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Tax-And-Spend No More

by Glenn Pasanen, Feb 07, 2007
 

With his sixth preliminary budget, Mayor Michael Bloomberg has taken a big step toward a bold goal: to rid New York City of its reputation as a liberal, tax-and-spend city. How else to explain over a billion dollars of tax cuts, the squirreling away of billions in reserve funds, and a four-year plan that, with the exception of education, caps discretionary city spending? And the only roadblock to achieving the goal – the Democratic city council – thus far seems to buy into the plan.

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The January 2007 budget plan carries a distinctly conservative stamp – but only to a point. The mayor, like former Mayor Rudy Giuliani before him, seems unwilling, even in the best of economic times, to take the ultimate conservative step: to offer a four-year structurally balanced budget. That’s something the conservative State Financial Control Board has been pleading for the past 15 years. And with budget surpluses of $3.5 billion two years ago, $3.8 billion last year (actually much more – see below), and nearly $4 billion in prospect this year, the times could hardly have been better to satisfy the plea.

Tax Cuts

The Bloomberg tax cut program – initially proposed for just one year – is scheduled for all four years of the plan. (Whenever City Hall proposes a budget for the next fiscal year, it also presents a more preliminary plan for the following three years as well.) The costs in lost city revenues from cuts in property, sales, and business taxes for fiscal years 2009 through 2011 make them a substantial cause of the big deficits in those years:

  • In 2009, the lost revenue is projected at $1.4 billion, and the deficit at $2.6 billion.
  • In 2010, the lost revenue is put at $1.5 billion, and the deficit at $3.7 billion.
  • In 2011, the lost revenue is put at $1.6 billion, and the deficit at $3.6 billion.

The mayor says the focus of the tax cuts is to give relief to homeowners, but because a property tax rate cut has to be across-the-board, the really big taxpayers get the break too -- approximately $300 million of the total $750 million in cuts. This is true even though the mayor has often said that these big businesses don't make decisions on where to locate based on how much they are taxed; indeed, his budget boasts of how new businesses are eager to move to New York.

At the same time, the tax cuts offer no relief to renters, as I explained in an earlier article. A five percent cut in the property tax for rental properties may help small landlords, but it is unlikely to get passed through to the average renter.

The plight of low-income renters in particular is made clear in the Community Service Society’s December 2006 report, “Making the Rent, 2002 to 2005: Changing Rent Burdens & Housing Hardships Among Low-Income New Yorkers”. The median rent burden for all low-income renter households (those earning up to about $30,000 for a family of three as of 2004) was 44 percent of their income in 2005, up from 39 percent in 1996. One way to help those renters is with some kind of tax credit or rebate. But renters are not among the beneficiaries of the $400 rebate that homeowners will get for the next four years in addition to their five percent property tax rate cut.

Discretionary Reserve Funds

The conservative moves that the mayor is likely to be best known for in the future are the reserve funds he has used, especially the retiree health benefits fund that he established a year ago. The city placed $1 billion into the new fund in the 2006 budget, and another $1 billion into the fund this fiscal year. The new January financial plan proposes another $500 million for the fund in 2008. It is important to note that none of these payments, nor the $2.5 billion fund itself, are required.

The fund serves two interests: one, fiscal prudence, and second, mayoral fiscal control. It works as a kind of “rainy day fund,” so-called because the payments to retirees, historically paid directly from the city expense budget, can now in effect be paid through the fund during tough fiscal times. But the reserve fund also serves the no-more-taxing-and-spending goal by simply keeping $2.5 billion out of the hands of the city council, which in earlier days might have spent some (or all) of it.

Other reserve funds exist, and they have masked the enormous size of recent and current surpluses. A report by the State Deputy Comptroller for NYC notes that had payments to just two of these reserve funds not been made in 2006, the 2006 surplus would have been over $5.3 billion, not the $3.8 billion that has become the official surplus. In all, the report indicates, the city generated $6.4 billion in "unanticipated resources" -- in other words, the real surplus by this reckoning was not the $3.8 billion officially claimed by the Bloomberg administration, but $6.4 billion.

Capped Spending

The third sign of a conservative financial plan is the flat or reduced city spending in all major agencies, with the exception of education, where city funds will rise from $6.8 billion in 2007 to $8.1 billion in 2011. But beyond that, the police and fire departments remain pretty much at their 2007 levels ($3.6 billion and $1.3 billion, respectively) throughout the four years. Among the human services agencies, from 2007 to 2011:

  • Children’s Services: cut from $866 million to $832 million
    • Homeless Services: cut from $333 million to $321 million
      • Health & Mental Hygiene: cut from $638 million to $600 million
      • Aging: cut from $134 million to $100 million
      • The City University: cut from $403 million to $364 million
      • Cultural Affairs: cut from $158 million to $157 million
      • The flat spending in the four-year plan has been minimized because of all the publicity given to the agreement between the mayor and the council to end the budget dance in cultural affairs, parks, and other agencies -- that is, the budgets for these agencies are now included in the four-year plan, rather than the mayor cutting them each year and the council then restoring them during budget negotiations in the spring.

        But a different kind of budget dance continues -- the shuffling of city surplus revenues by the mayor’s budget office during the fiscal year. These unilateral moves may be about fiscal prudence, but there is also politics in the use of reserve funds, untargeted tax cuts and across-the-board caps on spending.

        Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001. 


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