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Outgoing NYC comptroller highlights risks from union negotiations

By Edward Krudy

NEW YORK (Reuters) - New York City outgoing Mayor Michael Bloomberg is leaving a legacy of pay disputes with public sector workers that poses a huge risk to the city's budget, New York's top financial watchdog said on Tuesday.

Comptroller John Liu used his final speech in office to highlight the $3.5 billion risk to the city's budget from expired public school teachers' contracts, an unresolved legacy of the Bloomberg administration.

Pronouncements by the city's elected officials are losing their potency as they prepare to hand over office to a newly elected cadre come January 1. But Liu's comments were a timely reminder of the fiscal challenges faced by incoming Mayor-elect Bill de Blasio.

"Mayor Bloomberg's last financial plan is fraught with risks which, if realized, could blow a hole in this so-called balanced budget," Liu said during his state of the city address that doubled as a festive farewell and photo-op after his four years in office.

Liu has been one of Bloomberg's fiercest critics. He made a bid to succeed him as mayor earlier this year but failed to secure the Democratic nomination.

"The enormity of this risk to the city's budget depends on the timing and magnitude of wage increases and retroactive pay," Liu said.

The city's public school teachers are demanding two retroactive raises of 4 percent each that other public sector unions got during a round of bargaining from 2008 to 2010. That could cost the city $3.5 billion, according to multiple estimates, a large chunk of its $70 billion budget.

On top of that, the city's other public sector unions are demanding pay raises for years when Bloomberg froze wages for their workers in the aftermath of the financial crises of 2008-2009. Those increases could push the bill up to $7 billion to $8 billion, according to the city.

All of the city's 300,000 public sector workers are currently working without contracts after choosing not to agree to Bloomberg's terms. Renewing them will likely be de Blasio's biggest challenge next year.

The risks are large enough that some investors, who hold the city's $40 billion debt, have been holding off buying more debt or even selling some of their exiting holdings.

A state fact-finding panel held a final hearing between the teachers' union and the city last week. The Bloomberg administration is arguing that accounting rules mean it cannot pay retroactive wages as a bonus in future years and any retroactive raises paid out in a single year would be too big a burden for the budget.

Bloomberg, who is keen to cement his image as fiscally prudent steward of the city's finances as he prepares to leave office after 12 years, announced in November that he is handing de Blasio a balanced budget next year, eliminating a previously projected deficit of $2.2 billion.

Liu, however, says the budget cannot be called balanced while the risk from contract negotiations looms over the city. He believes the unions' stance is legitimate given the city's commonly accepted practice of pattern bargaining, under which an agreement with one union serves as a pattern for the rest.

"The unions have a strong case; this city has seen pattern bargaining for decades and it was always the case under the previous eight years of this administration," Liu told reporters.

A spokesman for Bloomberg was not available to comment on Liu's remarks.

De Blasio, the city's first Democratic mayor in two decades, has said the city cannot afford to meet all the unions' demands but has not closed the door to retroactive pay raises altogether. A spokeswoman for de Blasio did not comment.

(Reporting by Edward Krudy; Editing by Dan Grebler)

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