The Metropolitan Transportation Authority's tentative agreement with New York's bus and subway employees provides a level of certainty for now while leaving escalating health-care and pension costs untouched, say municipal bond observers.
On Monday, outgoing MTA Chairman Thomas Prendergast and Transport Workers Union Local 100 president John Samuelsen announced a 28-month agreement hours after the previous deal had expired, and after talks over the three-day weekend at the Andaz Hotel in lower Manhattan.
Labor peace is important for the incoming MTA chief, said Howard Cure, director of municipal bond research for Evercore Wealth Management. Gov. Andrew Cuomo has yet to name a replacement for Prendergast, who announced his retirement two weeks ago.
Prendergast intends to stay on for the next few weeks.
"From a bond or a credit point of view, you don't want unresolved labor issues at the start with a new chairman coming in," said Cure.
The deal, which TWU rank and file was scheduled to approve on Tuesday and the MTA board must ratify next week, called for a pair of 2.5% raises over the first 26 months, plus a back-ended $500 bonus for the final two months for the 38,000 subway and bus workers. The bonus alone will cost the MTA $19 million.
Prendergast called the deal "an affordable agreement that can be accommodated within our financial plan."
The MTA, one of the largest municipal issuers with roughly $38 billion in debt, had baked 2% raises into its 2017 operating budget and four-year financial plan, which the board approved in December. TWU held rallies at the end of last year, while Samuelsen told board members it would not accept 2%.
"Overall, I wouldn't call it a budget buster," said Cure. "Ridership is strong so I don't think it's that much of a financial hardship."
Left alone, though, were health benefits, which according to Cure are a "significant part of the operating costs."
In a statement on Local 100's website, Samuelsen called it a concession-free contract. "We have protected our health benefits," he said, adding that workers secured improvements in the dental package, including coverage to dependents up to age 26.
The MTA's combined pension and health-care costs have spiraled from $553 million in 2002 to a projected $2.4 billion in calendar 2017, according to Nicole Gelinas, a senior fellow at the Manhattan Institute for Policy Research. Had the authority merely pegged the increases to inflation, the tab for this year would have been around $750 million.
In 2017, according to Gelinas, the tab is $975 million for pensions and about $1.4 billion for health-care -- $938 million for current employees and $439 million for retirees.
"Costs have gone up quite a bit," said Gelinas. "We're saying this not so much to be miserly with MTA employees. But do they really expect this to be sustainable over the long haul? Ten or 15 years from now, how will it look? You see places like New Jersey and Illinois with serious pension problems."
Labor peace comes at a price, said the watchdog Citizens Budget Commission.
"The settlement is more generous than the MTA's financial plan provides and may require higher fare increases than planned or more borrowing to support the capital program," the commission said in a statement Tuesday. "It also means another 28 months are lost before productivity gains from work rule and benefit changes can be achieved."
The MTA board is scheduled to vote on biennial fare and toll increases next week.
Additionally, the union obtained quality-of-life concessions that include new work boots for employees in tunnels; changing areas for female employees, which total 13% of New York City Transit employees; and higher pay for drivers of difficult-to-operate accordion buses.
At the December board meeting, six transit employees spoke emotionally before the board about safety risks ranging from occupational hazards to crime. One month earlier, a G train in Brooklyn struck two MTA workers, killing one.
Although talks pushed past deadline, this contract cycle went more smoothly than others, including the three-day strike during the 2005 holiday season and the down-to-the-wire wrestling match in 2014 between the MTA and Long Island Rail Road workers, with Cuomo intervening as a walkout loomed.
The union's familiarity with Prendergast, an MTA lifer who rose through the New York City Transit ranks, may have helped.
"It went pretty well," said Cure.
Approval would mark the third ratified transit contract in the U.S. northeast the past two months.
Philadelphia's 5,000-worker Southeastern Pennsylvania Transportation Authority union struck six days in November before agreeing to a five-year deal. Employees will receive pay and pension increases, but must contribute more to health care.
Late last month, the Massachusetts Bay Transportation Authority and Boston Carmen's Union Local 589 struck a deal that officials say will save the MBTA, which is under a state control board, $80 million over four years and more than $750 million over 25 years while also tweaking overtime and other long-standing work rules to lower MBTA costs and improve productivity.
