The Case For Raising Revenues

By Mike Musuraca

As we enter the Bloomberg era, political leaders and commentators are sending out a troubling message. They echo Mayor Michael Bloomberg who in his inaugural address ruled out a tax increase of any kind, and has suggested a reduction in the city's workforce through attrition, early retirement, and severance. Although he has said he hopes to avoid layoffs, I assume if these approaches fail, he might turn to them after the end of the fiscal year on June 30, 2002. That, in short, is the framework the city will use in making some "tough choices" as the mayor calls them.

From my point of view -- and I admittedly have a very big self-interest here as a representative of the city's largest municipal employee unions -- this thinking is as narrow and as unimaginative as it gets. It also ignores a number of realities.

For one, the composition of the city's workforce has undergone a radical transformation since Rudolph Giuliani took office in 1994. Teaching and uniformed personnel now account for a much larger share of the city workforce than they did then. So, unless Mayor Bloomberg intends to reduce the numbers of teachers, police and firefighters, workforce cutbacks will not generate nearly the levels of savings the city needs.

Contrary to what some, such as Felix Rohatyn and state Comptroller Carl McCall, have suggested, the city's pension funds are not a pot of money to be tapped for anything but the benefit of the members of the retirement system. They are not to be used to repair the city's infrastructure or to cover costs of early retirement and severance.

During the 1975 fiscal crisis, the municipal employee pension funds agreed to invest in Municipal Assistance Corporation and city bonds. But the conditions of that time, when the city was essentially shut out of the credit market because of its huge short-term debt, do not exist today. The city still has access to credit markets and meanwhile the unions still want to see what the new administration will do. This does not mean, of course, that the funds could not be invested in a way that would benefit both members of the system and the city. But for now, a bailout similar to the one in 1975 does not seem likely.

Long before September 11, New York was living on borrowed time. The tremendous surge in the stock market from 1995 to 2000 allowed the city to both cut taxes and deliver services. This was becoming more difficult in the slowing economy prior to September 11 and is impossible now.

As New York heads into straitened economic circumstances, some of the structural problems that led to the 1975 fiscal crisis still exist, notably the city's relationship with the state. Albany shortchanges the city on education costs and more importantly on Medicaid. New York is one of the few states that requires localities to pay any share of Medicaid costs and in times like these, when unemployment is on the rise, that cost can be difficult to sustain.

Mayor Giuliani recognized this in October when he called on the federal government to increase its share of Medicaid costs, but the real culprit is Albany. Take the local share of Medicaid - some $3 billion -- off the city's books and the fiscal problems become much more manageable. Make the federal share larger, and you make it easier for the state to manage the cost. Take some of the savings that localities will realize, and you help revitalize the state and city economies.

In the last few years, Albany has gone further than previously in putting the screws to the city, eliminating both the commuter tax and the Stock Transfer Tax Incentive Payment. That is more than $600 million in revenues on an annual basis, or roughly 15,000 jobs at $40,000 per position. Of course, the city has not helped its case because it too has reduced taxes, apparently believing that the run-up in the stock market would last forever. And so the city needs to rethink its reduction in the personal income tax surcharge and, once and for all, really reform the property tax system.

The great unspoken underlying much of this discussion of tough choices and revenue increases versus spending cuts are what services are on the chopping block. In 1975, the City University of New York, public hospitals, the subway fare and affordable housing programs were sacrificed to the gods of the bond market. What will we give up now? Or will we make tough choices that will allow the city to provide the mix of services that will sustain a vibrant local economy and be a city that folks want to live in.

The city clearly faces a revenue problem. The issue is whether it can be solved by simply relying on the private sector to quickly resurrect the city's economy and hence its tax base or whether government plays a vital role, through delivery of services, in creating conditions that allow the private sector to flourish. If you believe the latter, then raising revenues has to be on the table in a serious way.

Mike Musuraca is assistant research director for the union local DC 37 of the Association of Federal, State, County and Municipal Employees.

See "Avoiding The Next Crisis" by Marcia Van Wagner

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