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December 21, 2005

MTA and transit pension costs

Last night I posted about how the MTA precipitated the transit strike by springing an outrageous demand at the last minute. With only a few hours left on the clock, MTA chairman, Peter S. Kalikow demanded that new hires contribute 6% of their pre-tax income to their pension funds during their first decade of service, triple the annual contribution rate of current employees.

The net effect would have been to create a 4% net pay cut for new hires, relative to what they would have gotten if they'd been hired under the old contract.

Old hires would get 3% raise next year, but new hires would effectively suffer a 4% pay cut. Discrepancies like that undermine solidarity within unions, and the MTA knows it.

The MTA's proposed demand would only save the company $20 million over three years, by shifting the burden onto new hires. The authority claims insists this small savings in the near future will ultimately create much larger savings over the life of the contract. This too, as Carl Ericson points out, is bogus. Yes, $20 million invested over the next 3 years would grow to $100 million over the next 30 years, but that's beside the point. The issue is who should cough up the $20 million now, new subway conductors or a company with a $1 billion surplus.

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Comments

Just wanted to say thanks for your information and analysis. It's always clear and concise, and (especially in this case) offers up information that others tend to ignore.

Worse than the figures cited is the fact that the MTA originally proposed funding the pension shortfall only if the TWU agreed to remove their representatives to the pension oversight board.

Talk about the fox asking the chickens to get rid of the farmer....

--The issue is who should cough up the $20 million now, new subway conductors or a company with a $1 billion surplus.--

That I hate to say is an entirely dishonest point, or evidence of a point not thought through.

The MTA is heavily subsidized. No bus line makes money. No subway line makes money. No commuter railroad makes money. Without heavy subsidy in addition to fare paid, it closes for good tomorrow morning.

To speak of a " surplus " in such a circumstance is not relevant, it is beyond meaningless. Surplus implies profit, and no mass transit system in this country makes a profit, least of all the MTA.

If there are real issues, raise them, but this is not one and you know it.

To speak of a " surplus " in such a circumstance is not relevant, it is beyond meaningless.

By that reasoning, for the MTA to claim that it cannot "afford" to meet the union's demands is fundamentally dishonest.

And while we're here, Phantom, I've seen you post on this subject multiple times on multiple threads here, and I'm still waiting for you to offer a more substantive argument than "union bad, management good."

If http://www.nydailynews.com/news/local/story/350136p-298703c.html>"Whopping Surplus" was good enough terminology for the New York Daily News, it's good enough for me.

The bottom line is that MTA took in a billion dollars more than it spent. That money is real. Much of it has been allocated for other projects--but that's precisely the issue. It's been allocated, but it's just going to have to get reallocated if we want subway service again.

Whoops, I just posted a big thought on this on the other MTA thread! Ah well.

That link that proves that the future savings is "bogus"--I don't think s/he understood the point. (Sorry to grab onto this point, but I've worked some on ERISA policy and the government regulation of pension plans and my impression is that most people don't have a very good grasp of what goes on with pensions and the issues that pension plans face today.)

The problem with talking about savings over the next three years is that it is going to drastically underestimate the effect of raising the contribution rate. That's because at the end of three years, the proportion of the MTA workforce that is paying 6% (as opposed to 2%) is going to be a small, small fraction of the entire workforce. Particularly if you assume that the average career at MTA is over a lifetime--a good assumption, if they have a defined-benefit rather than defined-contribution pension plan--it's going to be *maybe* 5% of their workforce. Of course that's not going to make a big difference.

The real change will be in 20 years, when most of the MTA workforce has been replaced with workers contributing 6% (say, now 95% of workers are contributing 6%). *That's* why the article estimated that down the road, there could be as much as $80 million dollars a year in savings. (Whether that's $80 million in today dollars or $80 million in 2025 dollars isn't clear, and perhaps the author should be critiqued for that.)

And while yah, I do think that "surplus" operating revenue should go towards the unfunded pension liability now, if they're already running a liability, that means they will continue to run one in the future (where will the money come from if not from increased contributions?), and it will only get worse. I think it's important for liberals to remember that the money to solve that problem will come from somewhere, and if you think that a hundred-billion-dollar unfunded pension obligation is going to be funded by raising taxes on corporations... well, then I'd like some of what you're smoking. If history is any guide, federal, state and local gov'ts that run out of money tend to cut things like health care for poor people and programs for children. (And student loan programs, which primarily help poor teenagers go to college.)

AB, I see your point. But I don't think it's misleading to talk about using more of the surplus to pay for unfunded pensions. If the MTA hikes employee contributions now and keeps them up for 20 years, it will save a huge amount of money. But then, the same is true for salaries. If they hold the line on wages and set a precedent that holds for the next 20 years, they'll save a lot of money.

However, the union was willing to negotiate an increase in pension contributions for new hires. However, they quite rightly weren't prepared allow the newbies' contributions to literally triple overnight.

No, I don't think it's misleading, exactly. That billion dollar surplus could plug up the current hole. But it's kind of like someone living beyond their means every year (making $30k, spending $40k, and putting the balance on a credit card) who comes into a little inheritance and thinks that the problem's solved. Well, it is, temporarily. But it's not a permanent fix.

And the analogy with salaries is a bit false, I think. Because pension funds are closed systems: unless something *really* shady is going on, I don't imagine they're raiding their pension to pay for track improvements and the like. To the extent that it is underfunded, it's because not enough is coming in to cover the bills (or not enough is projected to come in at the current contribution level, given standard investment returns, to cover the projected cost of current pension obligations). It's more like agreeing to salary increases every year but being unable to raise the price of tickets--if MTA was unable to raise the price of tickets (oh, I wish the same were true of WMATA!) I think it would be very reasonable for them to hold the line on wages. Since they can, eh, not so much a good reason to not agree to cost-of-living increases.

A more incremental approach to raising contribution levels? Now that sounds *gasp* downright reasonable. I'd get behind that.

To clarify: I don't mean to imply that something shady isn't going on with MTA management. God knows it did with GM and most of the other pension plans that went belly-up recently. I'm just sayin', unless someone shows me that the underfunded pension is a result of MTA not putting the full contribution amount into the pension fund (b/c they played around with "expected returns" on investment to make the system seem funded), then I think it's really reasonable for workers to make up the difference.

--By that reasoning, for the MTA to claim that it cannot "afford" to meet the union's demands is fundamentally dishonest.--

Uncle Kvetch

The surplus comes from my taxes, and from the taxes of other New Yorkers. Not a cent of it came from anything earned by any member Local 100 of the TWU, other than as respects their status of NY taxpayers.

The issue here is not complex. Well-paid workers with great benefits have gone on strike in violation of the state law, despite a contract offer that would continue to leave them well-paid and with great benefits.

And you've not heard me praise the MTA management, no sirree. They're a bunch of dopes who pissed away some of my tax money with the stupid holiday discount plan. I have other beefs with them too, such as train routes that do not make sense, leading to overcrowded trains ( R,F) in some areas nearby to empty trains ( M,V ) all due to routes that have not been thought out. Its an inside baseball debate.

Lindsay

OK, so you believe everything the NY Daily News tells you? So maybe we should give up building the Second Avenue subway so that these rich can get richer?

So maybe the MTA should act like a drunken sailor with all future assets near contract time so as to avoid having to have the " surplus " used against them as a cheap tactic?

Appeasement is not the only tool available to NY to deal with the TWU. The union plays hardball with the city's most vulernable residents, then let the full weight of the legal system come down on the TWU and on every single one of its striking members. We'll see what happens.

BTW, I've heard from people close to the ground that this strike is deeply unpopular with many members, which I already knew, and that a number of unionized TWU members have already quietly crossed picket lines, which I did not know and am delighted to hear. Under this set of circumstances,good for them.


Well, perhaps we should use The NY Daily News as a source after all

Phantom, I disagree with most of what you write above. Personally, I've gradually moved from a "pox on both their houses" position on this strike to a grudging and qualified support of the strikers.

That said, I give you mad props for bringing up something that, to my amazement, everyone else seems to have forgotten: that stupid, insulting "holiday discount" on fares. As if no one at the MTA could conceive of a better use of an unexpected surplus--speeding up repairs of infrastructure, maybe? cleaner trains and stations? No, better to piss it away on a month-long PR stunt. And this just before they're getting ready to go into contract negotiations. Boggles the mind.

BTW, Uncle Kvetch is a great name

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