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City Journal Winter 2006.
Winter 2006
Table of Contents
New Book From Steven Malanga:
Shakedown: The Continuing Conspiracy Against the American Taxpayer.
The Immigration Solution:
A Better Plan Than Today's

by Steven Malanga, Heather Mac Donald, Victor Davis Hanson
The Immigration Solution.
The New New Left: How American Politics Works Today
by Steven Malanga
The New New Left.
 
  S oundings

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Transit Strike Lessons
Nicole Gelinas, Steven Malanga

The public-employee shakedown of taxpayers can’t go on.

“You don’t benefit from illegal acts,” Governor George Pataki sternly lectured Gotham’s transit union during last month’s Christmas-week subway and bus strike. “You can’t walk [off the job] and talk [at the negotiating table] at the same time.” The governor sounded tough, but in the end the Transport Workers Union Local 100 has benefited from its defiance of state law and from its willful crippling of New York City’s economy at the holiday season’s height.

The starkest example of how the union wins is pensions. The state-run Metropolitan Transportation Authority, which governs the city’s public transportation system (and is ultimately Pataki’s responsibility), insisted early on in negotiations that it would not sign a contract until the TWU let it hike the retirement age for new hires from an absurdly munificent 55 to a still-generous 62. But to end the strike, the MTA backed off its demand, leaving workers’ pensions alone.

Further, even after paying hefty fines for breaking the state’s Taylor Law, and after making a first-time-ever contribution to his own health insurance, the average transit worker is out only $140 a year under the contract, thanks to the sweetened wage package that the MTA offered after the union threatened to strike in earnest. This is a small price to pay to save seven years of rich retirement income. And most shocking: if the state legislature and Pataki sign off on it, the MTA will throw in a post-strike bonus of up to $10,000 or so each to about half of the workers, paying them back for pension contributions they made long ago under a less generous pension regime. The bonus, coupled with the MTA’s approval of a better health-care package for some retirees too young for Medicare, shows that crime—an illegal strike—can pay in New York State.

In letting transit workers return to work and TWU leaders return to the negotiating table as if nothing had happened, Pataki also lost on a much grander scale. New York’s unions now know that they can defy the public and win. What municipal union will give an inch now on the key issues of guaranteed pensions and early retirement, even for new employees?

Despite the TWU’s token concession to the MTA on health care, the union, the authority, and Pataki have therefore further cemented New York’s completely unsustainable levels of pay and benefits for municipal workers. Transit workers today can retire at 55 at half pay after 25 years and get annual cost-of-living adjustments on pension payments for the rest of their lives. Most other state and local workers enjoy similar arrangements. Cops and firefighters can retire even earlier, at 50.

Such benefits, needless to say, far outstrip those of today’s private-sector workers, who typically pay 10 to 20 percent of their health-care premiums, retire in their sixties, and increasingly participate in defined-contribution pension plans, such as 401(k)s, to which their employers sometimes contribute, but only while they are working. Their employers have no obligation after they retire.

These obese public-sector benefits have strained government budgets throughout the state to the breaking point. The MTA, whose spending on pensions has tripled in three years, faces a staggering $1.75 billion in unfunded pension liabilities. New York City has seen its pension and benefits costs soar nearly 70 percent since 2002, to nearly $9 billion. These costs now account for about one-fourth of city-funded spending. The increase soaked up all of the added revenues the city collected by raising property taxes in 2003.

Public-sector unions have spent 50 years accumulating the power that has won these lavish benefits. Workers often struck for better pay and benefits in the early days of public-sector unionization. Today, though, there’s less need for them to strike, since they can flex muscle at the ballot box—threatening legislators who oppose their demands. In Albany, both the Democrat-controlled state assembly and the Republican state senate routinely do what the unions ask, and it’s the legislature, not local governments or the MTA, that has granted public employees many of their benefits through special legislation.

In the 2005 legislative session, for instance, lawmakers passed 46 bills making state worker pensions and benefits plusher. The projected annual cost: $100 million. One startling example: the legislature voted unanimously to lower the retirement age for transit workers to 50, even as the MTA was preparing to ask in its next negotiating round that the age rise to 62. Governor Pataki vetoed this bill, but he has signed a number of pension sweeteners into law, including 2000 legislation that shrank the contributions that state employees had to make to their pension funds. The law passed even as the stock market tanked and assets in the state’s pension system fell. (Taxpayers are on the hook for any market shortfalls.)

While over 30 years of gubernatorial and state legislative complicity has brought New York to this budget-busting point, the transit strike usefully shone a spotlight on oversize public-employee pension and benefits packages, and on the power and arrogance of public unions. That public exposure provides perhaps the first real opportunity for reform in decades, since 2006 is a gubernatorial election year and reform of Albany is shaping up as a major theme (one poll found only 25 percent of New Yorkers satisfied with state government). An aggressive candidate willing to take on Albany and the public-sector unions could find an enthusiastic audience.

The putative leader in the gubernatorial race, Democrat Eliot Spitzer, won few kudos during the strike. Attorney General Spitzer did little more than go through the motions of his office, seeking injunctions against the strikers for violating the law, but otherwise—uncharacteristically—shunning headlines by avoiding real confrontation or debate over the job action and the issues surrounding it. Spitzer has made his name fighting private-sector corruption, but the strike reminded everyone that he has not built much of a reputation for taking on public-sector special interests. By contrast, the one Democrat likely to challenge him for the gubernatorial nod, Nassau Executive Thomas Suozzi, has built his profile largely on helping to clean up his own county government and on his willingness to tackle Albany’s special interests, going so far as to try to defeat incumbent state legislators in his own party whom he believed too beholden to Albany interests. Though Spitzer has much higher name recognition than Suozzi, the attorney general’s recent missteps, including losing a major courtroom battle and allegedly bullying a pillar of New York’s business community, have emboldened Suozzi to make a challenge that could bring Albany reform to the fore in the Democratic primary. The strike also should be a lesson to the state’s GOP that its only chance to retain the governorship is to find a candidate who rejects the union-friendly policies of the state senate and of Pataki and instead runs on a strong platform of cleaning up Albany. Former Massachusetts governor William Weld, contemplating a run for New York governor, cannily slammed Spitzer’s reticence over the strike. The other candidates now seeking the GOP nod—former assembly minority leader John Faso and former secretary of state Randy Daniels—are also intimately familiar with how special interests rule Albany. They should run tough campaigns based on the same themes.

Voters looking for real action should pay attention to what the candidates for governor say on two key issues. On pension reform, the MTA was strategically correct in wanting to reduce new employee pensions, but it doesn’t actually need union permission to change pension benefits for future workers—all it needs is a change in state law, since the state legislature governs pension benefits for all New York public-sector employees.

Voters thus should look for a gubernatorial candidate to pledge that he’ll immediately take steps to reform pensions for all state and local government workers—by pushing such top-down reforms through the legislature. Of course, a candidate serious about reform should tell the voters that he can’t do it without the support of Senate Majority Leader Joe Bruno and State Assembly Speaker Sheldon Silver, both of whom must run for reelection next November.

The strike also highlights the need for top-down reform of New York State’s unaccountable public authorities, with the first in line being the vital MTA. Pataki has already made the next governor’s job harder in this regard. He has pushed his appointees to hike MTA debt levels so much, for instance, that future governors will have limited flexibility to rein in fixed costs. But the next governor can vow to sign legislation that would require all public authorities, including the MTA, to adhere to strict debt ceilings. The new governor could also pledge to reform the MTA by shrinking it—cutting out hundreds of expensive middle managers and working with the city to contract out MTA bus operations to private operators under strict guidelines, as in other cities worldwide.

The next governor has his work cut out. But he’s got to do it. As tensions mount between the public and private sector over unaffordable pay and pensions, the TWU strike likely will appear not as an aberration but as the onset of a difficult era of confrontation and—let’s hope—needed reform.

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More by Steven Malanga:
Welcome to the Jungle
Trolling for Dollars
March Labor Madness
More . . .
More by Nicole Gelinas:
Choosing Citi Bike
Too Soon for Answers in Harlem
West Side Story
More . . .
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