McMahon: Andrew Cuomo should push harder on arbitration

Police and firefighter unions in New York have reaped a bonanza from the state law allowing them to insist on binding arbitration of their contract impasses. And taxpayers have paid a heavy price for it -- especially on Long Island and in the lower Hudson Valley, where police and professional firefighters typically earn six-figure salaries before retiring in middle age on plush pensions.

First enacted as a temporary measure in 1974, the arbitration law is next due to expire at the end of June, which puts Gov. Andrew M. Cuomo in a commanding position to insist on sweeping changes as a condition for signing any extension. Unfortunately, Cuomo is on the verge of blowing it, big time. Instead of the sweeping overhaul New York really needs, the governor is proposing only a limited tweak to the arbitration statute.

To put the matter in perspective, consider the pay trends tracked by the state pension funds covering public employees outside New York City. As of fiscal 2011, the average salary for police and firefighters was $99,357 -- up 71 percent, after adjusting for inflation, since 1974. During the same period, inflation-adjusted average salaries rose 22 percent for teachers, whose 2011 average pay came to $72,947; and 26 percent for other employees of the state and its local governments, whose 2011 pay averaged $47,534.

Over the years, pay awards by arbitration panels often have been well above inflation, even during economic downturns. Local officials like Suffolk County Executive Steve Bellone have been willing to negotiate costly and lengthy contract extensions just to avoid having something even worse imposed on them by arbitrators.

Unaffordable pay hikes are only part of the arbitration problem. The process also tends to perpetuate costly and inefficient work rules such as minimum manning requirements, shift differentials, guaranteed overtime, plentiful vacation and leave time, and large severance payouts.

In the wake of the recession, county and municipal officials throughout the state have been clamoring for arbitration reform. Cuomo's response would be a step in the right direction -- but only a small one. He would impose a 2 percent cap on total compensation increases in local police and fire arbitration awards, but it would apply only to employers that are already "fiscally distressed," defined as a combination of low budgetary reserves and high taxes. It would also exclude salary "step" and longevity increments, which can be significant.

An example of how to much more effectively leverage an expiring labor statute was provided by Cuomo's predecessor in the governor's office. In 2009, Gov. David A. Paterson shocked Albany by vetoing a previously routine extension of a long-established but temporary pension "tier" for police and firefighters. Although the bill had been approved by a combined vote of 194-6, the Legislature never attempted a veto override. As a result, new hires were placed in less expensive pension plans -- with large savings for New York City, in particular.

Cuomo himself used similar leverage to his own advantage in 2011, when he linked an extension of the temporary New York City rent regulation law to the enactment of his 2 percent property tax cap. He took the same approach to legislative reapportionment last year, agreeing to a partisan gerrymander for Assembly Democrats and Senate Republicans only after they had agreed to pass his proposed pension changes.

With that precedent in mind, the governor needs to head back to the drawing board on arbitration reform. As a condition for any further temporary extension of the law, he should insist that a cap on arbitration awards will apply statewide, and that step and longevity increases will be subject to the cap. But he should also allow for pay hikes above 2 percent when unions agree to offset the cost with productivity improvements.

This would give employers the tools needed to restructure unsustainable contracts, producing reasonable and affordable results while still leaving New York cops and firefighters among the best paid in the nation.

E.J. McMahon is senior fellow at the Manhattan Institute's Empire Center for New York State Policy.

This is a corrected version of the column. An earlier version gave incorrect percentages for the increase in average salary from 1974 to 2011 for police and firefighters, and for other state and local government employees.