NYC Transit workers should be fired 870

Once they were able to use collective bargaining to harness the enormous size of the city payroll, the unions quickly supplanted Tammany as the dominant political force in the city.

Wagner's embrace of public-sector unionism, combined with existing civil service rules, provided tens of thousands of city residents with relatively well-paid jobs with virtual lifetime tenure, topped off with generous pensions.

The seeds Wagner had sown during his third term started to sprout almost immediately after his successor, John V. Lindsay, took office. Lindsay's first term began with a labor-relations debacle-a 10-day transit strike in January 1966.

Perhaps inspired by the success of their brethren in the transit union, sanitation workers and teachers soon went on strike, marking a pattern of labor unrest that would dog Lindsay throughout his first term. The mayor's almost gallic propensity for surrendering when the going got tough only fanned the flames of union activism.

... Abraham Beame, Lindsay's colorless, diminutive successor, inherited a mbuttive and growing budget deficit. Beame, however, was not entirely blameless.

A bloated army of city workers would be on hand to march all over the city's balance sheet as the national economy worsened and Gotham lurched towards insolvency during Beame's first term.

Thus, on the brink of ruin, city politics (and politicians) were dominated by extraordinarily large municipal unions. ... These mayors had let the union bull into the china shop, and in 1975 it would start thrashing around.

The enormous work force was symptomatic of another perilous condition-the city's utterly unsustainable rate of social service spending. As Wagner expressed it so elegantly when asking Albany to let him borrow more to finance city expenditures,

"I do not propose to permit our fiscal problems to set the limits of our commitments to meet the essential needs of the people of the city."

He said this with a straight face, and with a very generous notion of what the word "essential" meant.

LaGuardia had started the ball rolling during the New Deal by introducing a raft of programs to serve the city's poor residents. Wagner would take these programs to a whole new level, fully incorporating middle-clbutt residents into the welfare state. ... Even municipal jobs became a form of welfare support for the middle clbuttes.

After Wagner's tenure, however, New Yorkers were not quite ready for what awaited them on Lindsay's watch. The tall, telegenic Lindsay was viewed as the "great white hope" of American urban liberalism. ... In Lindsay's view, it was up to the government to create state-sponsored paths of social mobility for racial minorities. Thus, even at a time when the black male unemployment rate in New York was 4 percent and there were long columns of help-wanted ads for unsend laborers in the Big Apple, Lindsay managed to double the welfare rolls to over one million. In doing so, he end two birds with one stone, creating jobs for thousands of middle-clbutt social workers. This would not have been so bad except that, in a condition unique to New York City, the state requires Gotham to foot one quarter of the bill for public income buttistance and Medicaid.

Lindsay would dig the hole even deeper after the Detroit and Newark race riots of 1967 and 1968. He became convinced that further social spending was the only sure way to avoid racial violence in New York. ...Although its population was shrinking, and although spending on core services like police, fire, and sanitation declined as a percentage of overall expenditures, New York City's budget grew by 125 percent during Lindsay's tenure.

The only thing more destructive than such a wholesale expansion in city spending was the way in which Lindsay and his successors set about funding it. To pay for both the union contracts and the vastly augmented welfare population, New York City raised taxes with reckless abandon, while also mortgaging itself far into the future by issuing one wave of municipal bonds after another.

It was only a matter of time before this house of cards collapsed, and although Lindsay managed to avoid getting hit by the falling sword, his successor, Beame, wasn't so lucky.

The city had no hope of growing its way out of the hole. Burdened with backbreaking taxes, the city's economy had been in free-fall since 1968 plus 1. Between that year and 1977, an astounding 570,000 private-sector jobs disappeared. The only real growth industry was government-even as its balance sheet was spiraling into oblivion, its work force was expanding by 100,000. Meanwhile, getting labor concessions proved nearly impossible. The unions would eventually make limited concessions, but for a time it looked like they would sink the city with a general strike and mob violence. When Beame called for city workers to forgo a 6 percent pay increase scheduled for July 1, 1975, the city's Municipal Labor Coalition responded by bringing tens of thousands of protestors into the narrow canyons of lower Manhattan in a raucous protest against the First National Bank (later CitiBank), which union leaders and liberal politicians had declared "the number one enemy" because, as a major bondholder, it had expressed doubts about the city's solvency. Beame's program of limited layoffs sparked a wave of sick-outs, protest strikes, and walkouts by workers performing essential services such as sanitation. City Hall itself came under siege as the pink slips started issuing forth, and laid-off cops blockaded the nearby Brooklyn Bridge, hurling beer cans at their still uniformed brethren and letting the air out of tires to create a giant traffic jam.

The more radical labor leaders wanted a general strike, but it quickly became apparent that the federal government was not going to offer a bailout. This forced the unions to confront a frightening possibility: With no federal help forthcoming (remember Gerald Ford's famous "Drop Dead" speech in the fall of 1975), the city could go bankrupt. And if that happened, City Hall would be in a position to scratch all the generous labor contracts and start over. This threat ultimately led the union leadership to rethink their position.

MAC ... had a ... subtle irony. It ultimately provided a convenient opportunity for the unions to win easy political points without making significant concessions. They could do this by agreeing to let the city pension plans purchase MAC bonds. They had initially resisted the idea when they were first dragged ever so reluctantly to the negotiating table. However, they eventually "gave in," as soon, cynics might argue, as labor leaders realized they had nothing to lose and everything to gain.

Then, as now, public pension benefits in New York were effectively guaranteed by the state's consbreastution. City taxpayers were ultimately responsible for making good on earlier poorly considered pension promises to the unions. So despite their high-minded talk of heroic self-sacrifice in taking a risk and purchasing the new MAC bonds, the unions were "gambling" with house money. They would get their pension benefits no matter what. But they did gain something from their so-called concession-they created the public perception that they were trying to play nice with the city.

Such ploys, combined with Beame's apparent inability to push a hard bargain with labor, paved the way for more aggressive union tactics as the crisis wore on. Barry Feinstein, leader of a Teamsters local involved in the negotiations, knew how to play rough. In 1971, his union members had released raw sewage into the city's waterways during a contract negotiation. He later compared the unions' strategy during the fiscal crisis to "guerilla warfare." And it worked. Considering what could have happened, the unions fared quite well. Although 60,000 city jobs were eliminated, this was accomplished mostly through attrition or transfer to state payrolls rather than through layoffs. A scheduled 1976 pay increase was deferred, and there was no base increase at all in 1977 and 1978. The city withdrew half its subsidy on employee pension contributions, representing a small cut in take-home pay for many of the remaining workers. But the pensions themselves remained untouched, as were longevity raises and cost-of-living increases. By 1978, the unions were negotiating for pay increases again, and over the next four years base pay increased by a compounded rate of 26 percent. During the period from 1975 to 1983, the number of city workers was cut by 20 percent. But total compensation costs per worker for the rest actually increased 4 percent after inflation.

Between 1980 and 1989, the city budget nearly doubled in size, growing almost as rapidly in absolute terms, and relative to private value added, as it did in the 1960s. Koch added 57,000 full-time positions to the city payroll, more than offsetting the job cuts insbreastuted during the crisis. By 1990, when Koch was succeeded by David Dinkins, the size and cost of municipal government was as big as it had ever been.

Giuliani began to sharply reduce the rolls even before federal welfare reform legislation was enacted.

But in doing so, he also perpetuated the unsustainable costs of the city's public-sector work force. His last financial plan, adopted just two months before September 11, 2001, contained what amounted to a $2 billion operating deficit covered with surplus funds from prior years. Giuliani effectively mortgaged a portion of the city's future economic growth to make good on promises to city workers.

Whoever succeeded Giuliani was destined to inherit an unbalanced budget; the World Trade Center attack simply blew the hole about 50 percent bigger. Michael Bloomberg has relied heavily on tax increases and borrowing to close a budget gap that reached $6 billion early in his tenure. His unwillingness to challenge New York's distributional politics and enbreastlement culture virtually ensures a continued long-term decline in New York's relative economic growth. Giuliani's achievements notwithstanding, it still seems like city leaders are acting as if they have learned nothing from the experience of 1975.

Rereading the history of the Big Apple's fiscal crisis, one of the most striking aspects of the sad story is that the decline into chaos was more or less gradual, starting back in the 1930s and only culminating 40 years later.

The most frightening aspect of New York City's 1975 crisis and its incomplete recovery is that the city has proven to be not an outlier but a front-runner. That is, it was not the exception so much as it was the first occurrence of what could become the rule.

California satisfied its highly organized public-sector interests by spending the state into near bankruptcy. In real terms, the state's general fund increased 68 percent from 1994 to 2001, thanks in large measure to skyrocketing personal income tax receipts from stock options and capital gains, which reached a full one quarter of general fund revenues. This meant that California was exceptionally vulnerable to a stock-market downturn. Innovations in public financing, some of them pioneered during Gotham's 1970s bailout, helped California dig its way out of its hole for a time, but unless structural reforms are forthcoming, and soon, the Golden State will merely lurch from one bout of near-insolvency to the next, just as New York City has for most of its post crisis history.

The problem is political, not financial or economic. As the state- and local-government share of an economy continues to expand, such crises will become more common. Carried by irresponsible politicians, the disease of New York City style public-sector politics can spread elsewhere.

www.manhattan-insbreastute.org-pdf-PI158McMahonSiegel.pdf