70% of Fortune 500 Companies Use Offshore Tax Havens

June 9, 2014. In 2013, 70% of Fortune 500 companies used tax havens. More of these companies were based in New York than in any other state, depriving New York of considerable tax revenue.

The practice of “booking profits” in foreign countries where there are few or no taxes is examined in a new study released yesterday by U.S. Public Interest Research Group (USPIRG) and Citizens for Tax Justice (CTJ), “Offshore Shell Games 2014: The Use of Offshore Tax Havens by Fortune 500 Companies.” For New York’s Fortune 500 companies, over $375 billion in profits are counted outside of the United States. Of that amount, $228 billion came from just five companies: Pfizer, IBM, Citigroup, PepsiCo and JP Morgan-Chase.

“Much of this profit is made in the United States, and only by accounting gimmicks is it made to look as if it was earned in these tax havens,” said Fred Floss, executive director of the Fiscal Policy Institute. By setting up dummy subsidiaries, New York firms borrow money from themselves, raising domestic interest costs and lowering taxes owed in New York, while increasing profits overseas. These firms also shift ownership of patents and trademarks to these subsidiaries and then have the subsidiary charge the parent company for their use again lowering taxes. “More is at issue than simply losing tax revenue,” Floss continued. “According to study by the Congressional Research Service, New York State and the federal government have invested a large amount in the research and development behind these patents and are not getting a return on their investment. This can lead to cuts in future government research and development as tax revenues dry up. In the end this can slow the economy.”[1]

The report points out a large amount of these profits are actually located in the United States and in United States’ banks. The New York companies are able to get the stability of keeping their profits in New York without having to pay for the government services they use. Instead they shift the burden to individual taxpayers and small businesses. An earlier report by USPIRG shows New York ranks second behind the District of Columbia in lost federal and state tax revenue at $1,919 for the average taxpayer; $434 of that amount represents lost state taxes. (See: “Picking up the TAB 2014: Average citizens and small businesses pay the price of off shore tax havens.”)

“Clearly all New Yorkers lose by allowing the largest corporations in the state not to pay their fair share of taxes,” said Ron Deutsch, executive director of New Yorkers for Fiscal Fairness. “It means there is less money to help those who need it the most and puts pressure on local governments to raise property taxes on those who can least afford it.”

Key findings of the report include:

  • As of 2013, at least 356 Fortune 500 companies operate subsidiaries in tax haven jurisdictions. All told, these companies maintain at least 7,736 tax haven subsidiaries. The 30 companies with the most money booked offshore for tax purposes collectively operate 1,297 tax haven subsidiaries.
  • Approximately 30 percent of the companies with tax haven subsidiaries had subsidiaries in just two offshore locations: Bermuda and/or the Cayman Islands. The profits that American multinationals collectively claim to earn in these island nations totals 1,643 percent and 1,600 percent, respectively, of each country’s entire yearly economic output.
  • The 30 companies with the most money booked offshore for tax purposes collectively hold nearly $1.2 trillion overseas. That is 62 percent of the nearly $2 trillion that Fortune 500 companies together report holding offshore.
  • Only 55 companies disclose the amount they would expect to pay in U.S. taxes if they did not report profits offshore for tax purposes. All told, these 55 companies would collectively owe $147.5 billion in additional federal taxes.

The report concludes that to end tax haven abuse, Congress should end incentives for companies to shift profits offshore, close the most egregious offshore loopholes, strengthen tax enforcement, and increase transparency.

One ill-advised approach to this problem being pushed by these Fortune 500 companies is to allow them to repatriate their foreign profits during a tax holiday. Since many of these profits are already in the United States, the only thing this will achieve is to lower already low corporate tax rates on these large companies at the expense of everyone else and with no positive economic impact.

Report available at http://bit.ly/1pfXDoL.

PDF of Press Release


[1] John F. Sargent Jr., Federal Research and Development Funding: FY 2013.  Congressional Research Service  December 5, 2013

Reform of NY’s TDI Program and Provision of Family Leave Insurance: Estimated Costs

June 5, 2014. In this report, FPI estimates costs for increasing workers’ weekly wages during temporary disability leaves and extending those benefits to family leaves under proposed legislation in the Assembly and Senate.

As an increasing number of women and mothers participate in the workforce, federal and state laws and policies have not met the needs of both male and female workers who must balance taking care of themselves and their families with the responsibilities of work. Under Temporary Disability Insurance (TDI) in New York, the maximum wages replaced, or benefits, during leaves for one’s off-the-job illness or injury, including pregnancy, have not been increased for twenty-five years and have lost 50 percent of their value. Moreover, since New York’s TDI program does not cover family leave needs, such TDI benefits are not now available to care for a new child or seriously ill family member. As a result, workers who do not have access to additional employer-paid benefits must often choose between caring for family and their job.

Bills proposed during the 2014 state legislative session would address these circumstances by increasing the weekly wages replaced during temporary disability leaves and extending those benefits to care for family. Specifically, the rate at which wages are replaced would go up from half to two-thirds of a worker’s weekly wage and the overall cap in such benefits would be increased from the current long-outdated level of $170 per week to 50 percent of New York’s average weekly wage over a four-year phase-in period. The resulting additional TDI costs likely would be shared by employers and employees and new Family Leave Insurance (FLI) costs, estimated to be about one-quarter to one-third of total TDI costs, would be paid entirely by employees.

As a proportion of employers’ labor costs, temporary, or short-term, disability insurance costs are very small. Bureau of Labor Statistics’ data indicate TDI costs are $0.10 per employee hour worked, or 0.3 percent, of employers’ total compensation costs in the Mid-Atlantic region that includes New York. However, current costs through the state-operated New York State Insurance Fund (NYSIF) for the minimally-required level of TDI coverage are substantially lower than this, about $0.01 per employee hour worked. This assumes no employee contribution which employers have the option to require as an offset to their costs.

Under the proposed legislation raising TDI benefit levels, projections detailed in this report suggest that NYSIF premiums would increase by up to $0.02 per employee hour worked in the first year and up to $0.04 per employee hour worked in the fourth year when the increase in the weekly benefit cap is fully phased-in. To fund FLI, employees’ estimated costs through NYSIF are minimal with a potential impact of $0.01 per hour in the first year and $0.02 per hour in the fourth year.

In California, where paid family leave has existed since 2004, businesses have experienced lower employee turnover and higher morale; many companies report this benefit has not resulted in cost increases and has had a positive or no noticeable effect on productivity. The proposed expansion of benefits in New York would not only provide necessary support to individuals and their families at very reasonable, or even modest costs to employers and employees, it would reform and modernize family and medical leave in New York along the lines of neighboring states and other countries.

PDF of Report

PDF of Technical Supplement

PDF of Press Release

Testimony to Raise the Statewide Minimum Wage and Allow Localities to Set a Higher Minimum Wage

June 2, 2014. FPI’s James Parrott submitted testimony for the June 2 New York State Senate Labor Committee hearing on several minimum wage-related bills, including five bills that would authorize local governments to enact minimum wages above the statewide level, and one bill that would establish a statewide “living wage” of $15 an hour, indexed to inflation, for certain large employers and chain stores. The FPI testimony reviewed several reasons why it makes sense for New York State to authorize cities and counties to establish higher minimum wage levels than the statewide minimum.

In support of local minimum wage authority, Parrott’s testimony cited data showing that there are wide disparities across counties within the state in terms of the local cost of living, and that there is a similar wide disparity in median wage levels, particularly between New York City and suburban counties on the one hand, and most upstate counties on the other. His testimony also pointed out the disparate living wage levels currently established by local governments that apply to companies and organizations providing services under local government contract.

Beyond the bills considered at this hearing, there is a compelling need for New York to accelerate increases in the statewide minimum wage, and once it gets to a level close to the purchasing power that the minimum wage had through much of the 1960s and 1970s (between $10.50 and $11.50 in today’s dollars) then it should be indexed so that it rises each year along with inflation to prevent renewed erosion in its purchasing value.

Even when New York State fully phases in its currently legislated minimum wage increase to $9.00 an hour by 2016, the purchasing power of the minimum wage will still be 25 percent lower than achieved in 1968 when the minimum wage was $1.60. Many states and localities are pushing quickly past New York minimum wage level. Vermont acted recently to increase its minimum wage to $10.50 an hour by 2018—this is the highest level authorized for a state minimum wage as of today. Four other states (CA, MD, HI and CT) are on the verge of having a minimum wage of $10 an hour or greater, and as a result of the fact that they index their minimums to inflation, both Washington and Oregon likely will pass $10 an hour within a few years. The District of Columbia recently acted to raise its minimum wage to $11.50 an hour in mid-2016, and two neighboring Maryland counties followed suit.

The Seattle City Council is voting today (June 2) on legislation to require a $15 an hour minimum wage from all employers by 2021, and other major cities including San Francisco, Chicago, San Diego, and Oakland are considering raising their minimums to $12-$15 an hour.

There are currently 3 million low-wage workers in New York State paid less than $15 an hour, including 1.25 million in New York City.

Immigrants and Local Economic Growth: Realizing New York’s Full Potential

May 22, 2014. How can lifting barriers to economic advancement to immigrants also provide a boost to the New York State economy?

In November, 2013, the Fiscal Policy Institute convened a multi-day retreat to discuss this question. Advocates, organizers, service providers, researchers, and people working in policy development joined FPI at the Blue Mountain Center in the Adirondacks for a series of highly engaging conversations. It was a rare and warmly welcomed instance of people coming together to discuss these questions from Long Island, New York City, Westchester, Poughkeepsie, Kingston, Tomkins County, Syracuse and Buffalo, truly across the very diverse regions of this richly varied state.

This FPI working paper is the initial product of that meeting.

We welcome your feedback, please send comments to ddkallick@fiscalpolicy.org.

 

The Fiscal Policy Institute retreat was made possible by the generous support of the J.M. Kaplan Fund, the Dyson Foundation, Unbound Philanthropy, an anonymous donor, and the Blue Mountain Center. We also express our appreciation of the general support for Fiscal Policy Institute’s Immigration Research Initiative that we receive from the Carnegie Corporation of New York, the Ford Foundation, and the Open Society Foundations.

NYS Can Help Low-income Working Families with Children by Increasing its Earned Income Tax Credit

May 20, 2014. It comes as no surprise to working families that New York State’s tax system is fundamentally unfair. Low- and middle-income workers pay, on average, a much higher share of their income in state and local taxes than the highest income earners. According to analysis by the Washington, D.C.-based Institute on Taxation and Economic Policy, the 40% of New York’s tax filers with the lowest incomes pay at least 10% of their income in state and local taxes and the 20% of households in the middle of the income distribution pay nearly 12%. The wealthiest 1%, on the other hand, pay less than seven percent of their income in state and local taxes.

Taxpayers don’t have to accept this fundamental unfairness. New York State enacted several tax cuts this year, but the beneficiaries were mostly high-income households, large corporations and banks. These tax cuts will make it hard for the state to adequately fund core priorities like local education aid or aid to struggling local governments, but New York should improve the fairness of its tax structure by expanding its Earned Income Tax Credit.

The Earned Income Tax Credit (EITC) primarily helps low-income working families with children by reducing their income tax liability. The EITC is often seen as an incentive for work since it helps offset the cost of payroll taxes paid by individuals and other costs such as child care so that parents can work. The amount of the credit increases with the number of children up to 3, and increases as earnings from work increase, reaching a maximum amount at earnings of $13,650 in 2014. EITC benefits phase out entirely at about $50,000 for a family with 2 or more children. The credit is refundable so that if the amount of the EITC exceeds income tax liability, the beneficiary gets a check for the difference.

New York State provides an EITC pegged to 30% of the federal credit, and New York City has an EITC at 5% of the federal credit.

By all accounts, the EITC has been wildly successful, increasing workforce participation and helping 6.5 million Americans escape poverty in 2012, including 3.3 million children. Research shows that the children of EITC recipients are healthier, do better in school, are more likely to attend college, and earn more as adults. And it is the rare public program that enjoys broad support across the political spectrum.

The maximum federal EITC amount in 2014 for a family with 3 children is $6,143. At 30 percent of the federal EITC, the maximum NYS EITC amount in 2014 will be $1,843. About 1.6 million New York State low- and moderate-income households receive the state EITC. These EITC families include over two million children. About 900,000 low- and moderate-income families with one million children receive the City EITC.

By increasing its EITC to 40% of the federal benefit, New York State would effectively increase EITC benefits by one-third for all recipients. The average NYS EITC would rise from about $690 to $920, an increase of $230. For a married household with three children the maximum benefit increase would be $614. An increase to 50% of the federal benefit would increase the EITC by two-thirds for all recipients. In that case, the average NYS EITC would rise to $1,150, representing an increase of $460 over the current state EITC credit with the maximum for a married three child household rising by $1,229.

Such an increase would provide a much-needed boost to the incomes of 1.6 million low- and moderate-income families. Not only would this lift the neighborhood economies of struggling communities around the state, it would also improve the well-being and life chances for two million children.

In addition, an EITC increase would make up for the fact that the state excluded these low- and moderate-income families from the Family Tax Relief Credit enacted in 2013 that provided a refundable $350 credit to families with incomes from $40,000 to $300,000 and at least one child under the age of 17 who owed state income taxes. This likely excluded all families receiving more than a minimal EITC benefit.

Increasing the EITC is the clearest, most direct way that New York can increase the progressivity of its state and local tax structure. This would be a welcome contrast to the various other tax changes enacted in 2013 and 2014.

Were NYS to increase its EITC to 40% of the federal credit in 2014, the estimated additional cost would be $370 million. An increase to 50% from the current 30% would increase the cost by an estimated $739 million.

In a new report, Improving Tax Fairness with a State Earned Income Tax Credit, the Institute on Taxation and Economic Policy (ITEP) makes a powerful case for states to raise their Earned Income Tax Credits.

De Blasio Pulls Off Deft Budget-Balancing Parlay

May 19, 2014. In this op-ed in The Chief, James Parrott discusses Mayor de Blasio’s Executive Budget and the impact of the UFT labor settlement.

Statement on New York City Budget Accounting Action

May 12, 2014. Today’s joint announcement by Mayor de Blasio and Comptroller Stringer clarifies a City budget accounting question regarding an obligation the City incurred in connection with the recent labor settlement with the United Federation of Teachers.  The payments in question pertain to UFT members retiring after June 30, 2014 and cover wage increases for the first two years (2009 and 2010) of the recently settled contract.

Officials of both the Mayor’s and the Comptroller’s offices have confirmed that the announcement is strictly an accounting issue, and that it has no effect on the UFT settlement, the costs of that settlement, or any individual UFT member.

Similarly, the change has no net budget or financial impact. The change is strictly an accounting one pertaining to the payments due post-6/30/14 retirees. The change simply advances recognition of that obligation into FY 2014 from FYs 2015, 16, 17 and 18.

The result will be to increase the FY 2014 labor reserve amount, and to offset it by a like reduction in the FY 2014 Budget Stabilization payment. The FY 2014 Budget Stabilization is the expenditure item wherein the City would pre-pay FY 2015 debt service or other obligations coming due in FY 2015 as a long-established budgeting mechanism to “roll” surplus monies from one year to the next.

My understanding is that the monies will remain in a “FY 2014 labor reserve” budget line until paid out. In the FY 2015 Executive Budget released last Thursday, those monies were incorporated into the labor reserve for the future fiscal year in which the retirements were projected to occur. Thus, the combined labor reserves for FY’s 2015-18 will be reduced by the amount by which the FY 2014 labor reserve is increased.

These changes will be incorporated in budget documents when the Adopted FY 2015 Budget, reached with the Council prior to the end of the current fiscal year, is published. In a conference call Monday afternoon, Budget Director Dean Fuleihan indicated that the exact dollar amount of the labor reserve change had not yet been finalized but that it was expected to be in the several hundred million dollar range.

While this is not a routine or inconsequential budget development, it is understandable given the fact that a historically unprecedented long-term labor agreement was finalized within a few days of the presentation of the Executive Budget. As the City’s chief financial officer and final arbiter on accounting matters, the Comptroller’s Office requested the change in the accounting treatment that was mutually agreed-to today.

James Parrott

Another View on Mayor de Blasio’s FY 2015 New York City Executive Budget

May 9, 2014. Understandably, much of the commentary on Mayor de Blasio’s FY 2015 Executive Budget has dealt with the financial impact of the recent UFT contract if applied across the entire 350,000-person unionized city workforce.  It is, afterall, by far the most significant labor deal in City history, potentially affecting the entire workforce for 7 years, and 150,000 of those workers for an additional two years going back to 2009 and 2010.

Some observers can’t quite grasp that Bill de Blasio pulled that off, restoring a constructive labor-management dialogue based on mutual respect, and doing that without destabilizing City finances.  They point to the $17.8 billion total price tag, concerned fingers wagging.  They voice their skepticism about under-specified health care savings and their own preference that city workers should pay out of pocket.

It is truly puzzling why such observers feel it’s somehow better to have workers pay part of their premiums rather than take on a powerful incentive to create substantial cost savings.  Dollars and cents don’t support the skeptics view. The unions are now obligated, over the next four years, to provide $1.3 billion annually in recurring health care cost savings.

While $17.8 billion viewed alone is a substantial sum, relative to the total $172 billion that will be spent on labor compensation in the 2015-2018, four-year financial plan, it is a fraction over 10 percent. That includes lump sum back pay for 3-5 years that his predecessor should have dealt with, and that don’t recur.  Plus, there’s the fact that a chunk ($3.5 billion) is already in the budget in the form of the labor reserve, and that labor is on the hook to identify $3.4 billion in health care costs savings and will provide $1 billion from a jointly-managed health stabilization fund.  The new money needed is less than six percent of the four-year labor compensation total.

Not to be lost sight of is the fact that a host of educational policy issues were resolved at the bargaining table between the UFT and the City that should positively affect city schools.

There is also a risk of losing sight of the many ways Mayor de Blasio’s budget represents a sharp and progressive departure from how the budget has been done for the past 20 years.  The mayor starts by acknowledging that not all New Yorkers are sharing in the city’s economic growth, and that “our economy will be strengthened by addressing income inequality.” Then he stakes out two big things the city must do: expand educational opportunities from pre-K to middle school to college; and dramatically expand affordable housing.  A big agenda for a big challenge.

Foremost on this list, of course, is the Mayor’s signature UPK and after school expansion initiatives where he succeeded in getting the state to kick in $500 million a year for services that will overwhelmingly benefit children from low-income families.  No small feat and one of the most significant budget commitments Albany has made to New York City in a long time. The mayor also is putting $20 million in FY 2015, rising to $50 million in coming years, into an expansion of STEM program to prepare more CUNY community college students for careers in the city’s tech sector.

On the housing front, not only has the Mayor launched a 10-year, $41 billion plan to build or preserve 200,000 affordable housing units, his budget is funding long-overdue repairs at Housing Authority units, and supporting several initiatives to prevent and reduce homelessness.

Moreover, the Mayor’s budget finally ends what has come to be known as the cynical and harmful annual “budget dance” that for years marginalized public libraries, child care services, and important community-based public health, senior and youth services.

Those who claim the Mayor’s budget is fiscally irresponsible need to take a closer look at recent tax collections and the City’s very conservative projections.  Compared to the FY 2014 tax forecast at the time the budget was adopted last June, tax collections are now expected to be $2.6 billion higher. Similarly, the latest tax forecast for FY 2015 calls for growth of only 1.2 percent.

In its March review of the City’s forecast from the preliminary budget, the Independent Budget Office projected upside revenue potential of $1.1-$2.4 billion a year over the next four years. Those projections could rise further considering that the City did not make significant upward adjustments in its own forecast for those years in the new budget.  That upside revenue potential alone will pretty much offset projected out-year budget gaps.  And that’s without having to turn to various non-labor reserves elsewhere in the budget.

New York City voters who gave him a mandate six months ago expected great things from Bill de Blasio, including leveraging the city budget to advance a progressive agenda. As things are turning after just over four months in office, he is mainly disappointing those who expected him to bust the budget. He not only faced up to one of the biggest challenges any new mayor has faced in inheriting wall-to-wall unsettled labor contracts, but he has managed that within a budget that also begins to take meaningful strides in addressing income inequality.

James Parrott

 

Understandably, much of the commentary on Mayor de Blasio’s FY 2015 Executive Budget has dealt with the financial impact of the recent UFT contract if applied across the entire 350,000-person unionized city workforce.  It is, afterall, by far the most significant labor deal in City history, potentially affecting the entire workforce for 7 years, and 150,000 of those workers for an additional two years going back to 2009 and 2010.

Some observers can’t quite grasp that Bill de Blasio pulled that off, restoring a constructive labor-management dialogue based on mutual respect, and doing that without destabilizing City finances.  They point to the $17.8 billion total price tag, concerned fingers wagging.  They voice their skepticism about under-specified health care savings and their own preference that city workers should pay out of pocket.

It is truly puzzling why such observers feel it’s somehow better to have workers pay part of their premiums rather than take on a powerful incentive to create substantial cost savings.  Dollars and cents don’t support the skeptics view. The unions are now obligated, over the next four years, to provide $1.3 billion annually in recurring health care cost savings.

While $17.8 billion viewed alone is a substantial sum, relative to the total $172 billion that will be spent on labor compensation in the 2015-2018, four-year financial plan, it is a fraction over 10 percent. That includes lump sum back pay for 3-5 years that his predecessor should have dealt with, and that don’t recur.  Plus, there’s the fact that a chunk ($3.5 billion) is already in the budget in the form of the labor reserve, and that labor is on the hook to identify $3.4 billion in health care costs savings and will provide $1 billion from a jointly-managed health stabilization fund.  The new money needed is less than six percent of the four-year labor compensation total.

Not to be lost sight of is the fact that a host of educational policy issues were resolved at the bargaining table between the UFT and the City that should positively affect city schools.

There is also a risk of losing sight of the many ways Mayor de Blasio’s budget represents a sharp and progressive departure from how the budget has been done for the past 20 years.  The mayor starts by acknowledging that not all New Yorkers are sharing in the city’s economic growth, and that “our economy will be strengthened by addressing income inequality.” Then he stakes out two big things the city must do: expand educational opportunities from pre-K to middle school to college; and dramatically expand affordable housing.  A big agenda for a big challenge.

Foremost on this list, of course, is the Mayor’s signature UPK and afterschool expansion initiatives where he succeeded in getting the state to kick in $500 million a year for services that will overwhelmingly benefit children from low-income families.  No small feat and one of the most significant budget commitments Albany has made to New York City in a long time. The mayor also is putting $20 million in FY 2015, rising to $50 million in coming years, into an expansion of STEM program to prepare more CUNY community college students for careers in the city’s tech sector.

On the housing front, not only has the Mayor launched a 10-year, $41 billion plan to build or preserve 200,000 affordable housing units, his budget is funding long-overdue repairs at Housing Authority units, and supporting several initiatives to prevent and reduce homelessness.

Moreover, the Mayor’s budget finally ends what has come to be known as the cynical and harmful annual “budget dance” that for years marginalized public libraries, child care services, and important community-based public health, senior and youth services.

Those who claim the Mayor’s budget is fiscally irresponsible need to take a closer look at recent tax collections and the City’s very conservative projections.  Compared to the FY 2014 tax forecast at the time the budget was adopted last June, tax collections are now expected to be $2.6 billion higher. Similarly, the latest tax forecast for FY 2015 calls for growth of only 1.2 percent.

In its March review of the City’s forecast from the preliminary budget, the Independent Budget Office projected upside revenue potential of $1.1-$2.4 billion a year over the next four years. Those projections could rise further considering that the City did not make significant upward adjustments in its own forecast for those years in the new budget.  That upside revenue potential alone will pretty much offset projected out-year budget gaps.  And that’s without having to turn to various non-labor reserves elsewhere in the budget.

New York City voters who gave him a mandate six months ago expected great things from Bill de Blasio, including leveraging the city budget to advance a progressive agenda. As things are turning after just over four months in office, he is mainly disappointing those who expected him to bust the budget. He not only faced up to one of the biggest challenges any new mayor has faced in inheriting wall-to-wall unsettled labor contracts, but he has managed that within a budget that also begins to take meaningful strides in addressing income inequality.

Understandably, much of the commentary on Mayor de Blasio’s FY 2015 Executive Budget has dealt with the financial impact of the recent UFT contract if applied across the entire 350,000-person unionized city workforce.  It is, afterall, by far the most significant labor deal in City history, potentially affecting the entire workforce for 7 years, and 150,000 of those workers for an additional two years going back to 2009 and 2010.

 

Some observers can’t quite grasp that Bill de Blasio pulled that off, restoring a constructive labor-management dialogue based on mutual respect, and doing that without destabilizing City finances.  They point to the $17.8 billion total price tag, concerned fingers wagging.  They voice their skepticism about under-specified health care savings and their own preference that city workers should pay out of pocket.

 

It is truly puzzling why such observers feel it’s somehow better to have workers pay part of their premiums rather than take on a powerful incentive to create substantial cost savings.  Dollars and cents don’t support the skeptics view. The unions are now obligated, over the next four years, to provide $1.3 billion annually in recurring health care cost savings.

 

While $17.8 billion viewed alone is a substantial sum, relative to the total $172 billion that will be spent on labor compensation in the 2015-2018, four-year financial plan, it is a fraction over 10 percent. That includes lump sum back pay for 3-5 years that his predecessor should have dealt with, and that don’t recur.  Plus, there’s the fact that a chunk ($3.5 billion) is already in the budget in the form of the labor reserve, and that labor is on the hook to identify $3.4 billion in health care costs savings and will provide $1 billion from a jointly-managed health stabilization fund.  The new money needed is less than six percent of the four-year labor compensation total.

 

Not to be lost sight of is the fact that a host of educational policy issues were resolved at the bargaining table between the UFT and the City that should positively affect city schools.

 

There is also a risk of losing sight of the many ways Mayor de Blasio’s budget represents a sharp and progressive departure from how the budget has been done for the past 20 years.  The mayor starts by acknowledging that not all New Yorkers are sharing in the city’s economic growth, and that “our economy will be strengthened by addressing income inequality.” Then he stakes out two big things the city must do: expand educational opportunities from pre-K to middle school to college; and dramatically expand affordable housing.  A big agenda for a big challenge.

 

Foremost on this list, of course, is the Mayor’s signature UPK and afterschool expansion initiatives where he succeeded in getting the state to kick in $500 million a year for services that will overwhelmingly benefit children from low-income families.  No small feat and one of the most significant budget commitments Albany has made to New York City in a long time. The mayor also is putting $20 million in FY 2015, rising to $50 million in coming years, into an expansion of STEM program to prepare more CUNY community college students for careers in the city’s tech sector.

 

On the housing front, not only has the Mayor launched a 10-year, $41 billion plan to build or preserve 200,000 affordable housing units, his budget is funding long-overdue repairs at Housing Authority units, and supporting several initiatives to prevent and reduce homelessness.

 

Moreover, the Mayor’s budget finally ends what has come to be known as the cynical and harmful annual “budget dance” that for years marginalized public libraries, child care services, and important community-based public health, senior and youth services.

 

Those who claim the Mayor’s budget is fiscally irresponsible need to take a closer look at recent tax collections and the City’s very conservative projections.  Compared to the FY 2014 tax forecast at the time the budget was adopted last June, tax collections are now expected to be $2.6 billion higher. Similarly, the latest tax forecast for FY 2015 calls for growth of only 1.2 percent.

 

In its March review of the City’s forecast from the preliminary budget, the Independent Budget Office projected upside revenue potential of $1.1-$2.4 billion a year over the next four years. Those projections could rise further considering that the City did not make significant upward adjustments in its own forecast for those years in the new budget.  That upside revenue potential alone will pretty much offset projected out-year budget gaps.  And that’s without having to turn to various non-labor reserves elsewhere in the budget.

New York City voters who gave him a mandate six months ago expected great things from Bill de Blasio, including leveraging the city budget to advance a progressive agenda. As things are turning after just over four months in office, he is mainly disappointing those who expected him to bust the budget. He not only faced up to one of the biggest challenges any new mayor has faced in inheriting wall-to-wall unsettled labor contracts, but he has managed that within a budget that also begins to take meaningful strides in addressing income inequality.

The Significance of the TWU and UFT Labor Contracts

May 7, 2014.

This commentary by FPI’s James Parrott on the new New York City labor contracts was requested by CUNY’s Joseph S. Murphy Institute and appears on their new blog.

For the first time in nearly five years, major labor agreements were recently reached covering public sector workers in New York City. On April 17, Transport Workers Union (TWU) Local 100 concluded a new 5-year contract dating from January 2012 covering 34,000 workers at the Metropolitan Transportation Authority (MTA), most of whom work for the subway and bus system in New York City. Two weeks later on May 1, the United Federation of Teachers (UFT) reached a 9-year agreement with the City of New York stretching back to November 2009 that affects over 100,000 public school teachers and support staff.

Both contracts represented a breakthrough in ending managements’ demands for a 3-year wage freeze that had grown out of a counter-productive post-Great Recession conservative infatuation with public sector austerity, or more precisely, a mindset that held that workers had to sacrifice to help clean up the economic mess caused by financial sector excesses.

Despite incessant pleas of budgetary poverty in recent years, both the MTA and the City acknowledged that the new contracts fit within multi-year financial plans. One difference, of course, is that Bill de Blasio became Mayor of New York City in 2014. For a discussion of his predecessor’s municipal labor bargaining approach and on the broader question of City’s financial situation, see the on-line debate I recently had with Chuck Brecher of the Citizens Budget Commission on the topic, “New York’s Unsettled Contracts: What can the City Afford?”

The MTA’s “3-zeroes” position dates from 2011 and followed the major state contracts settled that spring under Governor Andrew Cuomo.

Executive boards of both Local 100 and the UFT have approved the contracts; at this writing, both contracts are being voted on by the unions’ respective memberships.

The Local 100 5-year contract provides for one-percent wage increases in January 2012 and 2013, followed by three annual two-percent wage increases in what could become a pattern applied to other subway and bus workers at MTA, but not necessarily to workers at the commuter railroads, Long Island Railroad and Metro-North. The MTA agreed to pay the retroactive increases in 2014.

The UFT agreement extends two four-percent wage increases from the last City bargaining round dating from 2008-2010 to the teachers, provides for a $1,000 bonus on ratification in lieu of a wage increase for an 18-month period from late 2011 to May 2013, followed by six annual wage increases of 1-3 percent from May 2013 to May 2018 that total 10 percent. The contract stretches out the application of the two four-percent increases from the last pattern over four years (2015-18) in two-percent increments, and makes lump-sum payments for the retroactive increases covering 2009-2014 over the 2015-2020 period.

The City hopes that the $1,000 bonus and the six years of wage increases totaling 10 percent in the UFT contract becomes the current pattern in new contracts with all other municipal unions.

As part of the new agreements, Local 100 agreed to increase its members’ health care premiums from 1.5 to two percent, and the UFT agreed to identify over $1 billion in health care savings over four years. Since municipal employee health care is negotiated by the Municipal Labor Committee (MLC), the umbrella group representing most City unions, the MLC signed off May 2 on a commitment to seek $3.4 billion citywide in employee health care savings. If cumulative health care savings of $3.765 billion citywide are achieved by June 2018, city union members will receive an additional one percent bonus, according to the Wall Street Journal. The City’s annual budget for employee health care is about $5 billion.

Settling the UFT contract also meant that a host of educational policy issues were resolved and a new spirit of partnership has emerged between the City and the teachers that will positively affect the quality of public school education. To encourage teacher retention and enhance quality, teachers in “hard-to-staff” schools will receive supplemental pay, and teacher leadership positions will be established under which experienced teachers selected by the Chancellor would mentor other teachers and receive additional compensation of $7,500 to $20,000 per year.

The TWU Local 100 contract restored funding for an apprenticeship and training system, provides for two weeks of fully paid maternity or paternity leave upon the birth of a child, and enhanced some health and other fringe benefits.

While the wage increases are modest and close to the inflation rate, it is very positive that the logjam has been broken and that public sector bargaining that affects nearly 400,000 workers in New York City has been put back on track. The lack of wage increases for middle income workers is one of the reasons the economic recovery has been so lop-sided, with almost all of the income gains accruing to the very top of the income spectrum. It is also encouraging that 32BJSEIU recently reached a new 4-year contract in its residential division that provided for three percent annual wage and benefit improvements for 30,000 workers.

Some important long-unsettled contracts remain, namely those between the City’s Health and Hospital Corporation and New York State Nurses Association and 1199SEIU, between the City and School Principals, and between the MTA and unions representing Long Island Railroad workers.

One of the key lessons of recent years for public sector labor is clear—it needs to lend its muscle to lift up other workers as well. Public sector unions would then be less isolated when their pay and benefits come under fire, and the potential for antagonistic forces to drive a wedge between low-wage workers and municipal workers would diminish.A new mayor and progressive leadership in the City Council mean that New York City labor, public and private, has an opportunity to help forge and advance a broader agenda of raising wages and restoring hope for all workers, including those not currently represented by unions.

Testimony on Local Government Minimum Wage Authority

April 30, 2014. In testimony presented before the New York City Council, FPI’s James Parrott reviewed several reasons why it makes sense for New York State to authorize cities and counties to establish higher minimum wage levels than the statewide minimum. Parrott’s testimony cited data showing that there are wide disparities across counties within the state in terms of the local cost of living, and that there is a similar wide disparity in median wage levels, particularly between New York City and suburban counties on the one hand, and most upstate counties on the other. His testimony also pointed out the disparate living wage levels currently established by local governments that apply to companies and organizations providing services under local government contract.

Parrott pointed out the flurry of activity just since the first of the year around the country with six states raising their minimum wage levels, bringing to 26 states altogether that have raised minimum wages above the $7.25 minimum wage level. Even when New York State fully phases in a currently legislated minimum wage increase to $9.00 an hour by 2016, the purchasing power of the minimum wage will still be 25 percent lower than achieved in 1968 when the minimum wage was $1.60. State minimum wages are set to increase to a level of $10 or more in four states (CA, MD, HI and CT) , and as a result of the fact that they index their minimums to inflation, both Washington and Oregon likely will pass $10 an hour within a few years. The District of Columbia recently acted to raise its minimum wage to $11.50 an hour in mid-2016, and two neighboring Maryland counties followed suit. Major cities including San Francisco, Seattle, San Diego, and Oakland are considering raising their minimums to $12-$15 an hour.

Finally, a recent poll of small business owners found that 74% of small business owners in New York State support raising the minimum wage and indexing it to rise with the cost of living. The poll, conducted by the Small Business Majority, also found that two-thirds of small business owners believe local economies should be allowed to set and increase their own minimum wage “to supplement an increase in the state’s minimum wage in order to ensure it makes sense for local economies.”

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