The Streets Were Paved with Gold (36 page)

No doubt, New York’s economy and climate are healthier as I write this in 1978 than they have been since 1969. Still, New York remains more aberrant than Big Apple bombast cares to admit. Fortress Manhattan is not New York City.

New York City’s government is—and is not—unique. Unlike many growing cities, New York cannot replenish its tax base by annexing its wealthier suburbs. Thomas Muller of the Urban Institute finds: “Among cities experiencing population growth in the 1960’s, all but four—Atlanta, Miami, Norfolk, and Yonkers, a suburb of
New York City—annexed sizable areas.” And all but three of America’s growing cities were located in the South or West. Thirteen of these larger cities, he found, increased their combined boundaries by 46 percent.

Where New York stands alone is in the cost of its government. Not just the total cost—the $14 billion 1978 budget surpasses all states but California—but the average cost per citizen. Quoting 1974 Census figures, the Governor’s Special Task Force on Taxation said New York City spent $1,382 per person for local government. The average in the next twenty-six largest cities was $726, or almost half New York’s. Neighboring Nassau County spent $330 less per person than New York. Pushing aside its uniquely high debt costs, the city spends more partly because it provides a wider range of services than any other city in America, and also because its state or county government assumes proportionately less of the city’s costs, particularly for functions like welfare and Medicaid. In comparing cities, there are two types of functions to consider:
variable functions
, which include welfare, health, housing and higher education supplements, and
common functions
, which cover such basic services as police, fire, sanitation and public school education. New York, over the years, has come to define a variable as a basic service. “New York City’s per capita expenditures for variable functions are far out of line compared to other large city governments in the United States,” the Eighth Interim Report of the Temporary Commission on City Finances discovered. In the 1974 fiscal year, the city spent $1,076 per person for variable functions. Washington, D.C., actually spent more ($1,326), but that city has no state government to share its costs. Next came Baltimore ($584), Boston ($582) and San Francisco ($506). In sixth place was Denver, spending less than 30 percent ($298) of the New York total.

No other city enjoys its own vast City University and provided its students with free tuition. No other city offered the same poor and middle-income housing subsidies. No other city has such an extensive municipal hospital system. No other city so richly supplements its welfare and Medicaid benefits. According to the Temporary Commission, New York’s per-person spending for higher education was $64—three times the $21 average of the twenty-five major cities. San Francisco, in second place, averaged half what New York spent per person for health and hospitals. New York’s perperson welfare costs were $338—five times the $67 averaged by local governments in major metropolitan areas.

Many of these costs were not imposed on the city. Rather, the city elected to make them. Some, admittedly, result from the failure of New York State to assume costs that other states or counties do. Cook County assumes much of Chicago’s health costs. Many states pay for local court and welfare costs. The Temporary Commission found, for example, that New York City’s 25 percent share of Aid to Families with Dependent Children was unique. Ten of twelve cities surveyed paid nothing (New York City paid $270 million in 1975). The only city approaching New York’s burden was Newark, which paid just 12 percent of the cost. Only six other states require any local contribution for public assistance; only 13 require a local contribution for Medicaid. If just these two costs were assumed by the state government, the city would have saved $1 billion in 1978—almost enough to truly balance that year’s budget.

New York’s welfare costs stand out, though not to the extent they used to. Between 1964 and 1974, New York’s welfare costs multiplied seven times, more rapidly than those of any other city. Through 1975, the city provided the most generous welfare payments in the U.S. Since July 1, 1974, the state has frozen benefits and cracked down on ineligibility. Still, in 1977, New York remained at or near the top in both the level of payments and the percentage of ineligibles, though its ranking would drop if its 8 percent higher cost of living for poor people were taken into account. New York ranked 1st in the nation in June 1977 in Aid to Families with Dependent Children, according to Florence Aitchison, Acting Assistant HEW Regional Commissioner. The state spent an average of $113 per person per month, followed closely by Alaska ($111) and Hawaii ($110). After these three states, the gap widened. The number four state was California ($97). Illinois averaged $78; New Jersey; $81; Texas, $32. The national average per person was $75—60 percent below New York’s.

New York’s Medicaid payments are also uniquely high. In fiscal 1976, according to Seymour Budoff of HEW’s Bureau of Medicaid Assistance, New York’s average payment per low-income person was $1,780—more than twice the national average ($730). The second-ranking state was Massachusetts ($1,310), which spent 36 percent less than New York. In the third major welfare category—the Supplementary Security Income (SSI) program for the aged, blind and disabled—New York ranked second. California granted the fattest benefits ($179.89 per person in February 1978). New York’s $146.89 exceeded by 70 percent the national average of
$87.48. But only four states require their local governments to pick up part of these costs, and in fiscal 1978 New York City expended $81.4 million for SSI. (New York State agreed in 1978 to assume the city’s share if the federal government continued countercyclical aid, but the Congress terminated the program in 1978.)

For the same functions performed by other city governments—called common functions—New York ranks high, but not as consistently high as for variable functions. For the delivery of basic housekeeping services, the Temporary Commission found that in fiscal 1974 New York ranked 4th, spending $232 per person. First was Washington, D.C. ($369), followed by Baltimore ($290) and Seattle ($245). But the Commission warned that these Census figures omitted pension costs, which are high in New York. They also noted that even without pensions New York’s costs were 47 percent above the national weighted average of $159 per person.

New York’s labor costs are—and are not—unique. Mostly, they are confusing. There are no meaningful comparative studies. Through the early seventies, there is general agreement that the city’s benefits and pay for municipal workers usually led the nation. More recently, this lead has been challenged. Like New York, Los Angeles permits its police and firemen to retire at half pay after twenty years’ service (with no minimum age requirement). The federal government offers the same benefit to all military retirees. Elsewhere, this benefit—which allows a worker to retire at about age forty and get another job while receiving a fat pension—is almost unheard of. San Francisco and Chicago allow their nonuniformed employees to retire after twenty years’ service (at age fifty in San Francisco, age sixty in Chicago). Few private workers can retire before age sixty-five. In New York, most civilian workers can retire after twenty-five years (at age fifty-five). But unlike federal employees and those in many cities—Chicago, Dallas, Los Angeles, San Francisco—New York employees do not have their pensions adjusted as the cost of living zooms. Like most citizens, they retire on fixed pensions.

In a
City Almanac
article in December 1977, Herb Bienstock said New York’s pensions were not “seriously out of line” with those of five major cities—Chicago, Dallas, Atlanta, San Francisco
and Los Angeles. His argument was cheered by city labor leaders and paraded in union-sponsored newspaper ads. Yet the two charts Bienstock produced revealed that in 1976–77 New York was the pension leader in most categories. But the disparity was not pronounced, at least in relation to these cities. Comparing New York with twelve major cities, including Chicago, Los Angeles and San Francisco, Mayor Beame’s Management Advisory Board in 1977 reached a different conclusion. With rare exceptions, they found that New York “provides the highest benefit.” A sixty-two-year-old city employee with thirty-three years’ service, for instance, received a retirement benefit (excluding Social Security) equal to 82 percent of his final salary. This was because the city, unlike most governments or businesses, permits pensions to be calculated against the final year’s pay, including overtime. In New Orleans, the Advisory Board found, the same employee would receive a pension equal to 68 percent of his final salary; in Boston, 65 percent; in New York State, 60 percent; in the federal government, 56 percent. Federal judges, however, receive 100 percent pensions. Like the retirement plans awarded by most cities and states, the pensions of all government workers in New York State are not taxed by the city or state; the federal government excuses its employees from taxes on Social Security benefits. All of this contrasts starkly with private sector employees who pay taxes and received an average of only $2,204 in pension payments in 1976.

The amount city workers must contribute to their pensions is unusually low but not unique. The maximum any city worker contributes is 4.5 to 5 percent of salary. Firemen pay 2.5 percent; transit workers hired prior to July 1, 1976, pay nothing. Members of the U.S. military also contribute nothing. Nor do Nassau County, Long Island, police officers. However, most public employees contribute more. Federal workers pay 7 percent of salary and most private industry workers pay an even larger percentage. The federal government, unlike New York and elsewhere, pays the full cost of its employees’ Social Security contribution, as it does for members of Congress. Unlike the federal government and most governments or businesses, the city pays 100 percent of the cost of its workers’ health and welfare benefits.

Even if New York solves its immediate problems—closing its budget gap, regaining access to the credit market, reducing unemployment, reconstructing the South Bronx—it will be haunted by future pension obligations. In this regard, New York is not alone.
Throughout the public and private sector, unfunded pension liabilities—over $8 billion in New York City—loom just over the horizon. Like New York pols, most leaders prefer making shortterm decisions, pushing the pain off to another generation. The largest single program in the federal budget—$133 billion in fiscal 1979—is for Social Security. Yet the Congress has traditionally awarded more benefits without imposing more costs. As the babyboom children get older, and the birth rate continues to shrink, there will be more retirements and fewer people to pay the required Social Security taxes. As inflation shrinks the value of the dollar, the prospect dawns that an intolerably high burden will be placed on future taxpayers, setting the stage for a kind of class warfare—young vs. old—that America, unlike other societies, has traditionally avoided. The problem afflicts the corporate world as well. According to
Fortune
magazine, “Ten of the top 100 corporations on the Fortune 500 (in 1977) have unfunded pension liabilities equal to a third or more of their net worth, and total uncovered benefits for all corporations exceed $50 billion.” In 1977, military pensions cost $8.4 billion. By the year 2000, at current rates they will jump to $34 billion. Over the next decade, a recent federal study found, pension plans covering 1.3 million people could fold, forcing the federal insurance program to make good. “The total unfunded liability of social security, military, and federal, state, and local employee pensions is about $5 trillion,” reported my favorite magazine, the iconoclastic
Washington Monthly.
“At current rates, it’s a debt equal to the total national budget for the next 20 years.”

Comparative government salaries and fringes also invite dispute. The Temporary Commission on City Finances reported in 1977 that New York salaries were way out of line. Jack Bigel’s Program Planners, Inc., countered that New York trails most large cities. Bienstock says city wages are becoming more competitive. The Congressional Budget Office claims that wages are not out of line in New York but that fringes are. Candidate Koch asserted that city wages were above comparable public and private jobs. The Office of Labor Relations prepared a report for the Mayor-elect, suggesting he was wrong. After reading it, the Mayor told me, “For my part, I don’t believe it.”

Confused? You should be. There has never been a comprehensive comparative study of total compensation—including overtime, pay increments, night shift differential, longevity pay, annuity payments, fringe and pension benefits, worker contributions to pensions
and health and welfare and Social Security benefits. Nor has any study divided a worker’s total compensation by the key measure—actual hours worked. New York municipal workers tend, for instance, to work a shorter week. Most work 35 hours, compared to 37.5 in New York State and 40 in California, the U.S. Government and the manufacturing industry. To compare the salaries of a New York fireman, who averages about 40 hours a week, and a San Diego fireman, who averages 56, is meaningless. It doesn’t tell us their hourly rate of pay. Nor does it tell whether they both receive a paid lunch, paid wash-up time, coffee breaks, administrative time, cost-of-living adjustments, built-in overtime. A New York City bus driver is paid an average salary of $15,000. But he also, according to the Economic Development Council, receives at least $3,500 in built-in overtime and $6,500 in fringe benefits. On an annual basis, they found, the driver’s hourly pay averaged $24,413.

The Bureau of Labor Statistics, which presumably should collect these figures, does not. Instead, they release skimpy and thus misleading data. For example, the Bureau’s comparison table of twenty-five cities as of September 1976 reveals that in five city job categories New York ranked 9th in clerical pay, 7th in skilled maintenance pay, 7th in janitorial pay, 3rd in sanitation pay and 2nd in public safety. Yet the bottom of the page contains a tiny footnote bringing all these comparisons into question: “No adjustments, however, were made for differences in standard workweeks.”