Labor Pains

The central problem with the deal announced yesterday between Mayor Bloomberg and the city's largest municipal union is that it could have been so much more. By easing the contract's residency requirement and allowing the 120,000 members of District Council 37 the freedom to move outside the five boroughs for the first time since 1987, the mayor has laid the groundwork for a potentially major political shift over time that could benefit coming generations of New Yorkers. But averting a fiscal disaster arising from pensions and healthcare costs will have to wait for another day.

These costs for government retirees rank among the most serious challenges facing the city. The city's payments into its public-employee pension funds are likely to exceed $5 billion in this fiscal year. Pension costs have consumed about three quarters of the new revenue raised by a property tax rate increase and higher assessments since 2002. New accounting rules recently forced the city to calculate its projected liability for retiree health care, and the figure came in at about $50 billion. Mayor Bloomberg has taken steps to prepare for those payments by pouring some of the current surplus into a trust fund, but that's only part of it.

Just as important as solving the problem the city already has is keeping things from getting worse. The mayor rallied New Yorkers behind the Metropolitan Transportation Authority when it tried to stand down its union on pensions last winter, but Mr. Bloomberg hasn't shown the same fortitude when he's the one at the table. He got off to a good start, signaling in June that he wanted the union to agree to raising the retirement age to 62 from 55 for new hires, to make workers contribute toward their own pensions like private-sector employees do, and to a slight reductions in benefits.

That's not in the current deal, however. Instead, the mayor and the union have agreed to form a committee to study the pension issue. Plenty of experts could save them the trouble. "We know what needs to be done," a scholar at the Manhattan Institute, Nicole Gelinas, noted yesterday. Her colleague, Edmund J. McMahon, recently published a report entitled "Defusing New York's Public Pension Bomb: A Fair Approach for Workers and Taxpayers." The Citizens Budget Commission published a report last year, "The Case for Redesigning Retirement Benefits for New York's Public Employees," that includes recommendations for reforms. These columns featured a series of editorials on the issue earlier this year.

Even if that committee comes up with worthwhile recommendations, the chances of pushing them through are anyone's guess because wages are no longer in play after the latest deal. "The maximum moment of advantage is when you're talking about salary," a long-time political observer, Fred Siegel, tells us. Well, the mayor is no longer talking about salary. State law prohibits the city from negotiating wages and pensions in the same talks, but that doesn't necessarily mean you can't try to settle both issues in parallel discussions. Look where doing them sequentially has gotten the city. The mayor has ceded his ability to use wages as leverage to extract concessions on benefits or work rules, relying instead on his ability to maneuver with things like more money for union welfare funds in exchange for concessions.

If there's one silver lining, it's the decision to ease the residency requirement so that city workers will now be allowed to live in Nassau, Westchester, Suffolk, Orange, Rockland, and Putnam counties. Mayor Koch signed the requirement into law in 1986 to make public employees more accountable, but it has only strained the city's housing market. Not only does the rule increase competition for scarce housing units, it also transforms the politically powerful DC 37 into a leading advocate for "affordable housing" and rent control.

The long-term political effects could extend even beyond the housing market. If enough union members start moving outside the city, it could start chipping away at the union's clout by eroding the union's electoral significance. But abandoning concrete pension and healthcare reforms is a steep price to pay for such speculative gains, especially since the union itself was asking for a relaxation of the residency rule, so in theory the mayor shouldn't have needed to give away anything.