How NYC's Municipal Economic and Fiscal Policies Help the City Thrive and the Challenges That Could Derail Progress
By NYC.gov - AUG. 06, 2013
The following are Mayor Bloomberg's remarks as prepared for delivery today at the
630 Flushing Incubator in Brooklyn.
“Good morning, and thank you Carlo and Jeff for all your great work in helping us to create jobs. This really is a very impressive facility. Although, with so many different kinds of delicious food being made here, I’m not sure how any work gets done.
“I can tell you that this is the kind of entrepreneurial environment that every city in the country – and in the world – is trying to create, because the stakes could not be higher. Last month, a great American city – a city that brought us the assembly line and became synonymous with industrial might – declared bankruptcy. It was a long time coming, and when the history books are written, it will serve as a coda for an industrial era now past.
“Now, it would be easy to sit back and think that what happened in Detroit could not happen here in New York City. But the truth is it did almost happen here, back in 1975. And while we have traveled a long way since then, we would be foolish to ignore the factors that drove Detroit to bankruptcy.
“I believe that the Detroit experience holds lessons for every American city – and that we have an obligation to protect our future by examining those lessons, which I’d like to do briefly this morning.
“The lessons fall into two primary – and related – categories: economic and fiscal. Let’s start with the economic lesson. Detroit was once an economic powerhouse. But starting in the 1950s, large-scale manufacturing slowly but steadily moved out of large cities across the country, including New York.
“We once had more manufacturing jobs than any other American city.
“But thankfully, unlike Detroit, New York City’s economy was not based on a single industry. As our manufacturing base declined, the financial industry grew, along with other industries, such as real estate – and that helped cushion the blow. Of course, it also left us more susceptible to swings in those markets.
“Yet something very remarkable happened in 2008, when the U.S. experienced the biggest collapse of the financial and real estate markets in modern history: New York City actually went into recession later than the rest of the country, and came out faster and stronger.
“In fact, since the end of the national recession, we’ve regained 303 percent of the jobs we lost during it whereas the country as a whole has gained back only 79 percent.
“And today, there are more private sector jobs in our city than ever before in our history.
“How did a city that had been dependent on finance and real estate for decades come through the worst financial and real estate collapse in modern history so well?
“The answer is all around us today. And it can be summed up in one word: Diversification.
“Whether you’re building a financial portfolio or a local economy, diversification is essential to long-term growth and stability.
“Prior to 2002, New York City government never had a real strategy for broadly diversifying our jobs portfolio – either economically or geographically. Economic development planning – to the extent it had existed – had previously been Manhattan-centric and focused on corporate tax breaks and subsidies to keep already existing companies from leaving.
“In 2002, we began changing that. Under Dan Doctoroff, we created the first-ever Five Borough Economic Development Plan that focused not on retaining particular companies, but on growing industries that have a bright future and attracting the people those industries require.
“The press used to mock Dan for it – but thank God we did it, and this incubator is just one example of how it came to life.
“For 150 years, this was a manufacturing plant for Pfizer, a company started in 1849 by two German immigrants. Pfizer grew into the world’s largest pharmaceutical company – with plants around the world. Eventually, in 2008, Pfizer executives closed the doors here – just as so many other large-scale manufacturing companies in the five boroughs had done.
“But today, as you can see, this is once again a manufacturing hub. Only now, it’s an incubator for a new generation of craftsmen and women, who are making everything from furniture and fashion designs, to kimchee and cookies, to software and 3-D printers.
“If you want to know what the future of American manufacturing looks like, this is it. It’s smaller-scale, more creative, and higher-skilled, and it’s on display not only here, but also in the Brooklyn Navy Yard, and in other areas of the city, too.
“We have to stop thinking about manufacturing in such one-dimensional terms.
“Yes, manufacturing can involve a large factory with an assembly line. But it can also involve a small computer lab, a science lab, or a graphics design lab, or even a stage or a notebook.
“The great manufacturing cities of the 21st century will be those that produce unique innovations and ideas, not uniform widgets. And not just in one area – but in a broad range of industries that are based on knowledge, information, and creativity.
“The small businesses you see here reflect the progress we’ve made diversifying of our economy over the past 11 and a half years: film and TV; arts and culture; fashion and design; bio-science and engineering; new media and entertainment; tourism and tech.
“We’ve worked to help all of these industries grow – and our Applied Science initiative, led by Deputy Mayor Bob Steel, is perhaps the most ambitious diversification effort any city has ever undertaken.
“As a result of all this work, since 2001, the majority of jobs created in New York City have been outside of Manhattan. And nearly 40 percent have been right here in Brooklyn.
“Economic diversity and geographic diversity: those have been our two overarching goals, and we’ve pursued both using the same simple idea: If you can attract people to neighborhoods across the city – residents, visitors, immigrants – by creating safe and clean streets, good schools and green parks, and cultural opportunities, you can set off a virtuous cycle of growth.
“The cycle works like this: The more people we attract, the more jobs are created, the more tax revenue is generated, the more investments can be made in the city to make it a great place, the more people move here and visit here. And the cycle continues.
“Population growth begets economic growth, begets revenue growth, begets – if managed and invested wisely – population growth. A virtuous cycle.
“Now, there are challenges that come with the virtuous cycle, which is why housing here has gotten more expensive, despite the record amount of affordable and market-rate housing we’ve helped create.
“But it’s far better to face the challenges of success, as I call them, than the crises that come with failure, as Detroit has been experiencing.
“There, the virtuous cycle was turned on its head: As its main industry shrunk, the more people left the city, the less tax revenue was generated, the less investments government could make in the city, the more basic services broke down, the more people left the city. Government started borrowing to pay operating expenses, just as New York City did in the 1970s.
“Eventually, the bills came due. And that brings us to the second key lesson: the importance of responsible fiscal stewardship.
“In some ways, New York’s brush with bankruptcy in 1975 was a stroke of luck – because the disease was diagnosed early, and we were able to take our medicine immediately. New York’s political leaders were forced to stop borrowing to pay for operating expenses. And by the 1980s, thanks in no small part to the leadership of Governor Hugh Carey and Mayor Ed Koch, the mass exodus of people had stopped, the fires were brought under control, the subways were getting repaired, and the city was on the mend.
“But the recovery has always been tenuous. In 1991, there was talk of the state’s Financial Control Board taking over the city’s finances. And in 2001, after the attacks of September 11th, people wondered whether we would return to the days when people and businesses fled the city.
“I couldn’t be happier to say: That didn’t happen.
“In fact, over the past 12 years, we’ve moved from recovering from the 1970s, to building for the 2030s.
“Today, the city has never been stronger. And we have never had more forward momentum.
“Now, anyone who has taken physics knows that objects in motion tend to stay in motion. The good news is: That’s true of cities, too. The bad news is: unlike the laws of physics, the forces that can stop a city can be internal, not just external.
“Short-sightedness. Corruption. Mismanagement. And – perhaps most dangerous of all – special interest politics.
“Over the course of several decades, we saw all of those factors at work in Detroit – and in recent years, the most harmful factor may have been special interest politics.
“One of the major reasons that Detroit could not stop its downward spiral was that its labor costs – especially its retiree costs for pensions and health care – crowded out its ability to invest in the things that make a city an attractive place to live and visit.
“The more a city spends on wages and benefits for employees over what the marketplace determines is necessary for recruitment, retention, and experience, the less a city can invest in benefits for all residents.
“The less it invests in things that benefit all residents, the less attractive a place it is to live and visit. And suddenly, the virtuous cycle I mentioned a moment ago comes grinding to a halt – or worse, goes spinning in reverse.
“In New York City, that risk is still very real. And the primary driver of the risk is the same factor that was present in Detroit: the explosion in pension and health care costs.
“To put the problem in context: In Fiscal Year 2002, New York City’s pension costs were $1.4 billion. By Fiscal Year 2009 – even after one of the strongest bull markets we’d ever seen and before any impact from the financial meltdown – pension costs had grown to $6.3 billion.
“So clearly, our increase in annual pension costs – which today total more than $8 billion per year – was not driven primarily by poor market returns. It was the result of a benefit structure that promises retirees too much too soon, and requires them to contribute too little to pay for it.
“At the same time, the idea that our pension costs can be substantially reduced through increased market returns is a fantasy perpetuated to avoid the hard choices we must confront today.
“Avoiding the hard choices is how Detroit went bankrupt. And it’s the road to ruin for any city.
“More than 10 years ago, back in January 2003, we sounded the alarm about rising pension costs, and we kept pushing for change in Albany.
“Finally, in 2009, after the markets had collapsed and created huge budget deficits for the city and state, we helped persuade Governor Paterson to veto a pension sweetener that, for the last 33 years, had allowed newly hired police officers and firefighters to contribute less, and retire sooner, than otherwise required by law.
“And in 2012, the State Legislature – thanks to Governor Cuomo’s leadership – passed a bill raising the retirement age for non-uniformed workers, increasing employees’ contributions, and other measures that will help slow the explosive rate of growth, which we strongly supported.
“Both of those steps were important – but they didn’t solve our problems.
“Today, much of the city’s civilian workforce contributes only 3 percent of salary for the first 10 years of employment towards their pensions – and nothing after that. You’d be hard-pressed to find a single company in the private sector with that kind of pension plan. For that matter, you’d be hard-pressed to find many governments with that kind of plan.
“Nearly all private sector companies, and more and more governments, have switched from defined benefit to defined contribution plans – which are increasingly popular because they are portable as people change jobs.
“For instance, SUNY and CUNY offer their employees the choice between defined benefit and defined contribution plans – and three-quarters of the faculty at both institutions have chosen the defined contribution plans. Why shouldn’t all City workers have the same choice?
“Another antiquated feature of our pension system is that, for uniformed employees, benefits are based on the final year’s salary, including overtime. So we have something called ‘spiking,’ in which people put in a huge amount of overtime in their last year to increase their pensions. And remember: they can begin collecting their pensions after 20 or 22 years of service – even if they are only 42 years old. That means we are paying those ‘spiked’ pensions for 30, 40, even 50 or more years.
“As life expectancy increases – and I’m very proud to say that it’s rising faster here than in the rest of the country – those costs will continue to rise. And that means that each year, more and more tax money gets shifted away from investments and services, to retiree benefits.
“We’ve been able to absorb these extra costs by finding ways to do more with less. But that can only continue for so long.
“Last month, Chicago laid off 2,100 teachers and school support staff, largely because its pension costs had increased substantially. Mayor Rahm Emmanuel said, ‘The pension crisis is no longer around the corner. It has arrived at our schools.’
“Chicago is far from alone. Cities across the country all face the prospect of pension costs swallowing more and more of their budget, and New York is no exception.
“Anyone who thinks it can’t happen here needs only to look at the late 1970s when the city laid off more than 10,000 teachers and thousands of police officers, firefighters, sanitation workers, hospital workers, and other City employees.
“Layoffs can halt the virtuous cycle I mentioned – and that’s why more and more mayors and governors – including liberal Democrats like Jerry Brown in California – have been pushing for pension reform.
“The situation with health care costs today is no less troubling: About 95 percent of our employees and retirees contribute nothing – not even a dollar – to their basic health care premiums. Compare that to state government, where more than 90 percent of workers contribute to their premiums – usually between 10 and 20 percent.
“We have sought a reasonable employee contribution to healthcare premiums for years... and beginning in 2010, we made it a mandatory condition of any new labor contracts.
“We’ve held to that commitment, but no union has been willing to sign a new agreement with that provision. So this year, in addition to our $8 billion per year pension bill, we’ll spend $6.3 billion on health insurance – almost double what it cost us when I first came into office.
“Now, one of the reasons our costs have risen further and faster than in other places is that we have remained locked in a contract with our primary healthcare provider, Emblem Health, that has not changed in more than 30 years. Emblem used to be HIP and GHI. They merged in 2006 – and we sued to stop it at the time, partly because we said that a merged company would have the ability to unilaterally raise prices. And we were right.
“At the same time, Emblem has not worked to modernize its services, despite our efforts over the past two years to make them do so. This year, we have been moving toward putting out a Request for Proposals that would allow other companies to bid for our multi-billion dollar health care business. And lo and behold, last week Emblem announced that they will seek no rate increase – zero – for the next fiscal year. It’s the first time in 15 years Emblem has sought no increase.
“Amazing what the threat of a little competition will do, isn’t it?
“That step by Emblem means $300 million less in annual increases in our expenses – and there’s plenty more savings where that came from. So in a few days, after months of work with the Municipal Labor Council, and thanks to the determined efforts of Deputy Mayor Cas Holloway, we will issue a Request for Proposals to replace our antiquated health benefit contracts.
“We will seek a data-driven, modern healthcare plan that will focus on prevention, provide higher-quality care and that can save up to $400 million annually. The new plan will result in better care for employees and their families – and cost City taxpayers less.
“Yet even if the new request for proposals succeeds – and it will be a fight the public will have to force the next mayor to pursue – we will still be facing a health care bill that is growing at a rate beyond what we can afford.
“And – as with pensions – with each passing year those costs will crowd out investments in basic services like schools, parks, police, sanitation, cultural institutions – all of the things that make our city an attractive place to live, work, study, and visit.
“If that trend is allowed to continue, at some point, the virtuous cycle will come to a halt, and a downward cycle – the cycle that Detroit got trapped in – will begin.
“But it’s important to stress: The virtuous cycle can continue.
“You, the voters, hold the City’s future in your hands – and this election will be pivotal.
“The next mayor will have an unprecedented opportunity to win pension and health care changes from the City’s labor unions – and I’ll tell you why.
“The municipal unions are working under contracts that were due to expire three and four years ago, but because of the State’s Taylor Law, they remain in effect until new contracts are signed. That means the hours, wages, benefits, and raises that are built into those contracts continue.
“For instance, a teacher with five years of experience in 2008 making $58,000 has continued to get raises, and is now making $79,000.
“So when the union leaders say they don’t have a contract – they do. But they are demanding new contracts with retroactive raises – going back three and four years – on top of the raises they’ve already gotten.
“Now, I believe New York City has the best workforce in the world – and I’ve been proud to increase salaries to help attract and retain the best.
“But given the fiscal realities we face, we can’t afford retroactive raises. In any case, the unions cannot give us retroactive productivity savings to pay for them.
“We have budgeted for small raises going forward – and we will leave that money in reserve for the next mayor. But we have not budgeted for retroactive raises or large raises going forward – because to do so would be irresponsible.
“And remember: During the Great Recession, most people in the private sector, who pay the salaries of our municipal workers, did not get raises – and many took pay cuts to hold onto their jobs.
“Governor Cuomo and union leaders in Albany both deserve credit for signing contracts with three years of zero-raises and an increase in employee health care contributions. But the City’s unions have refused to take that deal.
“They have rebuffed our efforts to reform pensions and health care in ways that could produce savings that could fund future raises. Instead, they have decided to wait us out and seek a better deal with my successor.
“The question is: Will the next mayor continue to hold the line – or capitulate?
“Will he or she strike as good a deal for taxpayers as the Governor did – or better?
“Thankfully, my successor will enter negotiations with enormous leverage, because union leaders will have gone about four years without new contracts – which has never happened before. And they will not be willing to wait another four years for new contracts.
“That puts the next mayor in a position of strength in negotiating not only salaries, but also pension and health care reforms. In fact, there may never be an opportunity quite like this again.
“And it will be up to you – the voters – to make sure that we elect a mayor who understands how important this opportunity is, and not someone who is going to squander it.
“And it’s up to you – the Fourth Estate – to demand concrete commitments from the candidates about what they’ll do.
“The reality is, we may be a long way from Detroit.
“But we are only a short distance from relapsing into decline, if we allow healthcare and pension benefits to crowd out the investments that make New York City a place where people want to live, work, study, and visit.
“Now, I can promise you: I’m going to spend the next 147 days doing everything I can to put the next mayor in a strong position to lead our city forward. That’s why we’re releasing a Request for Proposals to health care providers.
“I love this city, and there’s nothing I want more than for its progress to continue.
“Meeting with some of the entrepreneurs here – and seeing their drive and passion – gives me great hope that the best days for New York City are still ahead. Thank you, and have a great day.”