Feb. 9, 2011, 9:49 p.m. EST
Fire, Police Unions Fight for Bonuses
By Sean Gardiner and Michael Howard SaulNew York City's police and fire departments have a historic rivalry.
Their commissioners have clashed in the recent past over jurisdictional issues like which department should take the lead in a disaster. There have been debates and hearings over who should be the primary agency in certain emergencies such as pulling people out of the East River. Every year they hold a "Battle of the Badges" event in which cops box firefighters in Madison Square Garden and the fighting among the two agencies rarely is contained to the boxing ring.
But on Wednesday the heads of the police and firefighter unions stood shoulder-to-shoulder on the steps of City Hall united against Mayor Michael Bloomberg, who they both called a "liar." What brought the rivals together? Money.
For the past month, Mr. Bloomberg has renewed a call to eliminate a $12,000-a-year pension supplement for about 60,000 retired police officers and firefighters that the mayor has repeatedly called "Christmas bonuses." Mr. Bloomberg said the city is "now kicking in more than $600 million a year to subsidize it" at a time when they're trying to close a $2 to $4 billion budget gap for the upcoming fiscal year.
"Nobody wants to get cut back—I understand that," Mr. Bloomberg said on Wednesday.
But, he said, "We have to make a decision. Do we want to send out Christmas bonuses or have more teachers? It's that kind of decision."
At their joint news conference, Stephen Cassidy, president of the Uniformed Firefighters Association of Greater New York, and Patrick Lynch, president of the Patrolmen's Benevolent Association, bristled at the suggestion that Variable Supplement Fund pension payouts were "bonuses."
"He suggests it's a Christmas bonus as if the city is reaching into its general fund and giving the police officers and firefighters a Christmas bonus," Mr. Lynch said. "No. That is our money."
The union chiefs said that the Variable Supplement Fund payouts date back to negotiated contracts between the city and the fire and police unions in the late 1960s. At that point Mayor John Lindsay wanted the ability to invest money the city was setting aside for police and fire pensions in the stock market. At that time, the law required that the pension-fund money could only be invested in fixed-income securities like bonds and mortgages. In exchange, the unions sought to increase their pensions from 50% of their final salaries to 60% percent.
Instead of agreeing to the union's demands, Robert Linn, a labor-negotiations consultant, said a deal was struck in 1968 in which the fire and police unions allowed the city to invest their pension money in the stock market in exchange for receiving an enhanced pension payout. Since the payout was based on a percentage of the profits from what the city made on their stock market investments, initially the deal was seen as a "win-win" for city and unions.
But PBA officials said their retired officers received only minimal and intermittent payouts for the first dozen years of the deal because the stock market performed poorly during the 1970s. However, a boom in the market in the mid-1980s inflated the amount of in the Variable Supplement Fund by hundreds of millions of dollars, money which could have resulted in their retirees receiving payouts of $20,000 or more a year, the officials said.
Mr. Linn, who was also New York City's Director of Labor Relations from 1983 to 1989, said that from the city's perspective the 1968 deal ultimately favored the unions, who shared in any profits but were not responsible for compensating any downturns in the market. And when the market took off in the 1980s the city was facing large payouts.
"The administration was clear that we wanted to change this benefit," said Mr. Linn, who served under Mayor Edward Koch. "We thought the benefit from the '60s was potentially an explosive cost and we wanted to set it at a fixed cost."
A major stock market crash in 1987, which appeared to have wiped out all the gains to the fund, gave city negotiators, like Linn, the opening they needed to convince police and fire union officials to accept a fixed benefit for their members instead of a return that was tied to market profits.
The fixed pension supplement paid the retired firefighters and police officers $2,500 a year. The amount, it was agreed, would go up by $500 a year until maxing out in 2007 at $12,000 a year per retiree. Right now there are approximately 60,000 police officers and firefighters eligible for the pension supplement, Mssrs. Lynch and Cassidy said. Under the terms of the 1988 deal, they are to receive this payout for life.
Mr. Linn said that no one at the negotiating tables 22 years ago could have projected that the stock market would have taken off as it did, increasing six-fold over the next 20 years. But because it did, Mr. Linn said the deal he negotiated "saved the city billions of dollars. It turned out to be a tremendous savings to the city."
However, a spokesman for the mayor, Marc LaVorgna, added that these days, "The fund does not pay for itself." "It's city taxpayers funding it and unfortunately it's no longer something we can afford."
Mr. Lynch said that as part of the deal the city also was allowed to take $75 million from the pension funds to be used for other city expenses. Mr. Cassidy said as part of the deal firefighters agree to push back to five the number of years it took for future hires to reach top pay. He said that concession alone saved the city "billions of dollars" over the years.
Mssrs. Lynch and Cassidy say that their predecessors who negotiated the deal in 1988 were widely criticized by their memberships for taking a too conservative approach. They said that for two decades the city has reaped the benefits of the deal which is estimated to have provided the city with more than $1 billion in funds to invest over the years. Any recent financial problems the city is facing, the union heads say, are because of poor investments not the Variable Supplement Fund payments.
"A deal was struck," said Mr. Cassidy. "If he [the mayor] doesn't like it, too bad. It's a deal."
Write to Sean Gardiner at sean.gardiner@wsj.com and Michael Howard Saul at michael.saul@wsj.com
http://www.marketwatch.com/story/story/print?guid=da8598fa-3491-11e0-bdc8-012128040cf6________________________
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Someone again remind me why Madoff is in Jail?
