The Streets Were Paved with Gold - Ken Auletta [125]
Labor Costs
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.