De Blasio Official Lambastes Barclays Report on N.Y. City
A de Blasio administration official Friday disputed an analysis by Barclays that called New York City's labor agreement with the United Federation of Teachers a credit negative.
Barclays, in a commentary Friday morning, cited uncertainty over net costs, an expanding budget gap in later forecast years and diversion from other spending needs such as infrastructure.
"The analysis by Barclays, which is not a rating agency, is simply inaccurate," said Amy Spitalnick, director of public affairs for the Mayor's Office of Management and Budget.
Barclays cited a lack of detail in Mayor Bill de Blasio's projected health-care savings, which the mayor pegged at $1 billion over four years; an expending budget gap in out years; and diversion of money from badly needed resources, notably infrastructure.
"With New York City [general obligation] spreads at or near multi-year tights, we see little upside potential," Barclays wrote. "We think the recent labor settlement is an early indication of the new mayor's fiscal policy, and spreads could be poised for underperformance in the near to medium term."
The debate comes amid widespread discussion over de Blasio's proposed $74 billion budget proposal, which the 51-member City Council must approve by July 1.
“The teachers deal calls for pay increases of 1%, 1%, 1%, 1.5%, 2.5%, and 3% for fiscal 2013 through 2018, respectively. The cost of back pay alone is pegged at $3.4 billion.
With more than 100 city unions working without a labor contract, the teachers deal - de Blasio's first since taking office in January -- could be a prototype. Barclays expects the UFT agreement alone to cost roughly $5.7 billion over six years, or about $3.3 billion after certain health-care savings.
"The city has a history of pattern bargaining, in which one union settlement sets the precedent for other union agreements," Barclays wrote in its commentary. "If UFT costs are extended to the rest of the municipal workforce, gross costs could be as high as $13.4 billion through [fiscal 2018], resulting in $5.5 billion in net costs after offsets."
Moody's Investors Service rates the city's general obligation bonds Aa2. Fitch Ratings and Standard & Poor's rate them AA.
"There has been no change in the city's credit rating," said Spitalnick. "The city is, of course, adding expenses for labor contracts - as anticipated since for the first time the mayor's executive budget paints a full picture of the costs of a settlement after the contracts were left unresolved for years."
She said arbitration guarantees the health care savings and, even after the labor settlement and other investments, out-year gaps remain well below historical averages.
The Independent Budget Office, also on Friday, projected that the city will end the current fiscal year with a $1.8 billion surplus, $131 million more than what de Blasio had estimated. IBO projected an $833 million surplus for fiscal 2015 before a $1.6 billion shortfall kicks in the following year.
Spitalnick disputed the IBO's assertion that the mayor's set-aside to cover the cost of the tentative teachers contract has risen by $115 million.
De Blasio officials this week revised the proposed financial plan to reflect concerns by Comptroller Scott Stringer that some of the back-end financing of retroactive back pay for teachers violated generally accepted accounting principles, which New York State forced the city to adopt after the 1975 financial crisis.
"There is no additional cost being added from the labor agreement as a result of the accounting change," said Spitalnick. "All the accounting change does is simply recognize costs earlier and create savings later, with no impact to the total cost of the tentative agreement with UFT or the total cost as applied to the entire city workforce."