Governor-Elected Cuomo Compares NYS Fringe Benefits to GM's Before Bankruptcy
Governor-elect Cuomo compared the fringe benefits paid to NYS employees to those paid by GM before its bankruptcy according to the Journal News. The Governor-elected pointed out that if fringe benefits are not reduced -- next year they will represent a 59% uplift to salary - New York State is going to have to reduce its labor force drastically -- at the State, County, Town, Village and School District levels. Fringe benefits which only equalled 39% of hourly compensation when GM filed for bankruptcy were a major reason that GM's US employment declined from 618,395 workers in 1979 to 68,500 today. During that period of employment collapse, the UAW refused to make concessions and bring the unit labor cost of the American auto industry in line with that of foreign competitors, both in terms of imports and transplant production. In 1986, I had negotiated a deal to save 5,000 hourly jobs in a GM trim factory in Elyria, Ohio, if the employees of the plant would accept a competitve hourly rate of $17.95 per hour -- the asembly plant rate was in the lower thirties at the time. The UAW gave the deal the Bronx cheer and the plant was shutdown. GM started buying its trim from non-union and overseas suppliers.
I watched this tragedy unfold. Union officials focused on short-term gains and protecting retirees to the detriment of the long-term job security of their constituents. At the time, I was a labor costing professional at GM.
Because labor economics is viewed as a branch of Marxism, it is underfunded in the American university system. Accordinlgy, these well-meaning union officials have no body of intellectual thought to guide their deliberations. They had no guidelines to draw upon when they thought about their long-term strategies and responsibilities. There is no Atlas Shrugged of the labor movement.
My hunch is that If there had been a body of popular labor theory, it would have shown that long-term competitiveness of every industry revolves around securing the lowest unit labor cost, which is the heart of Marxist theory. When the US had the lowest unit labor cost thanks to Henry Ford and his assembly line innovation, it dominated the world auto industry.
After WWII as US unit labor costs increased and the defeated Axis economies recovered , by the 1960's foreign companies now had the unit labor cost advantage and could take market share using price. My father bought a Toyota because it was cheap. My mother bought a VW. My father-in-law, a certified blacklisted Marxist, loves to tell the story that when he drove by the Tarrytown plant in the 1980's and saw the parking lot filled with Toyotas, he knew that the American worker was doomed. "Americans can't resist a bargain even if it costs them a job".
And the car executives bear a big part of the guilt for the tragic decline of the US auto industry. It was much easier to give workers fringe benefits than hourly rate increases. Especially fringe benefits that were going to kick in after these executives had retired. Coupled with flimsy accounting rules and actuarial assumptions, these executives were always ready to mortgage the future to save the current quarterly results and their incentive bonuses.
The same collapse in employment is starting to occur across the US in the public sector. Public employees are pricing themselves out of their own jobs and the unions are standing by passively and watching this train wreck, just like they did at GM when they protect hourly rate and fringes and retiree benefit levels at any cost. It is easier for the unions to complain about the tone of a Governor's comments -- "oh he hurt our feelings, we are loyal employees" -- than take the hard decisions on wage and benefit concessions to save jobs.
Look at the employment data released recently by the US Department of Labor. Local governments eliminated 76,000 jobs in August, most of them teachers. Local governments are "100,000 Herbert Hoovers" because they have to balance their budgets.
But the unions are refusing to refocus on wage and benefits concessions to protect the livelihoods of their members. When public servants are paid more than the median household in the community they serve, then the tax base can no longer support them. Repeat. When public servants are paid more than the median household in the community that they serve, the tax base can no longer support them.
Since localities can't print money like the Federal Government, the only remedies that governors, mayors and school boards have is to raise taxes or cut costs; they cut jobs. Local governments rarely borrow money to fund operating shortfalls -- partly due to legal restrictions and partly due to political considerations. Since local taxpayers have seen their income and assets decline during the Great Recession, politicians are cutting jobs rather than raising local taxes. The Village of Dobbs Ferry cut 4 jobs in the last budget cycle or about 5% of the municipal workforce. Last year, the Dobbs Ferry School District was able to avoid job cuts -- one 1/2 time teacher was cut in the elementary school -- by changing to a cheaper health care plan -- but the neighboring districts cut more than 100 jobs.
But Dobb Ferry's one-time fix will not solve the massive increase in pension costs being levied on the School District this coming budget cycle. Pension costs are up because the New York State pension fund was decimated by the financial crisis. Either the School District will have to draw down its reserves, raise taxes by close to double digits or cut teachers. My bet is 1/2 reserves and 1/2 cutting teachers.
The problem with taking on the teachers union is that teachers are sacred cows -- and rightfully so. I went to back-to-school night last month and can tell you the teachers at the Dobbs Ferry High School are wonderful people who really care about kids and have the highest level of professionalism. But, the teachers need to use their heads -- they are all well educated -- and refocus their union of preserving jobs, not increasing compensation.
The solution to this problem has to focus on pension costs. The solution to the pension issue is to cap the 'defined benefit' at 50% of median household income. For Dobbs Ferry, that would be about $40,000 per year which in addition to social security should be enough money to live comfortably in retirement. Above 50% of median household income -- which could be adjusted to rise with inflation after retirement (we have to protect people from the coming hyperinflation) -- teachers would get a contribution to a 401K based on % of salary (says 5%). The same pension cap should apply to all public servants -- uniformed officers, civil servants and administrators.
Does Andrew Cuomo have the guts to propose a Tier VI New York State Retirement Plan? A Tier VI plan based on capping defined benefits at 50% of median household income and providing defined contribution benefits above that cap? Or will he hide behind a property tax cap and force local governments to solve the problem by laying off people. Andrew, you are no coward. Fight the good fight. Who wants to be a two-term Governor anyway? Then there is the issue of Sheldon Silver, the most powerful and dangerous man in New York State, but that is for another day.
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