Nov. 8 (Bloomberg) -- New York Mayor-elect Bill De Blasio scored a landslide victory championing an ambitious agenda that includes taxing the rich to pay for universal pre-kindergarten, building or preserving 200,000 units of low-income housing and creating better-paying jobs for city residents.
When the 52-year-old Democrat is sworn in on New Year’s Day, he’ll confront a deficit of as much as $2 billion in the next fiscal year and the limits of his power. The only tax he can raise without the approval of Governor Andrew Cuomo and the state legislature is on property. To boost the levy on income above $500,000 to pay for his education plan, he’ll have to go through Albany, where Cuomo has appointed two commissions on how to lower taxes.
As the first Democrat to run the biggest U.S. city in 20 years, de Blasio will be challenged to pay for his programs while balancing a $70 billion budget and maintaining the city’s AA credit rating from Standard & Poor’s, higher than Los Angeles and Chicago. His most difficult task will be settling expired labor contracts and negotiating new ones with New York’s almost 300,000 public workers, some of whom haven’t gotten a raise since 2009.
After failing to agree with three-term Mayor Michael Bloomberg on some policies, labor leaders are banking on getting a sympathetic ear. They’re also lowering expectations for retroactive raises, which could run as high as $8 billion, more than 10 percent of the budget.
“No one wants to bankrupt the city,” said Michael Mulgrew, head of the United Federation of Teachers, which represents 200,000 members. “I expect our relations with de Blasio to be much better. It will have to start with undoing a lot of the harm to the system done by this mayor.”
De Blasio, a self-described progressive and New York’s public advocate, beat Republican Joseph Lhota on Nov. 5 by an almost 50-point margin, the most for a non-incumbent in city history and the widest since Mayor Edward Koch was elected to a third term in 1985 by 68 points.
He’s ruled out providing full back pay covering all employees for the years worked without a contract, saying it’s too expensive. Throughout the campaign, de Blasio was vague about his approach to labor negotiations, dodging questions on issues such as requiring workers to contribute to their health insurance and what productivity concessions might be gained in return for higher wages.
Investor reaction to de Blasio has been muted. Since he beat six other opponents in the Democratic primary on Sept. 10, the extra yield that investors demand on New York general-obligation bonds over top-rated debt maturing in nine years has been little changed.
De Blasio characterized Bloomberg’s relationship with city workers as a “top-down approach” that created an adversarial relationship. The mayor-elect said he would treat municipal employees and their unions with “more respect.” The current mayor is the founder and majority owner of Bloomberg News parent Bloomberg LP.
“We have to balance our budget,” de Blasio told reporters after a Sept. 19 appearance at a labor breakfast in Harlem. “I hope to do something, if we can, on retroactive pay, but we’re not going to be able to do the full amount.”
Any settlement would be spread out over time rather than paid in one lump sum, said James Parrott, deputy director of the Fiscal Policy Institute in New York, a labor-backed research group.
Bloomberg closed a deficit of about $1 billion in the current budget without raising taxes, in part through a one-time revenue windfall as residents sold stocks and property to avoid an increase on capital-gains levies in 2013.
De Blasio has said he’s against raising property taxes. Discussions on his proposal to increase the top income-tax rate on residents to 4.4 percent from 3.9 percent will have to wait until January, said Cuomo.
“Universal pre-K is something I’ve been talking about for years,” the governor, a 55-year-old Democrat, said on public radio interview Nov. 6. “So I’m there. The question becomes the financing method.”
The Bloomberg administration pegs the tab for retroactive raises at almost $8 billion. Budget monitors estimate the cost could range from $6.3 billion to $7.2 billion by the end of this fiscal year. The city has set aside about $265 million in the current budget, which ends June 30, to cover anticipated collective-bargaining agreements, rising to $983 million in 2017.
Each 1 percent raise awarded to city workers increases operating costs by about $300 million a year, according to the Citizens Budget Commission, a business-funded watchdog.
“To give even modest wage increases retroactively can blow a hole through your budget in the first year,” said Maria Doulis, director of city studies for the CBC.
Delaying settlements to the fiscal year that starts July 1 would cause the amount of retroactive pay to increase even more, she said.
At the same time, as Wall Street cuts jobs and crimps bonuses, personal-income taxes, the second-largest source of city revenue, will increase at a slower rate than before the recession, according to the Independent Budget Office. The securities industry accounted for 5 percent of private-industry jobs and 22 percent of wages in the city in 2012, according to state Comptroller Thomas DiNapoli.
Wall Street lost 25,600 jobs from November 2007 to August of this year, according to DiNapoli. Every job shed on Wall Street leads to the loss of two additional ones in other city industries, according to the comptroller.
Unions say the city consistently underestimates the amount of revenue it will collect and always manages to find money to restore budget cuts proposed by the mayor.
The IBO expects the city will collect $664 million more than the Bloomberg administration estimates it will get this fiscal year, widening to $2.7 billion in 2017.
“They always plead poverty,” said Al O’Leary, a spokesman for the Patrolman’s Benevolent Association, which represents 23,000 police officers. “They have the ability to manipulate numbers to make it look as if the city doesn’t have money, but they have a huge amount of money coming in, and they have the ability to use it as they see fit.”
City Comptroller John Liu, a union-backed Democrat who lost in the primary to de Blasio, said reining in outsourcing could free up “billions of dollars” to help pay for raises.
Unions also may be willing to start contributing to health-care premiums or work-rule changes in exchange for raises, said Domenic Recchia, chairman of the city council’s finance committee.
“Everything will be on the table,” Recchia said.
The current budget assumes that municipal labor unions will accept a deal with no wage increases for contracts that expired after 2010. It also projects that the unions for teachers and principals, whose contract ended in 2009, will forgo the two years of 4 percent raises other unions received in the 2008-to-2010 bargaining round.
Assuming the teachers receive the same two years of 4 percent raises and that all the unions negotiate contracts with 2 percent annual increases for the 2010-to-2013 round of bargaining, the city could face a one-time liability of $7.2 billion, according to the Citizens Budget Commission.
De Blasio won’t take Bloomberg’s “take it or leave it” approach to bargaining, and labor leaders will get a fair hearing, said Ed Ott, former executive director of New York City’s Central Labor Council, a coalition of 300 local unions. That doesn’t mean the unions should expect a quick resolution of contracts. After being out of office for two decades, Democrats have to convince voters they can manage the city responsibly, Ott said.
“I think there will be serious, respectful, tough negotiations,” said Ott. “There are an awful lot of organizations with needs and wants. We can’t bum-rush the door and hope we all get in and get what we want.”
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