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How to Plug the Growing Budget Gap


Less than four months before Mayor Michael Bloomberg and the City Council must sign off on next year's budget, billion-dollar questions multiply. New reports from the Independent Budget Office and City Comptroller William Thompson suggest the city's budget gap in fiscal year 2010, which begins July 1, 2009, is much bigger than the January preliminary budget indicated and that the mayor's gap-filling plan has its own billion-dollar holes.

At the same time, Council Speaker Christine Quinn, has proposed a big alternative to the mayor's fiscal plan. With his focus on across-the-board service cuts and a large increase in the sales tax, the mayor has placed the biggest new burdens on lower- and middle-income New Yorkers. The speaker would shift at least a billion dollars of that sacrifice to higher-income New Yorkers by restoring the personal income tax structure to more progressive levels.

Billion Dollar Questions

Testifying before the City Council on March 9, www.ibo.nyc.ny.us Independent Budget Office director Ronnie Lowenstein estimated that the 2010 gap is now $1.2 billion greater than estimated in the mayor's January plan. Most of that new gap comes from the IBO's projection that tax revenues will decline by $1.3 billion more next year than the mayor projected. Assuming that's true, that means, of course, that the mayor and council would need to come up with yet another billion-dollar plus package of new revenues and/or service cuts.

The primary reason for the increased gap, according to Lowenstein, is the rapid increase in job losses in the city, particularly in the financial world. The IBO projects the loss of 270,000 jobs from peak employment in the first quarter of calendar 2008 through the second quarter of calendar 2010. That's 30,000 more jobs lost than the office estimated in January. The city has already lost 59,900 jobs since January 2008 -- but, according to the budget office, the worst is yet to come.

In particular, the securities industry - the highest paying sector within the financial industry - is projected to lose 48,800 jobs by mid-2010, a decline of over 25 percent from its peak in 2008. Wall Street firms which, as recently as 2006, had profits of $21 billion, had net losses of $11.3 billion in 2007, and the IBO projects net losses of $45.1 billion in 2008.

City Comptroller William Thompson Jr.'s March report, Comments on the Preliminary Budget for FY 2010 and the Financial Plan for FYs 2009-2013, accepts most of the mayor's 2010 tax revenue estimates, but worries about nearly $1.9 billion of shaky assumptions in the mayor's plan for closing the 2010 gap. He identifies two potential problems: increasing revenues from the city sales tax by nearly a billion dollars, which requires state approval, and the $757 million in labor concessions, which would require the approval of municipal employee unions.

The city comptroller sees much bigger problems for the 2011 to 2013 period than the mayor. He sees risks in the administration's financial plan of about $3 billion in each of those three years, so his projections of future deficits are much higher than the mayor's. Gaps could be as high as $6.9 billion in 2011, $7.0 billion in 2012 and $6.9 billion in 2013. These projections dramatize the difficulty the mayor and council continue to have catching up with escalating gaps.

The End of the Rollover

Adding to the problem is the disappearance of the surpluses the administration has come to rely upon. At the end of each of the previous four years, the city had surpluses averaging over $4.1 billion and used those surpluses to pre-pay an equal amount of the next year's expenditures. That meant, of course, that in those years the city did not have to find an average of $4.1 billion in new taxes or expenditure cuts.

The current fiscal year, 2009, benefits from last year's $4.6 billion surplus, which helped offset the escalating problems this year. In fact, the IBO estimates this fiscal year will see a $1.6 billion surplus, which will be part of the gap-filling program for 2010. But the comptroller points out that, surplus pre-payments aside, actual operating expenses in 2009 will exceed current-year revenues by $3.8 billion.

Well aware of the forthcoming surplus depletion -- if not of the more severe economic and fiscal downturn in recent months -- the mayor has been cutting agency spending more or less across-the-board since the January 2008 preliminary budget and financial plan, as explained in the February 2009 finance column. One worrisome example of the impact of these cuts (made in January 2008, November 2008 and again in January 2009) is, as the city comptroller notes, the aggregate cut of $944 million in city education funding in 2010.

The comptroller notes that the federal economic stimulus plan could provide the city with about $1 billion in education funding in each of the next two years. That money would "alleviate many of the proposed reductions in state funding, allowing the city to avert the proposed layoffs," but would provide "no additional gap closing relief."

Billion Dollar Answers

Only two of the mayor's four roughly billion-dollar answers to budget deficit in his January plan look solid in mid-March: the on-going agency cuts, saving another $1 billion in 2010, and the anticipated $1 billion Medicaid relief money in the new federal economic stimulus plan. The other two noted by the city comptroller - nearly a billion dollars from increases in the sales tax -- and three quarters of a billion dollars in labor concessions on employees health and pension benefits - are highly uncertain.

So that leaves room for at least $2 billion in alternative revenue/expenditure packages - over $3 billion if the worst-case IBO scenario is acknowledged. It's in this context that the council speaker, Christine Quinn introduced on Feb. 12 a major tax revenue proposal that would, as she says, "balance the city's income tax structure and avoid sales tax increases." (For Quinn's explanation of her proposal go here.)

There are two essential parts to the Quinn plan: The first would eliminate the city personal income tax for all those - currently 224,000 families - who pay no state or federal income taxes but do pay the city personal income tax. The savings for those families (earning up to $46,000) would average $321 per family.

Quinn would pay for the revenues lost in reducing lower-income tax burdens (about $72 million) and abandoning the mayor's sales tax increase by creating three new tax brackets for those taxpayers with annual taxable income over $297,000. The current top rate - 3.65 percent - would increase to 4.25 percent for those filing jointly and making $297,000 to $532,000; to 4.45 percent for those making $532,000 to $1.2 million; and to 4.65 percent for those with incomes over $1.2 million.

A few days after introducing her tax proposal, Speaker Quinn, along with State Sen. Liz Krueger and the Drum Major Institute announced a proposal for state legislation that would eliminate the income tax on low-income people. The partners emphasized the economic benefits of putting $321 in the hands of lower-income New Yorkers.

That, of course, is only a first step. The state also would have to pass legislation to implement the higher tax rates on more affluent New Yorkers proposed by Quinn. Bloomberg has been reluctant to take that step, even though he introduced -- and the council immediately passed -- a similar, but temporary, proposal during the fiscal crisis in November 2002.

The larger Quinn plan is hardly radical. In fact, the city's top income tax rate was 4.45 percent from 1991 through 1998, under Mayors David Dinkins and Rudolph Giuliani and then, under Bloomberg, from 2003 through 2005. What's most surprising here, then, historically, is that such higher rates have not been re-introduced in earlier gap-filling plans.

There is no lack of other big, and more progressive, revenue alternatives to the mayor's sales tax proposal. For instance, the IBO's February www.ibo.nyc.ny.us Budget Options includes two that the mayor himself has proposed at one time or another, but no longer advocates: restoring the city's commuter tax to bring in $715 million in 2010 and instituting a more progressive commuter tax would bring in $1.4 billion.

Lessons from Reports

In the midst of this fiscal crisis and initial mayoral/council skirmishing, two reports mandated by the City Charter were released in February, the Preliminary Mayor's Management Report for Fiscal Year 2009 and the Annual Report on Tax Expenditures, Fiscal Year 2009. Although little known, they include some useful lessons as tax plans are debated.

Take the preliminary management report, which the mayor tried to eliminate a few years ago through his Charter Revision Commission. It is supposed to provide early data for the current fiscal year, data that might prompt budget changes for the following fiscal year.

Slim as the up-to-date data are in education, one indicator stands out. Class sizes in the elementary and middle schools, after some small decreases between fiscal 2006 and 2008, have gone up in this school year in all grades except fourth. In grade three, class size now averages 21.9, up from 21.0 just a year ago. In fact, class size in all grades kindergarten through the third are now higher than they were in 2006, one early result of those nearly $1 billion of cuts in 2010.

Then there is the report on tax expenditures, which records the impacts of selective tax cuts that have been established over many years. Some of these are questionable million-dollar and billion-dollar programs that can starve revenue needs at times like these. One of the biggest, the Industrial & Commercial Incentive Program, whose economic development assumptions have long been challenged by Good Jobs New York, costs the city $500 million in lost revenues in 2009. (For a related commentary, go here.)

City insurance companies, unlike all other companies, pay no city business income tax, at a cost to the city (in 2005) of $256 million. Co-op and condo owners gain from an allegedly temporary property tax abatement, introduced in 1996, but which continues today, at an annual cost of $337 million. Battery Park City, whose residential and commercial property is exempt from city property taxes, costs the city over $150 million annually. Then there is Madison Square Garden, which since 1984 has paid no property tax, costing the city $12.2 million in 2009.

Baseball, however, trumps basketball and hockey for outrageous public subsidies. The Independent Budget Office pointed out in January that the city's exemptions and subsidies for the new Yankee Stadium will cost the city $362 million over 40 years. Including federal and state exemptions and subsidies as well, the total public cost will be $855 million. In fact, as the mayor proposes a billion dollar increase in the sales tax for New Yorkers, the Yankees are enjoying a city sales tax exemption he granted them on construction materials, which costs the city over $20 million.

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

In Albany, Budget Battles Behind Closed Doors


Gotham Gazette: In Albany budget battles
Gotham Gazette image by Ya-Hsuan Huang

State Republicans said it would happen under the cover of night with little to no warning. Good government advocates said legislators would be ordered to their chambers and reminded there is no time to waste. Printers would roar to life, packets of hot paper would be distributed and in a blink of an eye, groggy legislators would vote to approve New York State's 2009-2010 budget.

To a great extent, the cynics were correct. The legislature and the governor did agree on a budget deal behind closed doors -- over the weekend and late at night. The documents were printed over the weekend. It now appears, though, that members of the Assembly and Senate who are so inclined will have a few days to read the nine bills, some with thousands of pages, before the expected vote early this week. Nevertheless observers reviewing recent events still say the budget process this year has been one of the most secretive negotiations in recent memory. (Gotham Gazette will continue to cover the budget throughout the week in Eye on Albany and The Wonkster.)

New York State faces a $16 billion budget gap and by law must pass a balanced budget by Wednesday. As the clock ticked down last week, about all one heard in the Capitol were rumors. At a recent negotiating session with the three men in a room (otherwise known as the governor, Assembly speaker and Senate majority leader) a reporter asked Assembly Speaker Sheldon Silver for one detail about what is actually in the budget. Silver replied, "We'll have an on-time budget."

At first, it seemed things might be different this year. Gov. David Paterson started talking about the state's perilous finances months ago, warning that the state would have to make "draconian" cuts. Paterson even released his budget proposal in December -- earlier than most governors have done -- and used his State of the State address to hammer home the need for fiscal responsibility and shared sacrifice.

All three Democratic leaders have, at one point or another, pledged to reform Albany and ensure state government would be more transparent. The Senate Democrats started a Web page and a hot line to take budget suggestions from the public.

Now, though according to Blair Horner of the New York Public Interest Research Group, the leaders seem to have gambled that an "on-time budget" means more to voters than "transparency." Instead of openness, the three Democratic leaders hammered out the budget in closed-door sessions with limited, if any, input from Republican leaders.

"Talk is cheap," said Horner. "Reality is hard."

Crafting a Budget

New York State's budget process in kicked off when the governor introduces a budget proposal in January. The legislature's financial committees then hold hearings to review the soundness of the governor's plan.

According to the New York State Department of Budget Web site, "the legislature, primarily through its fiscal committees -- Senate Finance and Assembly Ways and Means -- analyzes the governor's spending proposals and revenue estimates, holds public hearings on major programs, and seeks further information from the Division of the Budget and other state agencies."

In most years, both houses of the legislature would pass separate budget bills, and then, since 2007, they would hold conference committees to discuss differences between their separate budget bills -- an attempt to clarify the process. "Under budget reform legislation passed in 2007, the legislature is required to use a conference committee process between the two houses to organize its deliberations, set priorities and reach agreement on a budget," the Division of Budget Web site says.

The legislature held hearings on Paterson's proposed budget earlier this year, but so far the leaders have chosen not to hold another round of conference committees.

The Quiet Before the Storm

No one doubts the state faces a dire budget situation. Up until the last minute, though, it was hard to detect that from the scene in the Capitol. Last week, normally talkative Democrats scuttled away from reporters who had questions about the budget on their lips. Near the Senate chamber Sen. Eric Schneiderman blurted to a reporter, "What do you want from me?" The reporter shot back, "I want answers!"

In all fairness, Schneiderman might not have had the answers since the three men in the room stingily parceled out information. As the negotiations dragged on, legislators who were told about parts of the deal dished out tidbits on what they thought might be in place but warned that things were steadily shifting.

Legislative action in the Senate slowed to a crawl in recent weeks as the focus shifted to the budget deal. The Senate spent the last few weeks honoring citizens and commending the recently deceased rather than passing substantive bills. Senate Majority Leader Malcolm Smith, when asked about serious pieces of legislation, repeatedly said they will be addressed "after the budget."

The Assembly, thanks to a Democratic supermajority, moved quickly on again approving bills that it had passed in previous years, bills addressing issues like Rockefeller Drug Law reform and rent control. However, the members hesitated to consider new legislation knowing that their action would be futile without support from the Senate. Silver did not act to pass his compromise plan to address the Metropolitan Transportation Authority's financial straits, nor did his house vote on an income tax increase for the wealthy, a measure that is now in the budget bill.

Hopes for Transparency

Advocates of open government initially thought they had allies in the Democratic leadership. Paterson, for example, had made a number of comments about his commitment to ending the secretive budget practices, which long plagued Albany.

Advocates had solidified relationships with the new majority after years when Senate Democrats -- then in the minority -- struggled to gain a seat at the table and to have their input taken seriously. At the same time, good government groups pushed to make the budget process more open.

Much, though, has changed since then -- as evidenced in the Democrat's new attitude toward the budget conference committees.

The 2007 law that created the committees was passed when the Republicans controlled the Senate and Democrats controlled the Assembly.

And Silver signed on. In a 2007 press release now being distributed by Republicans, the speaker said that conference committees would "move our state's budget process in the 21st century with a strong constitutional emphasis on mutual respect between the executive and legislative branches in forging a fiscal plan for our state. We will continue to rely upon the joint conference committees. We will have a more transparent, more easily understood budget process."

This year, with Democrats controlling both houses, Silver said there is no need for conference committees. "We're all Democrats," he said. "We're not going to have big philosophical differences."

Republican Minority leader Dean Skelos has said that not holding conference committees is illegal. But Silver has repeatedly declared that, if there are no differences between the budget bills in the two houses, there is nothing to be discussed in conference committees. In fact, Silver has said, there might not even be separate Assembly and Senate budget bills. For his part, Smith repeatedly insisted that he would hold conference committees. But as of Sunday night, with the budget apparently all but certain, that had not happened.

Those who observed conference committees in previous years point out that they were heavily scripted and did not actually produce more open government. Legislators would use the meetings to give speeches and hold their substantive discussions in private. By doing away with the committees and one-house budget bills, however, Silver is admitting that they were only window dressing on an ugly budget process -- just another way to placate the public.

Barbara Bartoletti of the League of Women Voters noted that the legislature fought to amend the budget process under Gov. George Pataki because he kept the budget process notoriously secretive. "It was known as Fort Pataki," she said.

According to Bartoletti, Gov. Eliot Spitzer made it a priority to open up the process and now Paterson, Smith and Silver are disregarding that work.

"This is a blatant violation of the law they passed in 2007!" said Bartoletti. "If regular people violate the law they get in trouble, but apparently these guys think they are above the law."

At a briefing Friday, reporters asked Paterson about the lack of transparency in the budget process. "I think there should be transparency in terms of the process and openness in terms of government," Paterson responded. "However, when you are in a budget position, it is very hard to negotiate in public. You never see President Obama and Senator Reid and Speaker Pelosi do it. You don't see it in any other state." And Paterson continued, "You don't see it in labor negotiations and I dare say that your negotiations with your own media outlet, your contract, is not, the last I checked, publicly observed."

Paterson failed to mention that his salary is paid by the taxpayers and reporters' salaries are not.

"There comes a point in the negotiations," continued Paterson, "where anyone who is really negotiating has to take things off the table. This is a very difficult endeavor, and it's hard to do it when the advocates you are fighting for are right there."

New Leaders, Old Habits

Silver, of course, is the only leader remaining from 2007. This year's budget negotiations took place with two new leaders -- Paterson and Smith, both of whom are considered weak and vulnerable. Smith has been rendered powerless by the combination of a slim majority and indecisive behavior. Paterson, thanks to plummeting poll numbers and his own brand of indecision is seen by many as nearly "irrelevant."

Smith and Paterson apparently hope that an on-time budget, no matter what it contains -- or how it's drafted -- will make them look responsible to the public and give them a political boost.

In addition, the lack of transparency might have helped Smith move things into the budget that would be controversial to some members. His majority is so slim that he can't afford "no" votes from any Democrats. That is why instead of passing legislation on drug law reform Smith has included it as part of the budget negotiations.

"The thinking on this issue is that there is an explicit rush to get this through," said Robert Gangi, the executive director of the Correctional Association of New York State. They wanted to have it included as part of the budget so that neither side can cherry pick. They have to vote up or down for the whole kit and caboodle."

The three announced they had reached a deal on drug reforms on Friday but did not offer a detailed account of what was agreed on.

Health care advocates have spent the last week using advertisements to target individual legislators and alert citizens about what they think will be tremendous cuts to health care funding and Medicaid payments to hospitals.

William Van Slyke from the Healthcare Association of New York, which represents health care networks and hospitals, thinks it is important to make sure legislators and voters know exactly what kinds of cuts are being considered. But he said last week, "Rank and file legislators don't even know what is in the budget. The Senate is in disarray."

For a week, information about "tentative" deals made its way around the Capitol before quickly being denounced or refuted by one of the three men in the room. Silver flatly denied a New York Times report that a deal on drug law reform had been reached, only to hold a meeting to announce the deal the next morning.

There was talk that a deal had been reached to institute the Bigger Better Bottle Bill, which would have put a deposit fee on noncarbonated beverages like water and tea and made beverage companies give the state unclaimed deposits. But it was reported quickly thereafter that the tentative deal had fallen apart. The bill is now back in as part of the budget deal, but only with deposits on water -- not juice or tea.

Bartoletti said there are many advantages for the three men in a room to keep the deal hush-hush as long as they possibly can. "Special interests still run Albany. It was probably lobbying or campaign contributions that killed the bottle deal but we won't know for two months till we see the contributions," she said before word came that parts of the bottle bill were back in. "It is the same thing with healthcare: We don't know because it is behind closed doors and special interests have their influence."

According to Horner, the budget crunch provides another convenient excuse to do business in secret. "This is unlike any other year," he said. "Thanks to the federal stimulus, the budget the governor presented is being entirely reworked, and it is being reworked behind closed doors."

"They are going to get away with it this year," said Bartoletti. "They think the public has a short memory and they will say they did it because of the financial crisis. They will even come out and say this was a bad process this year but we had to do it and we will do it better next year."

Opaque Government

Bartoletti describes this year's budget process as a "drive-by negotiation," because legislators driving away from leaders' meetings at the governor's mansion sometimes had the decency to pause briefly to give reporters placating, dismissive answers about what was discussed -- or, in the case of Republican leaders, to complain about how little input they actually have.

Last Tuesday, March 24, Republican legislators and open government groups stood together in the same room to call for Democrats to make the process more open. Skelos said he had not been invited to attend the "secret leaders meeting" that was going on just one floor below among the three Democratic leaders.

He said he thought Democrats would probably rush the budget through by issuing a so-called "message of necessity" that would eliminate the three-day waiting period normally required before the legislature votes on a bill. This would ensure, of course, that even fewer senators and Assembly members would have any idea about what's in the spending plan.

"Under the guise of getting a budget done on time, Governor Paterson, Senator Smith and Speaker Silver are prepared to rush through a budget in the dead of night with no time for public input or examination," said Skelos in a written statement.

Bartoletti expected that "legislators won't see the budget until 15 minutes before they vote and no one will even know what's in it." It was not quite that dire: Legislators will have part of the weekend and two days to review the bills. And, of course, getting bills on short notice is nothing unusual in Albany. Longtime Democratic Sen. Neil Breslin said he has "gotten bills two minutes before" he voted on them.

Last Tuesday, Smith canceled a number of public appearances to attend "budget negotiations." Meanwhile, the three leaders released a statement saying the budget deficit had increased by $2 billion to $16 billion. Republicans said the announcement was just cover for an impending announcement of a tax increase. Then news broke that Paterson had ordered the layoff of 8,900 state workers. The big three were nowhere to be seen.

At 3 p.m., school children in white shirts observed a poorly attended session of the Senate. The Senate asked the children to stand to be recognized, and then the few legislators in attendance voted to honor a recently deceased labor leader and tabled legislation pertaining to warning lights on bicycles. When the end of the session was called, a young girl looked up incredulously and said, "We came all the way for this? That's it?"

Taxing the Rich: An Idea Whose Time Has Come?


Photo from the Library of Congress
Henry Clews, a wealthy Wall Street financier and economic consultant, in 1910

Since the economic collapse in the fall, Americans have acquired a taste for watching CEOs squirm. They lapped up the scenes of executive sweating before Congress while being grilled about multimillion dollar bonuses and cheered in knowing their outrage had forced the heads of the major American car companies to abandon their private jets and drive to D.C. for congressional hearings. There's even a Brooklyn artist, Geoffrey Raymond who takes his portraits of CEOs to Wall Street to let passersby scrawl nasty messages on them.

So, not surprisingly, polls suggests that raising the income tax on the wealthy, popularly known as a Millionaires Tax, has strong support. Quinnipiac polls have found a steady 80 percent of New Yorkers in favor of such a tax hike. Labor and education groups are pushing hard for it using television campaigns and grassroots initiatives. With such strong popular support, a Millionaires Tax seems imminent.

Some legislators seem to have gotten the message. The Assembly is expected to vote to increase the tax on affluent New Yorkers. Assembly Speaker Sheldon Silver has stated that he won't "allow the burden of addressing the economic crisis to fall disproportionately on the backs of our already overburdened working families."

Yet, the plan has not attracted the support of a majority of senators, and despite some indications he might compromise, Gov. David Paterson still officially opposes the tax hike, preferring a mixture of budget cuts, some new taxes and increases in other taxes, such as the sales tax.

Higher and Highest

Although a number of different proposals for a millionaire tax have been discussed the most popular is the Fair Share Tax Bill that has been supported by advocates such as the Working Families Party and put forward in the Senate by Sen. Eric Schneiderman on Feb. 9. The Fair Share Tax Bill would increase the current 6.85 percent income tax rate to 8.25 percent for individuals who make more than $250,000 a year. Those making more than $500,000 a year would see their income tax rise to 8.97 percent, and those making more than a million a year would be taxed 10.3 percent. Currently everyone making over $40,000 a year -- from a schoolteacher to Michael Bloomberg -- pays the same 6.85 percent income tax rate.

Schneiderman's proposal was co-sponsored by 18 other senators. However, Senate Majority Leader Malcolm Smith opposes raising the tax rate for the wealthy. Smith, who previously called the measure a "last resort," said he believes such a tax would drive more affluent residents out of the state.

"During difficult economic times the senator is not in favor of raising taxes as a revenue generator," Smith's spokesperson, Austin Shafran, said. He added, however, that since there is support for the measure in the Democratic caucus, Smith will not stifle debate of the issue. "This fair share tax proposal will be openly and honestly debated on the floor of the Senate," he said.

Paterson has echoed Smith's sentiments, agreeing that a tax increase on the rich would be a "last resort." But with flagging poll numbers and public opinion heavily in favor of such a tax, spectators wonder if Paterson is wavering on the issue. At a banquet hosted by the State Association of Black and Puerto Rican Legislators last week Paterson said, "To those of you who are not here, who think you are too wealthy or too influential or have too great of a title to be part of New York's budget-balancing formula, let me make you aware that every New Yorker will share in the sacrifice to get this budget balanced." Paterson spokesperson Errol Cockfield reportedly told reporters afterward that Paterson's statement did not reflect a change in position.

Taxing, Not Cutting

Critics of the tax such as E.J. McMahon, director of the Empire Center for New York State Policy, said that unions representing public employees advocate the millionaires tax because they reject what he views as reasonable cuts to address the budget crisis, such as postponing increases in wages or benefits.

"The top one percent paid 40 percent of the taxes in the state in 2007," said McMahon. "People with a pie slice view of the economy think, 'Hey, if we jack up the rate 50 percent the rich won't notice it.' They think, 'Oh they have money! Let's get it.'"

According to McMahon, the state has relied on taxing the wealthy for too long. He noted that the reason there is such a budget gap this year is because the state got a large percent of its revenues from Wall Street and those revenues have plummeted. An increased tax on the rich, who have already lost great amounts of their wealth due to the market crash and who have "volatile" incomes is not a smart way to patch the budget deficit, he said.

Karen Scharff, executive director of Citizen Action, a group that strongly advocated Fair Share Tax Reform, disagreed. "It comes down to whether we should ask wealthy New Yorkers to pay a small amount in additional taxes to protect average New Yorkers facing job losses, foreclosures and school cuts," she said.

Scharff said that if one percent of New Yorkers paid 40 percent of the taxes that's because "they have 40 percent of the income in the state." As she sees it, tax rates on the rich have steadily been reduced for years and a small increase now is "only fair."

Schneiderman said his bill is not simply the product of unions but is supported by a "state wide coalition." He acknowledged that there will have to be cuts in the state budget but called his tax proposal "fair and a good way to raise money." It is time, he said, to stop "redistributing wealth from the working family to the rich," and with President Barack Obama having campaigned on the idea of a progressive tax, Schneiderman said he thought the mood is right to return a progressive tax to New York.

In the end, Scharff said, she expects to see Schneiderman's proposal taken into consideration during budget negotiations between the Senate, the Assembly and the governor. She thinks Smith and Paterson will bow to public pressure on the proposal and will change their stance.

In Schneiderman's view, New York's politicians have a history of "crying wolf" and suggesting cuts before ultimately restoring the spending because of public outcry. He said Paterson has been trying to hammer home the gravity of the situation by stressing the need for major budget reductions, but in the end Schneiderman thinks a tax increase on the wealthy will be part of the solution to New York's $14 billion dollar budget deficit.

The Opposition in the Senate

Given the Democrat's thin majority in the Senate, Smith's position may hinge somewhat on his members. Senators Jeff Klein and Pedro Espada Jr., who represent middle class and working class districts in the Bronx, have stood, along with Smith, in the way of the millionaire's tax as well as rent control laws that would benefit their constituents. "What Smith, Klein and Espada won't acknowledge is the tiny percentage of households in the city that earn $1 million a year, or even $250,000, after taxes," Juan Gonzalez wrote. "State records show a mere 393 households in Smith's Queens senatorial district reported incomes above $250,000 in 2005. More than 93,000, or 99.6 percent, were below that figure."

Scharff said that organizations like hers that helped the Democrats win their majority in the Senate will pay attention to where these senators' allegiances lie. She thinks most voters will pay attention as well. "I find it very puzzling that New Yorkers overwhelmingly voted for Obama and his progressive agenda, they sent a message to politicians and voted for change and yet somehow in New York it feels like we are going backward," she said. "New Yorkers won't allow it."



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