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How Much Did He Say in Pension Savings?

Posted by Doug Turetsky, March 6, 2009

When Mayor Michael Bloomberg released his budget plan in January, many observers were scratching their heads over one number in particular: $200 million in pension savings. That’s the amount the Mayor said the city would save in the next fiscal year alone if a new pension arrangement first proposed by Governor David Paterson was approved in Albany.

This so-called Tier V would require newly hired city employees to pay more into the pension system than current workers and make the new hires work longer before they become eligible to retire with full benefits, among other changes designed to lower public pension costs. Given that these changes would only apply to new municipal workers and that the city’s current budget malaise makes it unlikely there will be many of them in the near future, the Mayor’s savings estimate seemed very high.

It appears that the savings number in the Mayor’s Preliminary Budget is inconsistent with other estimates provided by the Bloomberg Administration. A Memorandum of Support of the Tier V proposal for city uniformed employees—police, firefighters, correction officers, and sanitation workers—based on information submitted by the Bloomberg Administration to the state Legislature cites much lower estimated savings. The memo says, “This bill will result in savings to New York City of approximately $25 million in the year after enactment. Savings would increase by approximately $25 million per year as new employees are hired, such that the annual savings will be $500 million in 20 years.”

So maybe most of the savings will come from the rest of the city’s workforce, including teachers and other civilian employees? A memo from the Mayor’s budget office to the state’s budget office puts that supposition to rest. Sent last January 9—just 21 days before the Mayor presented his Preliminary Budget—the memo estimated that savings from a new pension tier for teachers and civilian workers would be $10 million in the first year and grow by $10 million annually in subsequent years and reach $200 million in 20 years.

So how does a combined estimate of $35 million in first year savings morph into $200 million? It seems the Bloomberg Administration is hoping to get an agreement to “frontload” some of the expected savings by taking the average over a relatively long term and applying it annually rather than allow it to accrue on a year-by-year basis as current employees retire and new employees with lower pension costs for the city are hired.

Why the Mayor would want to do this is a matter for conjecture. But one thing is clear: whatever its longer term fiscal merits, a Tier V wouldn’t really save $200 million in 2010.

Senate Bill Not So Stimulating for Public Schools?

Posted by George Sweeting, February 9, 2009

One of the most eye-popping numbers in the Mayor’s budget presentation last month was the threat of 14,000 teacher layoffs. Unless the state restores school aid that the Governor has proposed cutting to help solve Albany’s own budget woes, the Mayor said the teachers would have to go. The Mayor’s real point to state lawmakers may have been in the context of the federal stimulus bill: pass along our fair share of any assistance the state receives from the bill that’s intended to avoid cuts in local education aid.

This gambit got a lot dicier over the weekend as it emerged that the single biggest change in the Senate leadership’s compromise with Senate moderates was scaling back money to help states maintain their local school aid. Helping states and local school districts cope with sharp declines in tax revenues by providing temporary federal aid helps to avoid layoffs and cutbacks in local school district spending, which would worsen the economic contraction.

The deal, which awaits passage by the full Senate and then reconciliation with the House bill, cuts the state fiscal stabilization fund essentially in half, from $79 billion to $39 billion. Assuming this smaller stabilization amount is maintained, the state will receive less and in turn would have less available to restore the school aid cut to the city. If the Mayor sticks to his guns and does not come up with city dollars to make up the shortfall, the possibility of teacher layoffs may be more real than many observers had assumed.

In December, the Governor’s Executive Budget proposal for the upcoming state fiscal year called for cuts in education aid to local school districts, including postponing increases that had been promised as part of the resolution to the Campaign for Fiscal Equity case. The Bloomberg Administration has estimated that the change amounts to a loss of $771 million in anticipated state aid for the Department of Education.

The stimulus bill that emerged from the House in late January included the $79 billion fiscal stabilization fund along with language that directed states to send much of their stabilization money on to local school districts using each state’s existing school aid formula. Analysis of the House bill by the Congressional Research Service indicated that New York State could expect to receive nearly $2 billion in stabilization aid which—assuming it was distributed according to current state aid formulas—might have brought the city nearly $800 million, almost exactly offsetting the Governor’s proposed cut.

An earlier version of the Senate bill still had a $79 billion stabilization fund, but was less clear as to how the states should distribute the proceeds to local school districts. That lack of certainty may have been what led the Mayor to make it clear that he expected New York State to distribute the anticipated federal dollars under the current state formula—or 14,000 city teachers could get the axe. Arguing that the city didn’t have enough of its own funds to plug the $771 million hole in state school aid, Mayor Bloomberg was placing the responsibility for avoiding the layoffs on Albany’s doorstep.

With the possibility that the stimulus bill may contain less than half the aid to states than what was expected last week, it may be harder for Albany to fully restore the education aid to the city even if the federal dollars are distributed by current state formula. This raises the possibility that the Mayor’s bluff would be called and he, the City Council, and the schools could be confronting the layoff of thousands of teachers.

Will Mounting City Job Losses Lead to Soaring Welfare Rolls? Maybe Not.

Posted by Paul Lopatto, February 2, 2009

The New York Times reported this morning that despite rising unemployment, public assistance rolls in 30 states declined or remained flat in 2008, while 20 states had an increase in their welfare caseloads. Does an increase in job losses necessarily lead to an increase in the welfare rolls? Some observers who project increases in the city’s welfare caseload and grant expenditures think so. But evidence from the last two recessions suggests the relationship between job losses and public assistance isn’t so clear. History suggests that the effect on welfare rolls will depend largely on the size of the economic downturn and how government policies treat those applying for and receiving public assistance grants.

From 1989 through 1992, the city experienced a deep recession, with job losses totaling more than 350,000 over four years. The job losses brought about a reversal of a prior downward trend in the welfare caseload. During the years of job losses, the number of welfare recipients increased by 231,000, including a rise of 118,000 in the program for families with children and 113,000 in the program for single adults and childless couples. The link between changes in employment and caseload was quite strong: for every three jobs lost about two more individuals were added to the welfare rolls.

In 1995 the city began to implement new local welfare reform policies that were later reinforced by changes at the state and federal levels. The new initiatives included intensive screening of new applicants, work requirements, and the use of job placement firms to push recipients aggressively into the paid workforce. The changes affected the ability of city residents to access and retain public assistance grants. The new policies helped to bring about a long period of caseload decline, with the total number of welfare recipients dropping by 60 percent between March 1995 and September 2001.

In early 2001, the city once again began to slide into recession. Later in the year, the attacks on the World Trade Center pushed the economy into further decline, leading to heavy job losses. By the end of 2003, the city had suffered a net loss of about 220,000 jobs. Compared to the prior recession, the rise in unemployment had a much smaller effect on the public assistance caseload because of the more restrictive welfare policies. In fact, the caseload of families on welfare continued to decrease. (It leveled off for a while in 2003 before resuming its decline.) Over the same period the caseload of single adults increased by a modest 20,000, but far less than in the prior downturn.

These findings are relevant today, since the more restrictive welfare policies remain largely in place. Although it is likely that large job losses in the next few months or years would lead to an upturn in the city’s public assistance caseload, IBO expects the welfare reform policies that began in the mid-1990s to limit their effect. Any increase in the city’s welfare caseload would likely lead to further increases in the Medicaid and Food Stamp rolls, since eligibility for public assistance generally makes an individual eligible for both of these programs.

Swinging at the Wrong Pitch

Posted by George Sweeting, January 29, 2009

Much of the outcry over the recent vote to give the Yankees (and Mets) a second helping of tax-exempt bond financing for their new stadiums overshadowed the most important issue: would the public investment in the stadiums pay off? At times it seemed like a public policy version of an infielder holding the ball and arguing with an ump over whether a hit was fair or foul while base runners scored uncontested.

In the days leading up to the Industrial Development Agency’s vote on the financing, lots of attention focused on the question of the so-called PILOTs—payments in lieu of taxes— and if these dollars, which would be used to pay debt service on the tax-free bonds, should be counted as lost revenue to the city. It’s an important question, but not the one that ultimately determines who wins and who loses on the stadium deals.

In terms of the PILOTs, IBO concluded that since the current stadiums don’t pay property taxes, the fact that the new deals also leave the new stadiums tax exempt means there’s no new loss of revenue. The debt service payments are being called PILOTs in a creative dance around prohibitions against using tax-exempt financing for sports facilities that were enacted by Congress in 1986 under the sponsorship of Senator Daniel Patrick Moynihan. Absent the need to squeeze through a loophole in the IRS regulations—since closed—the payments probably wouldn’t have been called PILOTs and there would be little question that they are not really property tax payments.

What went largely unexamined leading up to the IDA vote was whether the tax revenues generated from the construction and operation of the new stadium would exceed the value of the public subsidies. Because such estimates are very dependent on the assumptions used, they should be accompanied by full disclosure so that decision-makers and the public can assess the reasonableness of the estimates. Unfortunately, we saw little evidence of such transparency.

When IBO asked the Industrial Development Agency for information about how the benefit estimates it cited were derived, we were told that the city’s staff was too busy. But they could get back to us later—after the vote.

Consider that the city’s Industrial Development Agency asserted that the benefits from the new Yankee Stadium will amount to $438 million, exceeding their estimate of the cost to taxpayers by $60 million. From the little information that was made public, it appears this might have resulted from some generous official scoring. The Yankees expect to draw the same 4 million fans in the new stadium as they did in the old one. And it’s unlikely that fans in 2009 will eat, drink, and buy Yankee regalia in much greater quantities than those who filled the stands in 2008. So besides the construction activity there’s little obvious reason to believe the new stadium will deliver much in the way of new jobs and tax revenue.

Spring training, a time when all fans are filled with hope for the upcoming season, is just a few weeks away. So let’s hope that consideration of future requests for taxpayer assistance for sports facilities and other big projects will provide greater detail on the claimed benefits. That detail will help all of us consider whether the public subsidies are a home run—or a strikeout—for the taxpayer.

Big City, Big Staff—But Maybe Not as Big as It Seems

Posted by Doug Turetsky, January 21, 2009

As Mayor Bloomberg wrestles with the city’s projected budget gaps, pressure to reduce the size of the municipal workforce—by far the city’s biggest single expenditure—is growing. In the wake of the last recession, full-time city staffing dropped to 239,616 in 2003 from a previous high of nearly 251,000 in 2000. Since 2003, full-time staffing has grown steadily, reaching 280,649 at the end of the last fiscal year, a rise of more than 41,000 over five years.

While full-time staffing has grown at nearly every city agency, a large share of the growth occurred at just a few. The Department of Education saw the biggest rise in total number of employees: the number of teachers, principals, and other classroom staff (pedagogical employees in budget speak) rose by nearly 19,000 from 2003 through 2008, when it totaled 112,852; the number of non-pedagogical employees also jumped by nearly 4,000 over the same period, reaching 10,760 in 2008.

But numbers alone don’t tell the whole story. While the city has steadily increased the ranks of teachers, a significant share of the rise in education department staff isn’t really due to new hiring—but rather from a reclassification of about 15,000 paraprofessionals who were previously listed as part-timers and not included in full-time staffing levels. The same holds true at the parks department, where the official full-time headcount nearly doubled to 3,702 by 2008 as many so-called seasonal workers who were really working full time were added to the count.

Still, the staffs of many agencies increased because more people were hired. Under plans to beef up its inspection and enforcement efforts, the Department of Buildings has grown 45 percent since 2003 and had 1,162 full-time employees in 2008. Full-time staffing at the Department of Health and Mental Hygiene has grown even more since 2003 in both percentage and absolute terms, rising by 60 percent to 5,202 in 2008. The Mayor’s office has also gotten bigger, growing by nearly 11 percent since 2003 to a full-time headcount of 923 in 2008.

Not every agency saw growth in its full-time staff. The number of uniformed officers at both the police and correction departments declined during the 2003-2008 period. The number of police officers fell by 715 to 35,405—though the number of civilian employees grew because school safety agents were reclassified as full-time workers. The number of correction officers dropped by 404 to 9,149. At the Commission on Human Rights staffing has declined by more than 25 percent, to 79 in 2008.

So while the total city workforce has certainly grown since the last recession, the number of workers newly added to the payroll is not as high as the numbers indicate at first blush. Nor are the increases equal across all agencies.

Federal Stimulus and Medicaid: How Big a Savings for the City?

Posted by J.W. Mason, January 16, 2009

As many Capitol Hill watchers expected, the latest version of a federal stimulus bill from the House includes significant assistance to state and local government. Some of the aid would come from Washington picking up a bigger share of Medicaid costs, just as it did temporarily in the wake of September 11.

The details of the bill probably will not be available for several weeks. But it’s expected that some key provisions of the new bill will resemble those in H.R. 7110, a federal stimulus bill passed by the House in October 2008, which also included language increasing the federal Medicaid share. So the earlier bill still serves as a good indicator of how much in Medicaid savings—a nearly $6 billion a year expense in the city’s budget—New York may be able to expect.

Currently, the share of a state’s Medicaid costs covered by the federal government, called the Federal Medicaid Assistance Percentage or FMAP, is based on mean state income, with higher-income states getting a lower federal share of Medicaid spending than poorer ones. (This formula is sometimes criticized for focusing on average incomes rather than the fraction of low-income residents.) FMAPs range from 50 percent to 75.84 percent; New York is one of a number of states with 50 percent. The 2008 stimulus bill would leave this basic structure in place but increase the FMAP by 1, 2, or 4 percentage points depending on various economic trends. In the absence of a major improvement in the state economy, New York would meet the criteria for the full 4 percentage point increase. So, federal payments would have increased by 8 percent, from 50 percent to 54 percent of total Medicaid spending.

New York is one of a handful of states that requires counties (including New York City) to bear a portion of the nonfederal share of Medicaid. The 2008 bill specifically required states to share the savings from an increased FMAP with local governments in proportion to their current share of costs. Therefore, one would expect it to reduce both the state and the city’s Medicaid costs by 8 percent. But two special Medicaid payments to hospitals with a high proportion of low-income and uninsured patients—the Disproportionate Share Hospital and Upper Payment Limit programs—were specifically excluded from the FMAP increase.

New York City hospitals receive about $2 billion through these special payments, and the state and local shares are different from other Medicaid payments; most importantly, the city pays the entire nonfederal share of the $760 million going to public hospitals through these programs. As a result, they account for a large fraction of city Medicaid spending—about 12 percent. Relatively little of the special payments go to hospitals in other parts of the state, and in all other counties the cost is divided between county and state, just like other Medicaid spending. So New York City would get significantly less relief under the 2008 stimulus bill than other counties in the state.

By IBO’s estimate, the 2008 stimulus bill would reduce state Medicaid expenditures by 7.7 percent, or $1.1 billion. Counties outside of New York would save a similar proportion of their Medicaid costs. But New York City savings would be nearly a full percentage point lower: 6.8 percent, or $377 million for 2009. If the higher federal match covered all Medicaid payments, the city would save an estimated $428 million.

It appears that the FMAP increase being considered now is somewhat larger—4.8 percentage points, plus more for states with high unemployment. New York’s unemployment rate of 6.1 percent in November 2008 (the most recent month available) was significantly below the national average, so under this formula, as opposed to the one in the 2008 bill, the state may get only the basic FMAP increase. That means the savings to the city and state would be 20 percent higher than estimated above. Of course, the exact savings depend on the details of the bill, which are still being worked out; in particular, it is unclear whether the new stimulus bill will have the same exclusion for the special Medicaid payments as the 2008 bill.

One other point is worth noting: The state legislation that capped annual growth in local Medicaid spending is specifically written to limit local shares of Medicaid spending before the federal match. So in the absence of specific language like that in the 2008 bill, nothing in state law would require an increase in FMAP to be shared with New York City or other local governments. This is an issue New York City policymakers will want to watch closely as negotiations over the federal stimulus move forward.