Tuesday, April 25, 2006

The Taylor Law and the Offer We Can't Refuse

Investors on Wall Street know it, the banks and credit card companies know it, certainly Tony Soprano and Paulie Walnuts know it. "It" is the time value of money—that a dollar in your hand today is worth more than that dollar in your hand tomorrow. When people borrow your money, they should give you more back when they repay you. It's a basic principle of modern economic society. But like the fictional racketeers on HBO, the management of the City University of New York (CUNY) has made its employees an offer they can't refuse: give CUNY an interest-free loan for over 3.5 years.

The public and quasi-public agencies of New York State expect their employees to forget the time value of money when it comes to contract negotiations. Yes, after a contract agreement is reached, the employee receives retroactive pay back to the contract start date, but not the lost interest from that retroactive pay. The retroactive pay is money that the public agency has 'borrowed' from its employees, and there is a big financial motive for CUNY, and other public institutions, to drag out negotiations and extend those loans.

As an example, the faculty and professional staff of CUNY, represented by the Professional Staff Congress (PSC-CUNY), have been working without a contract since October 31, 2002, i.e., have seen no raises since then. The proposed contract between CUNY and PSC-CUNY is:
· Year 1: a one-time, non-recurring sum of $800 (pro-rated for part-timers), and not included in the base pay;
· Year 2: an increase of 2.5% (the Year 1 $800 lump sum not included in this calculation);
· Year 3: an increase of 2.75% (the Year 1 $800 lump sum not included in this calculation);
· Year 4: an increase of 3% (the Year 1 $800 lump sum not included in this calculation);
At the same time, the US Department of Labor estimated the Consumer Price Index for the metropolitan New York area as 2.6 % in 2002, 3.1% in 2003, 3.5% in 2004, and 3.9% in 2005. So far, the CPI has been hovering around 3.7% for 2006. Based on figures from "Teachers in NYC's Institutions of Higher Learning" by Andrew Beveridge for the Gotham Gazette, the average pay for CUNY full-time faculty is $70,101.

Assuming the contract finally kicks in by July 1st, 2006, if we calculate the interest on the backpay based on these figures, CUNY owes each full-time faculty member an average of $299.32*. This is not retroactive pay, this is the interest on that retroactive pay—about the size of a decent tax rebate these days. According to PSC-CUNY, it has 6,582 faculty members, which mean that CUNY owes full-time faculty $1,970,110.40 in interest.

The US government's CPI figures are notoriously low, however, because they include Pennsylvania in the NY Metro region. The New York Education Department specifies much higher bond interest rates for educational projects in the New York City area (4.875 % in 2002, 4.75% in 2003, 4.375% in 2004, and 4.375% in 2005). Because CUNY is an educational institution, and its employees are lending it money, this is a fairer interest rate. Recalculating the interest on the back pay at these rates, CUNY owes an average of $388.05 to each full-time faculty member, or $2,554,128.52 to the full-time faculty.

This only accounts for full-time faculty. There are approximately 2,800 other full-time professional employees in CUNY, as well as almost 10,000 part-time employees covered by the PSC agreement. I don't have the average pay figures for these other employees, but conservatively, CUNY owes the employees represented by PSC-CUNY close to $3.5 million in interest. For this kind of largesse, PSC-CUNY should get a university building named after it!

The Taylor Law allows public and quasi-public agencies in New York State to extort these interest-free loans from its employees through negotiation delays. This gives management an incentive to delay contract resolutions. When contract between CUNY and the PSC expired October 31st, 2002, CUNY's management waited for over two years before making its first economic offer--all the while, not having to pay interest on the retroactive pay it was borrowing from its employees. I previously offered some reforms that are needed for the Taylor Law (see "It's Time To Reform The Taylor Law"). Here's another one:

Taylor Law Reform #4: Take the financial motive out of delay tactics. Retroactive pay for late resolved contracts should include interest based on New York State Educational Bond rates.
Obviously, the longer a contract negotiation drags out, the more the public agency will owe its employees in interest. This will remove the financial incentive for management to delay.

The Taylor Law was intended to provide an environment of good-faith and timely resolution to contract and pay disputes for public employees, while minimizing strikes by those employees. Until the Taylor Law makes both public employees and employers suffer from delays in contract resolution, it will continue to be an unfair law, and fail as good public policy.

* If you want my calculations for the interest owed on retroactive pay, write me at bill.ferns@gmail.com, and I'll send you my spreadsheet.

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