City Council Speaker Christine Quinn and the chairman of the Municipal Labor Committee, an umbrella group of labor unions, have broached the idea of tapping a union-controlled health care slush fund to prevent 4,100 scheduled scheduled teacher layoffs and 20 firehouse closures proposed by Mayor Michael Bloomberg as part of New York City’s budget for the fiscal year that begins in two weeks.

The money in question (estimated at a half-billion dollars in all, technically known as the Health Insurance Stabilization Fund) is a rainy-day reserve within a larger pot of 81 different union-administered “welfare funds,” into which the city contributes about $1 billion a year.  The funds pay for benefits such as prescription drugs, optical and dental care, and other extras above and beyond services covered by the employee health insurance coverage.

Teacher and firefighter unions obviously would lean towards favoring such a move, but District Council 37, the largest municipal union, reportedly is opposed.  ** UPDATE: Unions today reportedly shot down the deal at a private meeting of the Municipal Labor Council. **

And with good reason. For several years now, the city has been living off prior-year surpluses — in effect, a rolling series of multibillion-dollar one-shots.  Money from the health care slush fund reserve would add another one-shot to the pot, raising the projected fiscal 2013 budget gap above $5 billion.  This equates to a sizable problem, even by New York City standards.

Consider this sobering paragraph from the latest Financial Control Board analysis of the city’s financial plan:

The city will be entering FY 2012 [on July 1] with a balanced budget and no money set aside to deal with the FY 2013 budget gap.  The surplus created in FY 2011 has allowed the city not only to propose a balanced budget in FY 2012, but to largely replace the loss of almost $1.7 billion in federal and state education aid with city funds.  Since this was accomplished with nonrecurring resources, the projected budget gap for FY 2013 is over $4.8 billion. It will become more and more difficult for the city to manage its budget in an uncertain economic recovery and with the likelihood of further reductions in federal and state aid. The city will have to act again quickly to reduce expenditures and increase revenues to build up a surplus of the magnitude of past years. [emphasis added]

In other words, almost as soon as the 2012 budget passes, Bloomberg will need to start making cuts to help close the gap in the next budget after that.

A better way to save money would be to entirely eliminate the welfare funds and consolidate supplementary benefits under the city’s health care plan, as recommended by the Citizens Budget Commission.  Council Speaker Quinn, who tops a long list of would-be mayors-in-waiting, should help Bloomberg push to accomplish this–whether the unions like it or not.