Fifth in a series on the 2011 budget.
When a recession depletes several core revenue sources all at once, the City’s budget takes a big hit. If municipal expenses balloon at the same time, then the City’s fiscal position moves from bad to worse. And, unfortunately, many City expenses are beyond local control. Welcome to New Rochelle’s current budget challenge.
When it comes to mandated costs, the top offender is the City’s contribution to New York’s public employee retirement fund. New Rochelle, like all municipalities in the State other than New York City, participates in the State retirement system. Each year, Albany sends us a bill that varies depending on how well the fund performed in the stock market. Not surprisingly, the retirement fund has done poorly in the past three years, and the State constitution makes local municipalities largely responsible for filling in the gap.
New Rochelle Contributions to State Pension Fund
Between 2002 and 2010, New Rochelle has been forced to raise its contributions to the state pension fund by $7.4 million (adjusted for inflation). In 2010 alone, the State increased the City’s contribution by 22%, and they’ve informed us that 2011 will see an additional 29% increase, or $2.2 million (which the State allows us to partially defer for a single year.)
To put these numbers in some perspective, the amount we’re sending to Albany for the state pension program is about one-fifth of what the City collects in property taxes. Everything else being equal, funding just the increase in pension contribution for 2010 and 2011 would require a property tax hike of more than 8%. Or put another way, our contributions to the State pension fund have increased by 7000% in the past ten years — well, okay, when adjusted for inflation it’s only about 4000%. Still, I think you can see the problem.
Albany has established a new retirement “tier” with less generous benefits, but this will apply only to new employees and will not yield municipal fiscal benefits until these younger workers reach retirement age.
To a lesser extent, but still significant, the City has seen steadily growing costs for medical benefits that cover employees and retirees. This is also a national trend, as evidenced by the recent debates about health costs and insurance reform.
Medical Benefits (Total)
Of course, our chief expense is personnel — mainly salaries and benefits for Police officers, fire fighters and sanitation workers, but also everyone else that works for the City government.
Expenses by Function (2011 Proposed)
In one sense, this is a category of spending that the City can work and has worked aggressively to contain. Through attrition and a hiring freeze, New Rochelle has cut its municipal workforce by about 10% in the past two years. In fact, the City will now have its smallest workforce in almost two decades and will be at just about its lowest full-time employment level in New Rochelle’s modern history. We have also frozen salaries for all employees, except those in the midst of a contract.
In another sense, however, State labor policy constrains our options even with respect to personnel expenditures. A failure to agree on a contract leads to arbitration, and arbitrators tend to look at trends in comparable communities and also to split differences. So one way or another, whether achieved consensually or through imposed settlement, the typical contract includes a modest annual salary increase.
(In case you are wondering and because the question is often asked: salaries for elected officials are set differently. They are embedded in the City Charter, and any changes voted during a particular term of office apply only to subsequent terms of office. The salaries for Mayor and Council were last changed in 2006 to provide an inflation-based increase, effective in January 2008. The salaries for Mayor and City Council have been frozen since then, and I expect that they will remain frozen for at least the next five years.)
My next post will look more closely at the City’s response to the budget crisis, provide additional detail on the personnel measures referenced above, and examine a host of other steps we have already taken to achieve efficiencies, attract grants, control the tax burden, and otherwise weather the economic storm.