Sunday, November 7, 2010

State Clawbacks; dealing with high pensions and salaries

New York State is suffering from a ten-billion budget short fall out of 130 billion total budget. Yet its retirement funds are bleeding money to those most New Yorkers would consider unworthy of their pension. On the top of that list are corrupt officials (*):
  1. The Former state Comptroller Alan Hevesi bringing home $105,221
  2. Joseph Bruno, $96,085.00, convicted of eight counts of corruption. He was New York Sate Senate majority leader.
  3. Guy Velella, $75,012, pleaded guilty of bribery, indicted for twenty-five counts. He was a state repres. and state senator to over thirty years.
But there are many others who earn outrageous pensions.

a firefighter receives $74,624 in disability pension money and is a fighter in martial arts championshps. 84% of New York city firefighters who retire do so as a disability. One problem is that any firefighter who worked at the 9/11 sight and who has a heart or lung problem is legally presumed related. (I have observed many disabled, whether a military disability, mental illnesses, an individual who worked as an executive chef who contracted emphesema . We have had interesting political discussions. Certainly, even if a firefighter might no longer be able to go into burning buildings, he could work in a participatory democracy sortition jury to help supervise firefighters.)

In New York City, eight thousand employees of the transit system earn over one hundred thousand dollarz per year. Twenty Five percent of the The Long Island RailRoad and the Metro North that serves the Northern suburbs of New York earn six figures. Another problem is the payout of unused sick leave upon retirement. The State of Illinois eliminated this give back but the the faculty and other employees who started last century still have a payout, sometimes hefty, coming to them. Sixty percent of the transportation expenditures are payroll as compared to the eighty percent in the social service and education fields.

Our Mayor, Michael Bloomberg, said that he would handle the budget crisis by freezing salaries--the alternative being lay offs. At my University, the Union agreed to a salary freeze and many other cities. So far, fortunately, there has not been one lay off. But the New York City teachers, and I believe our faculty, will still get promotion raises and other uch raises as specified in the contract. In New York City, that is still 3.3 increase in salaries.

Chicago's Commuter Railroad, Metra, has G. Richard Tidwell earning 1.25 million in salary, bonus and benefits, a deputy executive director. And 18.4 percent of the work force made more than $100,000 dollars last year. Note that in New York City, the average pension for police and fire fighters is $62,208 and the average for all others is $25,947.00.

But these are contractual agreements--is there anything that can be done? More importantly we should not pick on government workers. I think most would agree that some teachers, transit workers, and government employees of all stripes have been hard working and definitely deserve every dollar of their pension. And there are political issues in attacking government workers who quite reasonably have strong lobbies and political action groups (both capital and lower case letters).

But we all realize there are lazy doctors, financial advisors who earned a lot of money and did not achieve much of substance. They are retired well whether from savings or pensions without earning that retirement.

Similar to handling executives and financial entrepreneurs, the answer is a clawback. The State go after those who arned over a million dollars total or who worked for the State's citizens for over thirty years. This could be those who worked for the State, a government agencies, or who worked in a position where there primary responsibility was serving those living in the State. A State does not want to go after executives who live or work in the state but primarily serve others. Thus, New York State does not want to tax Wall Street Investment Bankers--they would just leave, and the money to pay their salaries comes mostly from outside the State, and it would put New York's financial sector at a competitive disadvantage.. However, there is no reason not to tax the New York City area Distribution Manager for the beer company.

A person who purposefully does business in a State like working there or having a position such as head of distribution for that State for many years has met the "minimum contacts test" as required by the Constitution. (International Shoe Co. vs. Washington 326 U. S. 310 (1945))

States cannot reduce pensions as these are a contract and cutting them would involve the Contracts clause in the Constitution. However, that can be avoided by the tax proposed.

  1. Michael M. Grynbaum, "239,00 conductor Among M.T.A's 8000 Six figure Workers" The New York Times page A 30, June Third 2010
  2. Jennifer Medina, "Mayor to Cancel Teacher's Raises, Averting Layoffs" The New York Times June Third 2010,CLIX No 55,060, Page A1 and A30.
  3. (*) AM New York June 17th 2010, Page Four
  4. "finally cracking down" New York Post Page 20, august 7 2010, (editorial)

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