We’ve been keeping an eye on how New York City is faring in the Covid-19 new normal, in part out of personal interest, and in part because many other communities are facing budget stresses, albeit not on the same scale. As you may recall, cities and states are unlikely to get any Federal assistance unless and until the Democrats win the Presidency in November and gain seats in the Senate.

The latest fiscal shoe to drop in the Big Apple is the city reneging on $900 million of back pay to teachers, the fourth installment in a deal struck by Mayor Bill de Blasio in 2014. Due to the state of the Internet, I can’t get great details on the background of the agreement. From what I can infer, teachers had gotten lower pay increases than other city workers in the years right after the financial crisis and sought a make-up. The incoming mayor and the unions agreed on a complicated package for teachers hired before 2012. You can read a summary here; these were the two groups subject to the pay deferral scheme:

– Upcoming Retirees: Anyone who retires before June 30, 2014 will also receive a lump sum payment for 100 percent of their back pay. A wave of another 4,000 teachers will likely take this option. Anyone who retires after June 30, 2014 will receive their full back pay delivered in five separate payments from 2015 through 2020.

– Mid-Career Teachers: Anyone who was teaching in 2009, 2010, and/or 2011, is still teaching, and remains in continuous employment (meaning they don’t leave or take a year off for, say, childbirth), will receive a $1,000 payment immediately; 12.5 percent retroactive payments in 2015 and 2017; and 25 percent payments in 2018, 2019, and 2020. To receive their full retroactive payments (presumably for work they already did), teachers must remain in continuous employment until 2020. Using the pension plan’s assumptions for retention, the average 15-year veteran in 2009 had about an 88 percent chance of making it until 2020.

– Early-Career Teachers: Using the pension plan’s assumptions for retention, the average first-year teacher in 2009 had less than a 50-50 chance of making it to 2020. Many of them are already gone, but another 25 percent of the class of 2009 will leave between now and when they’ll be eligible for full retroactive pay in 2020

So you can see the motivation for deferring the pay wasn’t the usual hope that New York City’s finances would be better later (and that the value of money in the future is less than money now) but also that the number of recipients would be reduced by the “remaining in continuous employment” requirement.

The Wall Street Journal broke the story of New York City announcing it would not make its $900 million payment due this month:

New York City can’t afford to pay a lump sum due its teachers because of the new coronavirus, city officials said Thursday, reflecting a fiscal crisis that has already led to budget cuts and service reductions.

The city teachers union, which puts the amount due this month at $900 million, called Thursday for immediate arbitration.

First Deputy Mayor Dean Fuleihan sent the union a letter saying the budget impact of the pandemic was “debilitating and not yet fully known,” and the city couldn’t afford to pay a lump sum due to active and retired teachers scheduled for this month under a 2014 agreement….

To cut costs, the mayor has mandated weeklong furloughs for about 9,000 government workers. He also has warned that he will have to lay off 22,000 employees if state lawmakers don’t give the city the authority to borrow billions of dollars….

A letter from the union’s general counsel, Beth Norton, seeking arbitration said the anticipated final payment, due Oct. 1, would cost the city some $900 million. She said the UFT understood the city’s fiscal challenges but members “have already worked for and been waiting for these payments for a decade.”

Union officials said the amount due to an individual teacher varies from a few hundred dollars to thousands, depending on salary level and time in service…

“This action is necessary to avoid painful layoffs, but make no mistake, New York City recognizes our teachers go above and beyond for our students and schools every day,” said mayoral spokesman Bill Neidhardt….

Patrick Sprinkle, a UFT [United Federation of Teachers] chapter leader who teaches at NYC Lab School for Collaborative Studies, said the delay was unfortunate, but “If we can avert layoffs and save middle-class jobs, I will gladly make another sacrifice in these unprecedented times.”

Tellingly, the summary of the 2014 pay deal that we cited above alluded to the notion that the deferrals might not be honored in full:

Teachers hired in 2012 or later (obviously) get no retroactive pay. They will receive the benefits of a higher salary schedule, but they’ll also be working for a distict paying off $2.5 billion in past promises to teachers. No one knows what New York City’s budget will look like in 2020, but that’s $2.5 billion that can’t be spent on future raises, additional teachers, or other instructional costs.

In isolation this contract breach may not seem like a big deal. But this is one of the more visible ways New York City is having to impose pay reductions on workers via wage cuts, shorter schedules, or both, and lowering service levels to city residents.

This move comes less than a month after more than 150 executives sent a letter to Mayor de Blasio effectively complaining about the deterioration of cleanliness and safety in the city. The key section:

Despite New York’s success in containing the coronavirus, unprecedented numbers of New Yorkers are unemployed, facing homelessness, or otherwise at risk. There is widespread anxiety over public safety, cleanliness and other quality of life issues that are contributing to deteriorating conditions in commercial districts and neighborhoods across the five boroughs.

We need to send a strong, consistent message that our employees, customers, clients and visitors will be coming back to a safe and healthy work environment. People will be slow to return unless their concerns about security and the livability of our communities are addressed quickly and with respect and fairness for our city’s diverse populations.

We urge you to take immediate action to restore essential services as a necessary precursor for solving the city’s longer term, complex, economic challenges.

Yes, and I’d like a pony too. What about “gaping budget hole and therefore no money” don’t you understand? De Blasio is trying to get permission to increase borrowing but that hasn’t happened.

More generally, I’m not sure what the point of a letter like that is unless it is to set the stage for another fiscal-crisis-style takeover of New York City finances, which in the 1970s took place first with the Municipal Assistance Corporation and later with the more draconian Emergency Financial Control Board.

De Blasio is not a very good mayor but it is going to take New York City some time to climb out of its mess, and that can’t happen in a meaningful way until Covid is perceived to be a contained health threat. The city’s former status as a magnet depended on entertainment, the arts, and business travel. Huffing and puffing at the mayor about graffiti and garbage won’t solve the underlying bad fundamentals.

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