2005 New York City Transit Strike - Demands and Counteroffers

Demands and Counteroffers

The TWU demanded that all members of the union receive a 6% salary increase per year for each of the three years of the contract, plus more expensive accommodations for maternity leave, and more money to spend on station maintenance. The MTA offered a 3% raise the first year, a 4% raise the second year, and a 3.5% raise the third year. The striking workers reportedly earn an average of about US$48,000 annually.

The TWU also wanted to lower the age at which point the employee is eligible for a full pension from 55 to 50, and the number of years worked to qualify for that pension from 25 years to 20. A 20/50 pension plan had been put in place a few years after a transit strike in the mid-1960s. The immediate retirement of thousands of the most skilled workers, followed by the soaring costs of workers receiving one or more years in retirement for each year worked, was a key factor in the financial and physical collapse of New York City's transit system in the 1970s. By 1980, a less generous 25/55 pension had been imposed on new workers by the state legislature. By the time of the strike, the financial damage from the 20/50 pension plan had abated, because most of those who benefitted had retired with their pensions funded, but those hired under the 25/55 plan were approaching the age at which those who preceded them had recently retired.

A dissident group within the TWU, the New Directions movement, promised a 20/50 pension plan, among other things, as part of its election campaign. After several close and bitterly contested elections, by the time of the strike it had taken over the leadership of the TWU. Despite the damage done to the transit system by a retroactive enhancement of the pension plan in the 1960s, the New York State legislature passed a 20/50 plan several times over the objections of MTA management in the years leading up to the strike. Each time it was vetoed by then-Governor Pataki, who had signed off on hugely expensive pension enhancements for other public employee unions.

Conversely, the MTA had wanted to raise the retirement age for newer workers from 55 to 62, but dropped this demand in exchange for pension contributions from new workers of 6% of gross salary per year for the first 10 years of employment. Under the previous contract, workers contribute 2% to their pension plan.

The pension benefit is not insignificant because it is estimated to cost 25% of salary over the entire 25 year period to fund a pension benefit of half the salary at age 55 for someone who starts employment at age 30. While this estimate is based on a 5% interest rate for discounting present values, a 3.5% annual salary growth rate and mortality according to the Annuity 2000 Merged Gender Mod 1 Table with ages set back 2.0 years. The key point to use the same assumptions to compare the annual yearly cost as a percent of salary for a half pay pension for someone starting at age 30 and retiring at age 62. The additional seven year wait would drive the cost down to under 17% of salary annual cost. In essence, the MTA's proposal was a greater than 8% salary cut across the board. Using a slightly worse mortality table, the effective salary cut is still within the 7% to 6% salary cut range in terms of value given up. By not accepting the MTA pension offer, Local 100 of the TWU was not forced to a cut.

Citing the rising cost of health care, the MTA wanted new employees to contribute 1% of their salary to pay for health insurance. Transit workers currently do not pay for health insurance.

TWU workers also raised complaints about working conditions, including hazards such as smoke, dangerous chemicals and extreme temperatures, abuse from supervisors, verbal or physical threat from passengers, and inability to access restroom facilities on the bus and subway.

In the eleventh hour, the MTA offered a 3.5% per year raise and no change in the retirement age, with the caveat that new transit workers pay 6% of their wages into the pension fund, up from the 2% that current workers pay. The offer was rejected, and a strike declared.

Combined, the pension and health care reforms the MTA sought would cost about US$30 million over the span of the three-year contract. Critics lambasted both the MTA and TWU for allowing a strike to occur over such a relatively small sum. However, the pension costs would balloon to US$160 million in the first 10 years, and US$80 million per year after 20 years. The MTA said that its reluctance to give in to the TWU on this point stems from fear of future deficits (projected to be 1 billion USD by 2009), although critics contend that its assertion of deficits in early 2005 was fabricated to justify fare hikes. The 2012 MTA budget maintained a $68 million deficit.

In 2005, the MTA reported a $1 billion surplus, but it was borrowing heavily for "capital" projects that were little more than ongoing maintenance. In addition, many operating expenses had been reclassified as "reimbursible" by the capital plan, so money could be borrowed to pay for them. The surplus, in effect, was the MTA going into debt more slowly than expected. Some of the surplus came from abnormally high real estate taxes caused by the real estate boom, and quickly disappeared. Meanwhile, by 2009 MTA deficits outgrew the most pessimistic projections. However, unlike in the 1970s debts run up to add fare discounts and divert tax dollars away from maintenance spending via the capital plan were as much or more to blame as the pension plan, because the attempt to restore the 20/50 pension plan via strike did not succeed.

The TWU, for its part, later claimed that it was forced to strike in order to prevent the MTA from raising the retirement age, rather than striking to reduce the retirement age. That was not the case, however, because it is state legislation that sets the terms of the pension plan, and under state law pension terms may not even be the subject of collective bargaining. Years after the strike the pension plan remains retirement at age 55 after 25 years worked. And as a result of past underfunding, due to optimistic rate of return assumptions, and other pension enhancements that benefitted the TWU, such a retroactive inflation adjustment for retirees and an end to employee contributions, the cost of the pension plan to New York City Transit soared from $468 million in FY 2005 to $770 million in FY 2010 with a projected $950 million in pension costs forecast for FY 2014.