Last week, Mayor Eric Adams added $1 billion to his original budget proposal, bringing his proposed spending for next year to $99.7 billion. The city council seems sure to push the mayor past the $100 billion mark, with its demands to add about another $1 billion.

But as the mayor and council hammer out a budget, which must be approved by June 30, the rapidly rising rate of inflation threatens to upend their assumptions about everything from the cost of borrowing money to the amount that they will have to invest in pension funds.

Nationally, consumer prices rose 8.5% for the 12 months to March, the highest annual inflation rate since 1981. Prices are rising at a somewhat slower pace in the New York area, with a 12-month jump of 6.1%.

Above all, inflation hangs over the many expiring or expired union contracts, the mayor must renegotiate with the many unions in the city.

The mayor’s executive budget sets aside $1.7 billion to fund new contracts with the city’s municipal workers’ unions – less than half of what would be needed if he agreed to 3% increases, which wouldn’t be enough not even keep up with inflation.

“When they start settling contracts, it will make fiscal year budgets very uncertain,” Comptroller Brad Lander said.

Some factors make inflation slightly less severe in New York than nationally – for now.

For example, New Yorkers rely more than other Americans on public transportation, reducing the local impact of soaring gas prices, according to an analysis of local inflation released Monday by Lander’s office. .

And despite headlines pointing to steep increases in rents, the data shows rental costs rising more slowly in the New York area than nationally — likely because more than a million city apartments whose rents are regulated or subsidized by the government have seen minimal increases.

But the lower inflation rate in New York and its suburbs offers little comfort to public and private sector workers who fear that cost increases will exceed their wage increases. In NYC, the cost of food has increased by 7% over the past 12 months, leisure activities by 8% and transportation by 14%, although this is less than in the rest of the country.

Money missing

Already, more than two-thirds of the city’s contracts with its unions have expired. All the most important pacts expire by the end of the year, with the teachers’ contract ending in September and the garbage collectors’ contract in December.

The Adams administration did not respond to requests for comment on when it plans to begin talks, its timeline for reaching an agreement or the scope of its initial salary and benefits offers. Traditionally, the city first makes a deal with one of its largest unions, which then sets the pattern for all the other settlements.

Experts say they expect that union to be District Council 37, the city’s largest bargaining unit, which represents 150,000 workers in a slew of government agencies. Settling with the big unit will make it easier for other unions to align and a deal could be easier to strike as executive director Henry Garrido is a longtime Adams ally, and the union has been one early supporters of his mayoral campaign.

The DC 37 will likely demand more than it earned in 2018, when it established the model with then-mayor Bill de Blasio and agreed a 44-month contract with rates of 2 % the first year of the contract, 2.25% the following. year and 3% the following year. In the private sector, residential construction workers recently accepted a four-year contract at an annual average of 3.17%, plus a bonus of $3,000.

DC37 president Henry Garrido declined to comment.

EMS city employees rally at City Hall for a pay raise, September 25, 2019.
William Alatriste/New York City Council

Adams has set aside $1.7 billion to pay for increases over the next three budgets. But a 3% annual increase in line with residential construction workers would cost the city more than $4 billion by June 30, 2026, according to an analysis by the Citizens Budget Commission — more than double that. which is budgeted.

Each additional percentage point increase in a raise adds an additional $1.4 billion over three years, according to the CBC.

Economists remain sharply divided on whether the surge in inflation is temporary due to pandemic disruptions and the war in Ukraine, soaring oil company prices or a more lasting trend – an uncertainty that could leave Adams in trouble if he makes the wrong choice.

“Locking yourself into a long-term contract with fixed salary increases could be risky,” said Joshua Freeman, a labor historian at the City University of New York.

One option, he suggests, could be a clause allowing the contract to be reopened if inflation remains high. A base salary increase with an inflation-linked cost-of-living increase is another option. A short-term contract is also a possibility.

Another unknown is Adams himself.

“The mayor is an unknown entity, and no one knows where he wants to go on labor issues,” added Ed Ott, a longtime leader of the New York City Central Labor Council and now a lecturer at CUNY.

An uncertain future

Inflation is not a negative total for New York’s finances.

This will help the city – at the expense of New Yorkers – because higher prices and wages increase the city’s income. As the cost of goods increases, sales tax revenues increase. Since the city does not index tax brackets to inflation like the federal government, higher wages push taxpayers into higher tax brackets.

But these gains are likely to be offset by other factors. The cost to the city of the goods it buys will increase. Rising interest rates will rob New York City of future chances to save money by issuing lower-cost bonds to replace those with higher interest rates. A so-called refund in June 2021 generated more than $400 million in savings, according to city financial documents.

In addition, soaring markets produced a 25% gain in the city’s pension fund for the year that ended last June. The increase allowed de Blasio to reduce his projected contributions to his pension funds by billions of dollars. Now, a stock market sell-off means the city’s taxpayers will likely have to step up and invest more.

The key remains union contracts. Ott says he is looking for “innovative creativity” given the uncertainty.

Tax experts claim much the same approach.

“Inflationary pressures strongly reinforce the importance for the city and municipal unions to work together to change work rules and other contractual constraints to improve productivity and offset the costs of wage increases,” said Andrew Rein, president of the CBC. “In the absence of efficiency measures, higher increases can come at the expense of service cuts, downsizing or damaging tax increases – all bad choices.”

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