By Edward Krudy
NEW YORK (Reuters) - New York City will post a budget surplus this year and next but may have to use a large part of it to settle pay disputes with unions, the city's Independent Budget Office said in a report on Thursday.
The IBO warned that the disputes over retroactive raises with the city's public workers is among the biggest threats to its forecast and said outgoing Mayor Michael Bloomberg's hope for a "costless settlement" with unions was a "long shot."
All of the city's 300,000 public workers are currently working under the terms of expired contracts, some from as far back as 2009. The arguments go back to the aftermath of the financial crisis, when Bloomberg imposed a pay freeze that the unions refused to accept.
The cost of meeting all the unions' demands for retroactive raises could amount to $7 billion to $8 billion, according to multiple estimates, representing about 10 percent of the city's $70 billion budget.
"Depending on the terms of the settlements, the projected surplus could quickly evaporate," the IBO said. "A costless settlement covering the years of expired contracts prior to 2014 may be more doable on paper than in practice."
The IBO's report comes as Bloomberg gets ready to hand over control of the city to mayor-elect Bill de Blasio on January 1, the first Democrat to hold the office in two decades.
The city will end the current 2014 fiscal year on June 30 with a $2.4 billion surplus, the publicly funded IBO said in its report, and an additional $1.9 billion surplus in the 2015 fiscal year.
The IBO's projected surplus for the current year is $581 million more than projected by the Bloomberg administration. For the next fiscal year, which starts on July 1, 2014, the Bloomberg administration is forecasting a balanced budget.
Bloomberg, who touts his credentials as a sound fiscal manager, insists there is no money to pay for the raises. His administration, which is quitting office after 12 years in power, has also argued that accounting rules mean it cannot pay out retroactive raises as a bonus in future years.
"The incoming mayor is inheriting a balanced budget for the first time in recorded history," said Kamran Mumtaz, a spokesman for the Bloomberg administration. "The potential for an actual surplus is a testament to our sound financial management."
Bloomberg is offering workers three years of no base salary increases after the expiration of contracts negotiated in 2010 and raises of 1.25 percent for two years after that. It also wants employees to agree to mandatory employee contributions toward healthcare premiums.
So far, unions have rejected that offer and are likely to use the report by the independent budget watchdog to bolster their claims that the city can afford at least some retroactive raises.
"I think that Bill de Blasio will go to the contract table and he'll have his people listen and I think we can probably reach some sort of an agreement," said Harry Nespoli, chairman of the Municipal Labor Committee, an umbrella group for public sector unions. "We're not going to turn around and hurt this city, this is the city that pays us."
The largest of the city's public unions, the United Federation of Teachers (UFT), say they are owed two raises of 4 percent that other workers received during the 2008-2010 rounds of collective bargaining. Those raises alone would cost the city $3.5 billion. Public school teachers have been without contracts since 2009.
The IBO estimated in May that the cost of settling with the city's unions could be $6.3 billion through 2014 under a scenario that would guarantee teachers the same 4 percent raises other unions received. It would also give all the municipal unions 2 percent wage increases from the point their contracts expired between 2010 and 2013.
Ronnie Lowenstein, the director of the IBO, has said that retroactive wages paid out as bonuses in future years would agree with the principle of not using non-recurring resources to pay for recurring expenses.
"If some portion of the raises are one time payments that would meet that definition," she said at conference organized by the Citizens Budget Commission on December 6.
(Reporting by Edward Krudy; Editing by Leslie Gevirtz)