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De Blasio’s Magic Wand

New York City Mayor Bill de Blasio hopes that the recently announced labor agreement with the city’s teachers’ union will prove the beginning of a city-wide pattern.

If it does, that pattern will be that New York City workers are happy today and New York City taxpayers are unhappy tomorrow.

The contract, announced last week, will raise teachers’ wages by 18 percent over nine years. That nine-year period ends five years from now, however, because the contract is retroactive to 2009, when the previous contract expired. De Blasio agreed to approximately 8 percent in retroactive raises to cover the money teachers did not earn because their union did not accept the deal that other city unions accepted four years ago. De Blasio, a long-time friend of labor, essentially made the teachers’ holdout a risk-free proposition.

The contract might be reasonable if the mayor were asking the taxpayers who elected him in the fall to foot the bill. But he isn’t. The retroactive pay, plus the additional 10 percent in raises, are back-loaded primarily into the future years of the contract. This timeline conveniently gives teachers their biggest rewards around the time that the mayor expects to run for re-election. It also sticks the bulk of the bill, which the city estimates at $5.5 billion through 2018, with future taxpayers, who will be living in the city during a possible second de Blasio term and well beyond.

Still, the biggest financial problem is not what is in this contract, but what is not. The big concession on the teachers’ end is a reduction in health care costs, to the tune of $1.3 billion. Theoretically, this money would partially offset the cost of the teachers’ raises. These health care savings are evidently supposed to come from a magic wand; the source of the savings is not specified in the contract, except that it will not be higher premiums for the teachers. Further, de Blasio and the negotiators assume even larger magical savings - $3.4 billion - will emerge in negotiation with the city’s many other unions.

Of course, the other unions have yet to agree to any such concessions, if they are concessions at all. If other municipal workers do agree to such terms, they will expect raises at least equivalent to those the teachers received. Where will the mayor find the savings to offset those costs? A plan to somehow collect revenue from taxpayers in Kansas or Maine?

An even bigger problem is that New York City’s public schools have about 1 million students and about 100,000 unionized teachers. (Both numbers exclude charter schools.) That’s a student-teacher ratio of roughly 10 to 1. The city has optimistically predicted small increases in enrollment over the next decade, despite a graying population and net migration that has only tentatively turned positive in very recent years. Those new students will, I suppose, appear as magically as the health care savings.

Back in reality, the teachers’ negotiated raises would be easily affordable if the size of their labor force were adjusted to be more in line with the existing student population. But there is no indication that the city is prepared to reduce the teacher headcount in order to make the negotiated pay raises affordable.

At the moment, starting teacher salaries for those with a bachelor’s degree and no prior experience are around $45,000. This is the figure that is often pulled when discussing New York City’s teacher pay rate. But it worth noting that teachers get automatic raises for experience within the city’s education system and additional levels of education, neither of which necessarily makes teachers more effective in the classroom. Teachers who work extra hours or positions in the school outside their normal scope of duties can also earn additional pay. Some teachers can earn $100,000 or more annually.

Such wages are nowhere near a fortune in New York City terms, but when you have 100,000 teachers, it adds up fast.

If today’s politicians think teachers are worth paying more, they should ask today’s taxpayers to foot the bill. The pattern that de Blasio has set instead is a familiar one: Give municipal workers what they want in the present and kick the costs into the laps of future taxpayers (and future officials) while the people who agreed to the deals move on with their lives. The chances of political backlash are much lower when you bill future taxpayers, who are less likely than present ones to express their displeasure at the voting booth.

Such a strategy is appealing, but dangerous. It was how New York City arrived at the fiscal crisis of the 1970s. Apparently enough time has passed to allow the cycle to begin again.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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