Bloomberg, August 31, 2010, Tuesday

Bloomberg

August 31, 2010, Tuesday

Bloomberg

Miami Imposes Pay, Health, Pension Cuts to Ease Pressure on Budget Deficit

Miami imposed $76.9 million of salary, health-insurance and pension cuts on city employees to address a budget deficit that led to reductions in its credit rating.

Commissioners at a special meeting voted unanimously today to accept Mayor Tomas Regalado’s plan to cut base salaries as much as 12 percent, raise health-insurance deductibles and co- payments, and reduce pension payouts. Miami mandated the actions through a “financial urgency” declared in April under a state statute.

Miami, seat of Florida’s most-populous county, will spend almost 75 percent of its $514 million budget, or 87 percent of its recurring revenue, on employee costs in the fiscal year ending Sept. 30, including about 18 percent on pension contributions, according its annual budget book. That expense would exceed recurring revenue next fiscal year without action, documents presented to commissioners said.

“If we don’t do this today, we go into the doomsday scenario, which is laying off 1,300 workers,” Regalado, 63, said at a break in the meeting. “We’re here paying for the sins of the past.”

The mayor, who took office in November and gave up a $53,000 pay raise his predecessor got, said it’s possible unions might be asked for more concessions next year, when the city faces a $96.5 million operating budget deficit.

Renegotiation Required

City Manager Carlos Migoya declared the state of urgency April 30, according to bond documents. The condition compels the city’s unions, which include the general-employee group, sanitation workers, police and firefighters, to renegotiate their contracts. A firefighters’ union suit to overturn the law is now before the Florida Third Circuit Court of Appeal.

The city would save $26.7 million by cutting salaries of employees earning more than $40,000 by 5 percent to 12 percent, according to proposals adopted today.

Average total pay, including overtime and bonuses, of police officers is $74,144 a year and for firefighters, it’s $76,151, according to the city. Firefighters already accepted a 2 percent wage decrease and other reductions. Police had deferred a wage increase and suspended some holiday pay.

Robert Suarez, president of the firefighters’ union, said the reductions could amount to as much as 40 percent of overall compensation.

Code enforcers, represented by the general-employees union, made $61,262 on average and garbage collectors made about $39,500 annually, the city’s presentation said today.

Health and Pension Savings

Miami would save $6.9 million by increasing deductibles on health insurance claims and raising co-payments by plan users. Changing rules for when employees could retire and capping annual pensions would save $43.3 million.

The city must pay $84.5 million into the pension plans of its unions this fiscal year, documents at today’s meeting showed. That rises to $106.8 million in 2011 and $145.8 million in fiscal 2014.

The city’s obligation for benefits exceeded assets in the pension plans by $892 million in 2009 and will rise to $1.2 billion in 2014, the commission was told.

Standard & Poor’s and Moody’s Investors Service cited escalating pension costs when they cut the city’s general- obligation bond ratings in the past three months. Moody’s lowered Miami’s rating one level on July 1 to A1, its fifth- highest rank. S&P reduced the city’s rating on June 16 by two levels to A-, its seventh-highest score.

State Laws

It’s not uncommon for states to have laws that allow municipalities to renegotiate contracts during budget distress, said David Lipsky, professor of dispute resolution at Cornell University in Ithaca, New York.

“Public-sector bargaining exists because state legislatures have granted the right to bargain to these groups of employees,” said Lipsky. “What legislatures can give, they can take away.”

Union representatives protested the city’s plans. Armando Aguilar, president of the police union, said he would file a lawsuit tomorrow to block the imposed terms. Charlie Cox, president of the general workers union, said he would resign.

“Your bond rating has already taken a beating,” said Joe Simmons Jr., president of the sanitation workers’ union. “It’s going to take a further beating by imposing this.”

To contact the reporter on this story: Simone Baribeau in Miami at sbaribeau@bloomberg.net.