Mayor Michael Bloomberg’s $50 billion executive budgetfor fiscal year 2006 marks yet another skillfully crafted short-term financial plan. Its most notable feature is the carry-over of a $3.3 billion surplus from this year’s budget, which provides a very nice one-time boost for an election year. One can wonder how the revenue projections by the city’s fiscal experts could have been off by so much ($1.3 billion of it in just the last three months!), but the more interesting question is why, even with such a huge dividend, there is not a single Big Idea in the mayor’s budget.
One simple answer is that in an election year, the idea is to please as many people as possible, and that leads to spreading the wealth broadly, and thinly. Indeed, the mayor’s press release is a four-page listing of small initiatives and restorations in areas from education and public safety to health, parks, libraries and welfare. But the best the mayor can do in the expense budget is a $50 million initiative in education, which represents about half of one percent of city education spending.
The small vision in the executive budget is underscored by the little-noticed, but much more inclusive and ambitious, budget plan (in pdf format) that the City Council released a month ago. The council has its own list of small restorations and initiatives, but it also has several larger ideas:
Council’s Tax Proposals
The council tax plan is in marked contrast to that of the Bloomberg plan, which for individuals has just two parts: the $400 rebate for homeowners, and a city sales tax exemption for clothing under $110 (which averages out to about $28 per person). The council’s plan has several parts. It would double the earned income tax credit (EITC) for lower-income wage earners; some 700,000 households would receive up to $430 apiece. It proposes an expanded State Tax Relief (STAR) program that would enhance senior benefits and include tax relief (currently available only to homeowners) to some 150,000 renter households with children.
The Council re-states the argument for the city commuter tax that Governor George Pataki and the state legislature eliminated in 1999, but with a twist. Given the MTA’s financial struggles, especially on the capital side, the Council argues for a $1.1 billion tax (only one percent) that would be dedicated to the MTA capital program. This let’s-share-the-burden rationale is a refreshing perspective.
Taxing Insurance Companies
Another refreshing idea is to tax the 800 insurance companies in the city that, unlike all other general corporations, are exempt from the general corporation tax. The proposal would tax all but their health-insurance business, and would raise about $200 million over a full year.
Although the new revenues generated from the insurance companies could, of course, be used for other purposes, the Council would use them to pay for an across-the-board five percent cut in the corporation, banking, and unincorporated taxes. Benefits in the form of personal income tax credits ($40 million) would also go to resident shareholders in S-Corporations, which are mostly small businesses.
Rainy Day Fund
The Council tackles another important area untouched by the mayor: the possibility of some kind of “rainy day” or budget stabilization fund. Such a fund could give the city more flexibility with budget surpluses. Currently, a mayor must spend any surplus before the end of the fiscal year. He can’t park it, say, for use in tough economic times.
Thus Mayor Bloomberg must pre-pay some of next year’s bills with this year’s projected $3.3 billion surplus. (The fund might also temper the habit of mayors like Bloomberg and Rudy Giuliani to use surpluses as convenient one-shot revenues sources, preventing long-term structural budget balance.)
The council asks that the state authorize use of a rainy day fund, to be funded in good economic times (when, say, tax revenues exceed adopted budget projections by seven percent), and to be tapped only when revenues decrease. This would permit setting aside excess revenues over several fiscal years.
Another, more technical area of importance that the mayor ignores is the question of “units of appropriation.” So-called “U/A’s” are city charter mandated categories of spending that are supposed to permit the council and others to monitor city spending, but the council has long complained that the units are so big that they make monitoring all but impossible. This is an accountability issue that might well be suited for the current city charter revision commission, and it is good to see the council raising it.
Hiring More Cops
On the expense side of the budget, the council would add 1,000 cops. The council points out that, although the total number of officers has been reduced from over 40,000 to 37,000 in recent years, there hasn’t really been any budget saving because of associated increased overtime. Thus adding the new officers could be paid for by simply reducing overtime.
The council, like the mayor, has abandoned some other Big Ideas. For instance both sides of City Hall have chosen to let “sunset” (end) both the temporary personal income tax surcharges (on the wealthiest New Yorkers) and the sales tax increase; this means, by 2007, a loss of some billion dollars in revenues. Quiet decisions like this help keep future budget deficits high. (The mayor estimates deficits from $3.7 to $4.5 billion a year from 2007 to 2009). And neither the council nor the mayor has accepted the responsibility of contributing to the very big increase in school funding ordered by the state courts in the Campaign for Fiscal Equity case.
But the council has at least kept important ideas like tax fairness, accountability, sacrifice, transparency, and long-term fiscal stability alive in an otherwise lackluster budget debate. Whether or not they will work their way into the 2006 budget, the city’s future depends on them.
Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.