Bloomberg News

NYC Budget Talks Snagged on How to Avert 4,000 Teacher Cuts

June 24, 2011

(Adds failed deal under subheading “Rejected Proposal.”)

June 24 (Bloomberg) -- New York Council members and unions are grappling over whether to use an insurance fund and cut non- classroom spending to avert Mayor Michael Bloomberg’s plan to fire more than 4,000 teachers to help balance his 2012 budget.

Harry Nespoli, chairman of the city’s labor coalition, suggested letting New York apply some of the $400 million of unused cash from the union health-insurance fund to pay for teachers that would be fired under the mayor’s $65.7 billion spending plan. Council Speaker Christine Quinn and Finance Chairman Dominic Recchia Jr. say the city could save $125 million by slashing non-classroom outlays on such things as public relations and outside consultants.

New York’s workforce, already down 5 percent to 296,000 jobs since 2002, will fall to 289,000 under Bloomberg’s budget. U.S. municipalities trimmed 28,000 positions in May, the most since November, the U.S. Labor Department said June 3, as shrinking revenue forced cuts to services. State governments now employ the fewest workers since January 2007.

“State and local governments are just having their budgets slammed, and because they can’t run deficits, have to make the choices to cut workers,” Heidi Shierholz, an economist with the Economic Policy Institute in Washington, which studies issues affecting low- and middle-income workers, said in an interview.

Bloomberg said he had little choice in crafting his budget, a version of which must be adopted by June 30. State and federal aid for the city was slashed about $5.6 billion, while growing expenses such as pensions and debt service create the prospect of $5 billion deficits in both fiscal 2013 and 2014, he said.

‘Postponing the Problem’

“If you didn’t reduce the size of your workforce this year, next year’s budget goes way over the $5 billion, and it’s just postponing the problem,” he said at a May 16 City Hall news conference. “We have to find a way to do more with less.”

The mayor has made education his signature issue, starting in 2002 when the state approved his abolition of the Board of Education to give him control over school policy and operations. Since then, the city has increased funding about 70 percent to about $19 billion, raised the high-school graduation rate to an all-time high of 65 percent from 47 percent in 2005 and improved test scores.

“The city has spent years of effort at improving our school system,” Quinn said in a June 1 statement in which she proposed alternative savings. Losing teachers would mean “a substantial deterioration” in education quality. Dismissing thousands would be “unacceptable,” she has said.

Shrinking Payrolls

The mayor’s plan for the largest U.S. school system, presented May 6, calls for 4,100 education staff to be dismissed and for 2,000 positions to be eliminated through attrition. It would shrink the city’s 70,000 teaching jobs by about 8 percent.

Unions and council members say their proposals to use the insurance fund, reduce outside contracting and other spending would prevent the dismissals, avoid the proposed elimination of 20 fire companies and keep programs for seniors and children.

Nespoli, who heads the sanitation union and the Municipal Labor Committee, a coalition representing police, firefighters, teachers and civil-service workers, said he brought the insurance-fund idea to Quinn and she enlisted Bloomberg’s support.

The unions’ Health Insurance Stabilization Fund, created to protect against rising costs of premiums, has accumulated more than $400 million in excess cash from several yearly $35 million city contributions, he said. That’s more than enough to pay the $293 million in salaries and benefits of the teachers who face termination, said Nespoli.

Rejected Proposal

Yesterday, the mayor rejected the unions’ offer of $262 million from the insurance fund on the condition they be allowed to withdraw another $110 million to be placed in a general- welfare account that could be spent with broader discretion.

“The city had no choice but to reject their offer,” said Marc LaVorgna, a mayoral spokesman. “We remain ready to negotiate on a deal to avoid layoffs and hope we can reach agreement.”

The unions had accepted the mayor’s offer for a one-year moratorium on worker firings, less than their previous demand for a 30-month hiatus, the mayor’s office said.

Nespoli said the mayor’s rejection “means that the threat to the city’s schools and services represented by his proposed layoffs becomes more real every day.”

The city’s unions “don’t trust this administration anymore,” Nespoli said in a June 22 telephone interview. “The mayor wanted to play hardball and union people have become very annoyed over that.”

One-Year Reprieve

Even if a deal is reached, it would only stave off teacher dismissals for one year, the mayor has said. The city still faces the prospect of anemic revenue growth because “there’s not a lot of evidence across this country that the economy is booming,” he said on the radio appearance.

The city “moved swiftly” to address budget gaps during the past two years by adjusting spending to the weaker economy, Standard & Poor’s said in a report on June 7. It affirmed its AA rating on the city’s general-obligation bonds, the third-highest grade.

New York’s rating has been raised three times by S&P and Moody’s Investors Service and twice by Fitch Ratings since 2002, said Marc LaVorgna, a mayoral spokesman.

Investor Favorite

The difference in yield between a New York City general- obligation security maturing in August 2016 and an index of similarly rated five-year bonds shrunk to about 10 basis points on June 22 from 101 at the beginning of the year, according to data compiled by Bloomberg, indicating investors are demanding less yield to hold the bond.

Quinn, 44, a Manhattan Democrat who has expressed interest in running for mayor in 2013, has proposed $75 million in non- classroom cuts to education, legal services, public relations, transportation and technology, and eliminating outside consultants.

Recchia, a Brooklyn Democrat, said another $50 million could be realized by trimming 5 percent from $1 billion spent on private contractors for information technology, data processing, consulting and legal services.

“We are on pins and needles,” said Jamie McShane, Quinn’s spokesman, when asked about the status of the budget negotiations. As for the possibility that the June 30 deadline would pass without a deal, McShane said, “no one has entertained that option.”

Previous Impasse

The last time a mayor and City Council couldn’t reach agreement on a budget was 1998, when the Democrat-dominated council passed a $34 billion budget without funding for a new Yankee Stadium on Manhattan’s west side sought by Republican Mayor Rudolph Giuliani.

He retaliated with a veto, which the 51-member council overrode. Giuliani then impounded more than $150 million in council members’ discretionary funds. The impasse ended in November, when Giuliani agreed to free the money.

Mayor Bloomberg is founder and majority owner of Bloomberg News parent Bloomberg LP.

--With reporting by Simone Baribeau. Editors: Jerry Hart, Ted Bunker, Walid el-Gabry

To contact the reporter on this story: Henry Goldman in New York at hgoldman@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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