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Can Obama's Plan Erase New York's Jobs Deficit?


special
Photo by Marsmet45

The package of job creation and stimulus measures proposed by President Barack Obama last week is welcome medicine for an ailing economy. If adopted, the president's plan will boost job growth and help reduce unemployment that has stayed high despite the fact that the Great Recession of 2008-09 was deemed to have come to an end in June 2009. The president's plan is an important step in the right direction, particularly after a summer of political preoccupation with the long-term federal budget deficit, and it is likely the most that can be done given the current makeup of the Congress.

The effects of that crisis are being deeply felt in New York. Twenty-six months into the "recovery," over 600,000, or one in every seven, New York City workers is unemployed, under-employed or has given up looking for work. While there has been improvement in some economic indicators for the city, job growth has been too weak to put a meaningful dent in the continuing unemployment. The city's overall under-employment rate tops 15 percent, for blacks it's 22 percent, for young black men it's 40 percent.

New York's Numbers

The reported decline in the unemployment rate -- which includes only people actively looking for work -- is deceptive. People who would like to work but have given up on finding a job in this labor market are no longer counted as unemployed. If these discouraged workers were counted, New York City's unemployment rate in July 2011 would have been 10.1 percent, about 1.5 percentage points higher than the official 8.7 percent unemployment rate for that month.

These and other indicators of the continuing "unemployment crisis" in the city and state are documented in the latest edition of The State of Working New York. Long-term unemployment, the report finds, is at record levels for the nation and for New York. Half of those unemployed in New York City and elsewhere around the state have been out of work for more than six months, and 29 percent have been jobless for a year or more.

A great deal of political energy has focused on the federal budget deficit, but the deficit that matters most for many New Yorkers is the "jobs deficit." To bring New York state's unemployment rate back to where it was before the recession, New York would need 512,000 additional jobs today.

Hundreds of thousands of New York families are struggling to make ends meet and to keep a roof over their heads. Worker skills are eroding, and the likelihood that tens of thousands of long-term unemployed workers will never productively re-enter the work force increases with every passing month. Our economy is squandering the productive labor of unemployed men and women on a colossal scale, and our homegrown small businesses that depend on local sales are put in jeopardy because the unemployment crisis deprives them -- even more than other businesses --of customers with money in their pockets.

The Weak Recovery

This is the weakest recovery from a recession since the 1930s. Following other recessions since World War II, the real Gross Domestic Product (GDP) grew an average of 5.4 percent in each of the first two years of the recovery. In the two years of this recovery, annual GDP growth has been less than half the average, only 2.5 percent per year. The housing collapse, consumer demand dampened by unemployment, and state and local government budget cuts all contribute to this record weakness.

New York lost fewer net jobs in the 42-month period from the start of the national recession in December 2007 through July 2011 than 40 other states around the country. This is largely because the housing bubble of 2003-to-2007 bypassed upstate New York and the unprecedented taxpayer bailout of the finance sector saved several of the largest New York-based banks and securities firms from catastrophe.

Partly driven by the profit rebound among Wall Street firms but also by gains in many major sectors, New York state ranked second among all states in both real state GDP growth and total personal income growth in 2010. The Empire State recorded a 5.1 percent real GDP gain, second only to North Dakota, and a 4.1 percent total income gain, second only to New Mexico.

Yet this "good news" has done little to help most New Yorkers. The state has seen its employment rate -- the ratio of those holding a job to all working age people -- continue to decline during the recovery, dropping from 57.3 percent at the end of 2009 to 56.9 percent in the first half of 2011.

New York state has re-gained 118,000 of the 316,000 payroll jobs lost during the recession, or 37 percent. Fourteen of the 18 major sectors of the state's economy lost jobs during the recession, but only two (other services and management of companies) have completely made up recession losses. The two sectors that lost the most jobs -- manufacturing and construction -- continued to lose jobs, but at a much slower pace through June 2011.

In the first half of 2010, New York City had gained jobs faster than the nation, but since then the city's job growth has been about the same as for the nation overall.

Government is the only sector that has lost more jobs during the recovery than during the recession. Over the past three years, New York has lost 54,000 jobs for teachers and other state and local public servants. That is a greater decline than in any other sector except for manufacturing, with government seeing more jobs lost than finance and insurance, or construction. It is expected that New York's schools opened this fall with 12,000 fewer teachers and other staff than they had last spring.

The problems in the city and state reflect those in the nation as a whole. In the last three or four months, job growth and other economic indicators have slowed so much that more and more economists are talking about the risk of a "double dip recession." It is in this context that the president correctly shifted his focus at the end of summer from the federal budget deficit to the national jobs deficit.

The President's Prescription

The president's $447 billion American Jobs Act proposal includes a range of measures to increase consumer spending, re-hire public school teachers, expand infrastructure investments, and provide tax cuts to businesses to spur hiring. Some of it continues current programs that expire at the end of this year, like federally funded extended unemployment benefits. Others enhance remedies currently in place like Obama's proposal to up the individual payroll tax cut from 2 percent to 3.2 percent. (See the box below for the main components.)

Image: Gotham Gazette

Click on the image for a larger version.

The proposed American Jobs Act is a little more than half the size of the American Recovery and Reinvestment Act (ARRA), the $787 billion stimulus legislation crafted by Obama's presidential transition team and House Democrats and passed by Congress in February 2009, with not a single House Republican voting in favor.

With the House Democrats' loss of their majority in the 2010 midterm elections, the united opposition of the House Republicans is now a real impediment to the making of coherent economic policy. The jobs act, for example, includes far less money than the recovery act to provide relief to state and local government budgets, and proportionately relies far more on tax cuts. The $35 billion proposed in the jobs act for state and local governments to re-hire teachers and first responders will help to reduce the negative impact that state and local job cuts are having on the recovery. The current bill, though, does not include an increase in the federal Medicaid share that was the main form of state fiscal relief in the recovery act.

In another important difference, well over half -- 57 percent -- of the jobs act funding takes the form of tax cuts; in the recovery act, tax cuts accounted for about 37 percent of the total. Even though most economists believe that direct spending provides more economic stimulus bang for the buck than do tax cuts, the president has likely crafted a package heavy on tax cuts to try to win Republican support.

Mark Zandi of Moody's Analytics and an economic advisor to 2008 Republican presidential nominee John McCain, has written that, if enacted, the Obama jobs plan can add 1.9 million jobs and 2 percentage points to GDP growth next year. While Zandi thinks this would keep the economy from sliding back into recession, it would only cut the unemployment rate by one percentage point.

Of course, passage of the act is by no means certain. Zandi and conservative economist Doug Holtz-Eakin believe that key parts of the jobs proposal like the payroll tax cuts, the unemployment insurance extension and some of the infrastructure proposals may garner enough Republican votes to pass. There is also the possibility that conservative interests will refuse to support any meaningful part of the jobs act based on a cynical political perspective that their electoral success in 2012 depends on keeping unemployment high.

What New York Can Do

New York cannot escape the adverse effects of the extremely weak national economy. Whether or not the major elements of the American Jobs Act are enacted, New York policy-makers can do several things to boost jobs and the state's economic future:

  • Restore the commitment to having one of the nation’s best educational systems from public schools where all the state's children can receive a sound basic education through a high-quality and affordable public higher education system;
  • Revamp regional economic development to put the priority on creating good jobs and to make decisions on subsidies to businesses more transparent and accountable as well as consistent with a coherent regionally based economic strategy;
  • Provide technology assistance to advanced manufacturing across the state to support good-paying, high-skilled jobs and foster innovation; and
  • Adequately fund transportation infrastructure needs, and exploit the potential of the nation’s largest mass transportation network to promote advanced transit-related manufacturing. (A conference promoting the idea of expanded transit-related manufacturing in New York will be held at the Brooklyn Navy Yard on Sept. 27.)

If New York cuts state income taxes on the wealthiest by $5 billion in 2012 as it is set to do, it will have to make budget cuts that will further damage the precarious recovery and exacerbate the unemployment crisis. Keeping New York's current income-tax surcharge on high-end taxpayers after it is set to lapse in 2012 would make a huge difference in staving off job cuts for state and local government employees, including school teachers and educational support staff. Greater reliance on a progressive state personal income tax, an expanded circuit breaker to provide property tax relief, and closing corporate tax loopholes will benefit all New Yorkers with a more evenly shared tax burden.

Unemployment insurance benefits have been a lifesaver for tens of thousands of New York families during and following the economic downturn. Yet, the state's unemployment system has not been updated in over a decade and has fallen behind nearly every other state in the extent to which it replaces lost wages. New York’s average weekly unemployment benefit of $304 replaces only 26 percent of the average weekly wage, putting New York in 48th place compared to other states.

New York should link its economic policies to raising wage levels so that workers can start to bridge the wage-productivity gap and provide a modest boost to consumer spending and job growth. New York could raise the state minimum wage in stages to restore the purchasing power of its low-wage residents. The wage now currently is worth 26 percent less than it was in 1970. Eighteen states and the District of Columbia have minimum wages higher than New York’s $7.25 minimum. For its part, New York City could expand its living wage ordinance to companies receiving significant city economic development assistance.

Taken together, these measures represent important steps to increase jobs and begin to counter the substantial income disparities that have built up in New York and elsewhere in the U.S. over the past 30 years.

James Parrott is deputy director and chief economist of the Fiscal Policy Institute (www.fiscalpolicy.org). He has been studying and writing about the New York economy for over a quarter century.

Public Cuts, Private Reluctance Could Slow Growth in Green Jobs


green jobs
Photo courtesy Association for Energy Affordability
In weatherization classes, trainees learn building science theory as well as hard skills, such as how to seal building cracks and apply insulation.

Back in 2009, as the country was in the thick of an economic calamity, President Barack Obama pumped $5 billion into the Weatherization Assistance Program to help mostly low-income families improve their homes' energy efficiency. New York's program, which receives funding from the U.S. departments of Energy, and Health and Human Services, spent $65.8 million this year to help households throughout the state weatherize their homes for maximum energy efficiency. And last week, Gov. Andrew Cuomo signed a bill that should create more green jobs by allowing homeowners to finance energy enhancement through their utility bills.

With unemployment seemingly stuck at more than 9 percent nationally, the green jobs sector could provide a rare bright spot. Government has tried to give it a boost. And with New York City home to approximately 900,000 buildings, it would seem to offer plenty of opportunity for New Yorkers to get work in the weatherization field, while simultaneously helping the city reduce its carbon footprint.

Those in the weatherization industry, though, say the private sector still has not caught up with the opportunities produced as a result of state and city policy. Meanwhile, the recent deficit reduction compromise and other budget cuts threaten government funded energy and job programs, leading some to question when environmentally friendly jobs will fulfill their promise.

A Silver Bullet?

Obama has frequently said that investments in the "green economy" -- services and industries that produce or use renewable materials -- will help revitalize the country's overall economy. During the recession and the slow recovery, the green jobs sector has created crucial employment opportunities in areas such as recycling, clean energy production and manufacturing and deployment of green cleaning products. In New York, federal and state funding for the weatherization program provides jobs for people who might otherwise be out of work and helping lower-income people save money on heating and cooling their homes.

It has also helped create work for people who find it particularly difficult to find jobs – those who have been in prison.

John Valverde, director of the Green Career Center at the Osborne Association, said his organization helps the formerly incarcerated reenter the workforce as productive citizens. It runs a weatherization program, sending participants to Solar One and the Association for Energy Affordability -- both nonprofits -- for green training.

"We realized that with energy efficiency benchmarking and upgrades stipulated by the Greener, Greater Buildings Plan, we could design a training program to match the basic carpentry and electrical training the formerly incarcerated learn in correctional facilities, thereby providing skills participants could learn quickly rather than over four years in college," Valverde said.

Ismail Ocasio, manager of training development at Solar One in Long Island City, said that trainees are taught building science theory to help them understand buildings' energy flow. They then learn the hard skills, such as how to electrically retrofit a building, air seal cracks and apply cellulose (recycled newspaper) into walls.

The Fortune Society, which also works with former prisoners, said it increasingly emphasizes skills such as weatherization to reflect changes in the job market. "We've offered training for jobs in the social services sector, but we want to build out a 'hard skills' model so that our participants can find jobs in the growing green sector," said Stanley Richards, senior vice president of program.

Into Crawlspaces and Attics

The term "green jobs" tends to summon up images of a technician attending to a gently turning wind turbine in a sprawling green field under a deep blue sky. But the reality is not quite so picturesque.

"Weatherization work is not sexy work," said Valverde of the Osborne Association. "The graduates from our green training programs have to work in the heat and cold in crawlspaces, basements and attics caulking windows and insulating."

Nelson Cordova, who was imprisoned for 14 years, graduated from Osborne's weatherization training program. He earns about $20 per hour working in Yonkers, commuting two hours each day to and from Brooklyn.

"It's hard work, especially in the heat wearing a Tyvek suit to protect me from grime and dirt," said Cordova. But he said he feels good when he helps low-income elderly homeowners save money on their energy bills. “I'm just so happy I'm making a living after prison," he said.

Valverde said he thinks the program will pay numerous dividends. "Many of our candidates come from high crime areas in the Bronx, Brooklyn and Poughkeepsie" that, he said, are also "subject to environmental injustices such as toxic landfills and toxic emissions from heavy truck usage. The promise of weatherization work and green jobs is that they provide the mechanism to produce leaders in the community so that they give back to rather than harm the community, and at the same time do work that’s positive for the environment."

Osborne has graduated about 200 students from its weatherization-training program since March 2010. According to Valverde, the organization has a 58 percent job placement rate thanks to a network of contractors.

Osborne offers a wage subsidy to help persuade private contractors to hire the graduates, paying 75 percent of the graduate's wages for the first three months of work. Valverde said that the incentive has helped to cultivate relationships with contractors, who continue to employ Osborne graduates after the three months.

The organization also provides career coaching services, networking events and business classes, and runs a listserv to inform graduates of job openings or union apprenticeships.

Where the Jobs Are

Despite these and other efforts, green jobs still account for a small percentage of the work in New York City. As of 2010, research by by Lesley Hirsch, director of the New York City Labor Market Information Service at the CUNY Graduate Center, found, 75,000 "green workers" worked in four industries here: construction trades, building services, professional services and component manufacturing. In every one, the green jobs account for a very small percentage of total employment. For example, Hirsch notes that 137,840 people work in building services, but only 28 percent (37,940) are green workers. But she noted that that number should grow as city legislation sets energy efficiency benchmarks and requires upgrades.

Jobs also should be created when the state's funding becomes available for the Green Jobs-Green New York program to provide homeowners and commercial properties $13,000 and $26,000 in loans for retrofitting.

Devashree Saha, senior policy analyst at the Brookings Institution credits the New York State Energy Research and Development Authority with committing $22 million since 2008 to train 13,000 New Yorkers in 40 different training centers throughout the state.

Her report Sizing the Clean Economy, found that the New York metropolitan area leads all major metro areas in the country in the number of green jobs, with 152,034 as of 2010. Of course, one reason for that is that New York in the nation’s biggest city. Because her team used a broader definition of green jobs than Hirsch did, the city's mass transit system leads the green jobs pack with 60,000 workers out of the total.

For green jobs to really gain a foothold the private sector needs to jump on the weatherization bandwagon. Saha noted the business incubator model that has helped spawned clean energy companies in the city could boost such effort. Two firms -- Rentricity and Sollega, both owe their starts to the NYC Accelerator for a Clean and Renewable Economy housed at Polytechnic University.

A Murky Future

The role of the private sector could be particularly vital in the light of federal spending cuts and tight state and local budgets.

Obama wanted $320 million for the Weatherization Assistance Program. The House Energy and Water Appropriations Subcommittee wants to drastically reduce the budget to only $33 million, according to Rebecca Stewart, projects coordinator for the National Association for State Community Services, which helps states reduce poverty.

Stewart noted that the national weatherization program may well go belly-up if the cuts make it through the Senate. "This year's funding is $174.3 million, but the combination of losing ARRA [American Recovery and Reinvestment Act] funding come March 31, 2012 and a 2012 budget of $33 million would effectively dismantle the program," she said.

Meanwhile a few green businesses are starting to expand – and create jobs for people who might otherwise not have work.

Gary Grecco, owner of EnergyPro Insulation in Staten Island, said since he started doing weatherization work three years ago business has grown 20 percent annually. He participates in the Enhanced Home Sealing Incentives Program offered by the National Grid, which pays homeowners for the cost of completing an energy audit of their homes done by a private contractor.

Greco has yet to hire someone who is formerly incarcerated and has graduated from a workforce development training program, but said he would consider it in certain circumstances. "If I have a job in an affluent section in Staten Island I will not send someone formerly incarcerated because that person may not relate to the homeowner. But I will send that person if the work is in a low-income area," he said.

Jim McDaniel, vice president of operations at Prospect Development and Construction in Brooklyn, said his company already employs four weatherization workers who have received help from the city's Department of Youth and Community Development. As to whether he would hire a former prisoner, McDaniel said he would consider it "as long as the person showed interest and worked hard, because I believe in second chances."

Bloomberg Poverty Policies Cut the Public, Boost the Private


cash transfer
This mother in the Philippines received money – known as a conditional cash transfer – to keep her children in school and healthy. Mayor Michael Bloomberg has launched efforts to try a similar program in New York, but it’s unclear whether the attempts have done anything to reduce poverty.

In early May, the Bloomberg administration held a kick-off event to celebrate a five-year, $100 million expansion of the mayor's anti-poverty pilots, now called the Social Innovation Fund Learning Network.

Less than two months later, Mayor Michael Bloomberg and the City Council agreed on a budget for fiscal year 2012 that included the 10th consecutive cutback of anti-poverty agencies.

The two events highlight the unreal nature of the Bloomberg administration's approach to fighting poverty. As the mayor continues to expand his privately-funded anti-poverty pilot program, begun in 2006 to other cities, he steadily cuts the budgets of the city's own anti-poverty agencies.

poverty in NYC

His much-heralded private efforts have had little to no effect on poverty in New York and seem unlikely to have any significant impact in the future. Many are modeled on programs in developing countries like Mexico, Colombia, and Bangladesh and involve giving cash to poor people in return for certain behaviors, making sure their children go to school, for example, or taking them to a doctor. While these efforts -- called conditional cash transfers -- have been extensively researched, two recent surveys offer little evidence that such tactics might help the poor in urban America.

The weak premise that cash-incentive, self-help pilot programs will alleviate poverty in New York City has effectively obscured the real conditions of poverty in the city: unemployment, limited childcare, poor schools and job training, etc.

Certainly the poverty rate shows no signs of abating. After largely neglecting poverty for his first term, Bloomberg announced an anti-poverty initiative in 2006. In the time since, the poverty rate has remained virtually unchanged, with about 20 percent of city residents classified as poor. In 2009, 10.5 percent of New Yorkers lived in deep poverty -- with incomes less than half the poverty level, or below $10,500 for a family of four. At the same time, the wealthiest New Yorkers have become ever richer, giving New York the greatest gap between rich and poor of any major city in the county.

Cutting Public Programs

While the number of poor people has not decreased since the mayor announced his anti-poverty initiative, the funding to get them out of poverty has. The 2012 budget agreed to by the City Council and mayor is, at $66 billion, about $5.2 billion smaller than it would be without those cuts. The city faces real budget problems, but anti-poverty programs are not only not a priority; they are a target.

Determining the impact of these cuts on anti-poverty programs is difficult. The Mayor's Management Report, intended to provides a measure of the effects of such cuts, offers no help. But a simple analysis of cutbacks in the city workforce since the budget reduction began offers some clues.

Agencies that provide basic city services to poor and working class New Yorkers, including education, child care, health, homeless services, housing and parks, have lost a disproportionate number of workers -- 6 percent to more than 26 percent of their staffs. Yet the police department, in contrast, has lost fewer than 3 percent of its uniformed officers, and the corrections department has actually increased its uniformed staffing by over 2 percent.

Changing Headcounts

Uniformed Officers

Agency

Headcount
May 2008

Headcount
(projected)
June 2012

Change

Percent Change

Corrections

8,225

8,404

+179

+2.2%

Police

35,284

34,309

-975

-2.8%

Fire

11,618

10,779

-839

-7.2%

Sanitation

7,580

6,822

-758

-10.0%

Other City Services

Agency

Headcount
May 2008

Headcount
(projected)
June 2012

Change

Percent Change

Education
(Teachers)

97,300

90,367

-6,933

7.1%

Children's Services

7,103

6,529

-574

8.1%

Health and
Mental Hygiene


5,268


4,789


-479


-9.1%

Housing
Preservation & Development

694

536

-158

-22.8%

Parks

6,520

4,791

-1,729

-26.5%

Source: NYC, OMB, Fiscal 2009, Fiscal 2012 Adopted Budgets.

Overall, the city-funded workforce has declined from 269,461 in May 2008 to 253,850 in 2012, a loss of 5.8 percent. Although it is not clear what the savings from this downsizing are, if we assumed $65,000 savings per worker, the savings would be roughly $1 billion a year. Across agencies there is wide variance, both among uniformed workers and among anti-poverty staff. There is certainly no evidence of shared sacrifice.

There is, however, a much greater variance in several agencies that serve poor and working class New Yorkers. The above table shows that headcount cuts ranged from six to 26.5 percent.

The rhetoric of the mayor's privately funded anti-poverty pilots stresses the importance of education, child care, training, and preventive health measures in moving poor youngsters and young adults out of poverty. Yet the mayor's budgets for the city cuts these very services.

For example, even though the new budget saved the jobs of 4,100 teachers the mayor had planned to lay off in 2012, the Department of Education nevertheless has lost nearly 7,000 teachers over the past four years, a 7 percent cutback in the teaching staff. The focus on the threatened layoffs has repeatedly obscured this attrition, a product of not replacing teachers who retire or resign.

These losses, though, have an effect on schools. The Independent Budget Office recently found that average class sizes in grades kindergarten through eight increased for three consecutive years, rising from 23.0 students per class in the 2007-2008 school year to 24.6 in the 2010-2011 school year.

The Administration for Children's Service, which oversees preventive services and childcare services, has lost 8 percent of its city-funded staff in four years, while the health department has lost over 9 percent. The parks department, which has developed job-training and entry-level jobs, has lost more than a quarter of its city-funded positions.

Then there is the Department of Homeless Services. Two time-limited rent subsidy programs have been abandoned. The Coalition for the Homeless estimates it will cost some $370 million to find shelter for those losing their subsidies. Furthermore, staffing in both the homeless services and housing agencies have been cut, by 6 and nearly 23 percent respectively over four years.

Amid these changes, the Coalition for the Homeless' 2011 report found an all-time record 113,553 homeless people -- including 42,888 children -- slept in city-funded shelters in fiscal 2010, a 37 percent increase from fiscal 2002, the mayor’s first year in office.

Taxing the Poor

The revenue side of the budget shows the same bias against the poor. City tax policy is far less progressive today than it was in the 1990s, when the top personal income tax rate was 4.46 percent. From 2003 to 2005 it was 4.45 percent. But in 2006 it reverted to 3.65 percent where it remained as the series of budget cuts unfolded. (The state added a top rate of 3.876 in 2010 for those earning over $500,000.)

Even a partial return to earlier, more progressive top rates – a 4.264 percent rate would have raised $450 million in 2012, according to the Independent Budget Office's Budget Options report. This money could have seriously slowed the cutbacks in education and social welfare programs. But the mayor's only tax revenue initiative in the past four years was to raise the city sales tax -- the tax that most disproportionately hits poor New Yorkers -- from 4.0 to 4.5 percent in August 2009.

The Private Effort

All this stands in sharp contrast to the mayor's focus on anti-poverty pilot programs. This remains essentially a non-governmental effort: funded mostly by the philanthropic Mayor's Fund to Advance New York City, designed and evaluated by MDRC, a national research organization, implemented by non-profit community groups, and managed by the Center for Economic Opportunity, a small unit in the mayor’s office. The pilots will now be introduced in seven other cities as well as New York.

What is the point of those efforts?

A recent New York Times article noted that a large number of Bloomberg administration pilot programs, especially in transportation, were designed to avoid public scrutiny. For instance, a 10-school education pilot, called the Innovation Zone, which emphasizes online learning, is set to expand to hundreds more schools, at a cost of $100 million, in spite of at least one report that warned of negative parent responses.

In 2007, Deputy Mayor Linda Gibbs said the mayor used private funds for his first round of poverty programs "to protect it a little bit from the criticism that we knew would come with the initiative."

More significantly though, the mayor may be turning to private funds because the surviving pilots have little or nothing to do with city policy or programs – and have had little to no effect. They are, rather, a curious attempt to take some very preliminary findings from two decades of narrow economic research on poverty in developing countries and make them relevant in urban America.

Innovation and Evaluation

The intent of the Social Innovation Fund Learning Network, which oversees the projects, is two-fold. It is intended to develop new, promising programs and to evaluate them using a scientific technique developmental economists called randomized control trials. Under this method, some individuals participate in the program and others, the control group, do not. If the programs work, its participants will benefit and those in the control group will not.

On the first score – innovation -- four of the five pilot programs sponsored by the mayor and other private funders in the eight-city network (New York, Cleveland, Memphis, Newark, San Antonio, Tulsa, Youngstown and Kansas City, Mo., ) are hardly groundbreaking.

Jobs-Plus will take job-training services into public housing developments; SaveUSA will show poor families how to save money; the Young Adult program supports internships for young adults; and Work Advance is a sector-focused, skills-building workforce program. They all sound promising, just as they did in the 1960s. It’s the conditional cash transfer program, the Family Rewardspilot, that raises the most doubts. As first tried in Mexico in 1997, mothers were paid if their children attended school regularly. Several other countries, including Colombia, Jamaica and Turkey, have adopted variations of this program.

In the mayor’s 2007-2009 version, this meant paying families and some older students for achieving certain goals, such as school attendance, school graduation, making dental appointments, having health check-ups, etc.

The Scientific Background

The testing of Family Rewards and the other pilot programs will follow the pattern described by economists working in several developing countries. Two recent books provide comprehensive (and readable) reviews of this research over the past two decades: Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty, by Abhijit V. Banerjee and Esther Duflo, and More Than Good Intentions: How a New Economics is Helping To Solve Global Poverty, by Dean Karlan and Jacob Appel.

Their titles suggest the problem of relevance for the mayor's pilot programs. One assumes fighting global poverty in Mexico, India, and Bangladesh is not going to be the same thing as fighting poverty in the Bronx or Kansas City. And indeed the two books have no specific suggestions about how the anti-poverty results in developing countries might apply to urban areas in advanced economies.

The use of the randomized control trials has, nevertheless, proved useful in measuring the success of such programs as micro-lending and micro-saving in developing countries. In fact, MDRC's nearly 400-page evaluation of the mayor’s 2007-2009 Family Rewards program showed the effectiveness of some of the cash incentives, such as for school achievement and seeking preventive health, although "the effects that have been observed so far are generally not large."

But the two books raise a larger question that may help explain why Bloomberg and the private foundations are interested in such a project. Banerjee and Duflo see two competing schools of thought here – two ideologies really. One, represented by the economist Jeffrey Sachs at Columbia, says developing countries need foreign aid to overcome their countries' economic problems. In other words, government is key.

The other side, represented by economist William Easterly at NYU, sees the free market as the answer. For this school, say the two authors, "The best bet for poor countries is to rely on one simple idea: When markets are free and the incentives are right, people can find ways to solve their problems." Changing human behavior is key.

Bloomberg's initiatives seems to arise from a version of the Easterly thinking. They address poverty by focusing on the individual, not by government action. The hope then is that small amounts of money will serve as incentives that empower poor individuals to improve their economic condition.

As for the research itself, Easterly himself cites its limitations. Randomized control trials, he wrote, are "infeasible for many of the big questions in development, like the economy-wide effects of good institutions or good macroeconomic policies. … Embracing RCTs has led development researchers to lower their ambitions."

Bloomberg's embrace of this type of program demonstration is odd not only because it surfaces so late in his tenure and has so little to do with the city’s day-to-day public programs, but also because it incorporates no long-term goal for the city. It may, though, simply indicate his ideological preference for private, not public, answers to public policy issues.

The MDRC evaluationhinted at the anti-poverty project's limitations: "As a short-term intervention layered on top of an already well-developed social safety net, Family Rewards serves as a supplemental program rather than as the core welfare system, as in Mexico and a number of other countries."

The social safety net may be less well developed in 2012 and beyond. But "short-term intervention" and "supplemental program" seem rather modest goals for a national experiment – and for a mayor who has set such lofty goals in other areas, such as public health and environmental sustainability. In any case, in New York, the second stage of Family Rewards has shrunk dramatically. A program that served 2,400 families from 2007-2009 will serve only 600 New York families over the next five years.

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

Council Passes Budget, Taking a Bow for Saving Teachers, Fire Companies


new york city budget
Photo by courtesy of the Office of Mayor Michael Bloomberg
City Council Speaker Christine Quinn and Mayor Michael Bloomberg announced Friday night that they had reached a deal on the 2012 budget. The council approved that deal yesterday

As expected, the New York City Council yesterday passed a $66 billion spending plan for fiscal year 2012 that includes no teacher layoffs, keeps all fire companies open and does not raise taxes.

The council did not take its action until shortly after noon Wednesday -- some 16 hours later than originally planned. The vote, though, had essentially been a foregone conclusion since Council Speaker Christine Quinn and Mayor Michael Bloomberg announced an agreement Friday night -- almost exactly at the same time the State Senate passed same sex marriage -- that averted the laying off of 4,100 teachers and the closing of 20 fire companies, all of which Bloomberg had called for in his executive budget.

Council member after council member came to microphone to hail the deal and praise those who had helped craft it -- most notably Christine Quinn. Quinn, a likely 2013 mayoral candidate who gained stature during the budget negotiations, clearly enjoyed the praise.

This is, Quinn said, "not a perfect budget. It would be impossible to have a perfect budget when the city and our tax revenues are still feeling the effects of the recession."

In particular Quinn, Finance Committee chair Domenic Recchia and others applauded the council for reversing what they saw as some of the worst parts of Mayor Michael Bloomberg's executive budget. "There were so many bad things that were averted in this budget," Quinn said, crediting Recchia for much of that. "What we did in this budget was identify areas where the pain was too deep." "When the mayor announced the layoff of 4,1000 teachers, that was devastating news," said Robert Jackson, chair of the education committee. "Considering what the [mayor's] plan was asking, we've come a long way." Yet the deal reached was not without controversy -- and, for some, pain. It will mean some service cuts and an estimated 1,000 city workers will lose their jobs.

Budget Dance Redux

To reverse some of the proposed cuts, the budget, according to the mayor's office, takes advantage of $3.6 billion in funds left over from this fiscal year and $700 million from the Retiree Health Benefit Trust.

Beyond the teachers, the deal restores all or part of a number of programs, many familiar to those who have watched the budget negotiations between the executive and legislative branches in years past.

Most prominently it keeps open the 20 fire companies the administration had sought to shut. This marked the seventh time Bloomberg tried to close fire companies -- and the sixth time he has failed to do so. (He did close six in 2003.)

Many believe the administration thinks the department is too large -- a relic of days when buildings were wood and lacked smoke detectors or sprinkler systems. That said, shutting fire companies is sure to provoke outrage from the surrounding community and form City Council -- as it did this year.

"We are not going to close fire houses in a process that is exclusively driven by the bottom line," Quinn said on the council floor yesterday. But, she added, if people want to have a discussion that is "open and transparent" about response times and changing neighborhood needs "we can have that discussion."

Although some workers at the Administration for Children's Services will lose their jobs and childcare vouchers will see cuts, the budget restores almost $47 million to the agency, including 4,942 childcare vouchers, six childcare centers and 105 child protective workers.

Senior services, which did not fair as badly as many other social services in the mayor's budget, got back about $30 million of what was cut. This includes $3 million for case management, $1 million for meals on wheels, $800,000 for elder abuse programs and $14 million for senior centers and meals.

As usual, cultural organizations and libraries also recouped some of their cuts, with $61 million put back into the budget for the city's four library systems. The council will keep all city pools open -- reversing the planned closure of four -- and adds in $891,000 so people can swim for the full summer season.

"We did all this," Recchia said, "without raising taxes, without going further into our trust fund and most of all we didn't kick the can down the road."

The Pain Remains

Although the budget actually will be larger than the current year's -- $66 billion from last year's $63.1 billion -- it still features a number of cuts. In education, for example, the city will not replace 2,600 teachers who it expects will voluntarily leave the school system this summer, almost certainly class size to increase. While the administration has always dismissed the importance of class size, many advocates and teachers groups maintain that smaller class sizes boost learning, particularly for very young and low-income students.

Schools Chancellor Dennis Walcott has warned schools to expect an average budget reduction of about 2.4 percent -- exact amounts will vary from school to school. In addition to lost teaching positions, this could mean elimination of afterschool programs, tutoring help and parent coordinators in some buildings. Also apparently eliminated: a program to help teacher's buy supplies.

The budget involves some 1,000 layoffs, largely of members of DC 37, the city's largest municipal employee union. In a statement, union president Lillian Roberts assailed the cuts, saying that were it not for "billions .. squandered on 'scandal- ridden' private contracts and [Bloomberg's] failure to collect millions in taxes and fees" the firings and the accompanying service cuts -- would be unnecessary.

In casting the one dissenting vote, Councilmember Charles Barron assailed the budget for laying off as many as 1,200 city workers and for cutting aid to student at the City University.

Explaining his yes vote, Jumaane Williams said he believed the council budget "is better than what we had," but, he continued, "I don’t think it's a celebratory budget." Williams also expressed concern about the cuts in scholarship money.

Some 13 people protesting the cuts were arrested Thursday night when they tried to enter the council's office at 250 Broadway. And during yesterday's vote a small group of protesters twice disrupted the meeting with chants. "No cuts, no layoffs, no compromise," they said before being ushered out.

Dee Knight of New Yorkers Against Budget Cuts said that, while his group was pleased that layoffs of teacher had been averted, the budget still cuts public sector jobs at a time when he said, the city has a $3 billion surplus. In particular, Knight objected to cuts to libraries and the City University. "It's crazy and contemptuous," Knight said.

The Revenue Side

Under law, the city budget must be balanced, a challenge given declining aid from Washington and Albany and rising expenses for pensions and debt service. Almost all the discussion on eliminating any budget gap centered on cutting services rather the increasing revenues.

The budget passed yesterday did up a handful of fees, such as the cost of a taxi inspection. All together, these fees would bring in an extra $8 million. Despite that council Republicans, along with Peter Vallone, opposed some or all of theses measures.

"I don't believe we are in a position where we should be raising fees on anyone," Councilmember Dan Halloran said

The Pork Roll

In approving the budget, the council also OK'd member items -- also known as pork or earmarks -- for 2012. Listed in a document called Schedule C, they fill amounts to 650 pages amd total about $50 million for nonprofit and community groups across the city.

Four members got $1 million or more, according to an analysis by NY1, with Finance Committee chair Domenic Recchia getting to hand out $1.6 million.

The grants include a few thousands dollars to small groups, such as the Committee to Improve Carroll Park in Brooklyn, which got $3,000 to run a concert series for children, Animal Haven, which will get $4,500 to teach kids about animal care, Little League teams and senior centers.

At the other end of the scale, the Metropolitan New York Coordinating Council on Jewish Poverty, which has close ties to Assembly Speaker Sheldon Silver, apparently topped the list of recipients with at least $1.3 million.

In second place, the Daily News reported was the Ridgewood Bushwick Senior Citizens Council with more than $600,000, even though it has been the target of criminal investigations. That -- and allegations surrounding the groups founder, Brooklyn Democratic Party leader Vito Lopez -- was not enough to stop the Brooklyn delegation and Councilmember Stephen Levin, Elizabeth Crowley, Domenic Recchia and Erik Martin-Dilan, from allocating money to the group.

On Again Off Again Layoffs

This year marks the third year in a row that Bloomberg threatened to lay off teachers, only to retreat as the time for the ax to fall neared. Last year he averted the firings by imposing a salary freeze on teachers. Throughout the budget negotiation. he and Schools Chancellor Dennis Walcott adamantly rejected alternatives to the layoffs as the United Federation of Teachers, education advocates and some City Council members insisted the cuts were unnecessary.

In the end, it seems they were correct. The budget averts any layoffs through a combination of moves, including a suspension of teacher sabbaticals in the coming year, allowing teacher with no permanent assignments (those in the so-called Absent Teacher Reserve) to serve as substitutes and cuts to non-teaching programs in the Department of Education. According to the council, in essence, one third of the costs will be borne by the teachers and two thirds by the city. During the session yesterday, a number of members, including Quinn, thanked teachers union president Michael Mulgrew for his role in preventing layoffs.

As Bloomberg called for sweeping teachers cuts this year -- at one point venturing 25 percent of the teaching force would have to be slashed -- some accused him of crying wolf in an effort to get Albany to increase its aid to the city (that didn't work) and to change the last in, first out rule governing layoffs of teaching staff (that didn’t work either).

Now that Bloomberg retreated once again, some have questioned whether he ever was serious.

"Of course, he was bluffing, but we knew that," said Clara Hemphill, director of Inside Schools, told the Wall Street Journal.

Barron said that the layoff had been a "red herring' put forth by a "bully mayor." And in a statement released after the vote, Manhattan Borough President Scott Stringer said, "Let’s be honest -- the threat to lay off teachers was a political ploy from the get-go. "

James Oddo, the leader of the Council Republicans, agreed. "There is a lot of kabuki theater that does on between the mayor and the council" on the budget," he said.When asked earlier in the week whether he had hurt his credibility, Bloomberg reportedly responded with the familiar litany of what he sees as his accomplishments. "If that isn't credibility, I don't know what I could possibly do," he said the reporters.

Bloomberg also said the continued existence of last in, first out prompted him to accept the deal.

"Because we still have LIFO the consequences of laying off there would have been devastating," he said. "It would just not have been fewer people that provide a service; it would have gotten rid of some of the best and brightest that we've been able to attract, and it would also have caused chaos because of all the bumping requirements in the UFT contract."

Wait Until Next Year

The budget leaves a number of issues unresolved. Though the exact numbers vary, current projections see the city facing a deeper budget hole for 2013 than it did this year. In his statement announcing this budget, the mayor already looked ahead to what he forecast as a shortfall of nearly $5 billion for the next fiscal year. The Independent Budget Office foresees a smaller but still considerable budget gap of about $4.1 billion.

Given that teacher layoffs and fire company closing may well be in the mayor's budget next year, along with cuts to libraries and pools, some council members have already begun to call for higher taxes. As soon as the budget passed yesterday, members of the Progressive Caucus introduced a resulting called for the council to endorse extension of the state's millionaires tax.

Gov. Andrew Cuomo and Mayor Michael Bloomberg have opposed such a move and essentially taken the topic off the table. By moving now the members hope to get it back on.

"I hope next year we can stretch these parameters ... and research revenue measures that maybe this year were too late," Williams said. "There must be something better next year."

Budget Cuts Could Strangle Sputtering Recovery


The recent spate of indicators showing weakening in the economy is a reminder of the folly of government budget austerity as the best medicine. More than anything else, the economy needs more jobs. Businesses are not creating jobs because consumer demand, which accounts for two thirds of gross domestic product, is anemic.

Without consumer spending, businesses have no need to hire more workers. Budget cutting at the state and local government levels compounds the problem. Stubbornly high unemployment, evidenced in employment figures released late last week, in New York City reflects a faltering recovery. Historically steep state budget cuts enacted this spring will push joblessness higher in the months ahead. If the City Council accepts Mayor Michael Bloomberg's proposed budget cuts and layoffs, the city's job market will see the proverbial double whammy from an already weak recovery compounded by state and city budget cuts that worsen unemployment.

Why the Recovery Isn't Taking Off

While the Great Recession technically ended in June 2009, total employment continued to decline through the end of that year. Twenty-five million Americans are unemployed, discouraged or underemployed. Long-term unemployment is at record levels making this is the longest period of 8 percent-plus unemployment since modern record-keeping began in 1948. Unemployment remains over 9 percent. There are several reasons why this recovery has been tepid at best, and far weaker than previous recoveries since the Second World War.

American households, on average, are still saddled with high debt burdens, the result of a borrowing spree during the last expansion and the housing bubble. Families borrowed heavily in part to maintain living standards since the 2004-2007 expansion, the first during which wages were stagnant and family incomes did not rise. This continued a trend that began in the early 1980s, in which most of the income generated by national economic growth has been concentrated in the hands of the wealthiest 5 percent of the population.

Unprecedented mortgage foreclosure problems and the prolonged housing slump also have contributed to the weak recovery. A rebound in housing construction and the purchase of appliances and furniture normally provides considerable fuel for a recovery; this time the wrecked housing sector is a big anvil chained to the ankles of an already sluggish rebound. The continuing difficulty small businesses face in borrowing -- largely due to weak consumer demand and the unwillingness of many banks to lend -- is a third major factor behind the tentative recovery.

Finally, the recovery owes a good part of its snail's pace to the continuing budget pressures weighing down state and local governments. State and local governments account for 12 percent of the national economy -- one and a half times the federal government's share and slightly larger than the business investment share. Weak tax collections and the winding down of the federal stimulus leave state and local governments with the unenviable choice between raising taxes or cutting spending. Most states and localities faced with this have cut spending and laid off teachers and other public sector employees to balance their budgets. Those cuts have subtracted from growth in the economy and added over a half million people to the ranks of the unemployed.

The Economic Battleground

It defies comprehension to think that more unemployment resulting from consumer belt-tightening and government budget cuts will pull us out of our economic muck. Stephen Roach, formerly a leading economist for Wall Street giant Morgan Stanley, recently characterized debt-burdened and underpaid American consumers as "zombies" -- the economic walking dead -- whose constrained spending keeps the economy from firing on all cylinders. Yet Roach urged more belt-tightening on consumers. Many others among economic conservatives and the well-to-do try to shift blame for the economic crisis onto government or at least hammer away at the need to slash government spending.

This has become an epic economic battleground. On the one side, the burgeoning ranks of the out of work, the under-employed, the underpaid, the debt-burdened, and the millions trapped in a collapsed housing market seem to echo Langston Hughes' refrain, "Let (America) be the dream it used to be." On the other, the economically comfortable, who draw sustenance from a bailed-out financial sector and financial investments that enable them to seek profits from anywhere in the world, firmly feel that everyone else needs austerity.

New York City labor expert Ed Ott has a phrase for depriving working families of gainful employment: "economic capital punishment." You have to go back at least 80 years to the eve of the New Deal to find a period in this country when so much of the public discourse tacitly accepted such a prolonged period of extraordinarily high unemployment.

New York City's Less-than-Robust Recovery

As in many parts of the United States, high unemployment is no stranger to New York City. While the jobs recovery here has been in line with the nation’s overall, it is tepid at best and unemployment remains far higher than before the Great Recession. Fifteen percent of New Yorkers are unemployed or underemployed -- that's over 600,000 out of a workforce of 4 million. The average period of joblessness exceeds 40 weeks. Most of the drop in the unemployment rate in this "recovery" has occurred because discouraged workers have given up looking for jobs.

As Bloomberg noted when he presented his fiscal year 2012 budget proposal in early May, state budget cuts will take $6.8 billion in spending out of the New York City economy over the next year. In addition to cutting back on local school aid and threatening the jobs of thousands of teachers, the state budget cut support for the City University, the Metropolitan Transportation Authority, public assistance and tens of millions in contracts to social service providers serving low-income communities. And in curbing Medicaid spending, the state budget will reduce the flow of over $2 billion in federal Medicaid payments to local hospitals and health care providers. Thus, the recent state budget deal will drag down job growth and subtract basically a year's worth of federal stimulus from the city economy. Two steps forward, one step back. Recovery will have to wait.

While the mayor repeatedly blames the federal and state government for reducing spending, ironically his proposed city budget is cut from the same cloth. There has already been a reduction of 16,000 since 2009 in those working for the city or related agencies, including public libraries and the Health and Hospitals Corp. Bloomberg's budget proposes to add 6,000 teachers and 3,000 other city employees to the ranks of the unemployed. In addition, the budget proposal slashes spending on childcare, homeless rental assistance, and services for youth and seniors, and closes firehouses, libraries, childcare and senior centers. Even through enrollment in CUNY community colleges has grown by 26 percent since 2008, the mayor proposes they receive less city funding than they did three years ago.

In the face of the lingering adversity resulting from the Great Recession -- with rising poverty, ultra-high unemployment, record homelessness and demand for emergency food assistance -- the mayor's budget can only be described as austere.

Alternatives to Budget Austerity

The city needs budget policies that match resources to real needs. Is the city really getting value for the tremendous near-tripling in business tax breaks -- now close to $3 billion -- over the past decade, or for the $3 billion in contracting out for information technology, professional, clerical and maintenance services when city employees can more cost-effectively perform those services? Can the city afford $320 million in tax loopholes for hedge fund managers when that has the effect of shifting costs to low-income working families who can ill-afford to pay more for childcare?

Wouldn't it be far better to begin to shift the tide toward shared sacrifice with the comfortable elite contributing through progressive taxation to help their fellow city residents re-build their economic lives? Budget austerity is not the solution to our economic calamity, not in Washington, not in Albany and not in New York City. The city can't fight this battle on its own, but it should at least be fighting on the right side.

James Parrott is deputy director and chief economist of the Fiscal Policy Institute (www.fiscalpolicy.org). He has been studying and writing about the New York economy since he landed in New York City a quarter century ago.

Pension Proposal: An Attack on Working People


Photo by New York State Assembly
In 2009, Gov. David Paterson signed legislation adding a fifth tier to the state's pension system, requiring new employees to make contributions to the system throughout their entire careers, not just for 10 years.

Gov. Andrew Cuomo’s misguided proposal for a adding another tier to New York's pension systems represents another grandstand play to impress his millionaire friends at the expense of working people. The proposal is unnecessary, unfair and will not provide any immediate savings. It means the lowest paid public employees will pay more, work longer and receive less benefit.

There are a lot of misconceptions about New York's public employee pension systems. A little background is required.

Nearly all public employees represented by the Civil Service Employees Association participate in the New York State and Local Employee Retirement System, the largest of New York’s systems. (There are eight separate systems: five in New York City and two others, one for police and fire and one for teachers, in addition to the state and local system for public employees outside of New York City.)

The New York State and Local Employee Retirement system is fully funded according to all appropriate professional accounting standards. This means that the system has adequate assets to cover the cost of all current and future pension obligations.

Paying for Pensions

State and local government pensions are paid for by employee and employer contributions based on salary, investment earnings and lifespan and other projections.

Before 2000, most state and local retirement system participants contributed 3 percent of their annual salary toward their pension. Since 2000, that contribution ended after 10 years in the system. In 2009, the state enacted a Tier V, reinstituting provisions requiring new employees joining the system to contribute 3 percent of salary throughout all their years of active service. The state claims this reform will save taxpayers $35 billion over the next generation.

The state and local government system, which is combined with the New York State Police and Fire Retirement system into what is known as the Common Retirement Fund, currently has assets of around $133 billion. However, the fund saw some dramatic swings in value over the past decade as Wall Street investments see-sawed. As a result, a number of reforms were put in place by legislation to ensure fund assets will be able to meet obligations.

In the past, strong investment returns allowed state and local governments to practically avoid making pension contributions for extended periods of time. Throughout the 1990s, as public employees contributed 3 percent of salary each year, public employers contributed only token amounts. That can no longer happen. Reforms enacted in recent years, largely out of concern about Wall Street volatility, require responsible, minimum employer contributions in good economic times and bad. Related legislation allows the obligations to be spread out over time to avoid spikes.

Attacks on the System

Because of these necessary and appropriate reforms, a number of highly vocal politicians, egged on by business groups with their own agenda, have been railing about the high costs of pensions.

Again, keep some perspective: the average Civil Service Employee Association pension is $14,000; members of our association and most other participants do not double-dip or pad their pensions in any way. In fact there are already caps on the amount of overtime that applies for pension purposes.

Yet Cuomo’s Tier VI proposal overreaches for reform at the expense of working people. Rather than address specific reforms that close loopholes and eliminate political abuses, Cuomo is pursuing draconian, wholesale changes that tar all participants with the same broad brush. His proposal would hit the lowest paid employees the hardest and without good reason.

The governor's proposal would require employee contributions to be increased from 3 percent to 6 percent of salary; raise the retirement age from 62 to 65; lengthen the time period to vest in the system to 12 years. It includes a number of other provisions that would seriously diminish benefits.

At the same time, Tier VI will not yield any short-term savings for taxpayers. Tier V was implemented last year for the state systems only, and its savings are not expected for another generation.

Cuomo's timing on the proposal is also suspect. It was unveiled without warning when there were only 10 days left in the legislative session -- hardly enough time for legitimate consideration of such a controversial piece of legislation.

For all these reasons, the Tier VI proposal can only be viewed as an attack on working people to score some cheap political points rather than seriously addressing the challenges that confront all the people of New York.

Danny Donohue is the president of the nearly 300,000 member CSEA.

Pension Proposal: A Fiscal Remedy for New York


Photo by Jorbasa
Under current rules, police can retire after 20 or 25 years of service and begin collecting a pension -- even at the age of 50 or younger.

Gov. Andrew Cuomo's proposal for pension reform is in the best interest of taxpayers and public employees. The plan would bring New York's pension benefits in line with those of other public employers, creating a more sustainable and affordable pension system, significantly reducing future costs and ensuring benefit obligations can be met. The proposal deserves support from legislative and union leaders.

While other states have neglected their pension funds, New York state and its local governments have historically funded their obligations. However, state and local budgets have been squeezed as the cost of pension contributions skyrocketed over the last decade. Between 2000 and 2010, pension contributions for state and local employers grew from 0.9 percent of payroll to 7.4 percent for civilian employees and from 1.9 percent to 15.1 percent for police and fire employees.

Contribution rates are projected to continue their growth for the foreseeable future, reaching 13.5 percent and 21.5 percent of payroll, respectively by 2015. These projections are low because the state opted to postpone making its full payments last year. It will need to make up these "borrowed" sums at a later date. In 2015, the contribution rates required to fully fund the annual obligation will be 20.9 percent and 27.1 percent of payroll for civilian and police and fire employees.

The problem is especially severe in New York City, where costs have quadrupled from $1.5 billion to $7 billion since 2002 and will continue to grow to $8.7 billion in 2015. Pension contributions have grown from 4 percent to 11 percent of the municipal budget – squeezing other priorities including education and social services. The thousands of layoffs proposed in the most recent budget are the clearest example of how growing pension costs force tough choices.

A Three-Part Solution

Tackling growing pension costs -- while ensuring retirement security for public employees -- requires broad thinking. Targeting fraud and eliminating double-dipping are important but on their own will not adequately address the problem.

The governor's proposal focuses on the features that make New York's pension systems costly -- even as compared to other public systems. The proposal makes three important changes to bring New York in line with other public employers.

First, the retirement age will increase to 65, the same age that retirees become eligible for Medicare. While uniformed employees still will be able to retire after 20 or 25 years of service, they will not receive pension benefits until age 65. Police and firefighters currently have no minimum age requirement; as a result, one-third of all New York City fire retirees and one-half of all City police retirees are under age 60. In localities outside New York City, over 80 percent of police and fire retirees in the last year were under 60, increasing the length and cost of benefit payouts.

As for teachers, they currently are eligible to retire at 57 and 55; 58 is the average retirement age for teachers in the state outside New York City.

Second, the plan would raise required employee contributions to bring them closer to national norms. Many New York state, city and local employees contribute only 3 percent of their earnings toward their pensions for only the first 10 years of employment. Only employees who opt for enhanced plans make larger contributions or contribute for a longer period of time. As a result, employer contributions to the pension funds exceed employee contributions by a ratio of 9 to 1. This proposal would require a 6 percent contribution from all employees for their entire length of service. The nationwide mean is 6.4 percent for state and local workers with a fixed contribution requirement.

Third, prospects for "pension padding" will be eliminated. Now the benefit is calculated using all wages -- including overtime -- for the highest three years of earning, giving public employees an incentive to rack up overtime at the end of their careers.

In the governor's plan, pension benefits will be calculated based on the highest five years' of earnings with maximum eligible wages capped at $179,000. Overtime pay will no longer be included in the earnings used to calculate benefits, bringing New York’s rules in line with 94 percent of other public employees nationwide. In addition, an "anti-spiking cap" will exclude extraordinary increases in income in any year.

Saving for the Future

Because pension benefits are constitutionally protected, the benefits of current employees and retirees would remain unchanged; the changes would only apply to future employees. As a result, the savings would be small initially but would grow to $93 billion for state and local governments and $30 billion for New York City over 30 years. The changes would create a more affordable pension system that would alleviate the pressures that rapidly escalating costs have placed on the structural balance of state and local budgets.

The proposal also would create a more sustainable system that ensures the retirement security of current and future workers. As experience in other states shows, when pension costs reach a breaking point, elected officials pay less than the required amounts, placing the solvency of the pension funds at risk.

New York has already started on this slippery slope. Rather than enact any additional gimmicks, legislators should support the structural changes proposed by Cuomo. This will reduce the costs of the pension system while ensuring pension benefits for state, city and local employees are not placed in jeopardy.

Municipal union leaders and their members should support these changes to the pension system. They, too, are taxpayers who have an interest in protecting vital services from drastic layoffs and other cuts necessitated by the whopping costs of fringe benefits. Pension benefits for current employees and retirees will be preserved, but the changes proposed for future employees will go a long way toward putting New York and its local governments on the road to good fiscal health.

Carol Kellerman is president of the Citizens Budget Commission, a nonpartisan civic group that seeks to promote the fisical health of New York state and city government.

Officials Call for Holding the Line on Contracts


Photo (cc) William Alatriste

City Comptroller John Liu strode into the spacious fifth floor conference room in the municipal building last week to hold his first impromptu press conference as the steward of the city's finances.

Liu, short spoken and somber, revealed the project manager for the city's controversy-laden time keeping system, CityTime, billed the city for hours he never worked.

"I think its safe to say there just hasn’t been enough oversight for the better part of a decade," said Liu.

That same morning, Manhattan Borough President Scott Stringer stood in front of the municipal building and blasted the Bloomberg administration for its so-called bloated education contracts.

"With all of this increase -- over millions of millions of dollars -- they cannot cut back one dollar, that's absurd," Stringer said, standing next to the head of the teachers union. "Every contract should be evaluated. The problem is the process is so opaque."

The recent contract scandals have brought renewed attention to the city's contract budget -- which has grown by more than 70 percent during Mayor Michael Bloomberg's tenure. Nowhere has that increase been more evident than in the budget's professional services or consulting area -- which blew up from $357 million in fiscal year 2003 to nearly $1.5 billion in the proposed budget for fiscal year 2012 budget.

Those increases have caught the attention of Bloomberg's potential successors. A central focus of Council Speaker Christine Quinn's State of the City speech early this year was city contracting. Other prospective mayoral candidates, like Liu and Stringer, are now also calling for culling contracts.

While the administration has more recently been receptive to cutting back, officials balk at any across-the-board cut or substantial decrease. The debate is pitting the council speaker against the three-term mayor -- a rare occurrence -- as the two attempt to negotiate a budget deal before the June 30 deadline.

Holding the Line

Between 2003 and the release of the mayor's budget proposal for fiscal year 2012, the number of contracts actually fell from more than 18,000 to 17,214.

The amount the city pays for those services -- which cover everything from social services to computer consultants -- has skyrocketed well above the rate of inflation.

City officials, particularly Quinn, can't seem to figure out why.

"There are a lot of unanswered questions," Quinn said in a phone interview this week. "What's the $290 million of data processing equipment?" Quinn asked referring to a one portion of the contract budget outlined in the mayor's executive budget proposal.

"I am not saying that every dollar of that $290 million is unnecessary," the speaker continued. "Maybe it is necessary. … let's just not assume it is without drilling down."

The contract issue has become a key point in this year's budget negotiations. As the city faces laying off thousands of teachers and closing fire companies and swimming pools, officials at the council, particularly Quinn, question why the administration insists on keeping outside consultants.

Between the 2012 preliminary budget proposal, released in February, and the executive budget, released in May, the contract budget grew by $110 million, according to council officials.

During a hearing on the education budget on Wednesday, Councilmember Robert Jackson criticized consultant contracts in the Department of Education. He questioned why the city would consider laying off more than 4,100 teachers, while it continues to contract out funds for professional development.

Schools Chancellor Dennis Walcott skirted the question.

Quinn said she has no exact goal for how much she wants to reduce the contract budget this year. The speaker has said just holding spending flat on contracts in fiscal year 2012 would save $100 million.

But the administration disagrees. Bloomberg Spokesperson Marc LaVorgna contends the city cannot amend contracts until they expire. He said it would be impossible to hold spending flat.

Quinn countered: "We told every nonprofit in the city of New York to do more with less. Why cant we tell the for profit entities in the city to do more with less?"

Ultimately, she added, "I believe every single city contract can be broken."

LaVorgna said the city is making some strides in reducing the size of the contract budget -- specifically in technology consultants. The city used to hire outside consultants for quality assurance to oversee technology contracts. They started to hire project managers at the Department of Information Technology and Telecommunications to replace those outside consultants. By creating staff positions, the city will save $37 million, according to the administration.

These proposals, LaVorgna said, are part of a larger attempt to find contract savings.

But, LaVorgna wrote in an email, "There will still be needs for highly specialized, outside technical expertise of course."

2013 in Mind

Based on the numbers, it looks like New York may have a greater "need" than other big cities.

New York City's contract budget comprises 16 percent of all city expenditures. In comparison, Los Angeles's contract budget is just 3 percent of its entire budget, according to a spokesperson for Mayor Antonio Villaraigosa.

District Council 37, the city's largest municipal employees union, questions the "need" for consultants' expertise.

Sitting in the union's Barclay Street office, Henry Garrido, the union's associate director, said consultant contracts are negotiated in cycles, with one individual bouncing from department to department. They are paid by the hour, costing the city thousands more than if they had been on staff, Garrido said.

Scandal aside, there is so little oversight of some of these projects, Garrido said, they can end up costing the city more than double what it had originally projected.

"[There is] the overutilization of contract consultants on the one hand that have exorbitant prices," Garrido said. "In other areas, it's just change orders."

Critics of DC 37's efforts are quick to suggest Garrido may just be trying to save his members' jobs. Garrido doesn't dispute this. He argues the consultants should be put on staff, which would allow them to become union members.

"Forget the union," Garrido said. "If you think it's in the best interest of the city, make a cost comparison."

DC 37 isn't the only union using this tactic this budget season. The United Federation of Teachers, which faces the largest employee loss, is also blasting the administration for consultant contracts in the Department of Education.

Standing alongside Manhattan Borough President Stringer last week, the head of the teachers union, Mike Mulgrew, said city funds should be used in the classroom not for consultants.

"There is something wrong here," said Mulgrew. "The parents in this city, the children in the schools, the teachers are sick and tired of every week hearing about another scandal with outside contractors and consultants making millions of dollars that should be used in the classroom for direct services to students -- not lining the pockets of privateers who are trying to use children to make money."

Should the latest budget deal include a reduction of contract services, it is likely Liu, Quinn and Stringer will all claim some sort of victory -- a win that could easily be spun to saving jobs during the next campaign season.

Ultimately, trying to cut contracts now, may be less about a budget crisis and more about the mayor's race.

"There are real fiscal issues and there are fiscal issues as political issues," said Doug Muzzio, a professor at Baruch College. "Clearly this administration is rich in contracts, or made other people rich through contracts. Clearly there are questions about the efficacy of many of those contracts."

Despite Scant Results, Bloomberg's Anti-Poverty Project Goes National


reformatory
Photo by Jeff Berman
The number of poor families in New York has hardly declined at all since 2006, despite Mayor Michael Bloomberg's antipoverty program.

Five years after Mayor Michael Bloomberg named a blue-ribbon commission to "analyze the causes, scope and consequences of poverty" and created a city Center for Economic Opportunity to turn the commission's "recommendations into policy and practice," it is hard to find any changes in city policy, practice or theory to ameliorate city poverty.

The city's poverty level remains where it was five years ago; the center's 40-plus pilot programs have served only a few thousand New Yorkers; and the mayor himself is on a 10th round of cutting traditional anti-poverty programs: daycare, libraries, senior and youth programs, education, among others.

Despite minimal local impact, the center has just received a federal grant to replicate some of its New York programs in other neighborhoods in the five boroughs and in cities across the country. There is, it seems, a fundamental disconnect between the poverty commission's goal and what it has actually done to change anti-poverty policy and practice in the city.

The National Agenda

One reason for the disconnect may simply be that, even though the center is in the mayor's office, it is not so much a public program to fight poverty in New York City as a privately funded, privately run policy shop with a national focus. The center's work on broadening the federal definition of poverty is one example. .

The federal grant --a $5.7 million Social Innovation Fund award from the federal Corporation for National and Community Service -- is another indication of Bloomberg's national focus. The grant will provide money to expand a few of the center’s pilot programs to "combat poverty across a diverse cross-section of America." .

But the structure and administration of the mayor's overall anti-poverty reform plan -- revealed in rare detail in his federal grant application -- best explains the disconnect. It shows how the mayor uses private funding, national nonprofit research/policy organizations and nonprofit service providers to design, implement, administrate, and evaluate “public policy.” This has, in essence, created a private, parallel universe. .

This pattern, which the New York Post recently characterized as a "shadow government" provides additional funding or some programs but also shields mayoral projects from the public scrutiny they would receive if funded entirely by taxpayer dollars. .

The federal review of the grant proposal cites some of the other problems with that parallel universe. Two expert review panels, for example, viewed some parts of the poverty proposal with much skepticism. They liked the private funds raised by the center -- the bulk of it from the Mayor’s Fund to Advance New York City and the mayor’s own charitable foundation -- but questioned several aspects of the proposal: its coherence, its cost-effectiveness, its lack of theory and its weak link to city government itself, among others. Nonetheless, a final review panel approved the application with enthusiasm.

The Anti-Poverty Structure

The mayor's anti-poverty effort has three partners. Together they spent $58 million over the four years on earlier stages of the anti-poverty pilot programs. .

  • The Mayor's Fund, a non-profit organization raises and distributes private money -- about $35 million in 2009. Its president is Patricia Harris, the first deputy mayor, and the chairwoman and CEO of Bloomberg's charitable foundation, the Bloomberg Family Foundation.
  • The Center for Economic Opportunity, in the mayor’s office, oversees the pilot programs
  • The MDRC(originally, the Manpower Demonstration Research Corp.) -- a national nonprofit, nonpartisan education and social policy research organization -- designs, manages, and evaluates much of the demonstration programs. MDRC seems to be both the brains and the brawn of the partnership.
  • The federal Social Innovation Fund grant proposal was submitted jointly by the Mayor’s Fund and the center. According to the proposal, six people from the Mayor’s Fund, 12 from the center and 200 from MDRC will work on the pilot program.

The five-year plan included in the federal proposal (the grant is for the first year only) anticipates total funding by the three organizations of $74.3 million, to serve 17,800 people across the nation. The Bloomberg Family Foundation will contribute $25 million over the five years, the Open Society Institute, $2 million. The balance will apparently come from extended federal funding, other private sources, and in-kind contributions by city agencies and nonprofit organizations. .

The first year budget of $12.6 million ($5.7 million from the federal grant and the balance from the Mayor’s Fund) includes $4.57 million to MDRC for selecting sub-grantees, evaluations and fiscal monitoring. One review panel called this share "too significant an investment for year one, even with a gold-plated partner like MDRC." .

The New Anti-Poverty Program

The $74.3 million program has five parts and builds upon programs developed by the three partners since 2006. It will replicate the city's pilot programs in New York and seven other cities. The best known of these is Family Rewards, a new version of the controversial three-year "conditional cash transfer" program begun in 2007. .

The original program gave low-income people cash rewards if they did various things, such as making sure their children attended school or keeping doctor appointments. The average family payment was $3,000 per year for the first two years. .

MDRC did a preliminary study in 2010 that gave it a mixed review. Its follow-up study of program participants will continue until 2012, two years after the program’s demise. .

Under the new federally supported plan, the Mayor's Fund and the center have awarded Seedco, a national nonprofit organization which was a partner in the original effort, a three-year $694,000 contract to implement the new Family Rewards program in the Bronx and Memphis, Tenn. Seedco, working with six city community-based organization, including BronxWorks and the Children's Aid Society in the Bronx, will choose 600 families in each city to be part of the program. .

MDRC will do a full scale "randomized control trial" of the program's "streamlined incentives," studying an additional 600 families in each city who do not participate in the program. .

The other components of the proposal are:

  • Save USA will replicate Save NYC in New York, Tulsa, San Antonio, and Newark. The city pilot program matched every dollar of a person's tax refund that he or she put in the bank up to $500. The program's 2,200 participants saved an average of $636 each, or approximately $1.4 million. The Food Bank for New York Cityhas a $128,000 grant to offer a similar program to about 1,350 people at four sites. MDRC will do a full-scale review.
  • Jobs-Plus brings workforce training and development to neighborhoods. After MDRC found a $1,300 improvement in wages in an earlier study of the program -- not in New York -- the city tried it in Harlem in 2009. BronxWorks, which has received a $118,000 grant, will now replicate it at a South Bronx public housing site.
  • The Young Adult Internship Program provides paid internships and employment support to "disconnected youth," those aged 16 to 24 who are neither in school nor have jobs. Three New York organizations, Henry Street Settlement, F-E-G-S Health and Human Services System, and Kingsborough Community Collegewill each receive grants of about $168,000 to serve 200 youths over four years.
  • Work Advance is a sector-based training program for low-wage workers. The city's own program has proved successful, according to a "quasi-experimental evaluation," focused on transportation-sector jobs. The program will be replicated in the city by St. Nick's Alliance ($177,000 grant) in Brooklyn and Per Scholas ($217,000 grant) in the Bronx. They will work with 455 and 595 trainees, respectively, over five years.

Grading the Proposal

The Mayor's Fund/Center proposal went through a two-phase review process. In the first phase, one panel rated the application "Satisfactory," the third highest of four options, and the second assessed it as "Strong," the second highest rating. A second-phase review panel gave it the highest score, "Excellent." .

The first panel found that the program design lacked "cohesiveness and clarity around a theory of change." Overall, the panel did not feel confident that the grand scale of the program, more than $100 million over five years, would lead to "outcomes that were demonstrable or cost-effective." .

The second panel, although generally quite supportive, questioned the role of MDRC. It expressed concern that the MDRC would both be providing technical assistance and then, in effect, evaluating the success of its own program. .

The second-phase review panel, on the other hand, was very enthusiastic about the application. And for them, MDRC was the strength of the proposal. Noting MDRC had partnered with the applicant on past programs, the panel said, "The established partnership with the MDRC brings both the evaluative capacity [and] program-specific experience that would lead to a successful program."

New York's Stubborn Poverty Rate

One thing missing in the review panels' work is any mention of the fact that during the several years of the pilot programs, the city poverty rate showed no statistically significant change. According to the center's own research office, using the official federal definition of poverty, which defines a family of three with income less than $22,000 as being below the poverty line, the poverty rate in New York City was 17.9 percent in 2006 and 17.3 percent in 2009. Using the center's broader definition, the poverty rate remained unchanged at 19.9 percent over that period. A third estimate, from the private Fiscal Policy Institute says the poverty rate in 2009 was 21.3 percent, or 1.8 million New Yorkers, with half of them in deep poverty -- meaning their income was less than 50 percent of the poverty line.

Aside from a few pilot programs, they city has had little to no response to the high poverty level in recent years. On the tax side, the mayor's raising of the city sales tax in August 2009, from 4.0 to 4.5 percent -- a historic high for the regressive tax -- only added another burden for low-income households. On the expense side, the Mayor's Management Reports and the Independent Budget Office's March analysis of Bloomberg's preliminary budget show the city helping residents access federal anti-hunger money, but cutting back on well-established anti-poverty programs.

Although the number of people receiving public assistance between fiscal years 2006 and 2010 declined by 10.4 percent, from 393,800 to 352,800, the number of persons receiving food stamps rose by over 64 percent to 1,789,700 as the number of people not on public assistance jumped by 136.5 percent to 1,121,600. Experts credit this partly to the very large number of working poor in the city -- people making minimum wage or slightly more.

Homelessness among families with children has increased dramatically in recent years. The average number of families with children living in shelters has risen nearly 30 percent, from 6,671 in fiscal 2006 to 8,629 in 2010.

Spending for children's daycare and preventative services for children at risk of neglect or abuse, both programs largely used by families living in poverty, have plunged in the past five years. For example, the number of children receiving contracted preventive services declined by over 13 percent from 2006 the first four months of fiscal 2011.

According to the Independent Budget Office, childcare enrollment dropped 12 percent, from 116,000 in 2006 to 102,000 in 2010. While the mayor recently said he would not eliminate thousands of additional daycare slots, many advocates dispute this. Bloomberg also has proposed increases in fees parents must pay for contracted childcare, starting in fiscal 2012.

Cutbacks in Youth and Public Education

One city youth program, the Summer Youth Employment Program, has shrunk over the past two years. The Independent Budget Office pointed out in March the program served more than 52,000 youth in 2009, but only 35,612 youth (out of more than 140,000 applications received) in the summer of 2010.

The proposed enrollment for summer 2011 is 17,200 – a 67 percent cut in two years. Much of the cut stems from anticipated state and federal cutbacks, but the mayor himself reduced city funding by $3.2 million, or 9 percent, from 2010. The city isseeking private money to pick up some of the slack.

The fiscal and program disconnect between the Mayor's Fund/Center research/demonstration project and the city’s everyday policies is clearest, however, in public education. As the Independent Budget Office notes, for “the second year in a row the Bloomberg administration has presented a budget that would decrease the number of teachers and classes (thereby increasing class size) and cut other school services.

In dollar terms, over the two-year period, -- fiscal years 2011-2012 -- public school classroom cuts will total $364 million.

Private vs. Public Policy

The federal grant to the Mayor’s Fund and the Center for Economic Opportunity raises more questions than answers about city anti-poverty policy. This 10-year (2006-2016) mayoral experiment in national urban anti-poverty policy -- targeting fewer than 18,000 individuals – may be "scattershot" or it may be "extensive and rigorous," but so far it has had little or no effect on poverty in New York.

Designed and controlled mostly by a national nonprofit organization, funded mostly by private philanthropy, implemented by national and local nonprofits, the demonstration will continue essentially independent of city public agencies. In fact, Bloomberg sees these partnerships and programs being institutionalized in each city. He envisions a kind of long shadow government so that "a change in government leadership would not disrupt the dialogue and joint efforts."

The larger question is whether the apparently exclusive focus in the mayor’s office on the privatization of policy reforms ultimately translates into effective public policy.

(Correction: The April Public Finance column incorrectly reported property tax assessment increases for one, two and three-family houses are "phased in over five years, but with limits on total increases." Rather, increases are recorded each year, to a limit of 6 percent each year, and a five-year limit of 20 percent. The article has been corrected.)

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

Council Starts to Maneuver on Budget


New York City budget
Photo (cc) Edward ReedEdward Reed
Mayor Michael Bloomberg presented his executive budget on Friday.

This time the billionaire mayor means business.

For the 10th time, Mayor Michael Bloomberg stood in the Blue Room at City Hall, clad in a sharp, dark suit, and unveiled his executive budget proposal. After 10 rounds of budget cuts since 2008, totaling $5.4 billion, Bloomberg proposed to make reductions in every department. The $65.7 billion fiscal plan would slash 6,166 teachers, about 2,000 of them through attrition, close four swimming pools this summer and shutter 20 fire companies. The City Council has vowed to fight the teacher layoffs.

Bloomberg blamed the cuts on the state and federal governments. This year's budget represents a steady stream of divestment in the Big Apple by Albany and Washington, the mayor said. Now we will lose services because of it, he added.

"Both places are keeping our tax dollars to close their budget deficits," the mayor said on Friday. "If the state was paying 50 percent or close to it [for the Department of Education], we would not be talking about laying off teachers."

For the first time since the fiscal crisis of the 1970s, the city could lay off large numbers of teachers -- 5 percent of all instructors. The state's share of aid has dropped by 20 percent, the mayor said. To make up for the loss, Bloomberg said the city would use up all of its surplus and nearly $700 million from its health care trust fund, a reserve used to pay for retirees' health benefits.

Immediately following the mayor's morose budget presentation, City Council members and advocates blasted the administration for slashing services for the city's most vulnerable. Others questioned whether the third term mayor was bluffing.

"I am sick and tired of this administration's use of teacher layoffs as a threat to unions and continued attempts to balance the budget by direct cutting services to the neediest among us," said Councilmember Margaret Chin in a statement.

Officials accused the mayor of playing politics. Some saw his threat to lay off teachers as another attempt to pressure Albany to approve certain education changes, specifically legislation to allow the city to lay off teachers based on merit not seniority. The mayor also wants to convince Albany to approve a new pension tier for new city employees.

For these reasons, council members wonder whether these slashes are symbolic or serious. Either way, council members are trying to come up with plans to save their favorite programs.

The Battleground

This is the second time in as many years the mayor has threatened to lay off teachers. It is the seventh time he has proposed closing fire companies.

None of those cuts ever materialized.

This year, say City Hall observers, is different.

"This is a zero sum game, and every year the restoration list gets longer and our ability to restore it doesn’t get larger," said Councilmember Lewis Fidler. "It's going to be a tough year."

Even members of the administration aren’t holding their breath on getting extra funds.

"Until July 1, I'm hoping that something does turn around," said Fire Commissioner Salvatore Cassano. "If it's 20 [companies], the whole city will be impacted."

In addition to the teacher layoffs and the fire companies, the administration has proposed to increase parking rates and fees for inmates to make telephone calls on Rikers Island. It also would reduce the amount of condiments and number of bread slices inmates receive.

Administration officials are exploring whether to start charging nonprofits and churches for garbage collection in 2013. The mayor has proposed to move forward with a plan to house small homeless families in shared apartment style units.

At the budget announcement, the mayor reversed an earlier decision to eliminate 16,000 child care slots. Instead, he said, the city would make sure those kids receive day care through an after school program. The city also plans to increase minimum child care copayments from $5 to $15.

Advocates criticized the move, saying the after school program does not offer the same amount of service.

"Working parents need child care support in order to remain in the workforce, and it is vital for children to receive quality care and early childhood education. Partial restoration of this funding is a step in the right direction. We are hopeful that the mayor will recognize that more funding will be required to prevent irreparable damage to the city's subsidized child care infrastructure and system," said Fatima Goldman, the executive director and chief executive officer of the Federation of Protestant Welfare Agencies.

Beyond child care, the mayor's plan would eliminate outreach contracts for homeless youth and slash more than 2,100 summer youth employment slots.

Senior centers have been held harmless, but the Bloomberg administration would decrease funding at the city's library system by about $40 million. The parks department will also take a hit with reductions in seasonal staff and increased fees at recreation centers and for tennis permits.

The Council's Options

Already the council has identified teacher layoffs as its top priority. In order to stave off any staff reductions in the classroom, the council would have to come up with $435 million in funding.

"Since the recent financial crisis and recession, the City Council has worked aggressively to control spending and manage the city's budget in a fiscally responsible manner while protecting vital services," said Council Speaker Christine Quinn and Finance Chairman Domenic Recchia in a joint statement. "That's why we have grave concerns about a budget that allows for teacher layoffs, which would be immensely damaging to our education system and children's opportunities for a quality education. Make no mistake, we will do everything in our power to prevent teacher layoffs."

But it's unclear where the council will get the money to do so.

Last year, the council was able to save $397 million in cuts. If the council were to successfully negotiate to save teachers this year, it could likely be the only restoration the city could afford.

"It's a big lift," said Doug Turetsky of the Independent Budget Office. "It pretty much takes up all the funds they typically get to work with."

The council identified keeping fire companies open as well. According to the Bloomberg administration, keeping the companies open would cost $55 million.

No matter what the cuts the council looks to save, it will have to identify other areas of the budget to cut back. Both Quinn and Recchia have said they would not raise taxes. On Friday, Quinn took aim at the administration's outside contracting, arguing if contracts were held flat this year the city could save $100 million.

Meanwhile the council's progressive caucus is urging the State Legislature to extend the state's millionaire's tax and close tax loopholes for hedge fund managers. According to the caucus, those two measures could bring in $570 million.

Other budget experts predict some council members will push for the city to drain its health care trust fund -- now at $2 billion.

On Friday, Bloomberg warned of a projected $5 billion budget deficit in fiscal year 2013. He warned using the fund to stave off cuts this year would be irresponsible and said he would not consider raising taxes to create more revenue.

"I liked his emphasis on how important it is not to spend the rest of the money in the retiree health benefits trust," said Carol Kellermann, the president of the Citizens Budget Commission of the mayor's budget. "I think that's where the battleground will be. He was warning the council that that's an irresponsible thing to do."

Bloomberg's Budget Ignores Untapped Revenue


Photo (cc) Tracy O

Mayor Michael Bloomberg’s preliminary budget for fiscal year 2012 and five year financial plan overstates the immediate need to eliminate over 6,000 teaching positions, close senior centers, reduce summer jobs for youth and cut many other human services. The proposed budget ignores a number of untapped revenues that could maintain both current services and budget balance for next year.

At the same time, the financial plan understates the city’s long-term “structural balance” problem. Annual budget surpluses -- projected to be $3.2 billion this year -- disappear come July, and in later years projected city expenditures far outpace projected revenues. So the mayor and City Council can erase the cuts in the short run, but in the long run they need to find the political will to tap into the city’s tax base. If not, the city will see three more years of the serial budget cuts, which started in January 2008.

Finding the Money

It’s important now, in other words, to see what revenue sources the city can tap into. In the short run, it’s likely the mayor will find additional revenues -- just as he found in November to project ending the current fiscal year with a large surplus. That surplus was built from budget cuts, new Wall Street generated tax revenues, and what the city comptroller calls “budget maneuvering.”

Commentary
 

The Independent Budget Office’s analysis of the preliminary budget and financial plan provides some clues to what the short-term “maneuverings” might be. It also helps us, for the longer-run, to understand the city’s current tax base, including its evolution, inequities and inefficiencies.

The mayor has the power to estimate tax revenue forecasts, tax audits and debt-service savings. Under Bloomberg, they have generally low-balled. According to the Independent Budget Office, taxes collected a year or more after they were due have averaged $800 million a year for the past six years. Yet the city assumes only $500 million in these collections for next year. The $300 million difference would go a long way toward saving 6,000 teaching positions currently on the cut list (an estimated savings of $350 million). More realistic assumptions about debt-service savings would also make additional millions available for service restorations.

Tax Breaks and Management Savings

For the long term, the administration could start with the city’s property tax exemption programs. As the Independent Budget Office's analysis shows, three of these programs alone cost the city over $2 billion a year in lost revenues. They also create inequities, favoring certain businesses and homeowners at the expense of others, like two-thirds of New Yorkers who rent.

Two of these long-time property tax exemption programs are up for re-authorization in Albany: the 421a exemption program for residential construction, which will cost the city $920 million in fiscal 2011, and a commercial abatement program that cost $623 million in 2011. Perhaps because of the political power of housing and commercial development interests in the city and state, the IBO assumes both programs will continue.

An abatement program for co-ops and condos, introduced in 1997, is also costly. It was supposed to be temporary, until the disparities between what homeowners pay in property taxes, on one hand, and coop and condo owners pay, on the other, were fixed. (See the IBO’s Twenty-Five Years After S7000A: How Property Tax Burdens Have Shifted in NYC for the history.) Fifteen years later the inequities remain, and the “temporary” abatement will cost the city $450 million this year. The IBO assumes this tax break, too, continues.

Another big revenue option, noted by state comptroller's office, is the mayor’s Retiree Health Benefits Trust fund has $2 billion in reserve. This is the same fund -- originally designed for long-term health-benefit liabilities -- that the mayor drew down by $1 billion to help balance the 2012 budget.

There are bigger revenue options. Excessive overtime has been a problem for years. The city comptroller’s report estimates that overtime next year will be over $1 billion, nearly $200 million more than the mayor currently projects. The State Financial Control Board says it will be $216 million more in 2012 than the mayor projected, and $240 million more in 2013.

The mayor has belatedly, with the help of Deputy Mayor Stephen Goldsmith, recognized the need for better agency management, and they hope to save more than $50 million in 2012 doing so. But what about this year’s $538 million in police overtime cited by the city comptroller ($465 million to uniformed officers, $73 million to civilians!), which comprises nearly 12 percent of the NYPD’s $4.645 billion 2011 budget? The IBO notes that 621 high-paid uniformed officers are doing work usually done by lower-paid civilians.

The IBO analysis notes also that the central office of the Department of Education will have a budget 10 percent higher next year. The office will add 218 positions and spend over $39 million in contracts for administrative professional services, not to mention $36 million in contracts for computer services.

The Property Tax

The property tax structure, which accounts for about $17 billion in city revenue, is immensely complicated -- often bizarre. In a recent study from the Independent Budget Office, the tax was called a “very stable revenue source,” even as the real estate market slumped in recent years.

The main reason for the tax’s stability is the way in which assessments – the city’s valuation of a property for tax purposes -- work. Increases in assessments for commercial and large residential properties are phased in over five years. Other properties, like one-, two- and three-family houses, are also phased in over five years, but with limits on total increases. So even when assessments begin to go down as market values fall, there are left-over increases from previous years (called a “pipeline”) that keep taxes growing.

A small increase in the property tax rate raises a lot of money. A one percent rate hike would raise about $170 million. (A homeowner’s $4,000 tax bill would be only $40 higher.) And the property tax is the one major tax rate that the city can authorize by itself without state approval.

Sales Tax

The 4.5 percent city sales tax, a regressive tax, has risen in recent years. In August 2009, the mayor and City Council agreed to raise the city sales tax rate from 4 percent to 4.5 percent (added to the state’s 4 percent sales tax and the 0.375 percent metropolitan transportation tax, the total rate is 8.875 -- a historic high).

Politically, for Bloomberg and the council the sales tax was apparently the easiest route. The Independent Budget Office's March analysis says the rate increase brought in $521 million in 2010 and will raise more in later years. A similar amount of money could have been raised by restoring progressive, higher personal income tax rates in effect during Mayor David Dinkins and Rudy Giuliani’s and Bloomberg’s first term. (See the Independent Budget Office's budget options for details.)

Personal Income Tax

The conservative shift in city tax policy is most obvious in Bloomberg and the City Council’s refusal to use the city’s mildly progressive (higher-income earners have slightly higher tax rates) personal income tax rate to fill budget gaps for the past three years. Of course, the same conservative shift has been obvious in President Barack Obama and Congress’s extension of Bush-era tax cuts, and in Gov. Andrew Cuomo and the state legislature’s refusal to extend the so-called millionaire's personal income tax.

The state’s conservative shift has enormous consequences for New York City. As the Fiscal Policy Institute points out, the expiring tax will mean a loss of $5 billion in state revenue in calendar 2012 at a time when “the wealthiest 1 percent of New York taxpayers are receiving an average windfall of $124,000 from the extension of the Bush tax cuts.” An extension would have likely wiped much if not all of the current cuts in state aid to city education, health, housing and other essential services.

Thus Obama, Cuomo and Bloomberg tax policies have created a tax cut trifecta for the city’s wealthiest residents. This is a group that the mayor says would flee the city were they to pay city personal income taxes at rates Bloomberg -- the wealthiest of them all -- set himself from 2003 to 2005. The city’s own tax-policy history contradicts his claim.

What’s Next?

The elephant in the room continues to be that over 90 percent of the city workforce is working without a contract, and a two-year contract dispute with city teachers and administrators has yet to be settled. The preliminary budget has no reserve fund for contracts over the next two years -- any raises are supposed to be self-funded by labor through benefit concessions and productivity measures. The state comptroller points out that settling teacher/administrator contracts and future wages for all city workers at projected inflation rates could cost $1.4 billion in 2012 and nearly $2 billion in 2013.

The city itself at this point projects budget deficits averaging $4.9 billion for the next three fiscal years, while the city comptroller sees deficits averaging $5.7 billion during the same period. (The Independent Budget Office, reflecting its projection of more robust tax revenues than the mayor, projects deficits averaging $3.4 billion.) Unless the mayor and council adopt a more reasonable, more equitable revenue policy, labor settlements may trigger another round of budget cuts much sooner than the preliminary budget suggests.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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