A Risky Precedent

The best that can be said of New York City's just-negotiated tentative contract with its principal public-employee union, District Council 37, is that it will expire relatively soon, in June 2002. Meanwhile, the agreement sets a costly precedent at a time when the city's budget picture is dimming.

While details officially are sparse, it appears that the city has agreed to the following:

* A pay increase of 9.3 percent over the 27-month period - more than one-and-a-half times the inflation rate;

* An increase in city contributions to the union welfare fund, which effectively boosts the pay raise to 9.9 percent, and;

* Guaranteed job security for union members over the life of contract, which is retroactive to April 1, 2000.

Combined with a recent pension sweetener, many union members will take home a total of 12 percent more.

In exchange for all this, DC 37 grudgingly agreed - in principle, at least - to allow the city to give even bigger raises to some employees as an incentive to work harder and more efficiently.

Union officials were quick to downplay the contract's "merit-pay" component. They're correct; it's no big deal.

Here's why:

First, the devilish details of how and when merit pay will be awarded have yet to be fully negotiated. In behind-the-scenes talks, public employee unions invariably aim to twist targeted performance incentives into across-the-board entitlements.

Second, the across-the-board salary hike and other benefits in the DC 37 pact will leave very little cash to fund meaningful merit pay increases. Tiny, token merit increases will actually tend to devalue the concept of pay-for-performance in the minds of city employees.

Finally, merit pay by itself is only part of the answer to getting more bang for the taxpayer's buck. What's still lacking in most of New York City government is the prospect of competition between public- and private-sector service providers.

Competition is the real key to winning productivity improvements, as demonstrated by many cities across the country - including, on a very limited basis, New York itself.

The powerful effect of even suggesting that city services will be "competitized" was vividly illustrated early in Giuliani's tenure, when the mayor moved seriously in the direction of putting garbage collection services out to bid by both city workers and private firms.

The sanitation workers' union responded by agreeing to productivity improvements they had previously resisted.

The Giuliani administration has won smaller productivity gains by promoting competition in a limited number of other areas, such as the posting of traffic signs by the Transportation Department.

In general, however, such innovations have been few and far between - just enough to offer a tantalizing taste of what the city might yet accomplish with a systematic, broad-scale effort to promote competition by bidding city services.

With the stock market in turmoil and the economic outlook uncertain, the financial incentive for boosting productivity in city government is growing stronger with each passing month.

In January, Giuliani projected that the city faced a $2.4 billion budget gap for fiscal 2002-03, the first fiscal year of the next mayor's tenure - but that projection assumed a much smaller contract settlement than DC 37 has now won.

If the DC 37 pact sets a pattern followed by all the municipal unions, the cost over the life of the contracts has been estimated at $1.7 billion.

But that, sadly, is the best-case scenario. The teachers and police, in particular, insist they are entitled to massively larger wage settlements than other unionized workers.

Productivity will hardly be enhanced by the no-layoff pledge in the DC 37 contract - a concession that is especially troubling given the still-enormous size of the city workforce.

During his 1993 campaign, Giuliani suggested cutting 35,000 positions from the city payroll. This was not a radical idea; for example, an advisory panel appointed by then-Mayor David Dinkins suggested that 25,000 positions could be eliminated.

Once in office, however, Giuliani changed the composition rather than the size of the workforce. He added about 4,000 cops and more than 14,000 "pedagogical" employees, subtracting a like amount from other categories.

He also found ways to shift a net 9,000 additional city employees into programs funded entirely by state or federal grants - which can always be withdrawn, leaving the city to pick up the tab.

The bottom line: As of November 2000, the city's total full-time headcount stood at 253,348 - 1,012 more employees than were on the payroll when Dinkins left office. Indeed, the city's workforce is as large as it's ever been.

For better or worse - and it's always possible that a silver lining lurks in the small print - the outlines of the DC 37 deal represent the Giuliani administration's last, best effort to wring more productivity out of the city's workforce.

All of which means the next mayor really has his work cut out for him.