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Citizens Union

Taxing Wall Street Would Ease Budget Cuts


Wall Street
Photo (cc) 2009 jpellgen

This year's budget for New York City is among the most challenging we have seen in recent years, including nearly $2 billion in painful cuts to schools, day care, senior centers, libraries, firehouses, food programs, jobs program and other essential services.

Even as working New Yorkers are bracing themselves for these cuts, Mayor Michael Bloomberg and his administration have refused to consider taking a more balanced approach by enacting new revenue-generating options that would reduce cuts by asking Wall Street and the wealthiest city residents to put in their fair share. The current economic crisis has only made already longstanding inequities in our city much worse. In taking revenue options completely off the table, the administration is failing to demonstrate the leadership that the majority of New Yorkers needs in order to bring more fairness to the current budget and to secure a stable future for all residents of our city.

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With an even bleaker outlook for next year, the city simply cannot wait any longer to ask the wealthiest for their fair share. This coming year, thousands of low and moderate-income families could find themselves hit by budget cuts on multiple levels and across generations -- in just one low-income area in Brooklyn, two child-care centers, a senior center, a health clinic and a public pool are all on the chopping block. Meanwhile, the safety and quality of life of our communities as a whole could be compromised by the closure of fire companies, the reduction of public health services and decreased maintenance in our parks.

How many more cuts can our families and neighborhoods endure?

What New Yorkers Say

This spring, almost 2,000 New Yorkers responded to our online survey about the city's budget and to consider revenue generating options. An overwhelming 89.4 percent said that the city should protect vital services by asking more from those who can afford to pay. Instead of solely slashing services, survey respondents preferred closing a tax loophole for hedge-fund managers and asking for just a bit more from our wealthiest citizens (Read more about the survey results here).

In spite of the financial crisis, Wall Street just had a record year, with $61 billion in profits, largely due to a taxpayer-funded bailout. Yet private equity and hedge fund managers enjoy a loophole that makes the vast majority of their income exempt from the New York City unincorporated business tax (which any other partnership or sole proprietor business is subject to). Closing the city’s "carried interest" loophole would generate $100 million to $200 million for New York City, desperately needed funding that could help restore some of our drastic cuts.

This issue has gotten the attention of Congress. The House of Representatives has passed a bill that would begin to close the federal loophole, and the Senate may be looking to do the same. Sen. Charles Schumer -- a strong supporter of Wall Street and its role in the city and state’s economy -- has come out in favor of the House's proposed change and has rejected claims that it will create adverse effects for our city’s financial sector.

Survey respondents also favor restructuring the city's personal income tax to make it fairer, and ask for a modest increase on our wealthiest residents. Right now, when all state and local taxes are considered, the wealthiest 1 percent of New Yorkers actually has a lower tax rate than the middle class, the working class or the poor.

We propose adding two additional tax brackets for high-income earners -- one for joint-filers earning income over $250,000 (to be taxed at 1.2 percent) and another for those earning income over $500,000 (to be taxed at 1.8 percent). For a household earning $500,000, this would mean just $1,000 more per year. By putting these reforms in place, the city can generate over $1 billion in new revenues, while reducing the tax burden on families earning under $40,000 (who are already exempt from federal taxes).

The working families of this city have already been asked to make enormous sacrifices in recent years, in part as a result of a regressive sales tax, property tax and water rate increases. Now they will continue to make more sacrifices as they see the erosion of the services that so many of them depend on.

It is time to ask hedge fund managers, Wall Street executives and the wealthiest New Yorkers to share in the sacrifices that we are all making in these difficult times and to put in their fair share.

Unfortunately, Bloomberg has refused to have any discussion of revenue generating options. The mayor's "dead on arrival" response to approaches supported by most New Yorkers is disappointing and short-sighted.

We can achieve a balanced approach here. There will have to be some difficult decisions and even many painful cuts. But if we adopt a fair-share approach that balances cuts with modest revenue increases from those who can most afford it, we can make sure our neighborhoods and our city remains strong and vibrant through these tough times and move together toward better times ahead.

City Council members Brad Lander of Brooklyn and Melissa Mark-Viverito of Manhattan chair the council's progressive caucus.

Paterson Ups the Pressure for a Budget Deal


As the state enters its third month without a budget, Gov. David Paterson met with leaders of the legislature yesterday. With no agreement emerging, the governor said he plans to insert budget cuts and even measures to raise revenue into the emergency budget extenders that keep the state running in the absence of a formal budget -- starting next week.

Basically Paterson said he would start implementing his version of the budget piecemeal, and it is unlikely the legislature would vote against these bills because they keep the basic functions of the government running.

"Doing budget piecemeal is a crazy idea but to do no budget is even crazier," said Blair Horner of the New York Public Interest Research Group. "It will increase pressure on the legislature. We know the strategy of his proposal, but we have yet to see the substance."

Paterson and his budget director Robert Megna declined to lay out what cuts they might employ next week. Since April Paterson has introduced bare-bones budget extenders to keep the state running -- they did not include cuts or ways to raise revenues. Now, the governor could shut down entire programs or cut payments to organizations. Paterson has warned that the longer the budget process takes, the harder it will be to find savings, since the cuts will be spread over a shorter period of time.

Losing the Budget Battle

Paterson insisted yesterday as he has in the past that legislators and interest groups don't grasp the financial situation and are unwilling to present the public with tough cuts. "Every time we cut something it is a prelude to a press conference about restoration," said Paterson. "We are not having an ideological problem here. We are having an inability to face the public and address the fact we have lived beyond our means."

Senate Republican spokesman Scott Reif pointed out that members of his conference have been voting against Paterson's extenders for weeks. If Democrats join the fray to vote against unpopular cuts the extenders could go down to defeat leaving Paterson to decide whether to resubmit them without the cuts.

"We need to cut spending as part of the final budget product, not in an emergency appropriation," said Austin Shafran, spokesman for the Senate Majority Conference. "Our conference has proposed over $5 billion in spending cuts and is ready to cut more as part of a three-way agreement reached through an open conference committee process."

Assembly Speaker Sheldon Silvertold reporters he thinks Paterson should make cuts "where there is common agreement" part of the budget extenders. Asked what he thought about cuts where there is not agreement Silver said, "I would hope there would be a full budget before it comes into play."

A number of legislators declined to comment on Paterson's plan. Others simply said they will consider Paterson's cuts when they see them. "We need a balanced budget this year but the part we are losing sight of is long-term structural balance," said Assemblyman Richard Brodsky, a candidate for attorney general. "We are not really dealing with the problems of the long term. I am neither supporting or condemning what the governor says he is going to do but will view it in that context."

Paterson was dealt a major defeat last week when the courts blocked his plan to save money by furloughing workers. Now Paterson is considering instituting layoffs of state workers starting in the new year -- after his pledge not to avoid layoffs comes to an end and after he will have left office. "A lot of people think they can go to court and have the court bankrupt the government," said Paterson.

Another Week, Another Missed Deadline

With the budget 60 days late, June 1 was supposed to be the new deadline, as the state faces a $1 billion cash shortfall. Like most deadlines in Albany this one also fell to the wayside. Megna told reporters on Tuesday that the state had improved its cash flow position in June by delaying some education payments but added that each time payments are delayed it sets up a bigger "bottleneck" down the road. He said he expects such a bottleneck could occur in August or September if there is no action on the budget.

Close but No Cigar

How far are Albany's leaders from a budget agreement? If you listened to the promises and statements made during yesterday's leaders meeting you might get a sense that they are close -- or not.

"I thought there was a different tone more, more conciliatory than the last two leaders meetings," said Horner. "Maybe they've worked up a head of steam with the parks and charter [schools] bill." The Senate and Assembly did manage to agree on those two major pieces of legislation last week, and some see that as translating into progress in budget talks.

But the leaders' meeting did not totally reflect major unity across party lines or significant progress on the budget.

Senate Majority Conference Leader John Sampson and Silver indicated they are nearing an agreement on a framework of cuts but would give no time line.

According to the Budget Reform Act of 2007 before the budget can be completed conference committees must hash out differences in spending plans between both houses. Individual committees analyze spending on topics like health, education, etc.

Senate Democrats did release a list of members for different conference committees in May but Silver has insisted more negotiations need to take place before conference committees move forward.

Silver said until an agreement is reached on measures to raise revenue, conference committees would not make sense. "When are we going to have a meeting to get that resolved?" demanded Assembly Minority Leader Brian Kolb wondering when the leaders would decide on revenue.

There was dead silence.

"I think this is what they call in literature a pregnant pause," said Paterson.

There was further acrimony when Paterson sided with Silver in recommending that Senate Minority Leader Dean Skelos present his plan for cuts before going into conference committees. "When I was minority leader I put out a plan with specificity," Paterson told Skelos. Democrats say Skelos has avoided putting his own plans for cuts while criticizing the Democrats plans.

Skelos said the law was different when Paterson was minority leader.

"Our approach to conference committees is we will believe it when we see it," said Reif. "The speaker seems to be the only holdout. The Reform Act of 2007 mandated that leaders put out a schedule of conference committees 10 days after the governor releases his executive budget and there is still no schedule."

Tempered Optimism

Despite Paterson's tough talk, and the nasty back-and-forths there remains a sense that the budget process could come to an end shortly.

"I don't think this process needs to go past another two weeks," said Paterson.

"Saying we could be done in two weeks just puts it off again," said Skelos referencing the numerous false deadlines the state has already blown through. "If the Democrats want to fix this, they should do their jobs and pass a good budget," said Reif. Reif said he expects the budget to be agreed upon by the three Democratic leaders in secret and dumped in the laps of legislators with minimal time to consider it before it is voted on and until then he expects leaders meetings to continue. "It's positive. It forces everyone to put their cards on the table. If the speaker refuses to do conference committees then this is for all New Yorkers to see."

Horner remains unsure we will see a budget anytime soon. When asked if he thought the legislature will be out of town by the end of June he responded, "What year?"

Deep Budget Cuts Spark Little Debate


annabel palma
Photo (cc) 2010 William Alatriste
City Councilmember Annabel Palma chairs a hearing on cuts to the Human Resources Administration budget

The city’s annual January to June budget process, mandated by the City Charter requires the mayor and City Council to do two things to foster a public debate. The mayor must provide useful information about his proposed budget to the council and public, and the council has to make an initial response to the mayor’s proposal.

On both scores, the process we have seen so far this year fails. With less than five weeks to go before the budget deadline, we have seen steep, unexamined budget cuts, little public debate and no City Council alternative. Yet the fate of some 11,000 public-sector jobs and an unknown number of service programs, from libraries to health care to summer youth jobs, remain up in the air.

Bloomberg's Plan

The mayor’s May executive budget adds only a few wrinkles to the tough January preliminary budget that proposed $1.2 billion in agency cuts and a modest $219 million tax revenue extending the mortgage recording tax to co-ops and the city sales tax to airline fuel. The budget cuts now are up to $1.3 billion, and the tax plan has been abandoned.

The executive budget anticipated some $223 million more in tax revenues for this fiscal year than had been projected in January. It also calls for a draw-down of $213 million from labor-reserve money, dollars set aside in anticipation of future -- and costlier -- labor settlements, and the cashing in of $400 million in unneeded reserve funds this year. But these additional monies do not go toward softening the proposed cuts. Instead they will build this year’s budget surplus, to $3.3 billion.

The 2011 plan hinges on two big uncertainties. First, it is balanced on assumed further labor actions: another drawdown of labor-reserve money ($268 million, meaning no raises absent labor concessions) and nearly $557 million in labor givebacks on health benefits and pensions.

The other is the state budget. The mayor claims -- although Gov. David Paterson's budget director disagrees -- that there will be a $1.25 billion shortfall in state aid to the city, including a $493 million cut in education aid. The state put the shortfall at closer to $700 million. But in making his cuts, Bloomberg uses the $1.25 billion figure.

As a result, the executive budget says that, overall, nearly 11,000 city jobs would be cut, including 6,414 teachers and other staff in the Department of Education.

Imbalance of Powers

The city council’s April response to the mayor’s January preliminary budget does not offer an alternative to the mayor's plan: no alternative cuts, no new revenues. It does make the point that the proposed cuts are unequally distributed.

Its "Key Areas of Concern" section is brief and narrowly defined, focusing only on public safety issues, particularly the January proposal to drop nearly 900 police officers from the city’s headcount. The recent Times Square attempted bombing led the mayor to quickly cancel that cut.

The City Council currently is holding hearings on the proposed cuts. But for the most part, there has been little serious engagement between the members and city agency executives who appeared before them. The education committee report in the April response for example, lists some 52 questions asked of the school chancellor, but not a single reply by the chancellor.

When Schools Chancellor Joel Klein appeared before the council earlier this week he faced few tough questions even when he defended creating two new highly paid administrative positions and keeping a multimillion contract to recruit new teachers.

The council seems hard-pressed to get basic information from agencies they oversee. In the response, the economic development committee, for instance, had to ask the department of business services to provide a list of 13 community-based organizations that have received federal stimulus funding, how much each has received, and how many job placements have been made.

Some committees barely make the effort. The committee on consumer affairs apparently asked no questions of the commissioner, and the only exchange noted is a request from the consumer affairs commissioner for help in extending the agency’s hearing authority over businesses.

The Impact of the Cuts

The council hearings do, however, offer some hint of the impact of recent and proposed agency cuts. The problem the council faces, as its response points out, is that the mayor's preliminary budget, does not itself provide "as required … a detailed and meaningful analysis of the consequences of budget decisions."

In the report, the council's Committee on General Welfare offered the most detailed picture of budget-cutting impacts. It suggests that although the mayor has claimed an "across-the-board" approach to cuts -- a strategy the council objects to -- the actual impacts of cuts are far from equal. For instance, in the Administration for Children's Services, the number of slots for family treatment/rehabilitation services would be cut by over 9 percent and those for general preventive services by 30 percent. A $3 million teenage abuse prevention program is simply eliminated.

A Human Resources Administration food and nutrition program for people with HIV/AIDS is funded at only 50 percent of its current level. Homemaker services to families with preventive services will get 80 fewer hours of help per year.

In the response, the committee also raised a rare question about city contracting, specifically an Human Respurces proposal to save $7 million by "restructuring" employment services, including contracting out English-As-Second-Language services currently provided by city workers.

The effect of cuts to contracted agencies is an unexamined part of the executive budget. About 15 percent of the city’s $63 billion budget next year will be spent on over 17,000 city contracts with not-for-profit and for-profit organizations and firms. Yet the 238-page mayor's message in the executive budget devotes only one page to the $9.5 billion contract budget for 2011. Contract reductions presumably will mean a substantial, if unknown, number of private-sector layoffs, in addition to the proposed 11,000 cuts in the public workforce.

The health committee identified a number of disproportionate cuts. Two HIV contracts at the Health and Hospitals Corp. are cut, one by 12 percent and another by 26 percent. Nurse coverage in all elementary schools – private and public – with fewer than 300 students is eliminated (saving $3.1 million).

The Committee on Youth Services notes that with state and federal funding eliminated this year only 18,000 youth can be provided summer jobs, although last year over 149,000 applied.

The cuts to libraries, as reported to the committee on cultural affairs are extraordinary. In Brooklyn 30 percent of the library staff would be laid off, in the New York library, which covers Manhattan, the Bronx and Staten Island, 27 percent. The New York library would be open only 28 hours a week -- a 48 percent cut in hours -- and the Queens library open only 25.

Libraries are a favorite area for mayoral cuts that are subsequently restored by the council, but these cuts are much more severe than those in years past.

Then there are the cuts directly on poor households. As illustrated in testimony before the housing authority committee, the New York City Housing Authorityacknowledges it has two options to deal with a $45 million gap in funds the Section 8 housing voucher program. It could lower Section 8 subsidies for 30,000 tenants, in effect raising their rent in effect, and saving $20 million, or terminate 10,000 tenants’ Section 8 vouchers, saving $45 million.

At least one committee, however, was witness to good news. The executive director of the Conflicts of Interest Board, while asking the committee on standards and ethics for a $400,000 budget restoration for the board, said that the increased numbers of council inquiries to his office in recent years "has resulted in this being the most ethical Council during his long tenure at the COIB."

The Administration’s Budget Strategy

With sketchy information from the Bloomberg administration on budget impacts and no willingness on the part of the mayor to propose or debate alternative budget options, the budget process has become an administrative exercise. The council’s formal response to this -- especially its lack of an alternative plan -- does not give much hope for any challenge to the strategy.

What the public is left with late in the budget process is an administration apparently fixed on getting as many concessions from city labor as it can: labor reserves used to help balance this year's and subsequent budgets, $557 million in annual health and pension givebacks, and the threat of no raises in future contracts without equivalent productivity savings. In education, the administration also want to change provisions, long fought for by the union that require the most junior teachers be the first to be laid off.

This may well be a bluff. Some skeptics think the administration is pushing for some of its cuts -- particularly the slashing of thousands of teaching positions -- as a tactic to pressure Albany for more aid. There may be more surprises, as often happens in the last few days of the budget process, including more revenues to be found in new projections, sudden new savings or more federal aid. The Independent Budget Office, for example, projects substantially more tax revenues in the future than the mayor does.

The council’s lack of urgency in its response may reflect such anticipation and thus signal that it expects to get its usual modest restorations in the adopted budget.

But the executive budget does have a red flag. The executive budget includes a 10-year table that shows the surpluses that have characterized the Bloomberg administration’s budgeting style. Even in the first tough, post 9/11 years of the administration (2002 through 2004) the city ended every year with surpluses that ranged from $700 million to $2.1 billion.

From 2005 to 2009, surpluses averaged $5.7 billion a year, peaking at $8 billion in 2008. The table notes a $3.3 billion surplus for this year, but no surplus at all in 2011 and a $3.8 billion deficit in 2012. In other words, if the intent in each year has been not so much to balance that year’s budget, but to maximize each year’s budget surplus, then the administration has a long way to go in the next 12 months to meet anything like its recent surplus targets.

Without some good-news surprises, then, the city may soon face a ninth and a tenth notch in what the mayor lightly calls his "eight different belt tightenings over the last three years."

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

Severe Recession Hangs on in Much of the City


Job numbers are up, unemployment is down. Consumer confidence is up. Gross domestic product has increased for three quarters. It sounds like the recession is behind us and we're on the road to recovery.

Wait, don’t pop that cork yet. Our economic house may no longer be burning down, but it's not quite ready for us to move back in. It was badly burned and it will take quite a while to make it livable once again.

A Bad Recession for New Yorkers

The country has gained over 500,000 jobs so far this year, but while the Great Recession might be over in a technical sense for the nation and New York City, the recovery path will be rocky and long. It's true that New York City lost proportionately fewer payroll jobs in this recession than in the downturns of the early 1990s and the early 2000s. Yet, by other measures, such as the falloff in total wages or the rise in joblessness among city residents, this recession is every bit as bad as -- or worse than -- the two that preceded it. Also, given the far-reaching changes we've seen in our economy and the finance sector, it is less likely that there will be a quick and steady rebound. This column examines why we are not out of the woods of economic adversity.

Consider the figures below that show major indicators for New York City during this and the two prior recessions, both of which were widely recognized as very severe slumps that took a heavy toll on average New Yorkers.

Wage Declines in New York's Recent Recessions
  1991 2002 2009
Decline in NYC payroll jobs -6.0% -2.9% -2.8%
Personal income change 1.8% -1.0% -3.0%
Total wage decline -1.4% -5.3% -10.5%
Total non-finance wage decline -2.3% -1.3% -4.9%

Using figures from 2009, the single year decline in total wages outside the financial sector during this recession was almost 5 percent, much greater than the falloff in total non-finance wages during the single worst years of the two previous downturns. Many more workers suffered pay cuts and/or were forced to work fewer hours during this recession than during the last two. With wages dropping that much, households sharply curtailed their spending in neighborhood shops and restaurants.

Twice as Many Jobless City Residents

Unemployment also has increased much more in this recession than in the last two. From early 2008 until December 2009, the number of jobless city residents more than doubled, jumping by nearly 240,000. This was a much larger increase than in the early 1990s or the early 2000s. The unemployment increase this time has been about twice what it was during the 2001-to-2003 recession.

Unemployment Increases in New York's Recent Recessions
  1989-1992 Recession 2001-2003 recession 2008-2010 recession
Loss in NYC payroll jobs -360,000 -235,000 -175,000
Increase in number of NYC residents unemployed 174,900 120,400 238,700
Percent increase in number of unemployed residents 84% 61% 133%
Increase in city resident unemployment rate 5.2% 3.1% 5.9%
Decline in city resident household employment -158,100 -40,400 -160,600

How can the increase in unemployment exceed the decline in the number of payroll jobs? The "payroll jobs" count comes from a survey of jobs in all businesses, including nonprofits and government, but does not include the self-employed. Even as the economy soured, people kept entering the labor force adding to the number counted as unemployed. At the same time, there have been far fewer opportunities during this recession for people to turn to self-employment when they lost their jobs, and that has boosted the unemployment rate as well.

The other official monthly accounting of the job market surveys households to come up with a "household employment" figure, which includes the self-employed. Household employment among city residents dropped by 160,000 in this recession, slightly more than in the early 1990s recession and four times the falloff in the early 2000s recession.

 

The household employment figure covers only city residents, while the loss of payroll jobs includes all jobs lost in the city -- whether they were held by residents of the five boroughs or commuters. In the early 1990 recession, the loss in payroll jobs was nearly 200,000 greater than the decline in household employment within the city. This time, though, the gap has been far smaller, indicating that city residents have suffered a much greater share of the city's job loss. In the finance sector, which was spared in part by the bailout, commuters hold 40 to 50 percent of the highest paying jobs. In most moderate- and average-paying sectors, city residents hold 90 percent or more of the jobs.

The Wall Street-Main Street Disconnect

New York City's employment loss in this downturn has been heavily concentrated in moderate- and middle-income paying jobs largely held by city residents. There is a lot of truth in the argument that the Great Recession has seen a sharp disconnect between Wall Street and Main Street.

Main Street has borne the brunt of the Great Recession in job losses, much higher unemployment and in wage declines far greater than those in the two prior downturns. Wall Street chalked up record profits in 2009 -- three times the previous record and more than the combined profits of the four years of the housing bubble from 2003 to 2007.

For the average New Yorker, the bite of this recession is severe, and there is no end in sight. In certain communities, unemployment rates are much higher than the citywide 10 percent rate. The jobless rates among blacks and Hispanics are 15 to 20 percent in central and south Bronx, central and east Brooklyn, Harlem, and Washington Heights are three or four times the unemployment rates among non-Hispanic whites on the Upper East and West Sides and in brownstone Brooklyn.

Moreover, the standard unemployment rate does not include those who are under-employed or who have given up looking for work because job prospects are so bleak. When such workers are included, the "real" unemployment rateis 17 percent, compared to the 10 percent level based on the standard measure. Many parts of the local economy show the signs of the Great Recession’s severity:

-- Retail sales in New York City, as measured by sales tax collections, dropped by 11 percent in the 12 months following the September 2008 financial market meltdown.

-- Bankruptcy rates among small and medium-sized businesses have soared and are three times what they were in 2006.

-- The disaster of predatory subprime mortgage lending has devastated many minority neighborhoods in New York City.

As bad as this recession has been, it would have been much worse were it not for the unprecedented federal stimulus package -- the American Recovery and Reinvestment Act of 2009. The act has pumped over $10 billion into the city economy so far and has created or saved an estimated 83,000 jobs in New York City and kept 250,000 city residents from falling into poverty last year. The fact that the recession has taken such a heavy toll despite the substantial, beneficial effects of the stimulus underscores the profound crisis represented by the Great Recession.

Needed: 400,000 Jobs

To get the city's unemployment rate back down close to where it was before the recession, we will need to add 400,000 jobs. That reflects the jobs lost plus what's needed to accommodate growth in the size of the city's labor force.

Given that, it looks like long-term unemployment will stay pretty high for some time. Already, half of unemployed New Yorkers have been jobless for over six months. This means that young adults ages 20-24, for whom unemployment rates are 20 percent (37 percent for teenagers), will face a particularly uphill climb into the job market. Plus, there is already evidence that older workers, many of whom saw their retirement savings devastated by the stock market crash, are staying on the job longer. Prolonged unemployment will depress wages as well, since people unemployed for long periods of time often see their salaries drop when they finally do find work.

Recent economic forecasts call for an unusually slow recovery. The Congressional Budget Office, for example, expects the unemployment rate to still be 9 percent at the end of 2011. Locally, the employment forecast by the city’s Independent Budget Office indicates it will be sometime after 2014 before the unemployment rate would drop below 6 percent.

Bubbles to the Rescue?

Although economists were surprised at how quickly New York City rebounded from the early 2000s recession and the effects of 9/11, we now realize that bubble conditions had a lot to do with that resurgence. Since the 1980s, periods of economic growth have been heavily influenced by financial excesses and bubbles.

This time around, it seems doubtful that much of a sustained recovery is in the works. The tenuousness of the current "recovery" was made clear recently when the non-governmental body responsible for dating the turning points in the economic cycle stated that it could not rule out a "double-dip" recession.

We don’t know what will happen when the effects of the big federal stimulus package wind down. Current city and state budget problems could lead to more cuts and layoffs, exacerbating the unemployment situation.

The housing market, usually a major engine of recovery, was crippled by the bubble. Consumer spending that makes up two-thirds of the economy will be dampened for at least the next year or two by weak job growth, stagnant wages, and high debt burdens.

Creating a Real Recovery

More than anything else, the recovery of the city economy depends on a sustained recovery at the national level. We have an enormous stake in the president and Congress fixing the economy. Meaningful financial reform and additional economic stimulus are critical, but far from sufficient. We need policies to spur job creation and investment, including wage subsidies, public service jobs and more infrastructure spending to build a better foundation for economic growth. We also need an increase in the minimum wage, the Employee Free Choice Act to break down barriers that thwart workers' efforts to form unions, and a reauthorization of national welfare reform that reduces poverty levels that haven't seen sustained improvement since the 1960s.

New York City government and the state can support a real recovery by making sure that they don’t worsen unemployment and the well-being of moderate and middle income New Yorkers by slashing essential programs and services. The city can also use economic and workforce development resources to raise low wages that keep hundreds of thousands of city residents and their families below or near the poverty line. By the city’s reckoning, the 2008 poverty threshold for a four-person family was $30,419. Yet, median weekly earnings for city residents who are not managers or professionals were $504 in the last quarter of 2009. That would make yearly wages of $26,208, 14 percent below the poverty line. Relying on better wages for every New Yorker makes a lot more sense as an economic recovery strategy than waiting for Wall Street bonuses to trickle down.

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

A Month After the Deadline, State Budget Nowhere in Sight


 

"It's a real mess," said Lt. Gov. Richard Ravitch, speaking on Tuesday afternoon about the budget situation in Albany. "And that is something you already know," he added, half smiling, half wincing. "The second thing you need to know," he said, "is that everything they are doing, the longer they put off making cuts, the longer they take to decide, it amounts to deferral, it amounts to more borrowing."

Mayor Michael Bloomberg is expected to unveil his budget proposal today , and he will have to do that without knowing how much money the city will get from the state in the coming fiscal year. Already the Bloomberg administration contends Albany's proposals would slash about $1.3 billion from the city, including massive cuts to education aid. (The state puts the figure at around $1 billion.)

The likely scenario for tomorrow is that the mayor will budget conservatively in the face of the state's fiscal crisis and inability to reach agreement on the budget. The state budget already is over a month late, and while the principals insist they are working as hard as possible to come to a deal, there aren't many signs that one is imminent.

"The mayor is going to have to decide whether to be conservative or optimistic in his budget estimates," said Ravitch, "In this case I don't think it would be appropriate for him to be optimistic."

A Divided Legislature

Earlier in the year, Ravitch proposed a plan that would have instituted new accounting measures and allowed for borrowing to balance the budget, with certain strict guidelines. The Senate and Gov. David Paterson have rejected the plan, while the Assembly seems keen on borrowing -- whether they want unrestricted borrowing or Ravitch's plan is unclear.

Finance Committee chair Kruger: The budget as moving target.

But that is not the only source of tension. The Senate is said to be pushing hard for "property tax relief." (Don't call it a cut or you will be quickly corrected.) Many see the move as a bid to win support from suburban and upstate districts heading into an election season. The Assembly is apparently more concerned with reducing Paterson's proposed cuts to education and health care. Any type of property tax relief would benefit upstate and suburban areas where more people own property, while restoring education and health cuts would more likely benefit the city.

Meanwhile, the state's finances are growing bleaker by the day.

The state is expected to run out of cash by June unless a budget is put in place. In June, a number of payments to school districts and other groups that Paterson deferred earlier this year will come due. The state owes $4.1 billion to schools, including new and deferred payments. The budget office estimates the state will be $1 billion short. There is talk among legislators that the state could borrow to make the payments, but Ravitch says it's unclear whether borrowing is legal when there is no budget in place. "This cash flow crisis in June is very real," he said.

Missing the Deadline

It isn't exactly uncommon for the state budget to be late. The legislature has passed an on-time budget only five times since 1975. Lately, budgets have come in closer to the March 31 due date: Last year, the budget was about a day late. But things are different this year. Besides the extremely narrow Democratic majority in the Senate, a lame duck governor and election season just around the bend, the state faces a rapidly increasing $9 billion budget deficit.

De Francisco: The GOP is shut out

Outside Ravitch's office last Tuesday around 3 P.M. the session bells are ringing, but no one is answering them. Advocates and lobbyists wait outside the senate chamber; inside the seats are all empty. "Think they are gonna do anything today?" asks a staffer, "I wouldn't bet on it," replies another. The Senate will consider real legislation today, but the budget is not on the agenda. "It's like [the movie] Groundhog Day here," says another staffer, "Every day is the same as the last."

Sen. Ruben Diaz stands on the Democratic side of the Senate chamber, looking confused. "Where is everyone?" he asks of a staff member. He declines to discuss how the budget mess could affect New York. "Ask the guys upstairs," he says refering to Paterson, Assembly Speaker Sheldon Silver, Senate Democratic Conference Leader John Sampson and other senior legislators who are involved in budget negotiations.

Senate Finance Chair Carl Kruger hasn't disclosed much about the budget negotiations. He tells Republican Sen. John DeFrancisco that talks are so sensitive that details can't be discussed in deference to the other side. Republicans have raged that the Democrats have completely ignored rules that require conference committees with members of the Assembly and Senate from both parties to hash out the budget in public.

In response, Democrats last month invited the Republicans to a five-way leaders meeting on the budget. The Republicans declined, claiming the invitation was only a charade.

Diaz: Ask the guys upstairs.

DeFrancisco insists that Republicans have not been consulted on the budget and is certain that the Democratic leadership will simply dump the final proposal in their laps one day and schedule a vote on it hours later. It happened that way last year.

The City's Stake

Standing outside of the office of Senate Minority Leader Dean Skelos, Kruger, grimacing, said "The budget is a moving target. We've had three-way negotiations; we had five-way negotiations."

As to what it means for the city, he continued, "The city could lose millions of dollars. We would like to restore some of that, but each conference has their own priorities. When we had money, it was about who gets how much. Now it's about who gets enough."

The city may well have an ace in the hole in the negotiations. As Republican leaders constantly point out, all of the key players at the negotiating table represent New York City, and it is an election year.

"I think it is unfortunate that a lot of municipalities will have to make conservative estimates, but we hope to get this budget done soon, and hopefully they will get to move those estimates up," said Sen. Kevin Parker.

Plugging the Hole

In the meantime, though, the state is left with stopgaps. So far, Paterson has proposed -- and the legislature has passed -- bare bones budget extenders. More almost certainly will be needed.

With each extender, Paterson is expected to introduce more ways to save the state money. The legislature is likely to accept them, because members are afraid to vote against something that will keep the state government running. Most recently, Paterson introduced a measure that will furlough 100,000 state workers for one day a week, without pay. It is expected to save the state $30 million a day. But union heads question the legality of the furloughs and are expect to challenge them in court.

Other emergency actions Paterson has taken, such as discontinuing payments for construction projects on state owned roads and bridges, are being contested in the courts and the legislature. Contractor groups are suing the state to restore funding and unions representing state workers are expected to sue the state if the furloughs go through. Most of those measures are expected to be repealed once a budget is adopted. Paterson has requested that legislators stay in Albany five days a week to at least keep up the appearance that budget negotiations are a priority.

On Wednesday, legislators held their morning session and departed for their districts.

At this point if you want to know when you can expect a budget deal, as Diaz said, you should ask the guys upstairs.

They probably won't tell you.

Now, Some Good News About the City's Budget


new york city budget
Is everything coming up rosy for the city's finances?
Photo (cc) 2010 pixonomy

Given the gloomy budget and economy forecasts of a year or even several months ago, New York City has emerged in remarkably good shape, according to the New York City Independent Budget Office's Analysis of the Mayor's Preliminary Budget for 2011. In sharp contrast to alarming stories of huge current and future deficits in New York, New Jersey and many other states across the nation, the budget office's New York City story offers much good news.

That includes a budget surplus of nearly $3 billion for the current fiscal year, a city recession much milder than expected and milder than the last two recessions, a solid preliminary budget for 2011, and long-term budget prospects that are much more optimistic than the mayor's. Little gloom, no doom.

The city's fiscal condition is the result of some good luck -- especially a lot of federal aid and an unexpectedly quick Wall Street turnaround. It can also be attributed to a succession of major budget actions by the Bloomberg administration: agency budget cuts that began in April 2007 and have been repeated in every financial plan since, and increasingly regressive tax policies.

The report places the fiscal good news in a larger social, economic, and political context that helps identify the budget’s winners and losers.

Keeping Jobs

The recession did not get as bad here as many had feared it would. The Independent Budget Office acknowledges that it, like the mayor's Office of Management and Budget and other fiscal monitors, was way off in forecasting the depth of the recession in the city. The city indeed lost a lot of jobs -- 172,900, with an unemployment rate that jumped from less than 5 percent to 10.4 percent in January -- but far fewer than the 254,500 lost jobs the Independent Budget Office projected a year ago.

It also is far below the 228,600 jobs lost in the 2001-2003 recession and the 357,500 in the 1989-1992 recession. From 1970 to 1977, which the budget office calls a "period of brutal structural change" that included New York's great fiscal crisis, the city lost 635,200 jobs.

Fewer job losses mean less lost revenue. At the same time, the federal bailout of the nation's financial institutions played a key role in boosting revenue. The surprise was how quickly Wall Street firms reported profits -- $61.4 billion in 2009 -- which almost totally erased their $62.7 billion in losses over the previous year and a half. Those profits translate into higher business and personal income taxes for the city and account for much of the nearly $3 billion surplus for the current fiscal year ending June 30.

The surplus also came from the city's use of $600 million in reserves and accounting adjustments that a conservative Office of Management and Budget typically sets up each year and nearly $500 million of new agency cuts in the last half of this fiscal year. This fiscal year -- as in the past several years -- surpluses form the previous year also played a role. Without the use of these surpluses, expenditures would be $2.7 billion higher than revenues this fiscal year and $2.8 billion higher next fiscal year, according to the Independent Budget Office.

The repeated use of $3 billion or more of surpluses in one fiscal year to prepay the next year's expenditures has given the mayor unusual flexibility in budget balancing. It has become a kind of rolling "rainy day fund" that once raised eyebrows among fiscal monitors and the City Council for its expansion of mayoral budget powers, but now seems generally accepted.

The economic and fiscal news is so good, in fact, that fears that the surpluses will finally end because of the recession seem unwarranted. Although the Independent Budget Office currently projects a surplus in 2011 of just over $100 million, it also foresees future budget deficits that are extraordinarily small when compared to the mayor's -- and its own -- forecasts in recent years.

For instance, the mayor currently projects a $3.7 billion deficit in 2013, but the budget office projects only a $1.8 billion deficit. A year ago, the mayor projected a $4.2 billion deficit for 2013 and the Independent Budget Office a $4.8 billion deficit.

The reason for the big difference is that the Independent Budget Office forecasts what it calls "moderate" economic growth in contrast to the mayor's budget office's forecast of a "slower and weaker recovery." As a result, the Independent Budget's Office's forecasts of tax revenues are $2.0 billion higher than the mayor's for 2013 and $2.9 billion higher for 2014.

Cutting Costs

The bailout and clever accounting alone do not account for the changed fiscal picture. Budget cuts also played a role.

The New York State Financial Control Board in its November staff report projected that the cuts to agencies from all the financial plans since January 2008 would total over $3.4 billion lost in 2011 alone. Those cuts, along with the unanticipated new revenues, have stabilized the city's fiscal condition for the near term -- and possibly for much longer -- but the impact of the cuts is not generally known. The Independent Budget Office report offers some clues.

The Department of Education, for instance, has lost a projected $546 million since June 2009's adopted budget, according to the Independent Budget Office. Of this, $261 million came out of classroom funding. If the mayor’s proposal to give teachers only a 2 percent raise -- versus an anticipated 4 percent -- does not fly, the city could lose an estimated 2,500 teacher positions. (State budget cuts could also create large reductions.) An unexpected increase of 14,000 students in the schools this year has further strained the education budget.

The news in education, though, is comparatively positive. Education spending increases by $1.1 billion, from $18.2 billion to $19.3 billion, over the next four years. (Budget "cuts" in practice often mean simply a reduction in the size of previously projected growth.) In almost all other agencies expenditures actually fall over the next four years.

Homeless services – where the number of families with children in shelters has increased by 21 percent in the first half of this fiscal year – is projected to be cut by $69 million over the next four years, an average of 2.3 percent each year. Children's services will be cut an average of 1.4 percent each year, health services by 1.0 percent each year. (This does not include mandated Medicaid costs, which will go up by over $1.5 billion over four years, or almost 6 percent a year.)

Senior and youth employment services are likely to see big cuts, primarily because of cuts in federal and state aid. The Independent Budget Office reports that the Department for the Aging sees a worst-case scenario of closing 100 senior centers, a third of the city's 301 centers. Youth employment this summer could drop by 35,000, or 67 percent.

Police (an average 0.8 percent cut per year) and fire departments (1.9 percent ) have similar cuts over four years, although the mayor has ruled out the layoffs of any police officers. Sanitation is the exception to the cutting, because of the cost of exporting waste to landfills outside of the city, which increases an average of 2.9 percent each year.

Tax Policies

The mayor has two modest, reasonable tax increases in his preliminary budget: extending the mortgage recording tax to coop loans (technically not mortgages because they cover shares in a building) and extending the city sales tax to fuel sold to airlines. Together the two would raise an estimated $211 million in 2011.

There are no changes in the major taxes. But the mayor has hiked taxes to increase revenues in the past, and the Independent Budget Office traces the impact of earlier changes. For example, the city sales tax rate increase last year (from 4.0 to 4.5 percent) raises an estimated $468 million in 2010. The canceling of the 7 percent property tax rate cut (in effect in fiscal 2008 and half of fiscal 2009), added $1.3 billion to 2010’s property tax revenues.

It is interesting to note that the property tax rate cut (plus a homeowner rebate of $400) was in place at the same time that budget cuts in education and all other agencies -- totaling $3.4 billion in 2011 -- began. And the Independent Budget Office reminds us that the two thirds of city residents who are renters got no break. These same people, because on average they make less than homeowners, also were more burdened by the sales tax increase.

Management Issues

Along with its review of the numbers, the Independent Budget Office report also makes brief allusion to some management issues in the Department of Education. The law renewing mayoral control of schools in 2009 gave the office, along with the city comptroller, new powers to monitor the department's opaque financial systems.

The challenge facing the IBO in its new role is clear in its several-page analysis of the department's policies and practices. For example the IBO cites "another reorganization of how schools receive operational and administrative support through its central bureaucracy, the effects of which have not yet been fully accounted for in the operating budget." That sounds like the department at this late stage of the budget process either does not know what the effects of the change are or hasn't made them clear to the budget office, a key monitor.

The IBO seems to acknowledge its challenge in another example: "Another change that will affect DOE's overall budget next year is yet another reorganization of the department’s back office support for schools." The report goes on to explain (what the recent Preliminary Mayor’s Management Report ignores) the three re-organizations that have taken place.

Briefly, the 32 community school districts inherited by the Bloomberg administration were first collapsed into 10 regional centers. Then the centers were disbanded and transformed into Integrated Service Centers. Now the department has created Children First Networks, an outgrowth of an effort called the Empowerment Zone, which gave 500 schools more independence from the central office and evolved support networks within the zone.

All of this has budget implications. It will, for example include the elimination of 80 administrative positions, the disbanding of several support organizations, and closing of the Integrated Service Centers. But assessing those impacts will be difficult since the Independent Budget Office has little or no public information from the department about rationales or ultimate impacts or these changes.

On to the Adopted Budget

As the mayor prepares to release the executive budget and continues negotiations with the City Council, the Independent Budget Office's analysis is a useful background paper for all those interested in a reasonable adopted budget. It suggests that economic and fiscal conditions are much more positive than the mayor has acknowledged.

It suggests, on one hand, that much of what the mayor has done to reach this point of fiscal stability is admirable. Raising the property tax rate 18.5 percent in 2003 after a decade of a frozen rate is probably the most important.

But much is also disturbing. The impact of service cuts, narrowly targeted tax cuts, and regressive tax increases have received far too little attention. The city's wealthiest households continue to pay at a lower personal income tax rate than they did in earlier recessions.

One reading of the report is that there is enough cushion in the current economy and fiscal condition to redress some of the recent inequities, to be more creative and certainly to be less punishing. Even if big cuts in state aid to the city -- ignored in the preliminary budget itself -- materialize, there is arguably enough good news in recent fiscal developments to minimize any further cuts in essential city services.

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

Spending Freeze Deals Another Blow to Ailing Roads and Bridges


Alexander Hamilton Bridge
Repairs to the Alexander Hamilton Bridge in the Bronx could come to a halt if the state does not resume payments to the contractor doing the work.

You may have noticed some changes while driving out of the city Friday evening: major repairs once fully underway on that cracked and crumbling bridge have stopped. The previously omnipresent hardhats with orange vests were missing from major roadways.

Where did they go?

Late last month, in response to the budget crisis, Gov. David Paterson halted payments on state-funded construction projects already underway or soon to be started. Work deemed to be of an emergency nature or funded by federal stimulus funds will continue.

Paterson's move has forced contractors to evaluate whether they can continue their projects without payment from the state or will have to shut down and lay off hundreds of workers.On Friday, a number of trade associations filed a lawsuit in Albany Supreme Court in an attempt to force Paterson to pay up.

The contractor who is in charge of the repairs to the Alexander Hamilton Bridge, for example, told the New York Post on April 2 that he would have to begin shutting down the project if the state did not reestablish funding. The company did not return calls for comment on this story. Other major projects in the five boroughs that could be in jeopardy include bridge and roadwork on the Nassau Expressway in Queens and repairs to the Gowanus Expressway in Brooklyn.

The funding situation has created an immediate crisis, but New York's transportation infrastructure did not become decrepit overnight. (For a look at some of New York City's decaying streets, see Gotham Gazette's slide show, Rough Roads.) For years legislators and the governor have raided the fund set aside to repair State Department of Transportation owned roads and bridges. Now, with a $9 billion dollar deficit to deal with and an even darker financial picture looming in the near future, the state says it does not have enough money to fund the five-year road and bridge plan.

No Extension

The budget is now more than two weeks late and the legislature has passed two bare-bones budget extenders to keep state government running. When the Senate went to vote on the second extender last week, upstate Republican Sen. John DeFrancisco tried to introduce an amendment that would have added emergency funding for construction projects.

Sen. Martin Dilan, the chair of the Senate Transportation Committee, told the chamber he agreed with the idea of the bill and had sent a letter to the governor's budget director requesting that funding for the transportation projects be made part of any future budget extenders. (To read Dilan's letter, go here.) But Dilan said he would not vote for DeFrancisco's amendment because the Assembly had already passed its extender without it.

"I understand Sen. Dilan's position," DeFrancisco told the Senate, "but I think there comes a point in time where we really truly ought to fight in the forum where we have some power, rather than hoping on the good will of the administration." Passing the amendent, he said, would send a message to the governor that "this is really important not just for public safety, but to keep people employed."

DeFrancisco feels that upstate is in particular being hung out to dry because the state has not come up with a long-term road and bridge plan. He said that the legislature has "bailed out the MTA" but has not provided more money to fix upstate transportation woes.

DeFrancisco's amendment was defeated. Republican Sen. Tom Libous sharply criticized the decision not to include construction projects. (For his written statement and a link to a video, go here.)

The defeat and the budget delay have put a number of projects in limbo. Some construction firms say they are obligated by their contracts to meet certain deadlines whether or not the state pays them. Some have already completed the work.

"I talked to a contractor in Syracuse who finished the work on a project, but he hasn't been paid," said DeFrancisco. He added the delay was "simply a tactic" by the governor "to get the assembly and senate to pass his budget."

Meanwhile, industry representatives say the delayed payments will cost New York State jobs as well as create headaches, if not outright danger, for motorists.

Felice Farber of the General Contractors Association of New York said the latest budget maneuvering is part of a continuing problem: New York's long-standing neglect of its infrastructure. "The real issue is, New York has an enormous infrastructure, roads and bridges that need real maintenance. Lots of these projects have taken a long time to plan," Farber said. "The longer it takes to get started, the longer it will take to complete the projects and the more will have to be spent on maintenance because they don't have the money to pay for rehabilitation."

From Bad to Worse

In other words, you may not be imagining things if you think you notice more cracks in the pavement, falling debris, or jutting metal plates covering the road while driving the kids to Coney Island. It isn't a mirage when you see water through cracks in the bridge roadbed.

Recent studies show that New York's roads and bridges are falling into a state of disrepair and putting drivers in danger. State funds from gas, motor vehicle and highway taxes that are designated for road maintenance and rehabilitation have been raided over and over again to fill budget gaps. As a result, with each passing year roads and bridges overseen by the state become more worn and increasingly costly to repair. Rather than making the big expenditures needed to completely rehabilitate an ailing bridge, the state spends just enough money to keep the bridges and roads passable. Meanwhile cars and trucks jam old roads and bridges that were not designed for current levels of traffic, exacerbating traffic problems and leading to delays and accidents.

A January 2010 the study by TRIP, a national transportation research group, found that the state now spends considerably less on road maintenance than it once did. Half of the revenue received by the New York State Highway and Bridge Dedicated Trust Fund goes to pay off debt. Debt service is expected to take over 75 percent of the fund’s incoming revenues by 2013.

From fiscal years 1993-1994 to 2008-2009 a little over one third of expenditures from the New York State Highway Bridge Dedicated Trust Fund went toward improving roads and bridges. It is expected that by 2013 only 21 percent of expenditures from the trust fund will be spent on road and bridge maintenance. An analysis of New York's 20-year transportation needs show the state would require about $175 billion from 2010 to 2030 to maintain its transportation infrastructure. Revenue estimates show the state will likely be $87 billion short of that goal.

Another study, this one by state Comptroller Tom DiNapoli released this past fall, found that only 35 percent of the funds from the Highway and Bridge Dedicated Trust Fund have been directed to improving infrastructure since the fund was created in 1991. The rest funded the state Department of Transportation and the Department of Motor Vehicles, and paid off debt. DiNapoli's office estimates that "$3.9 billion will need to be transferred from the state’s General Fund to the Highway and Bridge Trust Fund over the next five years to meet the Trust Fund's obligations."

"It was poor fiscal management that led to the projects' fund dwindling," said Graham Parker in Dilan's office. "It was raided to push budget gaps, and suddenly now it just caved in on itself."

And that is not good news for New Yorkers. The Department of Transportation is not in charge of all of New York's roads -- the city is responsible for typical city streets such as the one where Mayor Michael Bloomberg filled what he said was the 2 millionth pothole. The state does, though, oversee parts of major highways, expressways and bridges, such as Interstates 495, 87, 95 and 278.

Who is in charge of which roads is broken down by the terms "built" and "unbuilt." According to the state Department of Transportation website, "In NYC there are currently approximately 155 miles of built (state owned) arterials and 95 miles of unbuilt (city owned) arterials." The highway law states that the state will take over roads from the city as they are reconstructed to meet current standards. The state is slowly taking over responsibility for more portions of road around the five boroughs.

The Cost of Delay

The delayed maintenance and canceled projects have taken their toll. According to the TRIP report, 22 percent of New York State's major roads, including highways, arterials and freeways, have been rated in poor condition. Twenty-four percent of them are in mediocre condition. Those conditions lead to damage to vehicles, increased fuel consumption and wear on tires. That translates into every motorist spending an extra $405 annually to operate a vehicle. In total, New York's motorists are paying $4.5 billion more each year due to poor road conditions, the report says.

More than 100 bridges across New York state, according to DiNapoli's audit, have been ranked as being less safe than the Crown Point bridge in upstate, which was demolished last year.

The General Contractors Association of New York released a top ten list last year (see box). Most of the bridges on the list are located in the Bronx.

The top offender, the 70-year-old Kosciuscko Bridge, which notoriously creates bottlenecks on the Brooklyn-Queens Expressway, is scheduled to be replaced. New Yorkers spend hours on the bridge waiting in traffic jams, staring at potholes and other suspicious looking construction flaws. Some 170,000 vehicles traverse the span each day, and the accident rate on the bridge is four times greater than on other bridges around the state.

The state's inability to find funding for road projects has extended the time it will take to replace the bridge and increased the cost of the endeavor. "The cost of the Kosciuscko Bridge went from $750 million to a billion. And most of the project has been broken up into pieces," says Farber.

Talk about replacing the bridge began in 2002, and the project has been in various stages on and off since then. A number of different bridge designs have been proposed .

The transportation department says that replacing the bridge will begin in 2014. "That bridge has so much daily use, it's really up there in cost for a bridge like that not to be maintained," said Parker. "There needs to be money for maintenance so that projects don't get to this point. We need to get back to maintaining."

The Tappan Zee Bridge, a familiar span of concrete and steel for those who venture upstate across Interstate 87, creates fear among many who drive across it on a regular basis. The American Automobile Association deemed it one of the "Worst Bridges in New York" along with, you guessed it, the Kosciuscko Bridge. The Tappan Zee has been rated structurally deficient by numerous studies including a 2006 National Bridge Inventory by the National Highway Administration. One motorist told the Poughkeepsie Journal that she keeps a tool in her car to bash out her windows so that she can escape should the bridge collapse.

The Tappan Zee is riddled with cracks in columns and corrosion in its drainage system. The very material it was constructed with during the 1950s is substandard since better metals at the time were being appropriated for the Korean War effort. The structure is under perpetual repair and at the same time it bears 40 percent more traffic every day than it was designed to take. When it was first constructed the bridge carried around 18,000 vehicles a day; now traffic can exceed 170,000 vehicles a day.

Experts say the entire bridge needs to be replaced. The state is currently in the midst of replacing the bridge's deck and has spent millions of dollars to keep the bridge passable.

A Road Map

Last year, the Department of Transportation's proposed a $25.8 billion, five-year capital plan for road and bridge projects statewide. Parker said that the five-year capital projects plan contained a lot of major projects that would have helped prevent bridges from getting to the state of repair the Kosciuscko bridge is currently in.

In October, though, Paterson rejected the proposal, saying the state's finances would not allow the expenditure. Currently there is a two-year, $6.9 billion capital plan proposed. "There are no big projects in the two-year plan," said Farber. "There is lots of maintenance just to keep things standing, and the DOT knows they are going to suffer because of that."

Dilan has said the state's roads and bridges need at least $5 billion a year "to bring them up to acceptable standards." He is calling for, at minimum, at two-year $10 billion plan.

Paterson was looking to secure private investment for major projects like the rebuilding the Tappan Zee and Kosciuscko bridges through the Commission on State Asset Maximization. The commission was established by executive order in 2008 to study public-private partnerships. Commission members include former State Comptroller Carl McCall, Assemblyman Herman Farrell and Libous. Its executive director is Sam Barend.

According to a report by the New York Post the commission was set to establish a board that would have sought out private investment just as the scandals and legal trouble started building for Paterson. Sources told the Post that the political fallout damaged the commission's ability to move forward. Calls to Paterson's office and to Barend about the current state of private investment in infrastructure were not returned.

Regardless of how the work is funded, a growing number of legislators say more has to be done to keep New York's roads safe while simultaneously putting people to work. The state lost 33,400 construction jobs last year according to Farber. She expects next year to be much worse.

In a March 18 op-ed for The Capitol, Dilan wrote that investing in construction projects around the state will end up boosting the economy by providing jobs, as opposed to the current situation, in which construction workers are being forced onto the unemployment lines.

"Investment in and the maintenance of our transportation system puts people to work and helps to keep goods and people moving," wrote Dilan. "We must end old practices of under-funding our capital plans. We now can see firsthand the effect pilfering of our dedicated transportation funds has had on our state."

Dilan then referred to the Crown Point Bridge which traverses Lake Champlainon the Vermont border. Lat fall, New York and Vermont official determined the 80-year-old bridge was beyond repair. They closed the decrepit structure in October and blew it up a few days after Christmas.

With the bridge out, ferry service was increased but for some residents, that did not help. Commercial sections in the area became ghost towns. A large number of the 3,400 commuters who traveled the bridge must now drive an extra 100 miles to their jobs. Some residents speak of waking up in the wee hours of the morning to make the right ferry or to allow for the time to drive around the edge of the lake.

Most medical services are available on the Vermont side, and to some on the New York side, it feels like Crown Point was blown up along with the bridge. There is now squabbling over who and how the bridge will be replaced.

"Crown Point Bridge and the citizens who relied on it daily are not only the victims of careless money management," Dilan wrote." They are also victims of an antiquated policy when it comes to our roads and bridges: a policy of deferred maintenance and exorbitant replacement costs. It has opened our eyes to the fact that a better investment strategy is to 'fix it first.'"

Subsidies in the City: Part II


Photo (cc) 2010 Courtney Gross

This is the continuation of "Subsidies in the City." For the first part of the story, go here.

For the most part, the recipients of IDA benefits could not be more satisfied.

Take Bob Usdin, the owner of Showman Fabricators in Long Island City. For 18 years, Usdin and his company had built sets for theater and television in Red Hook. In 2003, he said, financing from the IDA allowed him to relocate and purchase a building on Pearson Place in Queens.

Scenes from plays and television sets now line the walls of the new space -- a former perfume factory. In a huge, high-ceiled workspace, sets for Broadway's the Little Mermaid, Hamlet, CNN and Fox Business have been born. The setting for the White Houses press briefing room was constructed within these walls.

"If we hadn't gotten the financing and the tax breaks, we would have moved out to Jersey," said Usdin.

Despite these stories, advocates question whether the costs outweigh the benefits for some of the companies the IDA helps. For instance, on the whole, about 40 percent of projects that have received IDA benefits during the Bloomberg administration had not met their job projections as of fiscal year 2009, including Showman Fabricators. About one in four actually lost jobs between the year they started and fiscal year 2009, according to an analysis by Gotham Gazette.

Given the economy, it isn't surprising that some companies have lost workers. Overall, IDA projects approved during the Bloomberg administration have added about 30,000 jobs to the economy that weren't there before.

Nonetheless, some projects miss the mark.

When they first received benefits in 2002, Showman Fabricators had 126 jobs. Now, according to the IDA fiscal year 2009 report, it has 96. Usdin says his business has been hard hit by the economy, and companies shouldn't be penalized if they run into tough times.

"I think it should come down to whether the company is using good faith," Usdin explained in the facility's drafting room. And economic development, he said, is more than the number of jobs.

Photo (cc) 2010 Courtney Gross

"Jobs are definitely important, and that's probably the number one piece of it," he said. "But all the materials we buy. We do local vendors. Every person we employ here buys lunch and has an apartment," he added. About 70 percent of his employees, he said, live in the five boroughs.

A lot of IDA officials agree.

"Should it just be about jobs, no," said Andrea Feirstein, a mayoral appointee to the IDA board since 2007. "It isn’t just about the jobs. It's also about the cost benefit back to the city."

Only 5 percent of the deals approved under Bloomberg come with a job creation requirement -- so the vast majority have no penalty for losing workers. The IDA says for most of these smaller deals (projects that cost an average of $26.5 million), the agency is satisfied if the company finishes its capital construction and stays in New York. A job lost here or there, shouldn't kill an entire project, officials said. A job creation requirement for these companies would be a "poison pill," said one EDC official.

Another official put it this way:

"People get subsidized student loans. ... If you don't graduate, it's enough for the federal government that you went to school," said Kyle Kimball, executive vice president at the EDC. "It's kind of the same thing. We are providing a subsidy or a benefit, and it's enough for us that the physical transformation or the investment in the expansion in the industry has happened."

These benefits keep companies in New York, officials said, and deter the move across the Hudson.

More Requirements

But the question of what the public should get in return for its tax dollars doesn't end there.

Advocates, politicians and labor leaders want to see more from the companies that receive public subsidies. And in many circles that conversation includes requiring companies to pay a living wage.

"Economic development subsidies, they are investments that are made on behalf of the taxpayers, and it's important that we get the greatest benefits for those that have the greatest needs," said John Petro of the Drum Major Institute.

There are bills pending in Albany and at the City Council that would require the recipients of public tax dollars to pay a certain wage. The comptroller also expressed support for a requirement to force these companies to pay a living wage -- defined as $10 an hour plus benefits. The IDA, on the other hand, has not, arguing more restrictions would dissuade companies from applying for benefits.

In what some have interpreted as a truce, the IDA has embarked on a study to measure how living wage requirements would affect its economic development strategy. It is sending out a request for proposals this week and expects the study will be completed next year.

Nonetheless, some of the beneficiaries of IDA financing aren't signing on so soon.

"You're investing publicly backed financing for the construction project to happen, which as a result creates additional jobs, but I don’t believe you can (have) a living wage provision," said Coletti of the Building Trades Employer's Association. "You got minimum wage requirements."

The issue is likely to come up this year both in Albany and at City Hall. Its fate in either venue is unclear.

"Companies get X, and we pat them on the head and say fine," said State Sen. Antoine M. Thompson, who has introduced an IDA reform bill in Albany. "We have a situation where too often these organizations are not creating new jobs and just retaining jobs."

Thompson's bill also would require IDAs across the state (there are more than 115 of them) to mandate that at least two board members attend public hearings and establish criteria for job creation. It would also require IDAs to maintain a web site and prohibit board members from having business ties to companies that apply for benefits.

New York City's IDA already meets many of these requirements, and with the exception of the living wage provision, its officials have expressed support for many of them. From its perspective, the IDA would like to see its ability to fund nonprofits reinstated. Its ability to provide certain types of funding to nonprofits expired in early 2008, and officials said that has crippled them ever since.

During the Bloomberg administration, nonprofits comprised the largest number of projects the IDA financed -- even though its ability to do so was curtailed. About $2.5 billion worth of projects are reportedly held up, because of the state law's expiration.

A Profitable Future

The debate over jobs and economic development will likely heat up in the coming months as the city gets ready to pen another large deal.

Just last month, Mayor Michael Bloomberg and the chief executive officer of Jet Blue held a press conference at City Hall, announcing victory. New York City had successfully secured a deal for the growing airline to stay in New York instead of moving south to Orlando, Fla. A mini Jet Blue airplane model -- brandishing an "I Love NY" logo on its side -- was stage left. In the coming months, the benefits of the deal are likely to take center stage.

To stay in the Big Apple, the airliner could see a benefits package full of tax breaks and incentives worth more than $30 million.

A hearing on the deal will likely not take place for another six months, said an IDA official.

You can bet that, whenever it does, many will be watching.

Subsidies in the City: Part I


Photo (cc) 2010

The sounds of classic rock wafted from a Manhattan Laminates warehouse where stacks of plywood towered from the floor to the ceiling.

Upstairs three employees sat in a quiet showroom where brightly colored samples hung from the walls. A floor above several more employees worked in the accounting department -- a space that doubles as a crash pad for Manhattan Laminates employees, said the company's president, Kevin Brady.

In total, 10 people work full time at the 52nd Street location, selling woodworking supplies to architects, contractors and the average renovating homeowner.

And they get taxpayer subsidies to do it.

Six years ago, Manhattan Laminates received tax breaks from the city's Industrial Development Agency, the financing arm of the city's Economic Development Corp. In a deal that will span 25 years ending in 2029, Laminates has already received $197,000 in public assistance -- a subsidy cocktail of a mortgage recording tax exemption, a sales tax exemption and other tax relief. The financing came in exchange for expanding the business, which Brady says he has done -- though not entirely in New York City.

Since the deal, Brady has bought three other companies -- one of which is in Long Island.

"The entire catalyst was off of Manhattan Laminates," said Brady of his business growth. "If the IDA didn’t do what they did, this whole thing might not have happened."

The breaks for Manhattan Laminates represent just one miniscule piece of the millions of dollars in city subsidies approved by the Industrial Development Agency during the Bloomberg administration. Over the last seven years, hundreds of projects have collected more than $363 million in benefits -- from sales tax relief to a mortgage recording tax exemption.

While the IDA contends those benefits play an integral role in expanding the city's economy, some say the public is not getting its fair share in return. Advocates and labor leaders are pressuring the administration to adopt more stringent policies to force these companies to create jobs -- good paying ones. The new comptroller, John Liu, has established a task force to look into the agency's accountability. Meanwhile, as cash becomes tighter at City Hall, critics question whether these breaks constitute the best use of taxpayer resources.

Nowadays, these IDA deals come with a lot more than low-cost financing. They come with controversy.

Boosting the Economy

Six years ago, Manhattan Laminates was on the agenda.

Two months ago, it was Western Beef's turn. Western Beef, a supermarket chain that sports a cactus in a cowboy hat as a logo, was eyeing up to $5.5 million in tax breaks to expand and relocate a store to Webster Avenue in the Bronx -- a move it promised would bring more jobs and fresh fruits and vegetables to the area. According to its application, Western Beef, which owns 15 stores in New York City, projected it would ring up more than $400 million in retail sales from all of its locations in 2009.

As they do every month, the Industrial Development Agency's 15-member voluntary board met in a fourth floor hearing room downtown to determine the applicant's fate. As usual, there was a small crowd that included mostly the applicant's lawyers, clad in sharp, dark suits, and a handful of advocates.

A dozen members, including the owner of Willougby's, a photography store staple; a union head; an Anglican priest and the Bronx borough president's counsel, deliberated. The board -- to which the mayor appoints a majority of members -- had never rejected a project during the Bloomberg administration, according to the IDA. And it wasn't about to start with Western Beef.

Over the course of the Bloomberg administration the IDA has inked more than 320 deals. The majority of these projects provide low cost, tax-exempt financing to not-for-profits. Many deals include financing for small-scale industrial outfits and tax incentives for the city's dwindling manufacturing sector. The smallest number of agreements, which account for the largest amount of public assistance, go to large corporations, like the New York Yankees, the Mets or Metropolitan Life Insurance.

Those large agreements make up half of the assistance received from the IDA through fiscal year 2009. And only these agreements, which comprise about 5 percent of all IDA projects, come with job creation requirements.

In total, the projects in IDA's portfolio during the Bloomberg administration have amounted to more than $10 billion -- money that goes to construction jobs, along with steel and wood, to build new headquarters and the staff to fill them. In total, these projects added almost 30,000 new full-time jobs to the city.

Without the IDA's benefits, say supporters, many of those projects, and the jobs that go with them, wouldn't have happened.

Photo (cc) 2010 Courtney Gross. Image of Manhattan Laminates warehouse.

"The IDA creates secondary jobs for the economy," said Louis J. Coletti, the president and chief executive officer of the Building Trades Employer’s Association. "Without the IDA funding, a good portion of those projects probably wouldn't be able to move forward."

That is exactly the overarching rule governing the distribution of this unlimited public financing: The project would not be able to happen without it. That concept, critics counter, is interpreted quite liberally.

A Question of Benefits

With a few exceptions, most deals are approved with little dissent at the board, critics say.

That is, until recently.

Rewind to the IDA's board meeting in February. It was Comptroller John Liu's maiden meeting. He cast one of two votes rejecting the Western Beef proposal.

It would not be, however, the last time Liu or his proxy would vote against an IDA deal. Since taking office in January, Liu has committed to vote against every project at the IDA until, he says, he understands how projects are selected and if they are done so equitably.

"So little is understood about the process that it's even difficult to know what's troubling about the process," the comptroller said during a phone interview last week. "The EDC and the IDA vote will spell out what the benefits are. Is there any mechanism to ensure that those benefits are actually delivered?"

IDA officials say the process is clear: Every year, the board receives between 200 and 300 inquires about financing for private companies, from a behemoth Bank of America to a small Long Island City-based manufacturer. They all are looking for public assistance to expand their footprint (and, in most cases, their profits). In the last fiscal year, just 12 were approved. In fiscal year 2008, the board approved 42 applications, according to the agency.

IDA officials said the agency's board never rejects applications, because the staff has already weeded out faulty or unsustainable projects.

"Staff seriously considers not only whether a company wishes to pursue IDA benefits, but, also, whether IDA benefits can help them achieve their near-term and long-term objectives," EDC Spokesman David Lombino said in an e-mail. "Since applications cost $5,000, we discourage fledging industrial and manufacturing business from applying unless we believe they can present a strong application. Once applications are received, staff undertakes a rigorous review process."

But critics, including Liu, question the agency's accountability.

"The concept of the IDA providing subsides and tax breaks and low cost financing to companies in it of itself isn’t the problem," said Bettina Damiani, the director of advocacy group Good Jobs New York. "The question is: Is it being done fairly and efficiently and do New Yorkers get access to good jobs?"

Advocates like Damiani point to the large tax exemptions given to mega-corporations. Think the New York Yankees, who received more than $48.8 million in public assistance through fiscal year 2009 for its new stadium (The team received $942.5 million in tax exempt financing in 2006). Their deal with the IDA lasts until 2046. According to the IDA's latest job assessment report, that controversial stadium currently has 3,621 full time jobs -- about 1,300 more than the old stadium, according to one estimate.

Those that make it through the application process but fail to comply with their contracts are subject to penalties or have their benefits terminated. Larger projects, like the deal for Pfizer, have certain job creation targets. If they don't meet them, they have to pay for it.

Since 2002, according to the IDA, approximately 60 projects have had to give back or repay benefits, totaling $34 million.

Though none of this satisfies critics. For instance, Metropolitan Life Insurance received tax breaks in 2002 for a $273 million project. But the company shuffled employees from its Long Island City location to Midtown -- violating the terms of its IDA contract. At the start of its contract, the company had 1,750 employees, and last fiscal year it had 1,778. The IDA canceled all of MetLife's future benefits, almost $18 million in assistance, as a penalty, an IDA official said.

Damiani called it "a slap on the wrist." The same approach applies to other large contracts, like Pfizer's, Damiani said. Pfizer received benefits starting in 2003 as part of a deal to expand its Midtown headquarters and its payroll. Eventually the deal was terminated (canceling all future benefits) because the pharmaceutical giant reduced its workforce, officials said. Pfizer, according to the IDA, is still required to report to the agency, and the city is working to get some of its benefits back.

"The IDA has made steps forward in transparency and accountability," Damiani added. "The bulk of taxpayer resources have gone to large commercial programs. And many people wonder whether that was a wise investment."

To continue reading about the IDA and its job creation policies, see Part II here.

Council Contests 'Across the Board' Cuts


 

The City Council says it's time to pick favorites.

In its budget response released on Thursday, the City Council urged the administration to refrain from cutting agencies "across the board," and instead argued for a more selective slashing strategy. It also said it would try to save public safety and senior programs, but did not indicate where it would find the money to do that.

In arguing for a more selective budget cutting strategy, the budget response, a mandated document that follows the release of the mayor's preliminary budget and precedes the executive budget, contends "many agencies... may be reaching the point where they are no longer able to achieve their core missions and programs." The council suggests some departments have already been cut too deeply and should be spared, while other programs that are ineffective could be slated for elimination.

Councilmember Domenic Recchia, the council's finance committee chairman, said, "A smaller agency when they have to take an 8 percent cut, that's a larger cut for them."

Shortly after the response's release, the Bloomberg administration disputed the council's characterization of its budget cutting strategy. A spokesman said the administration asks every agency to reach certain spending reduction targets, and then picks which cuts should actually go into effect. The result, said Marc LaVorgna, a mayoral spokesperson, is agencies all end up with different levels of cuts -- all of which attempt to close an approximately $4.9 billion budget hole for the next fiscal year.

"Choices are prioritized and we try to produce savings, while having the smallest impact possible on the most important services," said LaVorgna. "And the numbers do reflect that."

For instance, according to Mayor Michael Bloomberg's preliminary budget released in January, the proposed cut to the police department is at 2.5 percent for fiscal year 2011, while the parks department faces a 10 percent.

Complicating matters, just last month City Budget Director Mark Page sent a letter to every agency warning departments to prepare for more cuts if the state budget included massive reductions in aid to the city. The letter asked uniformed agencies to prepare for 3.6 percent cuts and all other agencies to prepare for a cut of 7.2 percent. In that scenario, the Department of Education could see an additional cut of 2.7 percent.

That additional round of cuts, council officials said, could batter smaller agencies that are already struggling to meet demand. The administration should look at agencies that have been less seriously affected by the three years of budget reductions, officials said, and start cutting more there.

The Council's Priorities

In his preliminary budget, Bloomberg proposed to close 20 fire companies and reduce the police department's headcount by nearly 1,300 officers, bringing the number of officers down 1990 levels.

The council indicated it could try to block such cuts.

"We cannot allow improvements the city has made in public safety to be lost and set ourselves back to years past," said Council Speaker Christine Quinn in a prepared statement. "The council is going to make every effort to ensure that the impact felt by necessary additional budget cuts is as minimal as possible."

Though the council took issue with several areas the administration is attempting to cut, it did not propose any new taxes or new revenue streams. When asked if the council would consider raising some taxes later in the budget process, Recchia said it was "not likely."

The council does project the city will see $228 million more in revenue in fiscal year 2010 than the projection from the mayor's office. In fiscal year 2011, the council projected it would see $360 million more than the administration's estimates.

In comparison, the city's Independent Budget Office predicted in March that the city would see $170 million more than the mayor's projections for fiscal year 2011.

The mayor will release his executive budget in early May, and the council must approve a final budget by July 1.

Punching, Kicking and Wrestling for Revenue


 

East Meadow native Matt Serra, a stocky welterweight, with an outgoing personality owns two jiu-jitsu gyms, was ranked number one in mixed martial arts in his division and once held the welterweight crown in the Ultimate Fighting Championships

Now he dreams of winning that crown back in Madison Square Garden before thousands of hometown fans -- and so has become an ambassador of sorts for legalizing mixed martial arts in New York.

This year, he has acquired new allies, many of whom probably have no interest in his sport. In his scramble to find new revenue, Gov. David Paterson's proposed budget would legalize the sport. The State Senate's budget plan also calls for legalization, although the Assembly's does not.

Many members of the legislature and Paterson say the sport will boost tourism and give the state much needed revenue -- $2 million according to Paterson's estimate.

Supporters of the idea say the sport has come a long way since the days when Arizona Sen. John McCain called it human cock fighting. Any fights that now take place in New York -- and it's said there are many -- are not regulated, making them more dangerous for fighters.

Those advocating legalization liken mixed martial arts to boxing, which is legal. Over the last 15 years or so, rules have been applied to mixed martial arts, athletes have become better trained, fighter safety is paramount, and the sport is hauling in boatloads of cash -- cash states across the country want a part of.

Opponents say that, whatever the financial rewards, New York should not condone such a violent sport. Further, they charge, many of those involved in running the fights are fairly dubious characters.

Violent or Ultra-Violent?

In its early years mixed martial arts was a brutal no-holds barred competition that reveled in violence and gore. Created in the early 1990s to promote a brand of Brazilian jiu-jitsu the Ultimate Fighting Championships pitted martial artists of one discipline against each other in an eight-sided steel cage. The early events had no rules, no time limits and no weight classes.

Things have changed since then. Now most athletes are well rounded. They combine jiu-jitsu, wrestling, boxing, karate, sambo and other martial arts to win fights. There are now time limits, weight classes, strict rules, medical staff on hand and regulated matches in 44 states. To win a fight, a fighter can knock his opponent out, subdue him with strikes or holds, or win on the judge's score card.

There is no question the sport is still violent -- take the UFC match that made Serra UFC welterweight champion. Serra faced tall, muscle-bound French-Canadian George St. Pierre as an 11-1 underdog. Serra was supposed to be St. Pierre's first and easiest title defense. But when the referee called a start to the match Serra came out swinging and staggered St. Pierre.

St. Pierre looked to recover but remained unsteady. Serra continued his barrage of punches knocking St. Pierre's noggin around like a rock' em' sock' em robot. Finally St. Pierre collapsed to the mat and Serra followed raining down punches at St. Pierre's head until the referee mercifully intervened, declaring Serra the winner.

Serra eventually lost the belt to St. Pierre before a hissing, booing crowd in St. Pierre's hometown of Montreal but he still hopes to again fight St. Pierre for the belt in Madison Square Garden.

Becoming a Business

New York banned mixed martial arts in 1997 during the sport's nascent years when there were no rules. Starting in the late 1990s promoters of the sport found themselves banned from most states and struggling to get pay per view buys they started implementing rules.

In 2001 the Fertitta brothers who own Station Casinosin Las Vegas and their friend Dana White bought the struggling UFC and used their connections in Las Vegas to get the sport legalized, regulated and back on TV.

Advocates of the sport say that because of safety measures the sport is much safer than boxing. It now attracts professional athletes, from well decorated college wrestlers, former NFL stars and the best in other martial arts. Big names such as professional wrestling's Brock Lesnar and former NFL star Hershel Walker compete in the cage. The sport has become ubiquitous on TV. From UFC events on cable channels to Strikeforce on CBS it is hard to miss the sport's popularity. And at the same time mixed martial arts gyms that combine jiu-jitsu training with wrestling and muay thai can be found on street corners around New York state.

The sport's popularity was clear on March 27 when 17,000 fans from all over the world poured into the Prudential Arena in Newark New Jersey to watch the Ultimate Fighting Championship. Brits, Croats, Japanese, Canadians and loads of New Yorkers filled the stadium chanting for their favorite fighters.

The 10 bouts featuring athletes from around the world utilizing an assortment of martial arts brought in an estimated gate of $4 million. UFC officials estimate that a great deal of attendees were from New York.

There is no question that Newark and the state of New Jersey reaped financial benefits. And that was the message UFC president Dana White wanted to send to New York: "The tax revenue from these ticket sales, these tourist dollars, all could have been yours."

Having the sport legalized in New York would be evidence for White and his backers that the sport is now officially mainstream; it would also allow them into a lucrative market. Officials at Madison Square Garden are not shy about their interest in hosting the sport.

"We are aware that mixed martial arts enjoys a strong following," said a garden spokesperson, "and it would be an outstanding addition to our calendar of events once the sport becomes sanctioned in the state of New York."

A Cut of the Purse

In addition to any direct state revenue, an economic impact study sponsored by the UFC found that an event held in New York City would generate over $11 million in economic activity, an event in Buffalo could generate $5 million. According to the UFC sponsored study, New York City would receive $400,000 from sales tax, business income tax, hotel tax, and personal income tax, from a single event held in the city. The study predicts the state would benefit by around $517,000 from the same revenue sources. The study also says that "one-time event activity" that includes staff working on the event would produce the equivalent of 81 local jobs.

The UFC also has pledged to hold matches in upstate cities like Buffalo and Albany --something upstate legislators like.

All these arguments have not been lost on New York State legislators who are desperately trying to avoid making damaging cuts to education and health care during an election year while also trying to close a $9 billion budget gap.For two years legislators like Sen. Kevin Parker and Sen. Joe Griffohave advocated legalizing it.

"The injury rate in MMA is far lower than boxing which we have sanctioned for years," said. Parker. "MMA has a safer environment." According to Parker, there is no standing count after an athlete is knocked down like in boxing. In MMA a referee can stop the action if he feels a fighter is in danger or if the fighter is not "intelligently defending himself," A fighter can also signal that he is done with the fight by tapping out, which means fighters do not incur the repeated head trauma they receive in boxing.

Legalizing mixed martial arts would make it even safer, Parker said. It would help eliminate underground fights and insure that all events become sanctioned and follow safety guidelines. "It's important to the economy and its important to provide safety," Parker said. And finally he thinks it should be legalized because "New York should be entertainment and tourist capitol of the world" and, in Parker's eyes, mixed martial arts is part of that.

Griffo said he got involved in supporting MMA when he became aware of one of his constituents who fights for the UFC. Matt Hamill became a decorated wrestler during his time at the Rochester Institute of Technology and turned those skills into a career as a mixed martial artist after a stint on the UFC's reality series -- he is also deaf. Griffo said his story is inspirational to other handicapped athletes. Griffo said he would like to see Hamill be able to compete in his home state and on top of that he thinks a UFC event upstate could be a boon to the flagging economy.

Randy Gordon, the former chair of the state athletic commission, who led the charge to ban mixed martial arts 16 years ago is now on the other side of things -- he even hosts a show on satellite radio about the sport. "I still believe I was correct back then," Gordon wrote in an op-ed for the Daily News. "But the sport we banned in the mid-'90s has virtually nothing in common with the MMA of 2009. Given its remarkable evolution, it's time we welcomed MMA to New York -- so we can enjoy and profit from this fast-growing entertainment."

The Opposition

For three years the UFC has lobbied legislators to legalize the sport. During those years the UFC has traveled to England, Germany, Australia, and has been sanctioned in Massachusetts, Pennsylvania and dozens of other states. Despite its efforts, 77 percent of New York City residents and 66 percent in the rest of the state oppose legalizing mixed martial arts, according to a January Marist poll.

The State Assembly has not included it in its budget plan. The Assembly is home to perhaps the country's most outspoken critic of MMA, Assemblymember Bob Reilly.

Reilly does not buy the fiscal arguments for allowing mixed martial arts. "I don't think the money would be as significant as Paterson has it pegged for. I think the violence will be much more visible than the money it brings in," he said.

"I call myself the accidental opposition," said Reilly. But that is not to say that he is not a well researched opponent of MMA. He has a bevy of concerns and a wealth of knowledge about those involved in the UFC.

Reilly said he thinks a number of legislators will be sacrificing their standards by supporting MMA for its financial benefits.

"There has been a lot about school bullying leading to suicides lately," said Reilly, "I'm not saying this is going to lead to suicide but I don't think we should say this kind of violence is OK because it is controlled in a cage by someone like Dana White."

Reilly points to a video blogDana White posted to promote a UFC event where he runs down a female journalist, using various slurs and obscenities. Beyond that, Reilly continued, "I've seen the relationship Dana White has with promoters in other states and I'm worried it would be Dana White running this thing, not the athletic commission. I think we are seeing the same sort of things that we saw with [boxing promoter] Don King."

Reilly also questions the financial acumen of the Fertitta brothers who own the UFC. "They are in bankruptcy court in Las Vegas for their casinos and an energy drink company. Are these people we want coming in to New York to run this thing?"

Supporters say that while the UFC is the major force behind sanctioning MMA, legalization would allow a bevy of promoters, both national and local, to hold events. It also would permit local athletes to compete in their hometowns and have their friends and families watch them.

Vested Interests?

Athletic Commission chairwoman Melvina Lathan and Commissioner Edwin Torres have been vocal in their support for legalizing the sport. In an op-ed, New York Secretary of State Lorraine Cortez-Vasquez wrote that, while she respects New Yorkers who oppose the idea, "I believe that legalizing these competitions presents an opportunity for regulating the sport while allowing the state to realize the economic benefits of hosting MMA competitions."

Cortez-Vasquez once worked for Cablevision, which owns Madison Square Garden.

Members of the state athletic commission might be supportive because mixed martial arts clearly has financially benefited other states. Pennsylvania was reportedly able to pay for its entire athletic commission's budget for a year from proceeds from a UFC event held last summer. It could do the same for New York's.

Reilly's critics say that he has his own ulterior motives for being against legalization . They charge he has ties to a group of unions called Unite Here that are upset that the UFC's owners use nonunion labor in their casinos. Unite Here has lobbied against legalizing mixed martial arts in New York.

Reilly received a donation of $2,000 from the group in 2006. But he denies it has influenced his stance. "I am supportive of labor," said Reilly, "but the idea that because some unions in Vegas are not allowed into Fertitta controlled Station Casinos would weigh on me here is a stretch beyond."

Buy Your Tickets Now?

So will mixed martial arts be legalized in New York this year? It's hard to say. It may be used as a bargaining chip, or it may quietly remain part of the budget and pass or fail with the rest when it comes to a vote.

Griffo said he would like to see a vote on the measure separate of the budget but said he thinks it would pass either way.

For his part, Reilly said he would not vote against a budget deal just because it includes mixed martial arts legalization.

"I don't know how hard the senate or governor will push for it and how hard the assembly will resist putting it in," said Reilly. "It could be used as a bargaining chip but I won't vote against the budget just because it is part of it."



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