The mayor's plan for addressing the $3.8 billion gap responds admirably to the city's fiscal challenges. He asks for assistance from three groups who thus far have offered little help — commuters who work in New York City but live elsewhere, New York State's leadership, and the city's municipal labor unions.
The mayor is right to press for fiscal assistance from these groups to close the city's gap. The contingency plan released with his budget spells out the dire consequences should they refuse the city's requests for help.
Over the last few months, the mayor has asked all New Yorkers to share the sacrifice required to respond to the deepening fiscal crisis. Many New Yorkers have. Property owners absorbed an 18.5 percent increase in real property taxes, passed last November to raise $1.7 billion. Almost half of this increase was borne by commercial property owners, rather than single family homeowners. Ordinary citizens and businesses are coping with an array of higher fees and diminished services. The federal government has contributed Federal Emergency Management Funds to assist the city's budget crisis.
Even future New Yorkers are sacrificing in the form of debt service they will need to pay in order to cover the cost of borrowing $2 billion in operating expenditures to close this year's gap. The mayor has wisely chosen to reject additional borrowing as a solution. We are still paying for services consumed in New York City during the fiscal crisis of the 1970s.
Commuters account for about one-quarter of the city's workforce, and on average, hold higher-paying jobs than city residents. Since 1999, their income has been exempted from the city's personal income tax despite the fact that they benefit from a wide range of city services. In virtually every other jurisdiction in the country that levies a personal income tax, all those earning income pay a tax, regardless of where they live. New York State, neighboring states, and even our neighbors in the City of Yonkers levy a tax on this basis. New York City's commuters also should help shoulder the cost of services that they consume.
The mayor is asking for another $1.3 billion in gap-closing assistance from the state.
Some of this assistance involves approval of actions that offer budget relief to New York City at no cost to the State. For example, the mayor would like the MTA to take over the private bus lines currently subsidized by New York City. Among the other state actions the mayor has identified, Medicaid cost containment is critical to assist not only New York City, but all other county governments in the state. Services to the indigent could be protected by limiting payments to hospitals and nursing homes and by restricting eligibility for long-term care to those most in need.
It is a possibility that Albany will fail to provide the city with the help it needs. The mayor's budget spells out the consequences of such an outcome, including $1 billion in painful contingency cuts and $600 million in labor productivity actions.
The Citizens Budget Commission strongly supported the mayor's efforts to negotiate $600 million in productivity and other cost savings with the municipal workers' unions earlier this year. The mayor's proposals included cost-sharing on health insurance, a more reasonable pension contribution system for future workers, a 40-hour workweek, and other measures that would bring municipal worker benefits more into line with typical benefits offered to state and local government workers elsewhere.
The failure of municipal labor unions thus far to contribute to solving the city's fiscal crisis is a tremendous disappointment and a departure from their history of constructive engagement during previous fiscal crises. Labor leaders have rejected any changes to current benefits, instead offering one-time savings through pension stretch-outs and other mechanisms.
The mayor was right to reject such assistance, because it would have provided short-term budget relief while leaving the underlying generous and unaffordable union contracts untouched. Generous wage settlements and fringe benefit expenses, particularly pension contributions, are responsible for much of the city's fiscal difficulty.
The narrow interests of the unions have contributed to the announcement of the largest number of layoffs in city government since 1991. We hope that the unions will negotiate more realistically.
Last year the Citizens Budget Commission released five studies (available in PDF format) that identified $1.2 billion in possible savings. While some of these proposals, such as increasing the civilian workweek and police staffing improvements, would involve agreements with the unions, others can be achieved through better management. These include procurement reform, special education reform, and energy conservation. The mayor and the City Council are pursuing some of these ideas. However, many other opportunities to achieve productivity savings exist in city government.
Douglas Offerman is a Senior Research Associate for the Citizens Budget Commission.
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