Mayor Bill de Blasio’s 44-month, $1 billion tentative contract agreement with New York City’s largest municipal union is expected to set up a framework for the 2017 to 2021 round of bargaining.

It has also generated second-guessing over workforce expansion under his tenure, how his administration defines savings, and whether tradeoffs should include productivity measures.

According to de Blasio, health care savings and funding in the city’s labor reserve will offset the cost, which he said would have a net budget impact of $307 over the pay period.

The agreement with District Council 37, which is the city's largest civilian union and represents about 100,000 workers, “strikes the balance between being fair to our workers and fair to our taxpayers,” de Blasio said.

DC 37’s full membership must approve the agreement, which is retroactive to Sept. 26, 2017, and expires May 25, 2021. It includes annual wage increases of 2%, 2.25% and 3%. The last two raises will be compounded, pushing the pay hikes to nearly 7.5% over the contract period.

In a related deal, de Blasio announced a second health savings agreement with the Municipal Labor Committee, the umbrella organization for many city unions. De Blasio said the agreement, which the committee membership approved, will provide total health care savings of $1.7 billion through the fiscal 2022 financial plan, $600 million of which will recur annually.

Savings, according to de Blasio, will materialize through several measures including a cap of city health care increases of 3.5% next year and 3% the following year. These savings, said the mayor, are guaranteed and enforceable through arbitration.

“It doesn’t seem like a budget-buster,” said Howard Cure, director of municipal bond research at Evercore Wealth Management. “It seems like they overbudgeted in health care costs and then made the numbers work and called it savings.”

City employees still pay no health premiums. “They’re one of the few,” Cure said.

Other provisions include opting in to the state’s family leave program, with members allowed to take 10 weeks off to care for a family member while getting paid up to 55% of their salary; direct deposit for new employees as a cost-cutting move; and provisions to enhance union access to new employees for enrollment.

The latter, said the mayor, will soften the impact of the Supreme Court’s Janus v. AFSCME ruling last week, which invalidated union agency, or “fair share” fees non-union members pay to their bargaining units.

Ana Champeny, director of city studies for the watchdog Citizens Budget Commission, said the city should fund any raises beyond the city's budgeted 1% through concessions or productivity increases. She also urged the city to develop a policy to increase the size of the retiree health benefits trust.

“The city must also halt the growth of the workforce,” she added, citing CBC research that projects the workforce to reach an all-time high in fiscal 2022. CBC projects the increase in employee headcount to reach 330,818 positions by the close of fiscal 2018, or up 11.3% since FY14, the final year of Mayor Michael Bloomberg’s administration.

“Additionally, agencies should be required to find recurring efficiency savings equal to 1% of their city-funded spending and to fund new initiatives with commensurate savings in other program areas,” Champeny added.

The City Council approved the $89.2 billion FY19 budget two weeks ago, shortly after de Blasio and council leaders reached a handshake agreement.

According to S&P Global Ratings, the budget incorporates recently settled state and federal questions while managing for future risks, addressing new spending requests and increasing reserve set-asides.

“Uncertainty remains over continued downshifting of costs from New York State, the medium-term effects of federal tax reform, and federal policy shifts for social services and health care,” said S&P.

Moody’s Investors Service rates the city’s general obligation bonds Aa2. S&P and Fitch Ratings assign AA. All three assign stable outlooks. The city has $37.6 billion of GO debt as of March 31.

Budget concerns include a ballooning capital plan that “exceeds reasonable expectations that it can be implemented in a timely and cost-effective manner,” and continued fiscal stress at public authorities, Champeny said,

Capital spending for FY19 to FY22 was projected at $65.1 billion in the executive capital commitment plan, up 87.5% from FY15.

The city, she said, may also need to provide additional resources to the New York City Housing Authority even beyond provisions of the consent decree with the federal government, and to New York City Health + Hospitals.

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