Archive for February, 2010

Fiscal Policy Institute Update – February 2010

NEW YORK STATE BUDGET

In early February, in both Albany and New York City, the Fiscal Policy Institute (FPI) presented a detailed briefing on New York State’s Economic and Fiscal Outlook for 2010-11.

In cooperation with New Yorkers for Fiscal Fairness, FPI will be presenting budget briefings in Rochester on March 1, Elmira on March 2, and Poughkeepsie on March 3. For details on these and other upcoming presentations, check the FPI events page.

FPI also worked with New Yorkers for Fiscal Fairness and the other members of the Better Choice Budget Campaign to develop a menu of revenue-raising and cost-cutting options for the Governor and the Legislature to consider as they work to adopt a balanced budget for 2010-2011.

The Fiscal Policy Institute’s Deputy Director and Chief Economist James Parrott and FPI Senior Fiscal Policy Analyst Carolyn Boldiston both testified at the joint legislative hearings on the Governor’s 2010-2011 Executive Budget proposal. James testified at the Economic Development budget hearing and Carolyn presented testimony at the Human Services budget hearing.

NEW YORK CITY BUDGET

With support from New York Community Trust, FPI is now monitoring and analyzing the New York City budget. On February 9, as part of this effort, FPI presented a briefing on the mayor’s preliminary budget for FY 2011. The briefing examined the Mayor’s proposed budget cuts for this year and next year, his contingency cuts related to reductions in the Governor’s proposed state budget, and options for a more balanced approach to dealing with City budget pressures.

THE GREAT RECESSION IN NEW YORK

In November, FPI released A Tale of Two Recessions: While Wall Street recovers, New York City’s Main Street economy remains mired in the Great Recession and followed up in December with a report that analyzed unemployment by neighborhood, race, and ethnicity in New York City. That report’s estimates were used by both the Wall Street Journal and the New York Times as the basis for interactive maps that are posted on their websites.

FPI Research Associate Michele Mattingly will discuss the urgent need for job creation at two town hall meetings convened by Representative Carolyn Maloney in New York City on March 6 and 7. For details, check the FPI events page.

IMMIGRATION AND THE ECONOMY

FPI analyzed the contribution of immigrants to the economies of the nation’s 25 largest metropolitan areas in Immigrants and the Economy, released this past November. This was the second major report by FPI’s Immigration Research Initiative, directed by senior fellow David Dyssegaard Kallick. Funding was provided by the Carnegie Corporation of New York and 32BJ SEIU. The report was prominently cited in a New York Daily News editorial, The Boon of Immigration, and garnered attention in news outlets across the country. News coverage can be found on FPI’s immigration web page.

STIMULUS FUNDS: GOOD FOR STATES, LOCAL GOVERNMENTS AND FAMILIES

Several components of the American Recovery and Reinvestment Act (ARRA) have been critical in addressing state budget gaps and in providing assistance to the unemployed and other vulnerable populations. FPI has sought to quantify ARRA benefits for New York State and New York City and for individual New Yorkers in its State of Working New York 2009 report, in a column in the Gotham Gazette, and its recent state and city budget briefing books. Together with the Center on Budget and Policy Priorities, FPI released data in December showing that the ARRA helped keep more than 400,000 New Yorkers out of poverty in 2009.

HUMAN SERVICES

In testimony presented to the joint legislative hearing on the Human Services proposals in the Governor’s 2010-2011 Executive Budget proposal, FPI senior fiscal policy analyst Carolyn Boldiston examined Temporary Assistance to Needed Families (TANF) funding and spending in New York as well as issues relating to child care subsidies. Last summer, Carolyn was the lead author on a series of briefs that looked into the rules governing the new TANF Emergency Contingency Fund (ECF) that was created by the ARRA, reviewed New York’s experience with the pre-ARRA TANF Contingency Fund, and explored the situations under which New York may qualify for ECF funds.

LABOR PRACTICES

Building on FPI’s earlier research regarding the increasing tendency for unscrupulous employers to employ workers off the books or as so-called independent contractors, James Parrott testified before the labor committees of both the Assembly and Senate in January on the fiscal costs to the state of unlawful labor practices.

The Fiscal Policy Institute is an independent, nonpartisan, nonprofit research and education organization committed to improving public policies and private practices to better the economic and social conditions of all New Yorkers. Founded in 1991, FPI works to create a strong economy in which prosperity is broadly shared.

Unions, contractors nail down cost cuts

The two sides are back at the table, trying to figure out ways to lower costs

by Theresa Agovino

Last year’s groundbreaking agreement between contractors and unions to bring down construction costs in the city reduced overall expenses by between 10% and 20%, slightly below the 15% to 21% originally projected.

With the deal due to expire at the end of March, the two sides are back at the table trying to figure out ways to lower costs further through a new agreement, says Louis Coletti, president of the Building Trades Employers’ Association, which represents contractors that use union labor.

The initial agreement, which included provisions for union work rule changes and slimmer contractor profit margins, is credited with stimulating more than $7.4 billion in construction activity and saving 25,000 jobs. Mr. Coletti says that the two sides are looking for more permanent changes this time, because it looks like it will be years before the city will see a construction boom matching the one that flourished earlier this decade.

The unions and contractors gathered in Florida last week at the industry’s annual meeting, and the mood was very different than it was in 2009, Mr. Coletti notes.

Last year, the recession was just beginning to have an impact on the construction industry, and there was more acrimony between the two sides.

“There is now a recognition that we are in a new economic cycle and there will have to be shared sacrifice,” says Mr. Coletti.

He declines to say what new measures the two sides are discussing, but he says he is confident that there’ll be a new agreement.

Rep. Chris Lee: Fed growing too big, too fast

Tom Gillett, Chris Lee, Lou Gordon

Health Care Panel

By Jim Stinson

A forum on small business became a place to discuss big government and possibly bigger health care plans.

Speaking to the Business and Labor Coalition of New York at Colgate Rochester Crozer Divinity School, U.S. Rep. Chris Lee said the federal government is growing too big and expanding its payroll, and that even during the recession Washington, D.C., saw growth in its gross metropolitan product while many other regional economies were contracting.

“The federal government cannot employ all the people in this country,” said Lee, R-Clarence, Erie County, as he ticked off examples of government growth. For that reason, he said, he voted recently against extending the federal debt ceiling by $1.9 trillion.

But not everyone at Friday’s forum agreed that shrinking all government programs would benefit small business.

Some speakers expressed solidarity with President Barack Obama’s plan for health care reform, which seeks to extend insurance coverage to most Americans.

Lee said after his speech that he supports health care reform, and thinks the Democrats and Republicans should pass a bill they can agree on, leaving out parts on which they differ.

Jim Bertolone, Rochester local president of the American Postal Workers Union, noted that health care costs rose through the past decade, from 15 percent of U.S. gross domestic product to 17 percent of GDP.

To combat rising costs, Bertolone suggested applying a program like Medicare to all citizens. He also said that worrying about budget deficits during a time of unprecedented recession was like conserving water during a house fire.

Businesspeople also received advice from banking officials such as Jeffrey Barker, vice president of commercial services at Canandaigua National Bank & Trust.

He advised the approximately 50 people in the audience to maintain good communication with lending officers and not to surprise them by using a line of credit for reasons other than stated on the application.

Many attendees noted the economy, especially credit conditions, was still sour.

“It is a very difficult time for startups,” Barker acknowledged.

DiNAPOLI: WALL STREET BONUSES ROSE SHARPLY IN 2009

Wall Street bonuses paid to New York City securities industry employees rose by 17 percent to $20.3 billion in 2009, according to an estimate released today by State Comptroller Thomas P. DiNapoli. Total compensation at the largest securities firms grew even faster and industry profits could exceed an unprecedented $55 billion in 2009, nearly three times greater than the previous all-time record. In 2008, the industry lost a record $42.6 billion.

“Wall Street is vital to New York’s economy, and the dollars generated by the industry help the state’s bottom line,” DiNapoli said. “But for most Americans, these huge bonuses are a bitter pill and hard to comprehend. There’s a lot of resentment against the industry over its role in the global economic meltdown. Taxpayers bailed them out, and now they’re back making money while many New York families are still struggling to make ends meet.

“We cannot see a repeat of the risky behavior that crippled our economy. Tying compensation to long-term sustainable profits is a step in the right direction. We also need the right level of regulatory protections to make sure the securities industry thrives without driving the rest of us out on a fragile economic limb.”

DiNapoli’s office annually releases its estimate of bonuses paid to securities industry employees who work in New York City. Bonuses paid by New York City-based firms to their employees outside of the City (whether in domestic or international locations) are not included. DiNapoli’s estimate is based on tax collections and reflects cash bonus payments and deferred compensation for which taxes have been prepaid. The estimate does not include stock options that have not yet been realized or other forms of deferred compensation. This year’s estimated bonus pool is a third less than the amount paid two years ago, the previous most profitable year.

DiNapoli noted that estimating the size of the bonus pool was made more difficult this year by unprecedented changes in compensation practices. Many financial firms delayed payments and paid a greater share in stock or other forms of deferred compensation. The industry also paid higher base salaries, deferred cash payments, and implemented clawback provisions, which will enable firms to recoup bonuses for excessive risk-taking. The industry also devoted a much lower share of net revenue to compensation compared with past years.

DiNapoli also reported that:

• Broker-dealer operations of New York Stock Exchange member firms earned a record $49.9 billion through the first three-quarters of 2009. DiNapoli forecasts that profits could exceed $55 billion in 2009, nearly three times greater than the previous record. In 2008, the industry lost a record $42.6 billion.
• Compensation at Goldman Sachs, Morgan Stanley, and JPMorgan Chase Investment Bank, which are more diversified than traditional broker-dealers, increased by 31 percent in 2009. Average compensation rose by 27 percent to more than $340,000. (Data is not currently available on the securities operations at Citibank and Bank of America.)
• In a departure from past practice, most of the largest financial firms have reported that their top executives will not receive any cash bonuses in 2009, but will receive stock options and other forms of deferred compensation.
• The industry devoted a much lower share of net revenue to compensation in 2009 compared with the period before the financial crisis. Historically, industry compensation (salaries and bonuses) has averaged about half of net revenue, but compensation declined to about 40 percent of net revenue in 2009.
• Employment in the securities industry in New York City declined by 31,500 jobs (seasonally adjusted) between November 2007 and August 2009, a decline of 16.7 percent. Since then, the industry has added 3,900 jobs through December, which could spur job gains in other sectors. Previous reports by the State Comptroller found that for every job created in the securities industry, three jobs are created elsewhere in the state’s economy.
• Wall Street accounted for 24 percent of the wages paid to workers in New York City in 2008 even though it accounted for only 5 percent of the jobs.
• The average taxable bonus rose to $123,850. Average compensation rose even faster because firms reportedly paid a larger share of bonuses in the form of deferred compensation than in the past.

Click here for a chart showing bonuses paid from 1985-2009 or visit http://www.osc.state.ny.us/press/releases/feb10/bonus_chart_2009.pdf.

PEF President sets record straight at hearing on work force issues

Albany – The president of the New York State Public Employees Federation (PEF) testified today before the state Assembly Ways and Means and Senate Finance Committees on work force issues setting the record straight on the size of the state work force and how it affects state spending. PEF President Kenneth Brynien also laid out a detailed plan for how the state can save hundreds of millions of dollars without eliminating jobs and services.

“There has been no growth in the size of the state work force, yet the proposed budget is striking, once again, at the public servants who deliver vital services,” Brynien said. “If the proposed budget is enacted, the state work force will be the same size it was 10 years ago and more than 15,000 positions fewer than in 1994, despite an increased need for state services,” Brynien said.

Brynien pointed out the budget proposal includes a $250 million cut in the salary and benefits of state employees while agencies continue to increase spending on private consultants that already cost more than state employees.

“New York State continues to pay thousands of consultants performing professional services an average of $160,719 annually. That’s 62 percent more than it cost to have state employees do similar work, including the cost of their benefits,” Brynien testified.

Brynien also said the proposal to eliminate salary increases and to lag pay violate negotiated labor agreements, noting contracts negotiated in good faith must be honored.

PEF proposed ways to achieve the work force savings identified in the Executive Budget proposal, but without the negative effects that would come from cutting state services, and still honoring the state’s contractual commitments to its employees.

“This can be achieved by: instituting a consultant-reduction plan to save $656 million over the next three years; expanding the voluntary severance program; instituting a Workplace Injury Reduction Program to reduce workers compensation costs; and reducing overtime costs by 60 percent by hiring entry-level state employees for a savings of $33.5 million annually,” Brynien said.

PEF is the state’s second-largest state-employee union, representing 58,000 professional, scientific and technical employees.