NYSUT is a Ponzi Scheme - Harris Lirtzman Analyzes the Financials - Does ST Notice?

NYSUT ... has a salary structure unlike anything I've seen in any other organization. In 2014, NYSUT had about 500 employees on its payroll.  Something like 60% of the overall NYSUT payroll went to staff members making more than $100,000....

So long as the cash keeps moving from dues-paying members to NYSUT to the AFT to the UFT and back around it can keep its doors open.  When any part of that chain-of-cash gets broken, for example when its members stop paying a large portion of their dues, the weakest link in that chain will fail.  NYSUT is that weak link.... 

Harris Lirtzman, Deputy NYS Comptroller for Administration from 2003-2007

After I posted Mike Antonucci/EIA report of the NYSUT financials - NYSUT Blues - Dire Finances and ST Criticism of Non-Union Consultant - and the EIA NYSUT financials from last year and the year before - NYSUT Financial Reports from EIA, 2015, 16 
--- LM-2 reports always lag a year behind ---

I heard from old pal Harris (Harry) Lirtzman, who I met through MORE about 4 years ago. If you want to know why I've been involved in groups like ICE, GEM and MORE, one of the major reasons it that I get to know people like Harry, a deep thinker and someone you can talk to just about anything. Even when we have serious disagreements, we always manage to bury the hatchet - usually over lunch without food fights.

Harry's years spent inside the Democratic Party fighting for his core issues has given him an interesting perspective about the party, especially over the past year and has led to some interesting conversations, to say the least, about Bernie/Hillary and the future of the party.

Unlike me, Harry had a variety of jobs before he taught for a few years at the end of his working time. He was Deputy NYS Comptroller for Administration from 2003-2007, which makes him uniquely qualified to examine the NYSUT budget, which he actually did around 2 years ago, as he describes below. He offered the results to some of us to publish and I remember there were some discussions around that. My thinking is fuzzy but I recall possibly at a MORE meeting some people being concerned about falling into the "bash the teacher union trap" as part of the general attack on unions. After all, that is what EIA, an anti-union site, is doing. But that is the Unity line --- we have to band together and what? bury the dirt?

I believe the best defense of unions is to fight openly for a democratic, non-corrupt union. Tell me this: Unity fucked up by installing Karen MaGee as president 3 years ago and we have to pay for their mistake by bumping her upstairs to a made to order job. Do we bury that?

By the way --did you know that Stronger Together is running against Unity -- let me know when they broach the subject of NYSUT financials.

Antonucci posited this thought in his post last April: New York State United Teachers is the teacher union equivalent of “too big to fail.”

Hmmm. That led Harry and I into a semi-deep discussions this afternoon of what that idea could mean. We're doing lunch soon and will explore that concept further.

On NYSUT Financials 
by Harris Lirtzman
March 19, 2017

Two years ago, I reviewed in detail the NYSUT LM-2 for 2014, the same document that Mr. Antonucci reviewed for his analysis.
              I concluded a couple of things.  

              The first thing I found, just like Mr. Antonucci did, was that NYSUT is insolvent on paper and is able to operate only because it is using curious sorts of loans to and from the UFT and AFT and transfers from internal funds earmarked for teacher education and professional development to generate enough cash flow to keep itself running.  An organization can be insolvent on paper but still operate so long as it has cash flow to pay its bills--when the cash flow stops and it can't pay its bills it goes bankrupt (for those of you old enough, think about the New York City fiscal crisis in the 1970s when the City was in deep financial trouble for years before it finally ran out of money to pay its bills). If NYSUT goes bankrupt because 25-30% of its members stop paying dues when the Supreme Court upholds "Son of Friedrichs" or the Republicans pass a national right-to-work law, and because the UFT and AFT can’t afford to keep bailing it out, it will no longer be able to defend any teacher, much less Marilyn Martinez, or negotiate any labor contract for its member locals. 

              NYSUT is a Ponzi scheme. So long as the cash keeps moving from dues-paying members to NYSUT to the AFT to the UFT and back around it can keep its doors open.  When any part of that chain-of-cash gets broken, for example when its members stop paying a large portion of their dues, the weakest link in that chain will fail.  NYSUT is that weak link.  No one, but especially not the UNITY folks who now control NYSUT, ever suspected that the cash could stop.  But it will stop and soon.

              Mr. Antonucci is only partly correct when he says "...honoring the work and commitments made to NYSUT’s unionized staff has resulted in net assets of negative $413 million. The teachers of New York are on the hook for that."  He’s right about the desperate financial condition.  For better or worse, he’s wrong about who’s going to be left holding the bag. 

              The teachers of NYS are not on the hook for any retirement or health care obligations accrued by current and former NYSUT employees. Those employees are not protected under state law or the state constitution the way that public school teachers are.  There is no funded NYSUT pension system available to them like there is in the state and city for teachers. They are protected only by their contract with NYSUT.  NYSUT, and only NYSUT, is on the hook for contractual commitments it made to its employees.  If--more accurately, when--NYSUT goes bankrupt those retirees will have to get in the same line with every other NYSUT creditor. That means that they will have nothing but the piece of paper on which their contract was written to show for their life time of service on behalf of NYS teachers and will have to take their chance in bankruptcy court along with everyone else to try to get those commitments honored.  Good luck with that.

              The second thing I found when I looked at NYSUT was that it has a salary structure unlike anything I've seen in any other organization. In 2014, NYSUT had about 500 employees on its payroll.  Something like 60% of the overall NYSUT payroll went to staff members making more than $100,000.  Yes, 30-40 of these people are highly-paid attorneys.  As some of your readers may know, I was Deputy NYS Comptroller for Administration from 2003-2007.  I can assure them that I’m aware of no, zero, none, not one non-profit or government agency that pays 60% of its payroll to employees making $100,000 or more a year.  I doubt that even Wall Street firms pay more than 60% of their payroll to employees making over $100,000 and I worked as an investment banker for Merrill Lynch and Co. from 1983-1990.  

              No. 1 and No. 2 are connected to each other.  If you pay your staff very high salaries you will owe them lots of money for pensions and health care benefits when they retire.  You can either make arrangements to pay for those commitments by funding them over time and investing those funds to earn more money.  Or you can take cash that comes in today from member dues and use it to pay the benefits you owe your current and retired employees.  The first way is prudent but can be expensive.  The second way can work but only if everything plays out the way you hope. 

Things in the Age of T#ump are not working out so well. Hope is a frail thing.  When your strategy is based on hope you can wind up bankrupt.

              I circulated my findings to a group of people two years ago.  I wrote a cover memorandum explaining the enormity of what I thought was going on at NYSUT.  I admit that it's not 'sexy' stuff and people told me either that they hoped Stronger Together would take care of the situation or that we ought not to challenge NYSUT when Freidrichs was still on the Court's docket.

              We need to figure out what the people who run NYSUT, the UFT and the AFT are doing with our money.  We can no longer take at face value any assurances they give us about how they are managing the $1,000 and more that most of us give them each year from our paychecks. They are not using it well. None of this is rocket science.

              The people who run NYSUT now won’t be affected by any of this. They’re being paid big bucks or can, like Karen Magee, parachute into special gigs created for them by Michael Mulgrew and Randi Weingarten when they’re no longer useful to them.

              If what Mr. Antonucci and I think may happen does happen the people who will suffer are the people at NYSUT who work valiantly on our behalf.  Just as important, every teacher in the state will suffer because NYSUT’s attorneys protect us when our rights are threatened, NYSUT’s collective bargaining representatives negotiate our contracts every few years and NYSUT’s professional education and development staff give us the credits we need to keep our licenses.  We take them for granted.  But they may not be there a few years from now when we need them the most.

               We can keep the worst of this from happening if we take the time, now, to understand how badly NYSUT is managed, how terribly our money is being misused and how much we will lose if we don’t act.  I hope that the political strategy works in the long run. I'm afraid that we don't have the long run to find out.

              Teachers of the state unite!  You have nothing to lose but your union.