City Journal
Stephen Eide
Time to Start Governing
Mayor de Blasio needs to confront the city’s public-employee health-care costs.
10 February 2014

Bill de Blasio is still in campaign mode. Instead of using his maiden State of the City speech to explain the highlights of his policy agenda (increasing affordable housing, restricting charter school growth), the mayor focused on messaging. De Blasio reiterated, in case anyone has forgotten, that he’s committed to “fighting to end the Tale of Two Cities.” Perhaps the mayor will provide more substance in his first budget address on Wednesday, in which he has pledged to offer his solution to New York’s labor impasse. With unions seeking a payout of several billion dollars not in the city treasury, this will be one of de Blasio’s most pressing fiscal challenges.

A career political operative, de Blasio should show that he has developed an executive’s attitude toward budgeting by getting city workers to contribute to their health-insurance premiums. The mayor’s political model here could be his own appointment of William Bratton as police chief. Just as hiring Rudy Giuliani’s former police commissioner will make it somewhat harder for critics to accuse him of being soft on crime, extracting health-care concessions—which the Bloomberg administration was never able to do—could help de Blasio neutralize the fiscal opposition.

Almost all of New York’s 300,000 workers contribute nothing to their health-insurance premiums. According to the Kaiser Foundation, the standard employee-contribution rate for family plans among all employers nationwide is 29 percent; for state and local government employees, it is 24 percent. New York’s Independent Budget Office calculates that the city could save $535 million if all workers and pre-Medicare-eligible retirees contributed 10 percent of premiums. Those savings would be more than enough to fund de Blasio’s self-proclaimed “game-changing investment in early childhood education and after-school.”

One of America’s largest employers, New York City government will spend $6.3 billion on health insurance for over 1 million workers, retirees, and dependents this year. That’s up from $2.7 billion in 2002. Without a course correction, the city projects overall health-care costs to increase 32 percent over the next five years. Mayor Bloomberg understood that New York’s health-care costs were excessive, but he couldn’t do much about it. In response to the 2008 financial crisis, the Bloomberg administration adopted an austerity budgeting regime, which included a formal wage freeze for all workers. Because the city lacked funds to support raises during recent recessionary years, the Bloomberg administration declined to grant them. New York was thus able to balance its budget and preserve jobs.

But, while fiscally necessary, the Bloomberg administration’s hard line on raises made it unable to settle new contracts with unions. All contracts have been expired since at least the summer of 2012, and that of the United Federation of Teachers—the largest union by far, representing 40 percent of the total workforce—expired in 2009.

The unions believe they’re owed raises for the recession years. The UFT seeks “two fours”: 4 percent raises for 2009 and 2010, equivalent to what other unions had settled on for those years before the economy collapsed. The Citizens Budget Commission pegs the cost of this raise at $3.5 billion. All other city unions believe they are owed raises for 2011 through 2013. While some on the left argue that the city can afford to meet the teachers’ demands, no one believes that New York can give the unions everything they want without raising taxes or cutting services. De Blasio has acknowledged this reality himself. “There’s no way in the world to pay out the full amount,” he said in the final mayoral debate last fall. “If they want to talk about retroactive pay, that’s their right, but they have to show us the cost savings to go with it.”

Last spring, the Bloomberg administration made a last, desperate push to get union members to make a “meaningful” contribution to their premiums, but negotiations went nowhere. Union leadership calculated that the next administration was likely to be friendlier. They may have been wiser than they knew, since at that time, de Blasio, the definitive anti-Bloomberg candidate, was not the Democratic front runner.

Perhaps Bloomberg could have gotten farther with health insurance had he made the issue a higher priority earlier in his administration, when the city was in a position to give something in exchange. Why give up a dollar in wages and gain one in health-care costs? Because requiring employees to pay a greater share of their premiums enables the city to shift the risk of medical inflation away from taxpayers. Even a government employer as massive as New York City can exercise only negligible influence over the global cost of health care. But it can reduce exposure to the rate of growth.

The central tension that stymied Bloomberg—what the city can afford balanced against what the unions believe they deserve—will shape de Blasio’s prospects at the bargaining table. The most fiscally responsible deal would be to reaffirm the Bloomberg line: no retroactive raises for work already done. But that may not be practicable. In a collective-bargaining context, management is legally prohibited from getting something for nothing. If unions end up winning on back pay, de Blasio should make sure the city wins on health-care premiums.

Most city-worker unions, including the UFT, didn’t endorse candidate de Blasio in the Democratic primary. Making health care a priority could help the mayor back up his claim that he is “unburdened by the support of the municipal labor unions.” And those unions no longer have the luxury of holding out for a more amenable administration. The election is over.

Stephen Eide is a senior fellow at the Manhattan Institute’s Center for State and Local Leadership.

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