Capital markets analysts are weighing with skepticism the pros and cons of the proposed nine-year agreement between New York Mayor Bill de Blasio and the United Federation of Teachers.
The executive board of the 110,000-member UFT approved the contract Monday night, with the federation's Delegate Assembly scheduled to consider it Wednesday.
Teachers have worked without a contract for nearly five years, and the accord marks de Blasio's first since succeeding Michael Bloomberg in January. With more than 100 city unions working without a labor contract, the teachers' deal could be a prototype.
The most dangling item is health-care savings. De Blasio trumpeted an estimated $1 billion in health-care cost savings over four years, though details are lacking.
"What's concerning was that the health care was fuzzy,' said Rachel Barkley, a credit analyst with Morningstar Inc. "We would need more details regarding these health-care concessions before we can become fully comfortable with this aspect of the agreement."
A steering panel of the Municipal Labor Committee approved the health care component, with full committee approval pending. The committee is an umbrella organization for city labor unions.
According to Robert Linn, the city's labor relations commissioner, savings would include centralized radiology and blood work, and central purchasing of prescription drugs.
Givebacks on health care are more pronounced in private-sector deals, according to Nicole Gelinas, a senior fellow at the Manhattan Institute for Policy Research.
"Centralizing prescription drugs if it was that easy, it should have been done a long time ago," she said.
A deal in 2011 between local 32BJ of the Service Employees International Union and New York's residential landlords involved estimated savings of about $90 million per year. That deal included putting insurance contracts out to bid and the institution of wellness programs.
The teacher contract, retroactive to November 2009, would extend to 2018. It includes about $3.4 billion in back pay, beginning with a $1,000 signing bonus to all members.
Annual salary hikes range from 4% for fiscal 2009 and 2010 to 1% for 2013 through 2015, then 1.5% in 2016 leading up to 3% in 2018.
De Blasio's predecessor, Michael Bloomberg, took a hard line against retroactive raises.
"The length of the contract jumps out at me. It's a big deal and a good deal for the teachers," said Daniel DiSalvo, also a Manhattan Institute senior fellow and a City College of New York professor. "Basically the teachers got everything they wanted. It's 18% for the life of the contract. It means the city must be quite confident of its revenue in the future."
Despite concerns over health care, the deal should appeal to investors, said Barkley. "It shows the city is serious about reaching agreement with its unions and it could well be a precedent."
Bond rating companies have warned about the uncertainty of unsettled labor contracts. Moody's Investors Service rates the city's general obligation bonds A2. Fitch Ratings and Standard & Poor's rate them AA.
According to Barkley, the city's unfunded liability for post-employment health-care benefits exceeds $69 billion and parallels its unfunded pension liability.
Retroactive raises will be restructured and paid out from 2015 to 2020, which worries Gelinas.
"I think the biggest problem here is that the contract involves borrowing for the future to pay for current operating expenses. That's fiscally unacceptable," she said. "Bloomberg was right. We haven't the means to pay for retroactive pay raises."
According to Gelinas, debt overload related to the deal could draw scrutiny in July from the New York State Financial Control Board, which the state created to monitor city finances during the 1975 crisis.
The board still must review the city's four-year financial plan at least quarterly and could warn the city about debt overload, Gelinas said.
The board in 1991 chastised Mayor David Dinkins for a budget that while balanced, "does not clearly portray the city's problems" and could produce sizeable out-year gaps.
