New York City Mayor Bill de Blasio took office amid an economic expansion and immediately increased spending—granting retroactive raises to thousands of workers and adding new programs in a significant expansion of his budget. Now New York faces an uncertain post-Covid world that will likely challenge the next mayor, whom voters will elect in November.
Even with billions of dollars of federal stimulus coming to the city, de Blasio’s successor will have to grapple with significant budget limitations that require paring back city spending.
The good news is that Blasio’s spending spree during his eight years in office has left room for savings, as outlined in a new Manhattan Institute report.
A rapid expansion of city government’s workforce has driven spending. De Blasio increased full-time workers by 30,000 to an unprecedented 300,000 employees. At an eye-popping average compensation, including benefits, of $151,000 per worker, that hiring spree was expensive. Many new city employees were brought on, moreover, for programs of questionable effectiveness, including the mayor’s highly criticized mental health initiative. The next mayor will have to find ways to trim this workforce through attrition and strategic cuts to ineffective programs.
The city must also restrain the growth of compensation. New York City, for instance, provides health benefits for employees and for retirees, with virtually no worker contributions. The bill for retiree health care alone now reaches $2.25 billion. Having workers contribute just 10 percent toward health care would save about half a billion dollars annually. Requiring retirees to pay half of their Medicare B premiums would save another $150 million annually.
The next mayor must make it a priority that city agencies function efficiently. For 35 years, city government ran an effort called the Program to Eliminate the Gap, or PEG, which challenged city departments to find savings annually. Though the savings could sometimes be small, such as reducing spending on marginal items like food, the sustained momentum of PEG helped accumulate substantial sums—as much as $24 billion during 2010–13, according to one study. De Blasio eliminated PEG when he took office and only recently reinstituted it, though many of the savings since have come from maneuvers like refinancing debt, rather than making government more efficient. The next mayor must commit to make PEG a priority again.
A new mayor will have many other options to save, including paring back pensions by offering new workers portable, defined contribution plans as an alternative to New York’s expensive defined benefits pension. New York State already offers such plans to state university workers, and they have proven popular.
The next mayor might also explore expanding privatization initiatives modeled after the program created by the deeply indebted New York City Housing Authority, which will raise funds by converting some of its units to private management. Among the possibilities a new mayor could explore is converting some city-owned hospitals to private ownership.
The next mayor should have a mandate for change. More than half of city residents said that government services were not worth what they paid in taxes, according to a recent Manhattan Institute survey. Some four in 10 want to relocate. Unless New York can improve services and reduce the burden it imposes on resident and businesses, officials may find themselves grappling with a debilitating post-Covid exodus.
This piece originally appeared at Crain's New York Business (paywall)
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