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Breaking Down the Budget Game

by Mark Berkey-Gerard, Jun 30, 2003
 

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After months of dire predictions, including threats to bears and chimpanzees, Mayor Michael Bloomberg and City Council Speaker Gifford Miller reached an agreement on the city's $43.7 billion budget and closed the largest deficit since the 1970's. The zoos in Queens and Brooklyn that the mayor had threatened to close down were saved; so too were trash pickups, child health clinics, libraries, scholarships to city universities, and weekend meals for elderly. Even recycling is making a comeback - plastic pickups will resume on July 1 and glass collections are scheduled for spring of 2004.

"The people of New York City have stood up and taken care of themselves," said Mayor Bloomberg. Still the budget, which goes into effect on July 1, includes some deep cuts, such as:

  • Laying off 4,000 city workers, mostly in the Department of Education
  • Cutting half of a $200 stipend for teachers to buy classroom supplies
  • Reducing funding for new school construction and renovation
  • Closing six firehouses

And there are the tax increases. In the last eight months, the mayor and the council raised property taxes, sales tax, income taxes on the wealthiest residents, and placed a surcharge on absentee landlords.

Former Mayor Rudolph Giuliani once referred to the city's budget process as a "game" with the mayor calling for cuts and the City Council restoring most of them to the relief of the public.

This year, the usual budget rules changed: the mayor announced $90 million in restorations before the council could take credit for them and the State Legislature overrode Governor George Pataki's veto in order to help the city.

But it remained a game - one that many New Yorkers believe they could have done a better job of playing.

"I balanced the budget in five minutes, without cutting one fire station," said Joe Nardiello, one of over 5,400 New Yorkers who balanced the city's budget on their own by playing an interactive budget game on GothamGazette.com.

Most who played Gotham Gazette's budget game chose the commuter tax as their primary way of balancing the budget. Raising property taxes, sales tax, and income taxes were among the least desirable options. (See sidebar for game results.)

Mayor Bloomberg, who has the lowest approval ratings of any mayor in the last 25 years, hopes the worst is over.

"I think certainly barring some totally unforeseen thing, that tax increases are clearly behind us," the mayor said.

THE BUDGET TRAIL

In April, Mayor Michael Bloomberg presented his plan to close a $3.8 billion budget deficit and called for $600 million in cuts to services.

If the state legislature did not provide $2 billion in aid and pass a commuter tax, the mayor said he would have to resort to a second scenario - a so called "doomsday budget" - and lay off 10,000 additional city workers.

Many in the city immediately dismissed the commuter tax as a fantasy. Even proponents questioned the mayor's tactics since his commuter tax was three times larger than the one the city had had for 30 years. Bloomberg also said he would use part of the revenue to give city residents a tax break.

Results from Gotham
Gazette's Budget Game

In the last month, 5,412 people played the interactive budget game. Some game players saw the game as a serious exercise, reflecting their own experiences in the city. "Working for the Department of Education and seeing the entire clerical staff laid off last week gave me a better sense of our crisis," said Pedro Cubero, one game player. "It's not easy to balance the budget, but everyone knows Bloomberg will be a one term mayor because of [it]."

Some offered suggestions that the mayor and the game did not consider. "With a full restoration of the stock transfer tax, we could wipe out the deficit in the City's budget and begin to address the state's budgetary problems as well," said Timothy Logan, another player.

Still others took a more whimsical approach to the city's fiscal crisis. "I played the game and ended up with a $ 58 billion surplus," said Jeremy. "Sure, I boosted all the taxes and reduced all expenditures to zero, but come on, ‘ca-ching!' I'd be rich."

The overall results from the game seemed to reflect New Yorker's concerns and some of the most common stories in the news. Players refused to cut spending to the fire department and transportation and increased funding most often for trash collection and housing.

New Yorkers also raised taxes as well. The two most popular choices were the cigarette tax (which the mayor did raise) and the commuter tax (which he failed to get from Albany).

Cuts

New Yorkers cut spending most often in (in descending order) social services, government administration, debt service, education, courts and corrections. The fire department and transportation were the least cut categories in the game.

Spending

New Yorkers increased city spending most often for fire department, sanitation, environment, housing, parks, children and transportation.

Taxes

The most popular revenue generating measures were selling taxi medallions, making a deal with the port authority for airports, increasing cigarette taxes, and instituting a commuter tax.

The least popular revenue options were raising property taxes, instituting tolls on the East River Bridges, and raising sales taxes.

But throughout the budget process, Mayor Bloomberg remained optimistic that lawmakers in Albany would come to the city's rescue.

"My prayers, my hopes and my expectations are that Governor Pataki, Majority Leader Bruno and Assembly Speaker Silver will come together and help this city when it needs it," the mayor said in April.

However, Governor George Pataki rejected nearly every budget request from Mayor Bloomberg. Pataki said "no" to the commuter tax, produced a plan to restructure the state's Medicaid funding formula so that the city would have to pay more and even tried to grab a larger share of the city's homeland security funding from the federal government.

So Mayor Bloomberg took his case to the State Assembly and Senate, which few considered a hopeful prospect since the legislature had not passed a budget against the governor's wishes in more than two decades.

Faced with complaints from constituents about cuts to education and health care programs, Democratic Assembly Speaker Silver and Republican State Senate Leader Bruno joined forces.

The legislature restored much of the governor's cuts to school aid, Medicaid and public health and gave the city permission to raise three taxes. The state also assumed about $500 million in city debt.

Governor Pataki called the plan a "multimillion-dollar tax grab" and complained that his grandchildren would still be paying off the city's 1970's debt in the year 2034. The governor vetoed the budget, but the State Assembly and Senate overrode his veto the next day.

At the end of the budget process, Albany did come through for New York City, but not in the way the mayor predicted.

The city will actually receive more than the $2.7 billion from the State Legislature than it was seeking. This additional revenue, Mayor Bloomberg said, allowed the city to avoid $215 million in service cuts.

NEW TAXES

The budget plan negotiated by Mayor Bloomberg and the State Assembly and Senate does not include a commuter tax and instead raises revenues from three smaller taxes. While they will provide much-needed revenue for the city, each also creates its own pain for residents.

Sales Tax

This summer, everything in the city costs more.

The city increased its sales tax by .125 percent. Combined with a state increase of .25 percent, New Yorkers will now pay a total 8.625 percent sales tax. The increase is expected to generate $115 million for the city and is scheduled to be phased out in two years. The state also reinstated taxes on clothing and shoes that cost less than $110; those items have been tax-free.

Both Republican and Democratic City Council members were angered by the sales tax, arguing that it would encourage people to shop outside of the city and hurt low-income residents the most. "This is Mike's tax, not ours," said Brooklyn Councilmember Charles Barron when the council passed the sales tax increase.

The sales tax was supposed to begin June 1, but the mayor and the City Council made a costly oversight that delayed it for a few days. The council passed the bill on May 28, but city law requires a bill to "age" for five days before it can be signed by the mayor. The mistake cost the city more than $1 million in lost revenue and angered merchants who had to reset their cash registers twice - once for the state sales tax increase and once for the city increase.

Income Tax

While the sales tax affects all New Yorkers, the city also singles out wealthy residents to help balance the budget.

The city raised the personal income tax increase for individuals earning more than $100,000 a year and couples making more than $150,000 a year. This tax hike will produce an additional $600 million for the city and is scheduled to be phased out in three years.

While many Democrats were pleased with the increase in the personal income tax on the wealthy, calling it the most "progressive tax in recent history," business leaders and some budget watchdogs warned that the higher tax makes the city less competitive.

Landlord Tax

Landlords who own one-, two- or three-family houses and use them for income will see a steep increase in their property tax. This year, owners will pay a 25 percent surcharge on the assessed value of their house. In subsequent years, the surcharge will rise to 50 percent of the assessed value.

Some have argued that the tax on such properties has been too low for too long and an increase was overdue. Lawmakers even tried to make the property tax surcharge seem more acceptable by dubbing it an "absentee landlord tax," playing on New Yorkers' general distrust of property owners.

But others say that landlords will likely pass the increase on to their tenants by imposing higher rents.

CITY COUNCIL EFFORTS

Without the power to raise most taxes by itself, the New York City Council has been relegated to the role of protestor, fighting to keep budget cuts to a minimum.

Brooklyn Councilmember Bill DeBlasio was arrested at a protest to stop the closure of fire company 204. Astoria Councilmember Peter Vallone, Jr. held a hearing on making New York City the 51st state. And Washington Heights Councilmember Robert Jackson walked 150 miles from New York City to Albany to protest education funding.

In the end, the council got most of what it was asking for with two notable exceptions: 3,500 education workers were laid off and six firehouses remained closed.

"Can we honestly say that the restoration package…reflects the priorities of the citizens of this city?" asked Brooklyn Councilmember Yvette Clarke in the council chambers the day after the handshake agreement. "No. It doesn't."

Still Clarke and the other member of the City Council voted to approve the budget. Only the three Republican members - James Oddo, Andrew Lanza, and Dennis Gallagher - voted against the tax increases.

As part of their agreement with the mayor, the council also passed a law to limit the city's liability in slip and fall accidents, shifting the responsibility to property owners.

Council members vowed to keep fighting for teachers' aides, firehouses, and said they want to amend the tort reform bill, worrying that it places too much of the burden on New Yorkers.

"Not every step taken in this process was a victory," said Councilmember David Weprin, the chair of the finance committee. "There still remain issues that we will visit again in the future."

LOOKING AHEAD

While the mayor and the City Council emphasized what they had put back into the budget, lobbyists pored over the details.

"There is over $400 million in cuts in this budget that no one is talking about," said Bonnie Brower of the watchdog group City Project.

Education advocates lamented that the mayor was spending more to renovate one courthouse than on all school construction in next year. The amount of money to build new housing continues to shrink. And services like mental health care, foster care, and youth programs still face cuts.

And for all of the politics and the pain of this year's budget, passed just in time for its commencement on July 1st, lawmakers have more challenges ahead.

Two of the largest parts of the city budget - debt service and Medicaid payments - will continue to increase. There are no wage increases for city workers in this year's budget. And some city watchdogs also predict that New York City's economy will not recover as quickly as some hope.

Next year, the mayor and the City Council face another budget deficit of $2 billion.


RELATED ARTICLES
• Dedicated Taxes (June 2003)
• Interactive Budget Game (June 2003)
• Mayor Avoids a Fiscal Meltdown (June 2003)(This essay was quoted in the lead front page article of the NY Times on the budget agreement, Thursday, June 26)
• New Way of Doing Business In Albany? (May 2003)
• Bloomberg's UnBearable Budget (April 2003)
• State Budget and NYC (April 03)



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