Note the growth in pension costs

NYC’s Good Times May Sour Like Detroit’s, Bloomberg Warns

By Henry Goldman - Aug 6, 2013

New York Mayor Michael Bloomberg invoked Detroit’s bankruptcy to recall the most populous U.S. city’s own brush with insolvency and warn its residents that they shouldn’t take the current fiscal well-being for granted.

Bloomberg, 71, said his 12 years in office helped generate a “virtuous circle” in which spending on schools, public safety and cultural amenities led to population growth, business investment, job creation and tax revenue gains. It can easily be undone, he said in prepared remarks for a speech today in Brooklyn.

Seven Democrats, three Republicans and at least two independents are vying to succeed Bloomberg, who leaves office Dec. 31. The mayor, in his speech, warned that a vicious circle may be created if municipal health and pension costs overtake the city’s capacity to maintain quality of life for New Yorkers. The result: population declines, followed by economic dislocation and the issues that pushed Detroit into insolvency - - and almost did the same to New York in the 1970s, he said.

“Short-sightedness, corruption, mismanagement and perhaps most dangerous of all, special-interest politics” may lead to a reprise of New York’s troubles of decades ago, Bloomberg said. “We saw all of those factors at work in Detroit -- and in recent years, the most harmful factor may have been special-interest politics.”

Prosperity Policies

The mayor’s remarks came in what his staff described as “a detailed address” discussing how municipal economic and fiscal policies affect quality of life and urban prosperity. The mayor gave the speech inside a former Pfizer Inc. (PFE) manufacturing plant in Brooklyn used by the city to rent space to startup companies. The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

The challenges facing the next mayor haven’t reduced investor confidence in the city’s credit rating, as the yield penalty on some of New York’s securities has shrunk 17 percent in 2013, data compiled by Bloomberg show.

Investors demand less extra yield on some borrowings. Bonds maturing in August 2020 were valued yesterday at a yield spread of about 0.39 percentage point, down from 0.47 percentage point at the start of the year.

A diversified, expanding economy will help the new administration, said John Flahive, director of fixed income at BNY Mellon Wealth Management in Boston, in an interview last month.

Job Growth

New York set a record with 3.95 million jobs in June, a 7.7 percent increase from a post-recession low of 3.67 million set in November 2009. The June total is 145,000 more than the previous high of 3.81 million, reached in August 2008, state Labor Department figures show. The mayor said that by comparison, the U.S. economy has regained about three-quarters of the jobs lost nationwide during the downturn.

“The reality is we may be a long way from Detroit but we are only a short distance from relapsing into decline if we allow health care and pension benefits to crowd out the investments that make New York City a place where people want to live, work, study and visit,” Bloomberg said.

Rising Costs

Pension benefits for city retirees have risen to $8 billion a year from $1.4 billion in 2002, when he first took office, Bloomberg said. Health insurance, free to most municipal workers, has almost doubled to $6.3 billion, he added.

Gains from a rising stock market won’t increase pension assets enough to offset higher taxpayer costs, the mayor said.

“Just as the financial collapse had only a small impact on our pension bill, as the market improves, it will not solve the problem,” he said. “The idea that our costs can be substantially reduced through increased market returns is a fantasy.”

In a rare venture into this year’s mayoral campaign, Bloomberg said whoever succeeds him would do well to follow two principles: support diversification of the economy throughout the city’s five boroughs, and refuse to sign a labor contract unless workers agree to contribute more to their retirement and health plans. The mayoral primary is Sept. 10, followed by the general election on Nov. 5.

Contract Issues

The mayor said contracts expired with the city’s 300,000 workers -- in some cases years ago -- because their union leaders refused to share more of the burdens of these benefits, upon which the mayor conditioned any deal.

Since then, city employees have been receiving raises and working under the most-recent collective-bargaining agreements.

Bloomberg said voters should demand that candidates pledge to condition future accords on increased worker contributions to pensions and health care. He also said the candidates should commit to refusing to make any raises retroactive for those years worked under expired contracts. While the city has budgeted money for small future pay increases, it can’t afford retroactive wage boosts, he said.

“The unions cannot give us retroactive productivity savings to pay for it,” he said.

Michael Mulgrew, president of the 200,000-member United Federation of Teachers, rejected Bloomberg’s arguments and characterized the speech as self-serving.

“I always enjoy listening to the mayor talk about what a great job he has done, and I’m looking forward to five more months of his self-congratulatory speech-making,” Mulgrew said in an e-mail.

Of the major Democratic mayoral candidates, city Comptroller John Liu and Public Advocate Bill de Blasio have said they wouldn’t rule out a deal with unions including retroactive pay increases.

Paying Nothing

Former city Comptroller William Thompson and City Council Speaker Christine Quinn have declined to discuss contract issues, saying they didn’t want to negotiate terms in public. Former U.S. Representative Anthony Weiner is alone among Democrats in proposing city workers pay more for health care.

Bloomberg said about 95 percent of the city’s employees currently pay nothing for their health insurance.

Among the Republicans, billionaire supermarket magnate John Catsimatidis is the only candidate uncommitted on the issue. Former Metropolitan Transportation Authority Chairman Joseph Lhota and homeless advocate George McDonald, founder of the nonprofit Doe Fund, have said they’d insist on workers paying more for benefits.

City officials plan to seek bids from insurance companies for new arrangements to handle health benefits for the city’s 300,000 employees, injecting competition into a system that has employed the same primary provider -- Emblem Health -- and its corporate predecessors for more than 30 years, Bloomberg said.

Saving Already

“We will seek a data-driven, modern health-care plan that will focus on prevention, provide higher-quality care,” the mayor said. He estimated the savings at $400 million a year.

After the city began looking for alternatives to Emblem Health, the company said it wouldn’t seek a rate increase for the first time in 15 years, saving New York about $300 million in an expected annual increase, Bloomberg said.

The search for a new insurance provider “will be a fight the public will have to force the next mayor to pursue,” Bloomberg said. Even with a new plan, the city “will still be facing a health-care bill that is growing at a rate beyond what we can afford,” he said.

City unions are hoping the next mayor will back down and not insist that workers make greater contributions to pensions and health care, Bloomberg said. At the same time, the unions are anxious to secure new contracts and raises after so long, Bloomberg said.

“It will be up to you -- the voters -- to make sure that we elect a mayor who understands how important this opportunity is and not someone who is going to squander it,” he said.