The State of New York: Part Two

Governor Paterson is talking budget again. Today he revealed in a public meeting with state legislators that the deficit has reached $3,000,000,000, some $900,000,000 more than was initially projected. Though he urged legislators to find spending cuts to help balance the budget, no date was set for them to return to Albany to do so. Reporters were much more concerned about Paterson's election bid rather than issues with the state deficit. Typical. I guess we have all been so deluged with budget deficit numbers and projections that this is simply not news?

Meanwhile, hundreds of MTA employees protested outside of MTA headquarters today against the MTA's decision not to accept a binding arbitration ruling that granted them an 11% raise over the next 3 years. The MTA is appealing this decision because they claim that they simply cannot afford it. In fact, New York State definitely cannot afford it. It is interesting that an arbitrator could grant such a generous raise given the financial woes of the state. But, even if the state has no money, all of the various unions still expect to get their just desserts as usual.

Today Paterson stated that he was not going to offer any suggestions for budget cuts because he did not want to hear any flack from the unions until the legislators meet again. In the most budget showdown, the unions won out and the budget actually went up several billion dollars despite the fact that tax revenues would continue to decline. Attempting to roll back what has been granted to the various unions is going to get nasty again. But, none of this will really be big news now, will it?

Private Sector Employment Losing Luster

Now that all of the experts are predicting that the recession is pretty much over and the stock market is up 50% since March, we all should be breathing a sigh of relief. Our 401k plans are rising again, the economy is leveling off, all should be OK right? Yet, somehow, I feel disconnected from all of this economic joy. When I look around, I do not see things getting any better for the middle class; at least those employed by the private sector.

Over the last decade our wages have been stagnant but now they are just downright declining. In the last 8 years, my husband was only able to gain a wage increase by switching jobs, the last time we both actually got raises from a private employer was at the end of the 1990s. So far, many of our fellow unemployed folks who have been fortunate to get employment offers are accepting less pay for the same or similar job that they just lost.

My husband just got an offer over $10,000 less than his old job with an inferior healthcare plan. In fact, the company announced today that next year's plan will be even more inferior due to rising costs. We accepted the offer though because you can't look a gift job in the mouth these days. We are thrilled that one of us now has a job but as he looks around at the folks toiling in his new workplace, they are grateful to have a job and fearful of losing it. They all get in by 8am, work all day, take no lunch, take no vacations, and do not leave the office before 6pm. This is the new reality for many who work in the private sector.

Last weekend, I read in the New York Times that the economy produced 120,000 private sector jobs since 1999. In ten years, during all of the economic boom that we were supposedly experiencing, before all the bubbles crashed at once, only a net of 120,000 private sector jobs were created. Yet, during those boom times, many public sector unions were able to obtain the most generous salary and benefit increases that now must be honored despite the economic reversal of fortune.

Where I live, on the south shore of Suffolk County, most of the parents that I encounter in my community are public employees of some sort; teachers or school workers, police people, railroad workers, postal workers, fire people and the like who seem to be the only people still spending money. The rest are contractors; plumbers, carpenters, landscapers and mechanics, all of which did quite well over the last 10 years judging from their homes and their lifestyle but are now pulling back because of the economy. There are very few who work in the private sector, and if they do they are Long Island based. I imagine they are in the same boat as we are.

So far, in the six years that we have been living in our community we have not met anyone who commutes to the city like my husband does; I'm sure there's a few out there, though. After traveling all over the island and meeting more people, anecdotal evidence suggests that most NYC commuters live in Nassau County or above the LIE in Suffolk County. In fact, when we moved out here, our neighbors were shocked that my husband worked in the city. I suppose if we were surrounded by more NYC commuter folk, we could get a better pulse on how they are surviving.

Anyhow, we are starting to get jealous of the public sector people. They have job security, incredible lifestyles, nice homes, nice vacations, nice vehicles, nice everything and we feel like we are struggling all the time. We have no comfort zone when it comes to employment, we have no job security, we have to save for our own retirement and every year we have to pay more and accept a lesser healthcare plan. Who knew this was going to be the case? None of those public sector jobs were glamorous back in the 1980s when we were going to college and making our choices but now they look downright lovely. Sure, there will be a day of reckoning for those public sector employees but right now they are sitting pretty and I wish I was sitting there next to them right about now.

Local Unions Still Resistant to Concessions Despite Bad Economy

On a local level, Governor Paterson recently proposed the layoffs of nearly 9000 state workers if the union does not make any attempt to help him find $500,000,000 in cost savings; the MTA voted today to raise fares approximately 23%, raise bridge tolls, cut services and layoff workers unless the state votes to help bail them out and Suffolk County Executive Steve Levy has sent out 2,200 notices to some county workers putting them on notice for the potential layoff of 386 persons if the unions do not agree to some concessions.

As the State and local governments struggle to bring their budgets in order and minimize their looming deficits, the biggest area of contention are with the unions. Note here that I am speaking only about unions that represent employees who work in any public service sector supported by taxpayer dollars; the United Auto Workers, the teamsters and the like who work for large private corporations fall into a different category for purposes of this discussion. Anyhow, we must admit that the generous union contracts entered into during the previous boom years are crippling state and locals governments alike in their ability to trim their budgets as they stare down the failing economy.

Now it may not seem from any of my previous posts that I have any support for unions but I do believe that unions have a noble purpose in providing employment security for many citizens. Certainly this purpose was critical during much of the 20th century to balance out huge employee/employer discrepancies and abuses. Yes, we needed unions to reset the playing field and that did take place. Now, unions are reaping generous benefits above and beyond what employees of private enterprise could ever hope to attain. In addition, these private employees most shoulder the higher tax burden required to pay for all of those union perks.

I believe that a shift in the balance between the benefits of public and private employment requires an re-evaluation of union benefits. So, at the very least, unions should be reasonable when it comes to economic crisis. For the majority of New Yorkers who are not in a union, the axe could come at any time. While they work fearful for their livelihood, union members have the advantage of negotiation before the axe falls. Yet, union members are acting like the Wall Street folk, defending their entitlement to their generous contracts.

Recently, union members protested County Executive Levy's proposal to cut some county jobs as they have the right. But, listening to some of their defense made it hard to sympathize. Many lamented with indignation how it was unfair for them to work within an environment where their jobs were threatened. Hello! Times have changed. If we continue to pay you, our whole government welfare is on the line. When the analogy is used by Obama and Bernanke alike that when your neighbors house is burning - in an upside down mortgage or potential foreclosure - we have to save them with a housing bailout to save the neighborhood. How about public service union employees realizing that if they don't sacrifice a little now, the future could be bad for all of us?

The Suffolk County employees are being asked to accept a lag payroll, meaning that they will sacrifice 10 days of pay now to be paid at a higher rate when they retire. They are still going to get the money, just not now. One Suffolk employee even suggested raising taxes as being better than laying of people. Huh! For God's sake, none of the concessions sound so bad if you still get to keep your job. And, what about the ones who do end up being laid off? They will still get their pensions. The rest of us have to rely on our own 401k/IRA savings, which averaged just $15,000 per employee by 2008 estimates though I'm sure they are worth considerably less now with the market so topsy-turvy. This is pitiful compared to the value of a union pension.

While private employees have to save for their own retirements, public employees earn retirement credits for each year that they work. It is hard to feel bad for them right now when a large portion of their health insurance is being paid and they receive generous holiday and vacation days. They had a good run but if we all have to pay the piper, then they should too. How can they still remain reluctant to do so?

The News That Surrounds Me

With all of the news that surrounds most of us, it is easy to understand why Americans are 6 in 10 against the bailout of the auto companies. It is hard to emphasize with the UAW when the realities of your own situation pale in comparison to their privileged world:

There are rumors that my husband's company is ready to do a significant layoff next week. It is a large company but it has significant debt that creates an almost permanent negative impact on the books; there are always quarterly losses prompting quarterly layoffs over the last few years. The rumors are usually true since the layoffs have become more regular now, the corporate culture is one of uncertainty, about people holding onto their jobs for a paycheck until they are the next to go; no one expects a week without upheaval. There is no union preventing people from being laid-off at-will or exacting the promise of a paycheck even if the work dries up. Most employees now work at their own risk, the propects of a similar job for similar pay are slim since the industry has been suffering a downturn since 2001 from which it has never really recovered.

The other major aspect is that management has changed little, with the layoffs coming bottom up, not top down. Unfortunately, this scenario gets compounded by the fact that management usually has the most management experience even if they have done a terrible job. If you listen to the logic of most companies, they have to preserve bonuses and other perks to keep their managers from absconding; how can they run without experienced managers? Unfortunately, many of these managers may be the very same people who ran the company into the ground in the first place. It is clear that my husband's company has been badly run for some time but those people are not getting rid of themselves anytime soon.

My husband is grateful that he has a job and receiving a decent paycheck for his hard work and so am I. Hopefully he will survive the next round but we still could tighten our belts even further and save even more money just in case. I double-checked with my benefits representative that if he loses his job and we lose our health benefits that I qualify to sign us all up for the health benefit at my job; I am currently waiving mine since both of our plans cost about the same and there is no reason to upset the cart, for now.

Since I have only been at my job for 3 months, I simply have no comfort zone at all. I don't think I will ever settle in since the job trimmings continue despite the assurance after the layoffs last month that we were the crew going forward, in fact the executive who told us that is no longer with the company having been terminated last week.

Bankruptcy May Be a Better Deal for Automakers

A serious message for the Unions is coming; the Corporate trough is going to run dry and hopefully they will pay heed before the public trough does too. One of the big 3 automakers is going down, with or without government funds, stranding many Union employees and pensioners. Bankruptcy is coming to one of the big three; the writing is on the wall so why not stop the bleeding and do it now. Ch. 11 is now an accepted form of business restructuring and allows a company to work its way out with dignity than the current embarrasment of begging that we are witnessing before Congress. 

No doubt this will be a bad situation but it is always better to have that operation sooner than later if you want to survive. Begging for a government bailout only delays the inevitable; when a company is burning $5,000,000,000 a month, they shouldn't be saved no matter how revered they are. It will be much cheaper for the taxpayer to help those workers and pensioners who are stranded by a bankruptcy filing than to fear the filing and throw good money after bad. The workers will be given unemployment and other government compensation, benefits will be turned over to the Pension Benefits Guaranty Fund and this one of the three (most-likely GM) will be forced to revamp and retool the company. 

Most importantly, the company will be able to re-negotiate debt and employment contracts and shed its pension and healthcare obligations and most of all change its dinosaur management structure. This company will then emerge leaner and meaner and on par to seriously compete with foreign carmakers who are not crippled by legacy costs and who can manuever through this economic downturn because they are already on the road to the cars of the future. In fact, Congress approved $25,000,000,000 in September to fund energy-efficient vehicle research and manufacturing. So the first car company to choose Ch. 11 and restructure will have access to plenty of development cash to get going. 

Simultaneously, the Unions will get the message loud and clear, the playing field has to be leveled; any identifiable reasons for Union members to be overly compensated and overly benefitted more than any other American worker have long since evaporated. They have managed to hang on and bleed their hosts dry but they need to adapt to survive just like everybody else. They are stronger and more organized but if their host runs out of money, everyone will lose. If they are willing to renegotiate their contracts to be more in line with the type of environment in which most of us work and contribute more to their healthcare and retirement plans in particular then their host and themselves may survive. 

All the Unions have to stand up and come into the 21st century where most of us have been toiling for a decade. There is no such thing as a free lunch. Alan Greenspan stated this fall that he was surprised at the meltdown; he didn't see it coming because he believed in the ability of markets to self-regulate; companies would always protect their shareholders by delivering real profits and accountability. Unfortunately when the greedy get going; there is a stampede. Everyone has to reign in excess including the Unions. 

The State of New York

Probably the most disturbing statistic I read about this weekend is the extent to which New York State depends on Wall Street. Apparently, 20% of state revenue is garnered from the taxes on bonuses paid to investment bankers and capital gains (source: Newsday). Now I knew it was a significant amount but 1/5 of the budget is alot. New York State has a budget of $120,000,000,000 a year. Of course with the decimation of most of the major financial firms continuing to escalate, Citigroup announced layoffs of 50,000 workers today, it is not hard to predict that this stream of revenue will be significantly reduced. 50% is the amount currently anticipated or approximately $12,000,000,000 less. The State is on track to have a $1,500,000,000 deficit this year and a $12,500,000,000 deficit next year.

This past July, Governor Patterson sounded the early alarm and hauled the Legislature in to address an additional $600,000,000 in budget cuts to cover the then-anticipated budget shortfall for this year and at the time projected a deficit of nearly $6,000,000,000 for next year. As we can see, these numbers have more than doubled since July so tomorrow the Legislature is being hauled back in again to address the spiraling budget deficit. From the top - corporations and governments - to the bottom - individuals, we are all saddled with decreasing income/revenue and higher debt. 

Unfortunately, instead of trying to come up with solutions, the advance notice is of Legislators bickering about programs that they do not want to touch, funds for education, healthcare, adminstration, pensions and themselves. Yes, it will be difficult to cut funds for all of these programs, New York spends nearly half of its budget, $59,000,000,000 for public health care costs, Medicare, Medicaid and Child Health Plus, alone. 

These funds represent the neediest cases but for all of those people who are losing their jobs, the projection is over 160,000 jobs across the state this year, the prospect of a majority of those persons paying into COBRA; extending their employer-based healthcare beyond a layoff is slim. Cobra costs are daunting. I have done it. It cost us $1200 a month to COBRA our healthcare costs a few years ago when we decided to go into business for ourselves. Most people will not be able to afford COBRA so that will be more people on the public health rolls. How do you cut the budget here? The other major area is education. None of the Legislators want to cut those funds either; New York State funding helps to keep my school taxes at an unrespectable $7,000 a year. Long Island school taxes are legendary, most of us are hanging by a thread, we couldn't survive a hike in taxes if the state cuts aid. 

So if not, health and education, then where? You have try to cut people but NY State is a union state. The teachers union is 600,000 strong then there is the Civil Service union with 300,000 members and police and transit and service employees and healthcare employees adding tens of thousands more; all the heavy-hitters with generous pensions, healthcare benefits and salary to boot. All of the Legislators owe some allegiance to one or the other of these unions so who will have the balls to cut them? Look, the Congress is arguing over saving GM for precisely the same reason; huge legacy costs will probably crimp its ability to become self-sustaining even if it does come up with the car of the future.

There is no good solution to the state's budget crisis but someone has to pay because there is no more money; most economists have now agreed that we will suffer a deep and protracted recession. So far Governor Patterson has been effective in keeping everything on the table. Instead of bellyaching and intractability, our Legislators should attempt to come up with some budget-reducing ideas that they could swallow; like it or not, we all have to do it.

Property Tax Cap: Solution or Disaster?

It is nice to see that the NY State Senate Is meeting to tackle the property tax cap issue in response to the Commission on Tax Relief’ recommendations. The Commission, instituted by former Governor Spitzer and headed by Nassau County Executive Tom Suozzi, recommended a school property tax cap of 4% annually; a proposal supported by Governor Paterson. This means that school budget increases must result in a property tax increase of no more than 4% each year. We have long known that New York spends significantly more per pupil than any other state in the nation and some regions in New York, like Westchester and Long Island have the highest property taxes in the nation so something has to be done.

A property tax cap seems like it would be welcome news but it has ignited a furor. School districts, the teacher’s union and other pro-union, pro-education forces have dug in their heels claiming that many school districts will suffer and they will. In order to meet budget requirements, districts will be forced to cut more and more programs to make ends meet. This budget cap will lead quickly to the demise of music, art, athletic and after-school programs. There are few, if any, districts that have been able to maintain the same level of programs without an increase greater than 4%. This is troubling.

Nevertheless, what can we do, the property taxes on Long Island are crushing middle class families and senior citizens. The high taxes coupled with the high cost of home ownership is forcing families to leave and preventing young families from settling here. There are other solutions, like revamping the school districts all-together or sharing administrative services. These are reforms that I personally favor but so far they have no champion. I also think that some elected official has to find a way reduce the stranglehold of the teacher’s and school administrator's unions even if it means political suicide. After all, school teachers and administrators cannot be entitled to tax-payer funded benefits that the tax-payer themselves do not receive in their private sector jobs. It is only fair. Nevertheless, we will see what the legislature comes up with; it won’t be pretty either way.

Oh Happy Day?

2 Days. 483 points. Today Investors were skipping down Wall Street whistling. The market is up over 200 points singing “doowah diddy diddy…” Thankfully, they will remember none of this in the morning when they face down the reality of Merrill Lynch’s, Google’s and Microsoft’s numbers. Alas, I can’t seem to turn away from the current financial drama, such a scintillating tale of economic woe unfolding at the pace of a John Grisham novel, a real page turner. Now, if we pile on new developments occurring in my other favorite topic, public sector benefits and taxation, then we truly have a most entertaining day. Today I read that there is a real prospect of Governor Paterson signing a new round of bills to boost, yes boost, the already outrageous benefits of fire and police officers.

This from the editorial section of today’s Newsday;

“The bills would prohibit the reduction of state retiree health benefits; lift limits on disability pensions for fire and police officers who suffer heart attacks off-duty; and allow fire or police officers to join the other force after retiring, making them eligible for two full pensions…”

Am I reading this correctly? I thought we had a fight on in Albany to reduce taxes in NY State and these types of bills do just the opposite. What will happen to our taxes in the future when these pension checks come due? Our legislators found the time to send these types of bills to the Governor when we are mired in economic uncertainty. Once again, I shake my head.

The editorial urges Governor Patterson to veto the greed because “pension costs are busting government budgets and burdening private-sector workers whose benefits are far less generous.” Took the words right out of my mouth. There is a real concern that Paterson may support the bill because not only is the Governor a huge friend of big labor but his father, Basil Paterson, is a bigger friend of labor; his law firm is a lobbyist for public sector labor unions. Connections have an awful way of connecting the powerful to something that stinks. Let’s hope that rationality prevails.

Unions must help ease tax burden

The people who benefit most on Long Island are government officials & employees, school officials and teachers, and police officers. What do all of these people have in common? These are all positions that are supposed to serve the public good. Yet, these are now the highest paid people on average in Long Island. Yes the average private sector wages are now dwarfed by the average wages of all of these professions. In addition, public sector personnel are guaranteed cost of living increases and generous benefits regardless of the tax burden on the residents. Why? because these personnel are members of powerful unions whose political clout is legendary. No politician is willing to risk political suicide by treading on the “rights” of the unions.

Human resources – wages and benefits – are 60-70% of an organization’s operating expense be it a major corporation, government or quasi-government agency. We routinely hear of private enterprises cutting costs through attrition and as a last resort, layoffs. Yet, public agencies cannot effectively reduce their budgets (which in turn would reduce taxes) because they can never touch the most expensive part of the budget, union-protected wages and benefits. What’s left is cutting costs through the reduction of services, services that are very often popular and/or vital like when a school district threatens to cut art, music or sports. These savings of course are miniscule and can never offset the annual wage increases and perks stipulated by the unions. Yes, the unions are doing their job by protecting the wages and benefits of their members. However, it cannot be that those wages and benefits become a tax burden to the very people they are supposed to serve. The purpose of the union was to equalize the earnings of their public sector members in light of what they would be earning in the private sector, not to have earnings that are above and beyond the call of duty, literally.

The fact is we have to cut taxes. We have to think smart about how we are going to rein in these costs. Our elected officials must appeal to the unions to come to their senses for the public good by starting with some reasonable fixes. One is to have public sector workers contribute a greater portion of their health and retirement benefits just like those workers in the private sector. Every one from top to bottom with no grand-fathering could pay a percentage. If everyone active and retired paid a small percentage that would return millions to the public coffer for all to benefit – not some. Another painless solution is for unions to give greater leeway to public agencies to reduce personnel through attrition instead of demanding that those jobs remain on the books. We have to start somewhere.