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The City Council's Alternative Budget Choices

by Glenn Pasanen, Apr 08, 2004
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The New York City Council's response to Mayor Michael Bloomberg's preliminary budget offers a refreshing display of alternative budget choices. After releasing his cryptic, status-quo plan in January, the mayor has mostly left the budget stage to the council. And since both the council and the Independent Budget Office's March report say there are substantially more revenues available for next year than the mayor indicated, the council has taken the initiative to find new ways to spend the money.

The council also adds a broader vision, to address the city's always fragile revenue base, though their proposal is politically naĂŻve.

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$1 Billion More To Spend, Council Says

The core of the council's alternative plan stems from its projection that tax revenues this year and next are much higher -- $900 million higher -- than the mayor's projection. (The IBO report projects $667 million in higher tax revenues over the two years.) For fiscal year 2005, the council comes up with over $1 billion in anticipated new revenues ( the added tax revenues, plus some new agency cuts and rejection of the mayor's $250 million property tax rebate to homeowners). The council proposes spending the bulk of this new money this way:

· $97 million: New spending initiatives, mostly to reduce class size and increase library hours
· $292 million: Restorations of mayor's cuts and enhancements
· $145 million: Funding private bus franchises
· $344 million: Tax cuts, primarily $236 million for a two percent property tax cut

Rainy Day and Surplus
The council, like the mayor, is taking a generally conservative fiscal position, promoting budget reserves and budget surpluses. For instance, the council would take another $100 million to create a "Rainy Day Fund," an emergency fund for tougher times. And it would support a $374 million surplus for 2005, on top of the mayor's projected $650 million surplus, creating more than a $1 billion surplus at the end of fiscal 2005. (The IBO estimates this fiscal year will end up with a $1.6 billion surplus.)

Reducing Class Size, Increasing Library Hours
Two plans make up most of the council's $97 million in initiatives. Reducing class size in kindergarten to third grade (from an average of more than 21 to 20) takes $38 million, and restoring at least 6-day service for all libraries (and 7-day for some) would cost $30 million.

Restoring Cuts
The $292 million of restorations are primarily a response to the "hidden cuts" that the mayor failed to acknowledge in the preliminary budget. These are mostly ongoing programs supported by the council that the mayor does not "baseline," (i.e., he drops them out of the budget) for subsequent years. This obfuscation constrains the council and confuses the public.

Among the council's major "restorations/enhancements" are:
$20 million in aging,
$11 million for youth employment,
$34 million for youth services,
$12.5 million for cultural affairs,
$2.75 million for legal services,
$59 million for child care (including $10 million for child care slots and nearly $9 million for preventive services), and $5.3 million for housing.

Tax Cuts
The council's $344 million tax cut plan sets up a challenge to the mayor's proposed one-shot property tax rebate for homeowners, but given the reality of the $3 billion tax increases in this year's budget, the overall fiscal impact of either plan will be minimal.

What does distinguish the council's plan is its targeting of tax relief to lower-income seniors and working families. Some 140,000 senior homeowners would see their 18.5 percent property tax increase wiped out. And 40,000 senior renters would get some relief through a tax abatement for small-building landlords. Moreover, the council once again proposes a small city-funded earned-income-tax credit for working families (costing only $11 million), 75 percent of which would go to families earning under $20,000.

The most expensive ($236 million) part of the council tax-cut plan, however, is its "permanent" across-the-board two percent cut in the property tax rate. Unlike the mayor's plan, and assuming that renters would get some kind of pass-through savings from their landlords, everybody would get at least a nominal benefit.

Both the mayor and council's property tax-cut proposals illustrate how such marginal changes only add complexities and inequities to the city's property tax system. The IBO's March report, for instance, shows the mayor's stated purpose - relieving 420,000 house owners and 180,000 co-op/condo owners of their 18.5 percent property tax increase - doesn't work equally, given the bizarre nature of assessment practices. Most house owners would get a rebate of about $50 more than their 18.5 percent increase, while most co-op and condo owners' rebate would be significantly less than their 18.5 percent increase.

The council adds a couple of other marginal wrinkles to this dysfunctional property tax system. It proposes an $11 million "deepening" of the property tax abatement currently enjoyed by co-op and condo owners, a council attempt (ongoing since the mid-1990s) to equalize tax burdens among homeowners. This would benefit some 65,000 lower-valued co-op and condo units by raising their abatement from 17.5 percent to 25 percent of their property tax.

The other wrinkle flirts with the council's old reputation for comic irrelevancies: $5 million for a property tax credit for homeowners who prune city-owned trees in their neighborhood.

Commuter/Reverse Commuter Tax
The council has a more visionary, if politically unlikely, plan in its other revenue proposal, what it calls a Commuter/Reverse Commuter program. This would be a 1.1 percent tax on the income of 800,000 commuters to pay for services provided to them. (Until repealed by the state legislature in 1999, a 0.45 percent commuter income tax raised about $500 million a year.) Since there are 140,000 city residents who work in suburban New York counties, the "reverse" part is that the city would reimburse those counties for their services to those commuters at an equivalent 1.1 percent of their suburban salaries.

The city would use the net proceeds of such a commuter tax - about $1 billion a year - to pay for the debt service on bonds that would be issued for capital expenditures in the schools and for affordable housing. This money would leverage about $6 billion of education capital and $5 billion of housing capital. The council thinks 40,000 units of housing could be built, half of which (new and preserved) they would target to households earning less than $25,000 a year. The other 20,000 units would be new and targeted to households earning between $25,000 and $104,000.

But such a program would need to pass the state legislature, which has already rejected similar legislation in the past.

Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.

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