Add one more headache to the next mayor’s growing pile: inflation.
Over the past few months, Americans have been seeing big hikes in the day-to-day cost of living for the first time in four decades. Inflation hits the city budget, as well. It doesn’t have to be catastrophic for public services — but keeping it in check at the local-government level requires a firm stance with labor unions.
The numbers back up what people see every day, from McDonald’s raising its menu prices to the record-high cost of Thanksgiving. Over the past year, the Consumer Price Index rose 5.4 percent, but some day-to-day items cost far more: The price of meat, poultry, fish and eggs is up 10.5 percent.
By contrast, over the past 2½ decades, inflation, generally at less than 2.5 percent, hasn’t been on people’s minds. The higher cost of living is jarring for older Americans, who remember the high inflation of the late ’70s and early ’80s, peaking at 14.6 percent in 1980.
For now, the Biden administration’s argument is that inflation will go away. Stuff costs more because of “supply chain” issues, code for people not going to work (“strike-tober,” “quit-tober” and all that).
Maybe. But private-sector labor’s power, the biggest factor in inflation right now, isn’t going away. Amazon, adding another 125,000 workers to its million-strong force, is effectively setting the minimum wage for the country. The company hiked its average starting pay in September to $18.
This can’t be reversed. People who’ve worked for $18 aren’t going to go back to work next year for $15 or $12 or $10. Wages never fall, unless there is a full depression.
So what does that mean for New York’s budget? Already, spending rose by 3.2 percent this year, to $104 billion.
Mayor Bill de Blasio has also bequeathed his successor a bunch of kicked cans. To make future-year deficits — already at $4.1 billion next year — seem lower than they otherwise would, de Blasio assumes spending will stay flat.
The main way de Blasio “accomplishes” this is to project workers’ pay to fall, after having grown by 6.2 percent over the past year, to $31.4 billion, largely due to overtime. Next year, the de Blasio budget assumes it’ll go down by 1.9 percent and then stay below this year’s levels through 2025.
As it happens, all of the city’s major labor contracts will be expired by next fall. If inflation stays above 5 percent, or rises, labor leaders will want pay hikes to compensate — meaning Eric Adams, almost certain to be elected Tuesday, is going to be looking at cries for 15 percent or higher hikes over three years.
In 1980, with inflation raging, the Koch administration actually managed to use higher prices to its advantage: Ed Koch agreed to two-year wage hikes of 8 percent annually, below double-digit price increases. But the state-run MTA fared less well, agreeing, after a strike that spring, to 22 percent wage hikes over two years.
The unions will also likely ask for an automatic “inflation” escalator in their contracts — something leaders asked for starting in the ’70s. The city, backed by the state’s financial-control board, always refused. What will Adams do?
It will matter for the city’s health. It may be tempting to say that inflation, even with high wage hikes, would be neutral for the city budget. If everyone is paid more and stuff costs more, people will pay higher income and sales taxes.
Then there is the city’s debt, with $8.4 billion a year in repayment costs by next year, which the city could pay off in cheaper, future dollars.
But none of this is assured. Inflation generally isn’t great for stock and bond markets, which govern the city’s tax base. In the past, the higher interest rates needed to rein in double-digit price hikes have hurt the broader economy.
Plus, any savings the city would reap on existing debt can be undone by the higher cost of borrowing new money, at higher interest rates.
Then, too, construction costs are already soaring, meaning the price of the city’s $9 billion, four-borough jail project is already rising with every day of delay.
As Adams celebrates on election night, he’d better stay away from reruns of “That ’70s Show.” He may be starring in it soon enough.
Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.
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