Fiscal Policy Notes - The FPI Blog

NYC Median Family Income Up for First Time since Great Recession

October 15, 2014. After five years of decline, median family income in New York City rose by 3.5 percent between 2012 and 2013 in inflation-adjusted terms, according to recently-published Census data.[1] This compares with increases of 0.9 percent at the national level and 1.6 percent for all of New York State, including the city.

While the city’s increase far surpassed the nation’s and state’s, median family income in the city was still 5.2 percent lower in 2013 than it had been in 2008 at the start of the Great Recession. The corresponding national and state declines for the 2008 to 2013 span were 6.6 and 4.0 percent, respectively.

What explains this fairly solid one-year increase in family income? Did the finances of the typical New York City family, while not yet having made up the ground lost since 2008, get a healthy boost? An examination of other new Census data provides a mixed picture. Yes, there was improvement in some labor market outcomes, indicating that some of the city’s families did indeed see their incomes rise. The new data, however, suggest that an out-migration of low- and middle-income families and an in-migration of higher-income families also partially accounts for the increase in city median family income.

First, the good news—several indicators show that 2013 saw some improvements in the city’s labor market. For New York City residents, the employment rate—the number of people employed relative to the population aged 16 and up—increased by nearly half a percentage point from 2012, rising from 56.8 to 57.2 percent. The state’s employment rate also rose by the same amount, whereas the national rate dipped by 0.4 percentage points. The city’s increase continues a steady climb back from the 55.8 percent low seen in 2010. Having a larger share of the city’s working-age population employed obviously benefits family incomes.

Further, median wage and salary earnings, adjusted for inflation, increased by 1.5 percent, rising from $34,526 to $35,057. Over the same period, median earnings increased at a much lower rate (0.6 percent) at the national level and fell by 2.4 percent statewide.

Next, the share of city residents holding private wage and salary jobs versus being self-employed also rose in 2013. Private wage and salary jobs in New York City, on average, have earnings 60 percent greater than self-employed earnings. As a share of the total job pool, those holding private wage and salary jobs increased by nearly one percentage point (rising from 79.8 to 80.7 percent), while the share who are self-employed dropped by nearly half a percentage point (from 6.6 to 6.2 percent). Again, this is a positive shift from the standpoint of family incomes. (The share holding government wage and salary jobs also declined in 2013.) In contrast to the city, the national and state data show roughly half-percentage point gains in the share of jobs held by private wage and salary earners, and very small 0.1 percentage point declines in the self-employment share.

Looking at the employment of city residents by occupation and industry, two other statistics also suggest why the incomes of the city’s families may have increased. Among the five broad occupational groupings, the largest increase between 2012 and 2013 was in Management, Business, Science, and Arts. This category comprises relatively high-paying jobs, and the share of resident workers employed in these fields increased by nearly one percentage point (0.9 of a percentage point). This occupational grouping also ranked first with respect to growth nationally and statewide, but the respective share increases (0.2 and 0.7 of a percentage point) were smaller.

In terms of changing shares of jobs by industry, of the 13 broad industry groups, the largest share increase in the city (half of a percentage point) was for Professional, Scientific, and Management, and Administrative and Waste Management Services (reported as one broad industry grouping). Generally, this category is associated with relatively high-paying jobs. The share of jobs falling under this umbrella also registered the largest increase at the state level (0.5 of a percentage point) and nationwide (0.2 of a percentage point).

While these developments—increased employment rate, increased share of jobs held by private sector wage and salary earners, and increase in the share of jobs in relatively high-wage occupations and industries—offer clues as to why the city’s median family income rose in 2013, the new Census data also suggest that the increase in median family income may reflect both the in-migration of higher-income families and the out-migration of lower-income ones.

As shown in the table below, the number of families in the top Census Bureau income bracket—$200,000 and up—increased by 19,000, nearly 14 percent, approximately double the rate of increase at the national level and more than one-and-a-half times the rate of increase statewide. There was an overall 10,000 net increase in the number of New York City families from 2012 to 2013.

All of the top four New York City income brackets saw gains in the number of families. An influx of high earners accounts for some of the increase in the median family income and is consistent with the growth in higher-wage jobs and educational attainment. The share of city residents with at least a bachelor’s degree increased by 1.1 percentage points, far outstripping the national 0.7 percentage point increase and the 0.5 percentage point statewide increase.

At the other end of the income spectrum, the number of families in the city’s three lowest income brackets shrank. While some families likely moved up the income ladder over the past year, the much larger magnitude of the net increase among the top three income brackets compared to the net decline among the bottom three brackets (a gain of over 27,000 vs. a decline of nearly 18,000), suggests a net influx of families with high incomes. The net decline in the number of lower-income families may reflect some out-migration. Some of the job growth in high-paying occupations and industries benefitted new in-migrants, particularly given that the disproportionate increase in just one year in the share of city residents who are highly educated is most likely associated with in-migration.

In conclusion, the reversal of the five-year recession-related decline in the city’s median family income offers some encouragement. Between 2008 and 2012, New York City’s median family income fell by $5,100, an 8.4 percent drop. In 2013, the median gained by nearly $2,000, a 3.5 percent rebound. The new Census figures show some clear positive signs of an improving job market. However, in looking at the broader picture painted by the Census data, it appears that a significant part of the income rebound reflected a demographic shift with respect to income levels of the city’s families.

Taking into account the much more rapid growth in high incomes in New York City than in the nation, and the greater proportionate decline in the share of families with lower incomes, this shift means that roughly 10,000 families moved from below the median in the $56,000-to-$58,000 range to above the median. Given that there are roughly 10,000 families in each $1,000 increment of the city’s income distribution in the range from $50,000 to $60,000, this change alone would have lifted the median point from $56,000 to $57,000, an increase of 1.8 percent. Thus, we conclude that about half of the city’s 2013 3.5 percent median family income growth is due to the in-migration of higher-income families and the out-migration of lower-income families.

 

By Michele Mattingly, Research Associate, and James Parrott, Deputy Director and Chief Economist

 

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[1] FPI analysis of Census American Community Survey data. Census estimates adjusted for inflation by FPI using U.S. City Average All Urban Consumers Consumer Price Index.

FPI proposes a tax on the most expensive NYC pied-à-terre residential units

September 22, 2014. By James Parrott, FPI Deputy Director and Chief Economist.

Introduction

In the context of the continued global concentration of income and wealth, a growing number of ultra-luxury residences in New York City are being bought by people who are not full-time city residents. For many such owners, a Manhattan pied-à-terre is one among several residences they own around the world for occasional use. Some owners see it as an investment, or simply as a place to park a portion of their substantial wealth. The City’s Independent Budget Office notes that in some of the newer luxury residential developments being built in Manhattan, the share of owners who are not primary residents “could approach 50 percent.”[1]

Such non-primary owners are unlikely to be paying New York City personal income tax, and because of the arcane nature of the City’s property tax, or because such units benefit from tax breaks mainly intended to benefit more affordable housing for low- and middle-income residents, chances are they pay a very low effective property tax relative to the real market value of the property. Yet, the high value of their property depends on local tax dollars supporting the infrastructure and public services that contribute to the city’s quality of life and attractiveness.

Background

According to NYC Department of Finance, there are nearly 89,000 coops and condos in NYC owned by persons for whom the unit is not their primary residence. State legislation enacted in 2013 phased out these units from eligibility for the coop & condo tax abatement. The total annual tax savings to the City from this exclusion will eventually be $120 million.

Based on citywide ratios, the estimated “market value” for these nearly 89,000 units is about $20 billion. This is the Department of Finance “market value” estimate based on the assessment method currently mandated by state law that bases the value of coops and condos on the income of comparable rental buildings.

The City’s Independent Budget Office estimates that, based on citywide averages for FY 2012, the DOF “market value” reflects about one-quarter of a sales-based market valuation method. Thus, an IBO-adjusted sales-based market value would be a very conservatively-estimated $80 billion for these 89,000 non-primary resident coops & condos. The true aggregate market-value of such units could be much greater. Owners of pieds-à-terre very likely own units more expensive than the average NYC coop or condo, plus there have been several buildings go up in recent years catering to the ultra-expensive end of the market, with many news stories about units selling in excess of $50 million each.[2]

Proposal to tax high-end pieds-à-terre

  1. Rationale: Non-primary residents do not pay NYC personal income tax and their units are being phased out of eligibility for the coop & condo tax abatement per the renewal legislation enacted in early 2013. These owners bid up the price of NYC residential real estate, and since they don’t spend much time in these units, contribute little to the local economy compared to full-time residents. There are many flaws to the city’s current property tax system, so many of these properties are paying very little in regular property tax to begin with, and some of the most expensive recent developments with ultra-luxury coops have received special tax breaks courtesy of Albany, despite the action with regard to the coop & condo tax abatement.
  2. Apply a graduated 4% tax based on comparable sales-based market value over $5 million. (The following estimates are based on coops and condos only, although the proposal should also extend to single-family homes as well. The Fiscal Policy Institute estimated the number of non-primary resident coop & condo units valued in excess of $5 million—1,556—and estimated the distribution of the value of units above $5 million.)
  3. With the tax starting at 0.5% for the first $1 million in value over $5M, and rising such that the 4% rate applies for the value over $25 million, an estimated $665 million could be generated from the 1,556 coops and condos that have a sales-based market value in excess of $5 million and that are owned by non-primary residents.
  4. Thus, this proposal would affect only 1.75% of all non-primary resident owned coops & condos (1,556 out of 88,851), but these units valued at >$5 million account for a third of the total market value of all non-primary resident coops and condos ($26.1 billion out of $79.9 billion).
  5. The proposed tax is really geared to reach the most expensive pieds-à-terre, those valued at $25M+. There are an estimated 445 such units and they would pay 83% of the proposed tax, i.e., $551 million of the $665 million total. That means an average tax of about $1.2 million for these 445 units. The graduated rate structure means that even these top-selling units would pay an effective tax of only 3.44%. Units $10M-$25M would pay an effective tax of only 2%. Units valued from $5 million to $10 million would pay an effective rate of less than 1%.
  6. The 4% tax could generate more if there are a significant number of non-primary resident owned single family homes.

*    *    *

This proposal was featured in an article by Dana Rubinstein in the Capital New York online news organ on September 22, 2014, “Could de Blasio do a pied-à-terre tax?”

 


[1] New York City Independent Budget Office, Budget Options for New York City, December 2013, p. 53.

[2] See, e.g., Andrew Rice, “Stash Pad,” New York Magazine, June 29, 2014.

Hundreds of thousands of low-income families would benefit from a New York minimum wage increase

July 17, 2014. David Neumark’s piece in the July 6 Wall Street Journal (“Who Really Gets the Minimum Wage?”) argues that because some low-wage earners are in high-income families, increasing the minimum wage isn’t a very effective way to reduce poverty. In particular, he cites research to the effect that “if we were to raise the minimum wage to $10.10 nationally, 18% of the benefits of the higher wages (holding employment fixed) would go to poor families [but] 29% would go to families with incomes three times the poverty level or higher.”

But what is more relevant, more than half (52%) of those who would get a raise if $10.10 became the new minimum are in families whose incomes are below twice the federal poverty level (FPL)—i.e., those who are poor or near-poor. And in the New York State or City context, that would affect a huge number of low-income families.

In New York State, the numbers are similar: 52% of those earning less than $10.10 per hour are in families below twice the FPL (with 23% in families below the FPL.) Even among all those earning less than $14 an hour, 43% are in families whose income is below twice the FPL (Figure 1). Of the 1.3 million wage-earning New Yorkers in poor or near-poor families, 735,000 (57%) would get a raise if the minimum were increased to $10.10.

The federal poverty standard was originally established in the 1960s when food was a much larger share of family expenses. It has only been adjusted for over-all consumer prices since, and because it is not adjusted for regional cost of living differences, it is a terribly inadequate indicator of whether a family is “poor.” While the FPL in 2010 for a 4-person family with two children was $22,000, such a family would have needed to earn $55,400 in Erie County, NY; $49,900 in Tompkins County; or $79,900 in Nassau County, in order to meet basic family budget needs to pay for housing, food, child care, clothing, transportation and other necessities. Even families at twice the FPL must count every penny.

In New York City, there is an even closer relationship between low wages and family poverty. In the city, 29% of those earning less than $10.10 an hour are in families below the FPL, and 66% of their families have income below twice the poverty level. Among all those earning less than $14 an hour in the city, 55% are in families with incomes below twice the FPL (Figure 2). Of the 694,000 wage-earners in poor or near-poor families, 435,000 (63%) would get a raise with a $10.10 minimum.

Neumark argues that increasing the Earned-income Tax Credit (EITC) would be a better way to aid working people. The EITC is indeed a program that should be enhanced, at the federal, New York State, and New York City levels. But the EITC cannot handle the job alone (remember that the tax benefit shows up only once a year, while low wages show up every week); increasing low-wage workers’ net income through a combination of a higher minimum and a richer tax rebate via the EITC would be the best approach.

Given that the purchasing power of the minimum has fallen so far, raising it will help raise many families of low-wage workers out of poverty. To suggest that it will not help the poor enough is the height of disingenuousness.

We should also remember that since the original minimum wage was part of the Fair Labor Standards Act, it was always intended to be a floor under wages, a way to limit the race to the bottom that happens whenever the labor market is weak. If the floor sinks in real terms—as it has been for decades—financial security for all wage-earners is in jeopardy.

Brent Kramer, FPI Senior Economist

 

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Family poverty status Total
Under federal poverty level Under 2 x FPL Under 3 x FPL 3 x FPL or more
Hourly wage Under $10.10 23% 52% 70% 30% 100%
Under $12 19% 49% 69% 31% 100%
Under $14 16% 43% 66% 34% 100%
All 5% 17% 33% 67% 100%

Parrott Presentation: Confronting New York City’s Retirement Crisis

June 17, 2014. The New York City Central Labor Council and the Schwartz Center for Economic Policy Analysis at The New School sponsored a June 17 conference, Confronting New York City’s Retirement Crisis. FPI’s James Parrott made one of the opening presentations at the conference. Other speakers included State Comptroller Thomas DiNapoli, New York City Comptroller Scott Stringer, and New York City Public Advocate Letitia James, as well as leading labor union officials, union pension experts, and academic and finance sector experts. National retirement security expert Teresa Ghilarducci of the New School co-convened the conference together with Vinny Alvarez, President of the New York City Central Labor Council. Ghilarducci also moderated the two panel discussions. In his remarks, Parrott discussed the economic implications of the aging of New York City’s population and workforce, and he reviewed racial and economic disparities in retirement income sources for New York City’s elderly population.

Over one-third of New York City employees are paid less than $14 an hour; workers of color are twice as likely to be low-wage

June 17, 2014. The Fiscal Policy Institute (FPI) released a new data brief today showing the sector of employment and race/ethnicity for New York City workers paid less than $14 an hour. On an annual basis, $14 an hour would put a family $1,900 below the $31,039 poverty threshold for a New York City family.

Altogether, 1.2 million New York City workers are paid less than $14 an hour, 36 percent of all public and private wage and salary workers. This includes part-time as well as full-time workers.

The FPI analysis showed that the largest employers of low-wage workers are the Leisure & Hospitality and Retail Trade sectors. Sectors with the greatest reliance on low-wage workers relative to their total employment are, in order, Home Health Care, Leisure & Hospitality, Retail Trade, and Social Services.

According to James Parrott, FPI’s Deputy Director and Chief Economist: “Nearly four out of five low-wage New York City workers are persons of color, and workers of color are twice as likely as a white, non-Hispanic worker to be low-wage—48% of black workers and 55% of Latino workers are paid less than $14 an hour, while 23% of white workers are paid less than $14 an hour.”

The report noted the difference that union representation makes to the works employed in otherwise low-wage sectors like Retail Trade and Leisure and Hospitality. Stuart Appelbaum, President of the Retail, Wholesale and Department Store Union stated: “The disturbing numbers in FPI’s report show what happens when workers are not able to act collectively to improve their lives. We need policies in place that increase unionization and give voice to these hardworking people in New York City. When workers have the support of a union they are able to live better lives and survive economically in this city.”

Parrott observed that in addition to unionization, low-wage New Yorkers would benefit if New York City is permitted to establish a minimum wage higher than the statewide minimum. Legislation pending in Albany would grant New York City the authority to set its own minimum wage.

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.

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If you have any questions, please contact Bryan LaVigne at 518-786-3156 or blavigne@fiscalpolicy.org

New report confirms New York’s profound income polarization

February 19, 2014. A new report from the Economic Analysis and Research Network (EARN) that presents data on income distribution trends for all 50 states from 1917-2011, confirms an analysis of income trends in New York that the Fiscal Policy Institute initially published in 2010. The report, by economists Estelle Sommeiller and Mark Price, builds on a groundbreaking study by economists Thomas Piketty and Emmanual Saez in 2003 that used data from income tax returns to document rising inequality in the United States since World War I.

FPI’s latest estimates of the share of income received by the top 1% in New York were published recently in its briefing book (p. 77) on the Governor’s proposed 2014-2015 state budget. Using data from the proposed budget and the latest published tax data, FPI estimates that the top 1% share rose to 30.4% in New York State and 38.7% in New York City in 2012, compared to Saez’s latest estimate of 22.5% for the top 1% share nationally.

FPI’s estimates for New York’s income distribution date to 1980, the first year that detailed tax data are available from the New York State Department of Tax and Finance. The new Sommeiller and Price report draws on Internal Revenue Service tax data back to 1917. The IRS data are often less detailed in reporting on high incomes than New York tax data. Still, the Sommeiller-Price report is invaluable in providing comparable annual estimates for all states over a nearly century-long period, and presents that data in an easily accessible format where readers can view summary income trends for individual states.

Highlights for New York include:

  • The top 1% income share rose to 32.6% in 2007, exceeding the previous peak of 29.4% reached in 1928, right before the stock market collapse triggering the Great Depression. While the one percent’s income share declined temporarily when capital gains plummeted from the 2008 financial collapse, it has risen again since 2009.
  • According to the Sommeiller-Price data, the incomes of New York’s top 1% increased by 11 percent (inflation-adjusted) from 2009 to 2011, while the total incomes of the bottom  99% shrank by 1 percent. Thus, all of New York’s income growth in the recovery’s first two years went to the very top.
  • Over the nearly 30-year span from 1979-2007, New York’s richest 1% garnered over two-thirds of all income gains; inflation-adjusted incomes grew by 355 percent over that span for the top 1%, compared to a 22 percent increase for the bottom 99%.
  • In 2011, the average income of New York’s 1% was $1.7 million, over 40 times the $43,202 average income for the bottom 99%. The top-to-bottom ratio for the U.S. was 24 percent. Connecticut’s top-to-bottom ratio (40.6) was slightly ahead of New York’s (40.5). New Jersey’s top-to-bottom ratio (23.9) ranked it 10th greatest among states.
  • The average income of New York’s very richest 1% of the top 1% was a shade under $50 million in 2011 ($49,737,418). The 1% of the 1% accounted for 8.3% of total New York income, more than one-fourth of the overall top 1% share.

The lop-sided growth in incomes seen in New York State since 1979 is true to some extent for all states, according to the new report, although it has been particularly pronounced in New York. The percentage point increase in the top 1% income share from 1979-2007 was 21.1 in New York, nearly twice the 11.8 percentage point increase in the top 1% share nationally.

FPI’s state budget briefing provides an overview of economic conditions in the Empire State, including income polarization, continued high unemployment, severe economic hardships, rising poverty and economic insecurity. FPI suggests several budget, tax and economic policy ideas that New York’s leaders should consider to address this heightened economic insecurity and the growing income polarization that has spawned that insecurity. See An Economic Policy Agenda to Address Income Inequality, pp. 83-89 in the budget briefing book.