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BUFFALO TEACHERS FEDERATION v. TOBE

August 18, 2005.

BUFFALO TEACHERS FEDERATION, BUFFALO EDUCATIONAL SUPPORT TEAM-NEA/NY, TRANSPORTATION AIDES OF BUFFALO, NEA/NY, SUBSTITUTES UNITED/BUFFALO-NEA/NY, BUFFALO COUNCIL OF SUPERVISORS AND ADMINISTRATORS, AFSCME LOCAL 264, PROFESSIONAL, CLERICAL AND TECHNICAL EMPLOYEES' ASSOCIATION and LOCAL 409 INTERNATIONAL UNION OF OPERATING ENGINEERS, Plaintiffs,
v.
RICHARD TOBE, THOMAS E. BAKER, ALAIR TOWNSEND, H. CARL McCALL, JOHN J. FASO, JOEL A. GIAMBRA, MAYOR ANTHONY MASIELLO, RICHARD A. STENHOUSE and ROBERT G. WILMERS, in their official capacities as directors/members of the Buffalo Fiscal Stability Authority, Defendants.



The opinion of the court was delivered by: WILLIAM SKRETNY, District Judge

DECISION AND ORDER

I. INTRODUCTION

On July 3, 2003, the legislature of the State of New York created the Buffalo Fiscal Stability Authority ("the Control Board") to stabilize and improve the city of Buffalo's failing financial health.*fn1 One of the powers the legislature vested in the Control Board is the discretion to freeze wages. On April 21, 2004, the Control Board exercised that discretion and enacted a Wage Freeze Resolution, which for purposes of this case, had the effect of eliminating contractual salary increases that Plaintiffs had negotiated with the city of Buffalo school district.

  Plaintiffs filed suit in this court challenging the Buffalo Fiscal Stability Authority Act (the "BFSA") and the Wage Freeze Resolution as violative of the Contract and Takings Clauses of the United States Constitution. Presently before me are the parties' competing Motions for Summary Judgment.*fn2 Having reviewed the motion papers and the applicable law, I find that the Wage Freeze Resolution is not unconstitutional. Rather, the state has acted properly within its police power to address the city of Buffalo's dire financial situation. The Wage Freeze Resolution is a reasonable and necessary means to remedy the city's economic inviability and secure the welfare of its residents. It serves the ultimate goal of restoring the city's fiscal independence. Accordingly, Plaintiffs' motion will be denied and Defendants' motion will be granted.

  II. BACKGROUND

  A. The Parties and the Collective Bargaining Agreements

  Plaintiffs are employee organizations that serve as the exclusive bargaining representatives for their respective employee units.*fn3 (Plaintiffs' Rule 56 Statement of Undisputed Facts ("Plaintiffs' Statement"), ¶ 1; Defendants' Rule 56 Statement of Undisputed Facts ("Defendants' Statement"), ¶¶ 1-8.) Defendants are directors/members of the Control Board, which is a public benefit corporation. (Defendants' Statement, ¶¶ 9, 10.)

  Each Plaintiff employee organization is a party to a collective bargaining agreement with the city of Buffalo school district. (Plaintiffs' Statement, ¶ 2; Defendants' Statement, ¶¶ 1-8; 11, 13, 15, 17, 19, 21, 23, 25.) These agreements provide for periodic step increases and/or other types of salary increases, such as longevity payments, to be paid to the covered employees.*fn4 (Plaintiffs' Statement, ¶¶ 3-4; Defendants' Statement, ¶¶ 27, 29.) On average, the covered employees are contractually entitled to receive salary increases of roughly 2% per year. (Plaintiffs' Statement, ¶ 5.)

  B. The City of Buffalo's Fiscal Crisis

  In May of 2003, the Speaker of the New York State Assembly requested that the State Comptroller's Office conduct a review of the city of Buffalo's finances. (Defendants' Statement, ¶ 58; Johnson Declaration, Exhibit D.) This review was intended to assist lawmakers in determining whether the city would need financial assistance from the state to close current and future budget gaps. (Defendants' Statement, ¶ 59; Johnson Decl., Exhibit C, p. 1.)

  The State Comptroller's ensuing report detailed the city of Buffalo's desperate fiscal straits. (Johnson Decl., Exhibit C.) Among others, the State Comptroller made the following findings:
• The city of Buffalo had been operating with a structural deficit for several years, and was only able to fund its operations with increasing state aid and the use of its reserves. (Johnson Decl., Exhibit C, p. 1.)
• The city of Buffalo's budget increases since 1997-1998 were funded through increasing state aid, which grew from $67 million in 1997-1998 to $123 million in the city's 2002-2003 fiscal year. (Johnson Decl., Exhibit C, p. 12.)
• The city had a combined deficit for the fiscal years 2000-2001 and 2001-2002 of $23.8 million, and the 2002-2003 budget as initially adopted was balanced only by exhausting the city's reserves. (Johnson Decl., Exhibit C, pp. 1, 12.)
• The city of Buffalo's estimated budget deficit for 2002-2003 was $7.5 million. The city also faced a 2004-2005 estimated budget deficit ranging from $30-$48 million up to $60-$78 million, depending on the Board of Education's budget. The city faced increased estimated deficits of $76-$107 and $93-$127 million in 2005-2006 and 2006-2007, respectively. (Johnson Decl., Exhibit C, pp. 1-2, 12, 20-22.)
  The State Comptroller concluded that due to these continuing and serious structural imbalances, the city of Buffalo was not in a position to rectify its budget on its own. (Defendants' Statement, ¶ 62; Johnson Decl., Exhibit C, pp. 2, 30.) He also concluded that a new approach must be adopted by the city to restore its fiscal integrity. (Johnson Decl., Exhibit C, p. 30.) In the State Comptroller's view, it was incumbent upon the city to adopt financial plans and practices that would bring its recurring expenses in line with its recurring revenue. (Johnson Decl., Exhibit C, p. 30.) To that end, one of the State Comptroller's recommendations was that the state legislature create a control board to oversee and administer Buffalo's finances "to ensure that effective long-term restructuring takes place in Buffalo." (Defendants' Statement, ¶ 60; Johnson Decl., Exhibit C, p. 2.) The State Comptroller also recommended that the control board be given the power to freeze wages in the event of a declared fiscal crisis. (Johnson Decl., Exhibit C, p. 31.) The state legislature accepted both recommendations.

  C. Enactment of the BFSA

  On July 3, 2003, the New York State legislature enacted the BFSA. See N.Y. PUB. AUTH. LAW § 3850, et seq. (McKinney Supp. 2005). As indicated in the legislative declaration of need, the impetus of the BFSA was the city of Buffalo's crumbling finances, as evidenced in the State Comptroller's report:
The legislature hereby finds and declares that the city of Buffalo is facing a severe fiscal crisis, and that the crisis cannot be resolved absent assistance from the state. The legislature finds that the city has repeatedly relied on annual extraordinary increases in state aid to balance its budget, and that the state cannot continue to take such extraordinary actions on the city's behalf. The legislature further finds and declares the maintenance of a balanced budget by the city of Buffalo is a matter of overriding state concern, requiring the legislature to intervene to provide a means whereby: the long-term fiscal stability of the city will be assured, the confidence of investors in the city's bonds and notes is preserved, and the economy of both the region and the state as a whole is protected.
N.Y. PUB. AUTH. LAW § 3850-a.

  In general, the BFSA requires the Control Board to monitor the city of Buffalo's financial plans on an ongoing basis to ensure that the city is adhering to the detailed fiscal requirements set forth in the BFSA. (Defendants' Statement, ¶ 56.) For example, the BFSA requires that the city prepare and submit to the Control Board a four-year (2004-2007) financial plan demonstrating, among other things, that annual operating expenses will not exceed annual operating revenues. N.Y. PUB. AUTH. LAW § 3857(1). The goal is for the city to steadily balance its budget gaps with less and less outside financial assistance until it can independently balance its budget in 2008-2009. N.Y. PUB. AUTH. LAW § 3857(1).

  The city's financial plans must be approved by the Control Board. N.Y. PUB. AUTH. LAW §§ 3858(2)(a). The BFSA provides a mechanism by which the Control Board may review and modify the city's financial plans. N.Y. PUB. AUTH. LAW § 3857. If the city fails to modify its financial plans or fails to demonstrate that it is closing its budget gaps according to the requirements of the BFSA, the Control Board is vested with the authority to act to ensure that the city takes all necessary corrective actions. N.Y. PUB. AUTH. LAW §§ 3857(2), 3858(2). For example, the BFSA specifically authorizes the Control Board to impose a "wage and/or hiring freeze" upon a finding that such a freeze is "essential to the adoption or maintenance of a city budget or a financial plan that is in compliance with [the BFSA]." N.Y. PUB. AUTH. LAW § 3858(2)(c)(i). The BFSA specifically provides that
the [Control Board] shall be empowered to order that all increases in salary or wages of employees of the city and the employees of covered organizations which will take effect after the date of the order pursuant to collective bargaining agreements, other analogous contracts, or interest arbitration awards, now in existence or hereafter entered into, requiring such salary or wage increases as of any date thereafter are suspended.
N.Y. PUB. AUTH. LAW § 3858(2)(c)(i).
  The BFSA further provides that the frozen wages shall not be paid retroactively:
no retroactive pay adjustments of any kind shall accrue or be deemed to accrue during the period of wage freeze, and no such additional amounts shall be paid at the time a wage freeze is lifted, or at any time thereafter.
N.Y. PUB. AUTH. LAW § 3858(2)(c)(iii).

  D. Implementation of the Wage Freeze

  On October 21, 2003, the Control Board approved a four-year financial plan for the city. (Johnson Decl., Exh. A.) The Control Board continued to review and monitor the economic conditions of the city and the viability of the four-year plan as it is required to do under the BFSA. (Johnson Decl., Exh. A.) In doing so, the Control Board discovered that the immediate financial plan was out of balance, and that the city was projecting multiple increases in recurring expenditures, primarily related to personnel costs. (Johnson Decl., Exh. A.) Specifically, the Control Board determined that the city was projecting an increase in the 2004-2005 budget gap of more than $20 million above the $26 million gap projected in the financial plan, and that the projected cumulative gap over the next financial plan would exceed $250 million. (Johnson Decl., Exh. A.)

  Consequently, on April 21, 2004, the Control Board enacted Resolution No. 04-35, otherwise known as the Wage Freeze Resolution. (Defendants' Statement, ¶ 37; Johnson Decl., Exh. A.) This resolution was enacted based on the Control Board's finding that a wage freeze was "essential to the maintenance of the Revised Financial Plan and to the adoption and maintenance of future financial plans and budgets that are now in compliance with the [BFSA]." (Johnson Decl., Exh. A.) In pertinent part, the Control Board resolved as follows:
RESOLVED AND ORDERED, that a wage freeze, with respect to the City and all Covered Organizations, is essential to the maintenance of the Revised Financial Plan and to the adoption and maintenance of future budgets and financial plans that are in compliance with the Act; and be it further
RESOLVED AND ORDERED, that effective immediately, there shall be a freeze with respect to all wages, wage rates, and salary amounts for all employees of the City and all Non-exempt Covered Organizations, to the full extent authorized by the Act (the "Wage Freeze"), and be it further
RESOLVED AND ORDERED, that this Wage Freeze shall apply to prevent and prohibit any increase in wage rates, wages or salaries for any employee of the City or a Non-exempt Covered Organization, including, but not limited to, any increased payments for holiday and vacation differentials, shift differentials, salary adjustments according to plan and step-ups or increments; and including increases in wage rates, wages or salaries pursuant to any plan or schedule for advancement or promotion; and including any increases in wage rates, wages or salaries provided for under collective bargaining agreements, interest arbitration awards, employment agreements, or discretionary increases to non-represented employees, provided that such suspended salary or wage increase shall not be considered as part of compensation or final compensation or annual salary earned or earnable for the purpose of computing the pension base of any retirement allowances; and be it further
ORDERED AND RESOLVED, that the foregoing Wage Freeze shall apply to prevent and prohibit any increase in wage rates, wages or salaries that is scheduled to commence or otherwise take effect on or after the effective date of the Wage Freeze, notwithstanding that (a) the increase was bargained for, provided for in an existing collective bargaining agreement, or otherwise planned prior to the effective date of the Wage Freeze, and/or; (b) the increase is designated as retroactive, or otherwise purports to relate to work performed prior to the effective date of the Wage Freeze.
  The wage freeze took effect immediately, on April 21, 2004. (Johnson Decl., Exh. A.)

  E. Procedural History

  On June 17, 2004, Plaintiffs commenced this action by filing a Complaint in the United States District Court for the Western District of New York. Defendants filed their Answer on July 27, 2004. On February 28, 2005, the parties filed Cross-Motions for Summary Judgment. After full briefing on the motions, this Court held oral argument on May 24, 2005, and reserved decision at that time.

  III. DISCUSSION

  A. Summary Judgment Standard

  Rule 56 of the Federal Rules of Civil Procedure provides that summary judgment is warranted where the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). A "genuine issue" exists "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). A fact is "material" if it "might affect the outcome of the suit under governing law." Id. In deciding a motion for summary judgment, the evidence and the inferences drawn from the evidence must be "viewed in the light most favorable to the party opposing the motion." Addickes v. S.H. Kress and Co., 398 U.S. 144, 158-59, 90 S.Ct. 1598, 1609, 26 L.Ed.2d 142 (1970). "Only when reasonable minds could not differ as to the import of evidence is ...


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