Detroit ruling opens threat to N.Y. worker pensions
Dec 8, 2013 at 8:00 PM
A federal bankruptcy court's decision in Detroit last week putting that city's constitutionally protected public pension on the table for cuts cracks the door open for pension reductions in New York.
The concern among unions is that the assurance that New York's public workers have operated under since 1938 — that pensions "shall not be diminished or impaired" — could now be threatened by local governments fighting off insolvency.
"It's a turning point. ... What has been sacred — pensions — are not sacred anymore," said Syracuse Mayor Stephanie Miner, who has been a leader in seeking action to save New York's distressed municipalities from insolvency. That has so far been avoided through higher taxes and layoffs and reducing services.
The Detroit decision could give struggling municipalities leverage in negotiating other concessions to avoid bankruptcy court.
Miner said Albany — where politicians' campaigns benefit greatly from organized labor's money, volunteers and votes — will also have to take notice. She and some other local leaders have long sought far more action from Albany, including relief from unfunded, state-mandated programs.
Now, inaction could drive a municipality to bankruptcy for relief and be worse for unions.
State Comptroller Thomas DiNapoli has determined at least 23 cities, counties and towns from Niagara Falls to Nassau County are significantly or moderately stressed. Seventeen others from Erie County to the Adirondacks town of Newcomb are "susceptible" to stress.
In November, Gov. Andrew Cuomo signed a law to allow Rockland County to borrow $96 million to address its deficit, even as county taxes rise to help meet the shortfall.
"While municipal bankruptcy has never happened in New York, it is clearly not beyond the realm of possibility," said Peter Baynes of the New York Conference of Mayors. He said the state must help more because the problem bleeds beyond city lines.
The stressed New York municipalities share many of the same pressures as Detroit: Aging communities losing population, leaving diminished tax bases strapped by a legacy of growing health care and pension costs from historically large public workforces. The result has driven away employers and young New Yorkers.
For some, the judge's decision to make Detroit's pension fair game came as no surprise. They saw it happen 40 years ago, and it helped save New York City from bankruptcy.
With New York City facing default, United Federation of Teachers union President Albert Shanker met with Gov. Hugh Carey in the apartment of Richard Ravitch, who Carey brought in to prevent the city's bankruptcy. They agreed pensions would have to be on the table to negotiate a survival short of that.
The reality that entering bankruptcy would end the constitutional protection of pensions "was critical ... we never would have gotten the unions," said Ravitch, who later served as lieutenant governor. He and former Federal Reserve Chairman Paul Volcker issued a nonpartisan task force report in 2012 that said states are grappling with long-term budget problems, including pension costs.
Unions representing nearly 2 million public workers and retirees statewide, most with pensions of $20,000 to $43,000 a year, say the Detroit decision is cruel, unfair and unnecessary in New York.
"This was a ruling that should send chills through every working American," said Stephen Madarasz of the Civil Service Employees Association union, which represents 265,000 members. "It really suggests that any semblance of the social compact is dead."
Madarasz said he fears the ruling will be used at the negotiating table as leverage by "unscrupulous" politicians.
"They will probably do that at their own peril," he said.
Illinois has already trimmed some retiree benefits, and Stockton, Calif., has cut the cost of retiree health care.
"This should remind them of what Hugh Carey was reminding city workers 40 years ago," said E.J. McMahon of the Empire Center for Public Policy, a fiscally conservative think tank. "That all bets are off."