With fiscal crisis looming, Syracuse officials want workers, retirees to pay more for health care

Published: Monday, March 19, 2012, 2:00 AM

Syracuse, N.Y. -- After 33 years of driving a snowplow, picking up garbage and working as a dispatcher, James DiNicola retired last year from the Syracuse public works department.  One of his retirement benefits is cheap, high-quality health insurance.  DiNicola, 55, pays $180 a year for individual health coverage that costs the city, on average, $6,000 per person.

Scott McClurg, a retired firefighter, pays $900 a year for a family health plan that costs the city more than $15,000. McClurg, 62, retired in 1998, after 20 years.

Free or cheap health care has always been a perk of city employment. But at a time of stagnant revenues, the rising cost of health benefits — $41 million this year, $44 million next year — presents a growing threat to Syracuse’s financial health, city officials say.

For four years running, Syracuse has spent millions of dollars more than it raised, and the city is on course to burn through the last of its savings in about two years. Mayor Stephanie Miner and city councilors are exploring a wide range of strategies to avert a fiscal meltdown.

The city is certain to ask workers for major concessions on health care this year. But repercussions of the fiscal crisis could extend far beyond city employees.  Syracuse officials also will put pressure on tax-exempt institutions to help pay for services. If that fails, one councilor has suggested a city income tax to raise money from suburban commuters.

The mayor warns that failure to act could push Syracuse into the grip of a state control board like Buffalo’s, which oversees that city with the power to freeze wages, cut jobs and reject budgets.

At a recent city council meeting, budget director Mary Vossler told councilors that Syracuse has perhaps two years to bring health care costs under control.   The alternative, she said, is that “the control board will decide what health plan the employees get.”

To head off that possibility, Miner has recruited former Lt. Gov. Richard Ravitch to lead an advisory committee charged with helping the city explore options.  “This whole situation that we find ourselves in is a way to really change the dynamic of where cities are, and to force a discussion about it,” Miner said. “It seems to me an opportunity for change.”

Crying wolf?

Every recent Syracuse mayor has warned of a fiscal crisis, said Jeff Piedmonte, president of the Syracuse Police Benevolent Association.  “Every year in negotiations, the city says the same thing, whether it was Mayor Driscoll, Bernardi or Alexander: ‘The city has no money, there isn’t any money — and this time I really mean it,’” Piedmonte said.

But this crisis is different, said Ken Mokrzycki, who retired a year ago after 36 years at City Hall. Mokrzycki, a top adviser to five mayors, said the city is in the worst financial shape he can remember.

Since 2008, Syracuse has used roughly $36 million in savings to help pay bills. Most of the extra cash came from a 2006 settlement with Destiny USA that guaranteed the city $53.4 million over 10 years. About $30 million was collected in the first three years.

The city is poised to spend $13 million more this year than it takes in. Next year, the projected gap is $16 million.  Those forecasts may get modified, depending on events. This year’s mild winter weather, for example, saved the city more than $1 million.  But the underlying trend — rising personnel expenses and stagnant revenues — shows no sign of abating, Vossler said.

In the past, when the city got into financial jams, it could often look forward to increases in state and federal aid, Mokrzycki said. State aid to Syracuse increased from $44.7 million in 2000 to $81.7 million in 2008.

But state aid has dropped to $71.8 million this year, the same amount the city got last year. Federal housing aid has dropped from $8.3 million in 2008 to $6.3 million this year, according to city records.  “If it weren’t for the reserves accumulated over the years, we’d have been in this shape a couple of years ago,” Mokrzycki said.

Ravitch, who helped guide the financial recovery of New York City in the 1970s and then revived the New York subway system in the 1980s, will chair a three-person advisory board to be named by Miner in early April. Ravitch also is advising the city of Yonkers.

Ravitch said he has begun compiling financial records from Syracuse, whose problems are similar to other Upstate cities. This crisis will not be easy to fix, he said.  As the state and federal governments cut back to address their own budget problems, local governments are being forced to make choices that will have direct impacts on employees and constituents, he said.

“The guys at the bottom of the pecking order — the cities and counties — are the ones that don’t have anybody to lay off the responsibility to,” Ravitch said.

Syracuse maintains a healthy A1 credit rating from Moody’s Investor Services, the agency’s fifth-highest rating. But the rating could fall if the city continues to spend its cash reserves to balance the budget, according to a November report by Moody’s.

Eyeing nonprofits

The city boosted property taxes 5.4 percent in 2010, but property taxes account for less than 12 percent of city revenues — $33 million out of a budget of $284 million.  Just over half of the city is exempt from taxes. “When 50 percent of your property is off the tax rolls, using property tax to fund your services as a city doesn’t make sense,” Miner said.

Many tax-exempt parcels are owned by government agencies. But about one-sixth of city property — $1.2 billion worth — is owned by private, tax-exempt institutions such as universities, hospitals and churches, assessor David Clifford said.

Miner and members of the council want those nonprofit institutions to pay a share of the city’s costs.  “If you use snowplows, you should have to pay for snowplows,” Miner said. “If you use police services and fire services, you should have to pay for that.”

Last year, Miner persuaded Syracuse University to make $500,000-a-year voluntary payments for city services, saying she hoped to persuade other nonprofits to do the same. But thus far there are no other takers.

“We’re having discussions,” Miner said, not specifying with whom. “Nobody has banged on my door with a million dollars.”  City leaders will push the issue this year.  Common Councilor Pat Hogan said tax-exempt institutions should pay a fee for city services based on the number of employees they have, a rough proxy for how much they depend on city services.

If they won’t contribute voluntarily, Hogan said he is prepared to propose a city income tax. Hogan said he envisions allowing city property owners to deduct their city income tax from their property tax.

He floated a similar idea during negotiations with Onondaga County over sharing sales tax revenue, but dropped it when the county agreed to the city’s terms.  “The large nonprofits have to start paying their fair share,” Hogan said. “Or we’ll bring back the commuter tax.”

Health care targeted

Wages, pension costs and health-care benefits account for two-thirds of the city budget. Wages can’t be cut much without reducing the number of employees further, something Miner says the city cannot do without affecting service. Syracuse has 1,822 employees, 125 fewer than when Miner took office.

Pension plans are set at the state level. But health care cost-sharing is something over which the city has direct control.  The city stops paying wages and pension contributions when an employee retires, but health care expenses keep piling up until the worker reaches Medicare eligibility at 65. Retirees account for 59 percent of city health-care costs. They are older and sicker than active employees, and there are more of them, Vossler said.

Syracuse, which is self-insured, pays for the doctor visits, prescriptions, hospital stays and other costs for 8,322 people — employees, retirees and family members.  The cost this year is about $41 million, almost double the city’s fast-rising pension payment of $21 million. Prescriptions alone cost the city more than $1 million a month, Vossler said.

Most retirees pay the same health-care premiums that active employees pay, as negotiated by the city’s nine unions.  Non-uniformed employees pay $15 a month for individual coverage or $30 for a family plan. Police pay $30 for individual plans, $60 for a family. Firefighters, who agreed to a $15 increase last year, pay the most — $45 for individuals, $75 for families.

Miner said employees and retirees should pay significantly higher premiums, or accept less generous benefits. The city offers “a Cadillac plan,” she said. “But they’re paying for a Yugo.”

The mayor said her goal is for city workers to pay what their counterparts in state government pay, 15 percent of individual plan costs and 25 percent of family plan costs. At the current benefit level, that could hike some employees’ contributions tenfold — to more than $3,700 a year for family coverage.

But many retirees and some city lawmakers resist the idea of hiking costs for retirees.  McClurg, the former firefighter, said reducing health-care benefits for retirees is no more fair than it would be to reduce pension payments. Pension and health care benefits were important elements in the compensation package when he was a firefighter, a job that did not pay well in the 1970s and brought with it a lifetime of extra health risks, McClurg said.

“You can’t — after the fact — pull it back,” McClurg said. “That’s not fair.” McClurg, who lives in the town of Onondaga, has run a construction business since he retired. His pension pays $23,000 a year.

For the 36 employees of McClurg and Associates, McClurg pays $4,200 apiece for individual health insurance. Employees pay the difference if they want a family plan. For himself, McClurg uses city insurance.

McClurg said the $15-a-month increase negotiated by the firefighters union last year should not have been passed on to retirees.  “Take it from the future employees,” he said.  Robert Stamey, personnel director, said the city’s policy has been to keep premium rates the same for retirees and active employees.

But Lance Denno, the council majority leader and a retired firefighter, said he agrees with McClurg. Health-care premiums should be raised only for current employees and future retirees, he said.

“I do not support further increases to contribution rates of employees already retired,” Denno said.  Denno has proposed a sliding scale, under which higher paid employees pay more.  Something along those lines will soon be implemented among Miner’s staff, said Bill Ryan, chief of staff.  “We have to start some place,” Ryan said. “The employees of the mayor will take those steps. What dollar figure, I don’t know.”

Changing health packages for other employees will be more difficult. Except for roughly 200 employees who are not covered by union contracts, health-care benefits must be negotiated with the city’s nine unions.

Control board threat

Piedmonte, president of the police union, said Miner has made it clear in meetings with union leaders that the state could impose a fiscal control board if Syracuse’s financial position deteriorates.

The state Legislature created a control board to oversee Buffalo in 2003, after that city’s credit rating fell to one step above “junk bond” status. The Buffalo Fiscal Stability Authority imposed a three-year wage freeze that prompted demonstrations and union lawsuits, and it continues to control the city’s finances.

Piedmonte said union leaders don’t want a control board in Syracuse. But they also may be reluctant to offer big concessions to prevent that outcome, he said.

“If we make concessions today, and the state takes over next year, I know the state’s not going to look at it and say, ‘Yeah, they already made concessions and we’ll take that into account,’” he said. “You’re reluctant to do too much, because we still could get whacked again if the state takes over.”

Hogan, the city councilor, said Syracuse officials may face a difficult choice if they can’t bring health-care costs down: Lay off current employees to afford health benefits for retirees.

“This is real,” said Ryan, the chief of staff. “We either have to face this reality, or we’re going to have a smaller workforce.”