors and forces shareholders to pay. And the serfs, who have been getting squeezed by everyone in the rooms cutting deals to take money off the top. But cutting salaries in half, the new administration could ensure that its leaders would identify with the serfs.
The cut in management pay, to levels generally below that of the highest-paid unionized workers, in some cases below the pay of the average unionized worker, and far below the average pay of the average public employee union leader, would also acknowledge a reality. Public sector managers are not in charge. The union contracts and past debts and pension deals control the budget, and will force them to cut and cut and cut while getting blamed for falling services. The contracts and civil service rules mean it is extremely costly – in terms of management time, lawyer time, and time the worker gets paid and does as little as possible – to remove even the worst of them.
The workers are, in reality, volunteers, and the managers can do little for those who do their best, and little to those who seek to do nothing but beat the system. In one agency I worked for, the management strategy was to send workers to beg other workers to do their jobs, in the hopes that those other workers would eventually have mercy. Public sector management is a job I would not wish on my worst enemy. At least, however, when managers whose pay was cut in half begged the workers to do their jobs, the union leaders would be in less of a position to claim that all the money went to management.
So who would take the top city jobs, with all the work and all the blame that goes with them, for $90,000 to $125,000 per year? Probably not the usual suspects, because they would have upsized their lifestyles to the point where they couldn’t afford the job. You’d get people in their early 30s who have been forced to live on less. You’d get some retirees looking to re-enter the workforce. Some second income spouses. They’d have to be watched and advised. Perhaps former commissioners, directors, etc. could be asked to provide that advise on a volunteer basis. If experience and higher pay didn’t prevent the Bloomberg Administration from jacking up the retirement benefits of those cashing in and moving out, and then slashing the pay and benefits of new hires to pay for it, then there is little to be said for experience. The state legislature and its minions are going to go on doing more of this in any event.
In lieu of a higher salary, the management team could be given a contract with substantial severance pay if they were fired for reason other than misconduct. A recognition that they would be held responsible for a deteriorating quality of public services that they would have no ability to prevent. On the other hand, certain perks like waivers to live outside the city in places with better public services and lower taxes should be done away with, along with parking placards for most of them. The top people in government should live like the people in general. Not like the union leaders and people on Wall Street. You’d be bringing in people with less of a sense of entitlement.
Moreover, those who were upset with the pay could be told that it doesn’t matter a much as one might think. Imagine that many of them would be one of two working, professional spouses in a family, perhaps the one with the lower income (particularly after they took the city job at 50 percent off). And that counting their spouses income first, the last dollar they earned would be in excess of $400,000. That would put them in the 39.6% federal income tax bracket. And the 6.85% New York State income tax bracket and the 3.648% city income tax bracket, for a total of state/local burden of 10.498%. Although this provision of the law is always under attack and may disappear soon, as of now a federal income tax deduction lowers the real cost of New York’s state and local income taxes to 6.34%, for a marginal federal, state and local income tax total of 45.9%. So if you get a raise, you only get 54.1% if the extra money. And then if you spend it, you pay sales taxes on what you spend.
Or perhaps you get less. If the second spouse’s income is less than the FICA limit, expected to be $117,900 in 2014, then they would also be paying the 7.5% employee half of the payroll tax directly, and the 7.5% employer half indirectly in (in the raise they don’t get). So pushing to get more money only gets you 39.1% of a purported raise after taxes, minus any sales taxes if you decide to spend the extra money. (You could give it away, but if you donate to a city park, that is proposed to be taxed too).
Moreover, Bill DeBlasio has promised to raise the tax rate to 4.41% for those earning more than $500,000. But knowing how these things go, a compromise raising the rate that high for everyone earning over $300,000 – with some cash for certain interests – is more likely to pass the legislature. That would bring the state-local burden to 11.26%, the real burden after the federal tax break (for now) to 6.8%, and the total marginal tax rate without the payroll to 46.4%, and 61.4% with the payroll tax.
So the bottom line is, there is no reason for people hired to be part of Mayor-elect DeBlasio to care all that much what they are paid, something I figured out long ago. Better that they learn to live with less, like most Americans in the wake of Generation Greed.