NCPA - National Center for Policy Analysis


November 3, 2009

For the first time in nearly 20 years, New York state is running short of cash to pay its bills.  Governor David Paterson has called the Legislature back to Albany next week to consider his plan for mopping up more than $3 billion in red ink from this year's budget.  But even if lawmakers enact the governor's proposals, they'll still face a gap of more than $6 billion for fiscal 2010-11. That's triple the shortfall projected just eight months ago.  Longer-term budget gaps have mushroomed to $14 billion in fiscal 2011-12 and more than $19 billion in 2012-13.

The Paterson administration should declare a fiscal emergency and seek to impose a three-year freeze on all state and local employee salaries in New York.  This would save taxpayers statewide at least $2 billion next year alone, says E.J. McMahon, director of the Manhattan Institute's Empire Center for New York State Policy.

Could wage hikes already collectively bargained -- such as the 4 percent raise state workers are due to receive next April 11 -- nonetheless be deferred by an act of the Legislature?  According to McMahon:

  • The original precedent for a state-mandated halt on collectively bargained pay hikes is the Emergency Financial Control Act, enacted in 1975 to deal with the New York City fiscal crisis.
  • Similar provisions were put in place under control laws later enacted to rescue other troubled cities, including Yonkers and Buffalo.

Federal courts have twice upheld state-mandated wage freezes for public employees in New York -- most recently in 2006, when the US Second Circuit Court of Appeals ruled a freeze of Buffalo teacher salaries was "reasonable and necessary" despite the "substantial impairment" of the teachers' contract.

Above all, a freeze can be justified on grounds of basic fairness, explains McMahon.  Government employees throughout New York have continued to receive pay increases at a time when many private-sector workers saw their wages frozen or reduced (assuming they didn't lose their jobs altogether).  Given the problem's size, a freeze can't completely prevent layoffs, but it's a way of preserving jobs and public services that would otherwise be jeopardized.

Source: E.J. McMahon, "The Zero Option," N.Y. Fiscal Watch, November 2, 2009; and "Freeze Wages Now," New York Post, November 2, 2009.

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