The New York City and State Budget Crisis: The Circumstances Beyond Their Control Are Only Beyond Their Control Because They Cut Deals to Make them Beyond Their Control

It’s a never-ending cycle.  When the economy is up and tax dollars are rolling in, the political/union class and executive/financial class negotiate deals with themselves to take more out, and/or put less in, to the City of New York, the State of New York, and agencies such as the MTA, because there is “plenty of money” and no one needs to be made worse off to pay for it.  Secret deals that are barely reported by what is left of the real news media, the portion of it that is willing to question what is going on and who is benefitting.  Irrevocable deals, deals guaranteed by contract, or by the constitution, even if those who received little or nothing in exchange, were not party to the negotiations, were not really represented there, and didn’t even know about them, are forced to pay for them.

Then a recession happens, and a budget crisis follows.   And the serfs – those who didn’t benefit from the deals, later-born New York taxpayers and service recipients, later hired public employees, those without special deals and privileges – are made even worse off due to circumstances beyond our control, as blame is cast in a circle.   

But are those circumstances really beyond anyone’s control? Even if the New York State constitution seems to put them there, that constitution could be changed, with the vote of two consecutive legislatures and a voter referendum.  One New York State legislature ends December 31st.  Another begins January 1st.  Changes to the state constitution could be on the ballot in November, 2021, as New York City residents went to the polls to vote for Mayor and City Council – if the powers that be wanted that happen.

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So what in the New York State constitution ought to be changed? Start with this.

ARTICLE V

Officers And Civil Departments

[Membership in retirement systems; benefits not to be diminished nor impaired]

§7. After July first, nineteen hundred forty, membership in any pension or retirement system of the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired. 

(New. Adopted by Constitutional Convention of 1938 and approved by vote of the people November 8, 1938.)

What’s wrong with that?  You agree to take a job on the based on the compensation, including retirement benefits, offered.   It wouldn’t be fair for your employer, the people of New York, to take away the benefits you were promised after you worked there for years, would it?  No it would not, and that is not something that I would ever propose.

But the situation we have now is completely different.  New York’s public unions and the state legislature, Governors and Mayor have cut one deal after another to retroactively increase pension benefits, with every state and local government employee hired before 2000, and every teacher hired before 2009, and even some other employees hired later, now entitled to take more out (often far more) and put less in (generally vastly less) than they had been promised.   And in some case, the unions have scored non-pension benefits paid for out of the pension funds, which “impair” those funds’ ability to pay for promised benefits.  And in others, extensive pension spiking and fraud have led to payouts far in excess of any concept of fairness.

In theory, the state legislature could pass a bill tomorrow at 3 am, in secret with no debate after a “message of necessity,” and guarantee every current and past public employee in New York State a pension of $3 million per year, irrevocably.  And the people of New York State would have no choice but to pay, even if the entirety of their income went to taxes (with no services in return) and they starved and died as a result.  And given what New York’s political/union class has already done, I wouldn’t put it past them.  There are no limits, and there is no shame.

So how about this instead?

§7.   The benefits of membership in any pension or retirement system of the state or of a civil division thereof that are in effect when a government employee or officer is first hired shall be a contractual relationship, and shall not be diminished or impaired. 

But any subsequent changes in pension laws enacted thereafter to allow larger payouts, earlier retirements, or lower employee contributions, may be revoked at any time subsequently by act of the state legislature, with the employees and officers who benefitted from those increases required to repay them — in even monthly increments over 120 months as deductions from their pay or pensions.

And any increases in benefits found by a state review board to be the result of pension spiking or fraud, with excessive overtime worked, disability fraudulently asserted, of unjustified late career promotion, may also be revoked and repaid as described above.

And any additional benefits paid using money from state of civil division pension systems may also be required to be repaid on the same basis.

That sounds fair to me.  Of course this would not require the New York state legislature to revoke benefits, or prohibit it from increasing benefits in the future.  But if there is an option to increase benefits, fairness requires that it work in reverse as well, especially when past pension deals – fraudulently described as costing nothing — have led to a fiscal disaster for ordinary New Yorkers.  As is the case in the present.

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How about this one?

ARTICLE XVI (10)

Taxation

§5. All salaries, wages and other compensation, except pensions, paid to officers and employees of the state and its subdivisions and agencies shall be subject to taxation. 

(Amended by vote of the people November 6, 2001.)

Except pensions?  Why should retired public employees receive an exemption from taxes on their pension income in excess of what private sector retirees receive, or even what workers receive?  This provision also dates back to the 1938 constitution, but and amendment was slipped through, just after all those retroactive pension increases in the year 2000 that caused taxpayer pension costs to soar and public services to decline.  The “agencies” part was new, with perhaps some fear that those in public authorities would be forced to pay taxes on their pensions.  

This provision originally passed three years after Social Security passed for (at the time) private sector workers employed by large firms in certain industries.  But things have changed since.  At that time, public sector careers were relatively low-paid.  But as I showed here:

https://larrylittlefield.wordpress.com/2020/11/22/bureau-of-economic-analysis-local-area-personal-income-data-for-2019-so-this-is-what-was-meant-by-the-fairest-city-in-america/

The average earnings (including benefits) of New York’s state and local government workers now far exceeds the average for those in the private sector, even exceeds that of workers in the Finance, Insurance and Real Estate sector in Downstate New York.  

And while seniors were, on average, far poorer than working people back in 1938, each generation born since 1957 has been poorer, on average, than those born earlier.  So today’s seniors are actually the richest Americans that ever were. Why should the richest generations in history, those now (2020) age 63 or older, pay lower taxes on the exact same income compared with the poorer generations who are following them, and facing other burdens they have left behind?

How about this instead.

§5. All salaries, wages and other compensation, purchases, property, and anything else paid to, paid by, or owned by officers and employees of the state and its subdivisions and agencies, shall be subject to income, sales, property and other taxation on the exact same basis as those who are not officers and employees of the state and its subdivisions and agencies.   

This shall be true no matter how much money organizations representing officers and employees of the state and its subdivisions pay to members of the state legislature in campaign contributions, or threaten to pay to challengers in campaign contributions, and no matter how young those officers and employees of the state and its subdivisions get to retire and never to anything for anyone else never again.

Notwithstanding what New York’s political/union class likes to say, our state and local governments don’t under-tax the $millionaires and $billionaires in the executive/financial class.  Since the federal government does, however, it might be worth adding this clause to guard against future abuses:

All investment income shall be taxed on the same basis as an equal amount of work income, except some taxes on investment income may be deferred as part of a retirement or other savings plan. 

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Other actions that would benefit New York’s serfs, and its future, at this difficult time wouldn’t even require a change in the state constitution.

ARTICLE XVI (10)

Power of taxation; exemptions from taxation]

Section 1.  The power of taxation shall never be surrendered, suspended or contracted away, except as to securities issued for public purposes pursuant to law. Any laws which delegate the taxing power shall specify the types of taxes which may be imposed thereunder and provide for their review. 

Exemptions from taxation may be granted only by general laws. Exemptions may be altered or repealed except those exempting real or personal property used exclusively for religious, educational or charitable purposes as defined by law and owned by any corporation or association organized or conducted exclusively for one or more of such purposes 

[Certain corporations not to be discriminated against]

§4. Where the state has power to tax corporations incorporated under the laws of the United States there shall be no discrimination in the rates and method of taxation between such corporations and other corporations exercising substantially similar functions and engaged in substantially similar business within the state.

To judge for what has passed as tax and “economic development” policy over the past 40 years, these clauses are clearing missing the seriously, we’re not kidding coda.

What this means, however, is that the state legislature has the legal authority to revoke or alter any tax exemptions granted for development and business retention, from 421a to the special deal for Goldman Sach’s new headquarters, at any time.  If the deals are perceived to be unfair, they are not guaranteed, and the politicians had no right to pretend to guarantee them.  The beneficiaries could then go ahead and sue Pataki, Giuliani, DeBlasio, Cuomo, or whoever they compensated in political support in exchange for tax breaks, but not the rest of us.  They had no authority to bind future New Yorkers for deals in the dark.

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What about all those New York State, New York City and MTA debts Generation Greed has run up and left to those coming after?

There are far too many provisions in the New York State Constitution concerning debt to include them all here.  They fall into two categories.  

Those dating from the original progressive era (pre-1930) limiting debt, intended to prevent self-dealing by a selfish and corrupt generation by limiting the extent and circumstances to which they could benefit themselves by running up debts and shifting burdens to those coming after.  

And those slipped through in the years since, making it easier for the latest Generation Greed to do exactly that.  

Many of the bonds later-born generations, who are poorer, are expected to pay back are described as “moral obligation bonds.”  But do they have a moral obligation? 

Most of them have been issued to merely replace and renew existing infrastructure on an ongoing basis, a maintenance cost past New Yorkers should have covered.  Some have been used for operating costs full stop, to get through budget crises, or to put more money in pension funds.  For anyone born after 1957, and certainly anyone born after 1980, this is what some ethicists call “odious debt.”

https://en.wikipedia.org/wiki/Odious_debt

But if the current state legislature and Governor decided to actually represent the people of New York State, there would be no reason for them to pay it, or to pay all of it.  Perhaps the debt for entirely new infrastructure added since 1990 and being paid for in 30 year bonds is legitimate.  Perhaps the debts authorized by referendum, and similarly being amortized over 30 years.  But not the rest.

You may have heard that states are not allowed to go bankrupt. That isn’t because the federal government imposes restrictions upon them.  It is because they are sovereign, and if they choose not to pay their debts, the federal government can’t force them.   So federal bankruptcy courts do not apply.

Therefore here in New York, a constitutional amendment could be passed abrogating some or all past debts, for the state, is localities, and agencies such as the MTA, while also repealing all the existing debt provisions in the state constitutions and replacing them with a few new ones that would (once again) try (seriously this time) to prevent “odious debt.”

Why not “run the government like a business” for a change?   Because Chapter 11 bankruptcy is what most private corporations do in the situation New York State, New York City, and related agencies like the MTA find themselves in – with unsustainable debts left behind by past regimes.  

Most of those who hold that debt are rich people who don’t want to pay taxes, and therefore like the fact that municipal bonds are triple tax free. You hear all these Democratic state legislators going on and on about a $billionaire tax and making the rich pay. Well, if they write off those debts, they’ll be making the rich pay.  And I’d bet there would be less long-term economic blowback from doing so than from further increasing taxes on the future income of the better off, who could move to Florida.

Some have said that if the MTA (for example) were to stop paying its debt, and only use its future toll, fare, and dedicated tax revenues for actual transportation, no one would ever lend it money again.   Those people clearly don’t read the business press, and see that many are very willing to lendto businesses and other organizations after Chapter 11 bankruptcy, when their debt load relative to their income suddenly seems sustainable.  And are not aware of the credit card offers thrown at those who have declared personal bankruptcy, and suddenly have less in past debt to pay back.  

The fools are not those who would lend to New York State, New York City, or the MTA after bankruptcy.  It is those who did so in the past 30 years, and might do so right now before bankruptcy.

Senate Majority Leader Mitch McConnell said that instead of getting federal aid, states should declare bankruptcy.  New York Governor Andrew Cuomo in effect said “go ahead, make my day.”  Well, Governor and phony progressives in the state legislature, “go ahead make myday.”  I feel very little moral obligation toward these debts, and believe my children and their peers have none.

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Finally, what about all the layoffs and service cuts due to COVID-19?

I don’t accept that the layoffs and service cuts are due to COVID-19, or Donald Trump, both of which will be gone by next summer in any event.  I believe they are the consequence of New York’s political/union class being unwilling to share in the sacrifices all of us are making due to the pandemic, and due to a recession that was coming in any event.  Indeed, they are taking advantage of the pandemic to grab even more for themselves, and make the rest of us even worse off.

The New York State Department of Labor will tell you that there were 47,700 fewer local government employees in New York City in September 2020 than there were in September 2019, a 9.6% decline.  

There were just 6,900 fewer elementary and secondary school employees, a 4.3% decline, despite falling enrollment.   In a deal with Mayor DeBlasio, the United Federation of Teachers subsequently got a no layoff guarantee – even as the education and child care services provided to New Yorkers plunged.

In other categories of New York City local government employees there were 40,800 fewer employees, a 12.1% decline.  I would assume that private, mostly non-profit social service contractors were hit with even greater decreases, based on past practices. The Social Assistance sector lost 13,600 jobs (6.4%).   

Presumably all the laid off New York City public employees are among the lowest paid, and as Tier VI members, are only currently entitled to the (much lower) pensions they were promised when hired.  They and their families have presumably lost their health insurance.  And because later-hired employees with less seniority are those required to work, the decrease in public services is presumably disproportionately large compared with the decrease in staffing.

None of this had to happen, and all of it can be reversed.  

If every New York City local government employee were required to take one day a week off without pay, then their cash pay would fall by 20 percent, allowing their total compensation to fall by perhaps 10 or 12 percent.   Thus matching a decrease is tax revenues, because many NYC taxpaying serfs have either fled the raw deal they get here or have come much poorer.

And if New York City public employees were to cut all the bullshit and produce the same public services in 20 percent less time, then most services would not have to be cut either.  Neither would anyone have to have lost health insurance.

To limit the strain, additional public workers could have been rehired as finances improved.  For one thing, does it make sense for anyone to take a vacation (or a sick day when they are not sick) now, when no one should really be going anywhere? Those days could be banked for a better future.

Either the Mayor, or the unions, or both refused to substitute furloughs for layoffs, thereby moving even further out of solidarity with everyone else who lives here, and with later-hired public employees, as a result.  

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In summary, 

Over the next 18 months, as New York’s political/union class says it has “no choice” but to make the rest of us pay more, or accept less, “due to circumstances beyond or control,” just remember all the things they actually could have done, but wouldn’t.   Do not accept that this is what ordinary people deserve.  It isn’t.  Here in New York City, we have paid, and paid, and paid.