A Funding Proposal to Alleviate PAT’s Financial Woes

Member Group : Allegheny Institute

(March 5, 2012)–By now it should be common knowledge that the source of the Port Authority’s (PAT) financial problems stem from decades of labor contracts containing excessively generous pay and benefits—especially retirement related benefits. Legacy costs are crippling the transit agency. Indeed, unfunded liabilities for non-pension retiree benefits surpassed $800 million in 2011. In FY 2012, PAT budgeted $33 million for pensions and $34.3 million for retiree health benefits, almost 20 percent of total spending. Ironically, the recent and pending bus service and employee cuts simply raise the legacy costs as a share of total spending.

How did employee and retiree benefits become so generous? Two main reasons. Board membership and management that failed to take into account the inevitable extreme financial burden the contracts being signed would produce. But more importantly, the excessively generous contracts reflect the unions’ outsized bargaining power arising from their right to strike. No public sector employees can create a bigger negative economic and societal impact on the community than transit workers who refuse to drive the buses or operate the light rail system. Thus, the threat of a walkout gives them enormous bargaining leverage with PAT management and the Board. Consequently, it was simply easier for the Board to give in to union demands for many years than to take a massively disruptive strike.

Notwithstanding the service cuts in recent years that have improved the efficiency of service delivery—traceable largely to the elimination or cutbacks on low passenger volume routes—PAT still cannot bring its retiree benefit costs under control.

The harsh reality is there are only two meaningful long term solutions—bankruptcy to get relief from the legacy costs or have the state continue to increase funding every year simply to cover the rise in unavoidable benefits. The first option requires the state to change the law to allow PAT to file for bankruptcy, something it seems very reluctant to do even in the face of the insurmountable difficulties piling up owing to PAT’s legacy costs. The second solution also faces strong opposing forces. Having state taxpayers continue to pour ever increasing amounts of money so PAT can maintain its generous benefits to retirees while simply holding service levels steady or slowing their decline makes no sense and will garner little support among state representatives from other parts of the state.

So what can be done to alleviate some of the effects of the pending $64 million short fall in fiscal 2102-13?

Here is an idea. The Governor and Legislature could offer to find $30 million in additional funding for PAT in the coming fiscal year in exchange for an agreement by the unions and their legislative advocates to support legislation to eliminate the right of the transit workers to strike with stringent criteria on any arbitration process to protect taxpayers’ interests. By eliminating the right to strike, the future of contract negotiations would be carried out in an environment wherein transit users could not be used as hostages to gain a very generous settlement for the unions.

The union response to such an offer will go a long way to demonstrate to the public whether there is ever going to be a chance to resolve PAT’s problems in a way that does not involve either continued declines in service or more and more money from the state to pay for past excessive generosity in labor talks.

Clearly, $30 million still leaves a big funding gap for PAT, but in combination with voluntary concessions by employees and retirees before July 1, the situation could be much less threatening than it will be if the status quo is allowed to continue.

Jake Haulk, Ph.D., President

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