State government has approximately 180,000 full-time equivalent (FTE) positions.^[3] As shown in Figure 1, six agencies account for 7 of every 10 positions. The largest employer is the State University of New York (SUNY) with 44,000 FTEs; together with the City University of New York (CUNY), the two employ nearly one-third of the State workforce at campuses spread across the state.^[4] The second largest employer is the Department of Corrections and Community Supervision (DOCCS) with 29,089, or 16 percent of the positions, located primarily at prisons around the state. The Office for People With Developmental Disabilities (OPWDD), which operates public facilities and contracts with private facilities that serve individuals with developmental disabilities, has 18,400 positions, or 10 percent of the state’s workforce; the Office of Mental Health (OMH) has an additional 8 percent of the workforce at its hospitals and other facilities. The Department of Transportation, which maintains the state’s roads and bridges, is the sixth largest employer with 5 percent of the workforce. The remaining 53,200 positions are spread among 17 different agencies.^[5]

In fiscal year 2017, employee compensation is estimated to be $20.6 billion, or 21.5 percent of State Operating Funds. Of the total compensation cost, salaries and wages comprise $12.9 billion, or 63 percent. (See Figure 2.) Fringe benefits comprise the rest, with employee health insurance costing $2.3 billion, retiree health insurance $1.4 billion, pension fund contributions $2.5 billion, and the rest required for items such as employer payroll taxes and unemployment insurance. 

When Governor Cuomo took office at the start of 2011, the economy was still suffering the consequences of the Great Recession of 2008.  Employees were reaching the end of a four-year contract that granted a 4 percent pay raise in the then-current fiscal year and 3 percent raises in each of the three preceding years;  they received relatively generous fringe benefits.^[6] In order to cope with the fiscal pressures created by the recession Governor David Paterson had instituted a hiring freeze, provided monetary incentives to encourage retirements, and secured legislation to require increased contributions from new employees toward their pension benefits. These changes were possible without modification of the prevailing labor contracts.

The new contracts negotiated by Governor Cuomo were successful in moderating wage growth and reducing some fringe benefit costs. The contracts generally spanned five years (2011 through 2016) with no raises in the first three years and raises of 2 percent in each of the last two years (plus lump sum payments for some unions in first three years). (See Appendix A for details on each collective bargaining agreement.)

The modest nature of the raises is illustrated in Table 1, which compares public and private sector wages in New York State from 2011 to 2015. State government wages grew less rapidly than private sector wages and less rapidly than all government sector wages. State government wages grew at essentially the same pace as inflation, a historically low 1.7 percent annually.^[7]

With respect to fringe benefits, the first round contracts made gains in containing employee health insurance costs. Employee health insurance cost $1.8 billion in fiscal year 2011. The State’s plan offered generous benefits with no deductibles and wide acceptance by physicians and hospitals. Employees were responsible for 10 percent of premiums for individual plans and 25 percent of premiums for family plans. The new contracts provided for an increase in employee contributions toward premium costs, with the new share varying between two groups of employees based on their salaries. As outlined in Table 2, employee premium shares for individual coverage increased from 10 percent to 12 percent for grades 9 and below (employees with salaries generally below $45,000), and to 16 percent for grade 10 and above (employees with salaries starting at about $45,000). The employee premium share of family coverage also increased. These changes put New York in the mid-range of states requiring premium-sharing: it ranked 20^th for employee share for individual coverage.^[8]

The 2011 negotiations also led to changes in employer pension fund contributions, although the change took the form of state legislation rather than contract provisions.^[9] New York State provides its workers a defined benefit pension, meaning that the employees are guaranteed a certain pension payment based on their years of service and final average salary.

Employees’ required contributions to the pension fund are set in state statute, but as a practical matter any change by the legislature requires agreement with the unions. Changes can apply only to employees hired after the legislation is passed. Employees hired before July 1976 have no required contribution, those hired between 1976 and 2010 (the bulk of current employees) contribute 3 percent of salary for the first 10 years of employment, and those hired after 2010 contribute at least 3 percent for the entire duration of employment. Governor Cuomo reached an agreement to raise the contribution for new employees hired after April 1, 2012 making more than $45,000 annually by creating pension Tier 6. The rate increases from 3 percent to 6 percent depending on salary.^[10] The new arrangement was estimated to save State taxpayers $13.2 billion over 30 years.^[11]

The changes to employee premium shares were applied to retirees who left state service after 1983 but the 2011 negotiations did not lead to substantial changes in retiree health insurance benefits. Therefore, most retirees pay the same health insurance shares as their counterparts that are still working for the state.^[12] In order to be eligible for retiree health insurance, ten years of service is required. Depending on when an individual retired and the type of enrollment, the state pays between 69 percent and 100 percent of the premium. New York also reimburses retirees for their Medicare Part B premiums. These benefits are relatively generous. Fourteen states do not offer retiree health insurance or provide no premium share. Only seven states reimburse Medicare premiums.^[13] Six states require at least 20 years of service, and 10 years is the median number to qualify among all states.^[14]

Retiree health insurance will cost the state almost $1.4 billion in fiscal year 2017, but this figure understates the fiscal significance of these benefits. The Governmental Accounting Standards Board (GASB) requires government entities to estimate and disclose the long-term costs of providing retiree health insurance, called other postemployment benefit (OPEB) liabilities. New York’s estimated outstanding OPEB liability was $77.9 billion as of 2016.^[15]  New York has no plan to cover these long-term liabilities beyond making the payments required annually out of State Operating Funds. In the fiscal year 2017 Executive Budget Governor Cuomo proposed reforms to retiree health insurance cost sharing that would have provided long-term savings to the State, but they were not approved by the legislature. (See Citizens Budget Commission analysis of those proposals here.) 

The changes in the first round of bargaining helped constrain the growth in personal service cost per employee. (See Figure 3.) Total cost including fringe benefits rose 16.3 percent from $98,265 in fiscal year 2011 to $114,322 in fiscal year 2017. Growth in salaries (8.7 percent) was slower than growth in fringe benefits (31.8 percent) with pension contributions growing most rapidly (74.9 percent).^[17] Employee health insurance grew by 32.0 percent while retiree health insurance grew by 16.5 percent.

Interestingly, the compounded average annual growth in the State’s total compensation costs (0.7 percent) was slower than the growth in cost per employee. (See Figure 4.) This is due to a reduction in the number of employees. As shown in Figure 5, between fiscal years 2011 and 2015, the workforce decreased nearly 5 percent from 188,511 to 179,620. The incentive to lower headcount derives from the Governor’s commitment to cap total State spending growth at 2 percent annually; with other large items, notably education aid and Medicaid, growing at a faster pace, most of the savings have had to come from lowering agency payrolls. However, 600 FTEs were added back in fiscal year 2016, and an additional 400 FTEs are expected to be added back in fiscal year 2017. 

With most of the union contracts expiring in April 2016, the Governor now faces a second round of bargaining. In October he reached the first agreement, with the Public Employees Federation (PEF) representing about 54,000 workers.[17] Subsequent agreements were reached in December with State University of New York Graduate Assistance Unions/CWA Local 1104, representing 5,000 workers and the New York State Correctional Officers and Police Benevolent Association (NYSCOPBA), which represents 20,000 state employees.^[18] The pattern set in the PEF and CWA agreements is a three-year contact with 2 percent raises in each year. The agreement with NYSCOPBA is a five year agreement with 2 percent raises in each year and includes a provision for $35 million in unspecified health insurance savings. No substantial changes were made to fringe benefits.^[19]

The 2 percent raises are reasonable, if not generous, in the current economic climate. The 2 percent is slightly less than the expected pace of inflation; however, the economic outlook is uncertain.^[20] Growth has continued for almost eight years since the Great Recession, and the State’s financial plan expects continued increases in employment and income through 2020. However, given the long span of growth, a recession in the period covered by the contracts is a real possibility. If the economy does go into recession, State revenues could fall by $44 billion over a four-year period, undermining the State’s ability to pay for the raises after fiscal year 2017.^[21] 

Less reasonable is the absence of any initiatives to curb the growth in fringe benefit costs. In particular, retiree health insurance benefits should be a priority for reform. The current benefits are generous relative to other states, and their cost is forecast to increase $320 million between fiscal years 2017 and 2020.^[22]

Absent further modification, the current pattern of agreements could be a significant risk to the State’s financial plan. The most recent update to the plan in November contained no funding for salary increases in future years, but did support funding for increases in fringe benefit costs consistent with past trends. (See Figure 6.)  The change in projected salary expenses from 2017 to 2020 in the plan is less than 1 percent per year, but fringe benefit costs are projected to increase more than 6 percent per year on average.^[23]

The pattern set in the two most recent agreements will alter these projections (the cost of the PEF contract was included). It would cost the state $195 million in fiscal year 2017, $386 million in fiscal year 2018, and $591 million in fiscal year 2019, if the new pattern were applied to all the State’s collective bargaining units.^[24] The State already is facing budget gaps of $3.5 billion in fiscal year 2018 and $7.1 billion in fiscal year 2019; the additional cost of the annual 2 percent raises will worsen an already problematic financial outlook.

If future budget priorities follow those of recent years, the budget gaps will be addressed primarily by reducing personal service costs through reductions in headcount. For coming years this could mean significant reductions in the number of State employees available to provide services. Offsetting the cost of the contracts and keeping personal service spending within current budgeted amounts would require a decrease of 10,000 employees between fiscal years 2017 and 2020.^[25]

Governor Cuomo has a strong record of bargaining effectively and fairly with the unions representing State employees. In 2011 he reached agreements that fit the tough fiscal times, providing modest raises and achieving savings in fringe benefit costs. The initial pattern set this year in his second round of bargaining falls short of repeating the earlier accomplishments. While the annual 2 percent raises are justifiable, the failure to secure new fringe benefit savings is a disappointment for taxpayers. Absent new initiatives in ongoing negotiations and in the upcoming budget legislation, budget gaps will grow and necessitate a shrinking of the State payroll.

A preferable strategy is to seek aggressively savings in fringe benefit costs, particularly the cost of retiree health benefits. The Governor’s budget proposal from last year is a good starting point. The Executive budget proposed to stop reimbursing state retirees for the cost of the Income Related Monthly Adjustment Amount (IRMAA), which is levied by the Federal government on individual Medicare beneficiaries with incomes in excess of $85,000.  This proposal would save $6 million annually.

The Governor also proposed capping the Medicare Part B premium reimbursement at 2015 levels.  Savings would have been $1 million in fiscal year 2017, increasing based on the growth in Medicare Part B premiums. The Governor also proposed to proportionally decrease the State share of health insurance premiums for retirees with less than 30 years of service – saving state taxpayers $3 million in the first year and $25 million annually by year four.^[26] Current retiree health benefits are relatively generous and increasingly expensive. Reasonable changes similar to those previously proposed by the Governor ought to be a high priority in the coming months in order to make the future compensation of State workers fair and affordable.