In a half-century of public life, Richard Ravitch has been lieutenant governor of New York, head of the Metropolitan Transportation Authority, a mayoral candidate, an adviser to many politicians and an instructor of many journalists in the wonkier aspects of governance. As a kind of fiscal first responder, he is one of those guys called in when an agency (or a bank, or, in one case, Major League Baseball) faces crisis. But lately he is best known as a prophet of gloom. When Ravitch, who is 80, is invited to lecture or debate or op-edify, his hosts expect tales of fiscal imprudence heading toward a grim comeuppance; they are not disappointed. And he has a tendency to be right.
With New York City about to elect a new mayor for the first time in 12 years, I thought it would be instructive to check the time on Ravitch's doomsday clock. And, sure enough, it is ticking toward a reckoning. Our great city is not on the verge of collapse — we are not Detroit — but it is in danger of slipping into decline. The issue is the same one that helped send Detroit toward bankruptcy last week and has put other American cities on the disabled list: the immense pile of promises made over the decades to the city's employees — the teachers and cops and firefighters and bus drivers and sanitation workers and maintenance crews who labor to keep the city, physically and socially, in working order.
It is actually a trifecta of problems. First, all of the city's contracts with its employees expired years ago, the unions having calculated that they might fare better with a new, eager-to-please mayor than the lame-duck Bloomberg. You might think pay and benefits would be frozen in place when contracts lapse. You would be wrong. At this point in the conversation, Ravitch puts on his so-sorry-to-bore-you face and explains the Triborough Amendment. Under this 1982 legislative concession to public unions, the terms of the lapsed contract stay in place indefinitely — including the annual pay increases workers get as they accumulate seniority and move up the ladder. So public workers have little incentive to negotiate in tight times with parsimonious mayors. Most New York unions are holding out for 2 percent pay raises, retroactive, from the next mayor — a couple of billion dollars not provided for in the budget.
A bigger issue is health benefits. New York workers' health insurance is paid by the city, which, according to the actuaries, has not salted away nearly enough money to cover the likely claims. The gap, known as an unfunded liability, is approaching an astounding $90 billion — $20 billion more than next year's entire city budget.
And then there is the matter of pensions. While the private sector is rapidly converting to 401(k) plans, where the amount you get depends on how much the employer and employee have squirreled away over the years, New York City workers enjoy old-fashioned defined-benefit pensions, which guarantee a predetermined monthly sum for life. The government is supposed to set aside enough every year to cover its obligations. Calculating the amount the city needs to contribute toward future pensions is a matter of educated guesswork — and our city, like many others, has mostly, deliberately guessed low. After all, paying the prudent amount into the pension funds would mean either raising taxes (which alienates business and voters) or cutting spending (which costs union jobs). So everyone pretends that the pension funds' brilliant investing strategy will pay bumper returns forever. (See this excellent account by Mary Williams Walsh and Danny Hakim.)
As a result, in the financial plan the next mayor inherits, the so-called uncontrollables (mostly pensions and health benefits governed by commitments made in the past) are, for the first time, greater than the controllables (the vast array of services and investments that we pay for in the annual budget).
Or, to pick another measure of our predicament, the total liabilities of the city now exceed its total assets by $125 billion, a condition referred to as balance-sheet insolvency.
"It's something you mostly hear associated with struggling Rust Belt cities," said E. J. McMahon, the veteran New York fiscal expert at the conservative Manhattan Institute. "It doesn't mean you're bankrupt, or that anything is happening soon. But it's a warning sign."
Ravitch, a Democrat who has worked on both sides of the business-labor divide, is not one of those scolds who demonize public employees. He believes that the moral obligation to pay workers their contractual due is as strong as the obligation to repay the bankers whose debt keeps the city afloat. He will tell you unions have behaved "very irresponsibly" at times, but he will also tell you that the idea of a taxed-to-death city that cannot afford to keep its promises is an exaggeration. "To sit in the Hamptons and listen to all the spoiled [bleeping] rich people complain about their taxes makes me want to throw up," he told me. (This conversation took place over a table at a Hamptons restaurant thick with those spoiled rich people, lunching to the accompaniment of a strolling accordionist.)
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