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Why Is This Strike Different From Any Other – Or Is It?

Depends on who you talk to.  Ask the folks at the Realty Advisory Board and they’ll say things are different this time because buildings are being squeezed on all sides by rising costs and declining values.  Talk to the people at the Union, 32BJ SEIU, and they’ll say it’s pretty much bargaining as usual.

Right now neither side is showing its hand.  Each has fired its opening salvo: the RAB made its initial proposal earlier this month, which 32BJ rejected in a March 17th press release.  Odds are if a strike is going to be averted on April 20th, we’re not going to know till the eleventh hour. What’s a contract negotiation without a cliffhanger.

So what’s really at issue? The Union wants more money to pay its members.  And the owners want to pay less. That part’s always the same.  Only the actual numbers change, though historically they’ve been fairly constant, most contracts having achieved an annual increase of approximately 3%, including pension and health care benefits — except back in 2004 when the employee health plan went broke and had to be replenished to the tune of $6,500 per man, not an issue this time round.

Both sides agree that under the existing contract the average cost per member is approximately $65,000-70,000, including benefits. And both acknowledge two new developments: 1) The new agreement will be for 4 years, not 3 as they were till the last go round, and 2) The new RAB negotiator is Howard Rothschild, the organization’s president, replacing Jim Berg, who passed away in November – creating a potentially new dynamic.

That’s ground zero. From there each side goes its own way. 32BJ says the cost of living has gone up 11% so its members have to make more just to stay in the same place .To support that stance, they say labor makes up only 8% of a building’s total expenses so owners aren’t going to feel any pain from an increase, especially because they’ve been enriched over the past four years due to the fact that residential real estate values have increased 28%.

 A look behind the numbers reveals that the 8% figure comes from a 2009 NYC Rent Guidelines Board Income and Expense Study. But that number applies only to pre-1947 rental buildings of 11-19 units, and is closer to 20% for the vast majority of larger rental buildings. In my own building, as in most co-ops and condos, labor costs comprise closer to 30% of total expenses.  As for the supposed 28% increase in real estate values, that number is taken from a comparison of market values for fiscal 2006  and 2010  prepared by the NYC Department of Finance for the purpose of calculating real estate taxes.  It has little to do with actual value because by law it cannot be based on sales price, and in addition the data used lag the market by 18 months. (See, What Goes Up Must Come Down.)

The RAB says costs like real estate taxes and water and sewer have skyrocketed, while real world prices of apartments have declined, leaving cash strapped owners unable to pay more. Add to that, inflation was negative for much of 2009 so there’s no justification for any increase and, in fact, current employees should pay 10%, and future employees 18%, toward health care costs.

The people most affected by the outcome have the least say. Ask the guys who man the doors and the consensus seems to be: We don’t want a strike, but the decision is out of our hands. No one asks the owners of co-ops and condos who’ll pick up the tab, and whose interests may be different from owners of rental buildings, who generally are more interested in cutting costs to maximize profits, than worrying if residents have to throw out the trash.  According to Mr. Rothschild, that gap has largely closed, as even Park Avenue buildings feeling the economic pinch, seek to rein in expenses.

Not even boards, who have lots of power on most things have much say. In my 15 years on board, no one asked any of us for their input, though I was assured that the RAB meets with boards of hundreds of buildings, As a practical reality what usually happens is that managing agents send in form letters authorizing the RAB to negotiate on behalf of your building often without consulting boards, figuring they don’t want to be bothered.

The generals have spoken.  Like it or not, you and me and the foot soldiers on either side of the divide await their next command. Stay tuned.

 

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