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Using This Crisis to Prevent the Next One


Photo (c) Urban Agenda

While the economic picture is grim across the country, New York City has been especially hard hit in recent months. The city's heavy dependence on Wall Street revenues has left us facing a projected budget shortfall of nearly $4 billion. Adding to the city's crisis, a quarter of the shortfall is due to state cuts resulting from Albany's crippling financial difficulties.



For More on Helping New York's Economy

Paying Attention to Cities By Jonathan Bowles
After years of federal policies neglecting urban areas, Barack Obama has sent some encouraging signals that he understands their importance. Certainly, New York could use a helping hand. The director of the Center for an Urban Future lays out some ideas for what the president could do to aid New York.

An $825 Billion First Step By James Parrott
The stimulus package proposed by Congress is key to halting the economy's downward spiral but it will not solve all our problems. Economist James Parrott of the Fiscal Policy Institute looks at what the package would do -- and what more needs to be done.

Infrastructure Investments that Make Sense By Carter Craft
As big as the stimulus package may be, the country has to invest the money wisely. An urban planner offers some novel ideas for New York projects -- from recycling grease to ferries for freight.

From Gas-Guzzling Cars to Clean Buses By Charles Stone
Simply lending funds to struggling auto companies won't spur economic growth. Instead, an economist suggests, the government should create a voucher program to deploy the resources of the auto companies, spur investment -- and help the environment.

Previous Articles
A Federal Stimulus for City Parks By Anne Schwartz
Advocates hope that President Obama and Congress will recognize that funding parks would not only improve the quality of life and the environment but also spur investment and raise real estate values.

Stimulus Money: The Downturn's Silver Lining? By Graham Beck
The stimulus package could offer more federal funds for transportation projects. The MTA is making its list, but there are sure to be lots of restrictions -- and competition.

The crisis highlights the danger of the city's economic over-reliance on Wall Street. Even when times are good, only a few New Yorkers reap economic windfalls. When times are bad, the entire city suffers.

For all the pain it is causing, though, the sagging economy presents us with the chance to rebuild our economy in a way that prevents similar economic crises in the future. The federal economic stimulus package before Congress presents an opportunity to build a greener and more equitable economy. Urban Agenda, convener of the New York City Apollo Alliance, urges Congress to fund projects that will create high-quality, "green collar" jobs and help make New York City more environmentally sustainable.

A stimulus package for New York City must focus on increasing investments in public infrastructure -- rehabilitating and retrofitting schools, buildings and mass transit systems - not on giving tax breaks. Currently, the Obama administration is proposing $150 billion in tax cuts for businesses. However, prominent economists, including an advisor to Republican presidential candidate John McCain, note that every dollar spent on public infrastructure projects generates $1.50 in economic activity, while tax breaks lack this "multiplier effect." Every $1 in tax cuts produces less than $1-- and sometimes as little as 30 cents -- of economic activity.

Green Is Not Enough

While we need to act quickly, we must also act responsibly. It is not enough to just create "green" jobs. Instead, we must create "green collar" jobs that pay well, provide health benefits and offer opportunities for career advancement while improving our environment.

This is key. Creating jobs that pay poorly and do not provide health benefits or pathways out of poverty will lead to an underclass of workers employed in green jobs but unable to make their way into the middle class. If we consider both environmental benefits and wage and job standards, we can have jobs that will help the resurgence of the middle class, strengthen our economy and make New York City a leader in sustainability.

The NYC Apollo Alliance has compiled a list of recommendations for evaluating projects to ensure that we maximize the potential of our green collar workforce. (The full document can be found here.). Projects funded with stimulus dollars should:

  • Create employment for a wide spectrum of workers, from low-skilled to highly skilled.
  • Support local employment opportunities. Outsourcing occurs not only when jobs are sent overseas, but also when labor is imported into an area with an already trained and ready labor pool that can, and should, be employed.
  • Create jobs that offer good wages, health care benefits and paid time off.
  • Promote employment in environmentally sustainable areas, such as retrofitting building, brownfield redevelopment and urban forestry.
  • Promote the retrofitting and maintenance of existing infrastructure, such as mass transit systems, roads and bridges.

Using these criteria to evaluate projects proposals will help rebuild our economy and create a greener, more sustainable city. For instance, using federal stimulus funds to create an "Efficiency Matching Fund" providing a 100 percent federal match for state-approved energy efficiency programs would help quickly channel funds to green job development. Every $1 invested in such programs saves $2 to $4 in energy costs for consumers, freeing up additional consumer purchasing power. Energy efficiency programs also bring us closer to environmental sustainability.

The economic stimulus must fund training and readiness programs to ensure there are enough skilled workers ready to do these tasks. The Consortium for Worker Education, the Association for Energy Affordability and the New York Industrial Retention Network developed a plan to integrate economic development and workforce development to promote energy efficiency. With funding, this proposed Green Jobs Center would include a training center to assess, train and place over 2,700 workers in the energy efficiency industry. The center also would provide business services for over 900 businesses seeking to expand or enter the energy efficiency market over a three-year period.

Finally, to ensure that stimulus spending creates jobs in the near future and new industries in the long term, it must include language that allows cities and states to give preference to local companies when they purchase goods and materials used in federally funded capital projects. This will nurture local green manufacturing and reduce the carbon footprint of projects by removing the need to transport products long distances.

The Wall Street disaster offers us the opportunity to build a new economic future. Wisely invested, the federal stimulus can generate the green collar jobs that will rebuild our middle class and create a more sustainable environment for generations to come.

J. Mijin Cha is director of campaign research at Urban Agenda, convener of the Apollo Alliance. The alliance is holding a public forum on Feb. 2nd to discuss the New Apollo Plan, the economic stimulus and New York City. For more information, visit www.urbanagenda.org 

The Budget Outlook Goes from Bad to Worse


The Budget Outlook Goes from Bad to Worse
Left photo (cc) Nic McPhee

The Independent Budget Office's January Fiscal Outlook and other recent budget reports just might give Mayor Michael Bloomberg and the City Council members who extended term limits at least a brief twinge of regret. For the remainder of this term and probably for part of their next, they will confront increasingly grim economic and fiscal prospects. The mayor's November Plan, the modification of this year's budget approved by the council in December, already looks like ancient history.

The mayor in November forecast a $1.3 billion budget deficit for fiscal year 2010, which begins July 1, 2009. The Independent Budget Office now projects a $4.3 billion gap. While the mayor in November set the estimated 2011 deficit at $5.0 billion, the IBO now puts that number at $7.0 billion. A report by the state comptroller says the 2011 deficit could reach as high as $8.0 billion.

What has happed since November, of course, is that the economy has spiraled downward. The now-acknowledged recession is costing hundreds of thousands of people across the nation their jobs and causing plunging tax revenues at all levels of government.

The impacts of that recession were slow to affect New York City. But now everything has changed. Job losses in the city are accelerating and, with that come projections of sharper tax revenue losses and growing budget deficits.

The Employment Outlook

The IBO report says the city will lose 243,000 jobs the peak of 3.8 million jobs reached during the first quarter of 2008. Some 82,300 of those lost jobs will be in the financial activities industry, 48,900 in securities jobs alone.

In general, the IBO report paints a weaker job picture than the mayor did two months ago. Bloomberg forecast a loss of 147,000 private-sector jobs through this calendar year and assumed the number of jobs would begin to grow again in 2010.

The Revenue Slump

As a result of the jobs losses and overall deteriorating economy, business and personal income taxes will plummet, according to the IBO. The three business income taxes -- the general corporation tax, the banking tax, and the unincorporated business tax (mostly a tax on professionals like accountants and lawyers) -- tripled to over $6 billion from 2003 to 2007. By 2010, the IBO see them declining to $3.7 billion, a 38 percent drop in three years.

The office expects personal income tax revenues to drop by $1.4 billion from the current 2009 fiscal year 2010. And its sees only modest increases in revenues from the tax in 2011 and 2012.

There is some good revenue news. The most stable -- and by far the biggest -- of the city's major taxes is the real property tax, which, because of the complex nature of the tax, is much less subject to current economic conditions. The IBO says property tax revenues - after the 7 percent rate increase for the second half of fiscal 2009 approved by the council in December -- will total $14.4 billion this fiscal year, a 10.1 percent increase from 2008.

"Because of the gradual phase-in of past increases in property values and the second step of the tax rate increases, revenues are expected to continue growing at double-digit rates in 2010, rising by 11.8 percent to $16.1 billion," the report says. As the phase-in of increases in property values is completed, though, revenue growth will slow in 2011 and 2012.

The IBO projects that the other big city tax, the 4 percent city sales tax, will decline by 3.1 percent in fiscal 2009, to $4.7 billion, and by 7.1 percent in 2010 to $4.4 billion. Sales taxes, the report says, will rebound in 2011 and 2012, reaching $5.0 billion in the following two years.

Balancing the Budgets

The current and future deficits have forced the mayor into a new budget strategy. In recent years, the big surpluses, for the most part, have been carried over to cover expenses for subsequent years, making each year's budget balancing that much easier. In addition, the mayor placed $2.5 billion of the 2006 and 2007 surpluses in a new reserve fund, the Retiree Health Benefits Trust Fund, to be used to meet future liabilities for retirees' health expenses.

Today, both these strategies have faltered. The $1.8 billion surplus in 2009 that the mayor hoped to use to fill gaps in the 2010 budget has shrunk to $568 million, according to the IBO.

Furthermore, Bloomberg proposes to use more than $1.1 billion of the retiree health fund to make up for the anticipated growth in pension expenses caused by losses in pension fund investments. That move has caused some grumbling from the IBO and the state comptroller.

The IBO, for instance, says the new use of the retiree trust fund "undermines the city's goal of beginning to fund its enormous liability for future retiree healthcare expenses."

And the state comptroller's December report says that the move can be seen as "a sign of serious fiscal stress" that will shift the burden of paying retiree costs to future taxpayers. In contrast, the city comptroller in his December report on the state of the city's economy accepts the temporary use of the retiree money but urges a quick replenishment of the fund.

To fill the deficit, the mayor has asked agency heads to prepare for an additional 7 percent cut in expenditures, which would save $1.4 billion. He also has proposed an unspecified $800 million in new taxes. These moves would cover only half of the IBO's projected $4.3 billion deficit, although Bloomberg may come up with additional cuts and taxes when he announces his preliminary budget at the end of this month.

The State and Federal Role

That preliminary budget for fiscal year 2010 will represent the next step in what will likely be a tough five-month struggle to balance next year's budget and stabilize the city's longer-term fiscal condition. Uncertain state and federal politics complicate the picture.

New York State, which is more dependent on Wall Street revenues than the city, cannot help the city close its budget deficit. The best that can be expected is that cuts in state aid be kept to a minimum. The biggest problems for the city in Gov. David Paterson's proposed budget, as the IBO points out, are a proposed $600 million cut in state education aid and elimination of $327 million in state revenue sharing funds which - unlike education and other state aid - can be used to balance the city's budget.

The federal government could provide more help, particularly through a possible economic-stimulus plan. Some experts have proposed that the federal government pick up a greater share of Medicaid funding to help ease the budget crises in many states. The federal government currently pays half of New York State's Medicaid expenditures, and the state and the city pay the rest. This year the city will spend $5.6 billion as its share of Medicaid costs.

An increase in the federal portion would lower the state's spending on Medicaid. Those state savings, if shared with the city, would free up city money for other expenses or budget balancing. Unfortunately, though, as the IBO points out, it is not clear that any such federal aid would require the states to share the benefits with their local governments.

The alternatives to major federal fiscal help are the old stand-bys: more taxes or more cuts. That's a grim picture for the city.

In the meantime, all the economic projections remain uncertain, making budget planning even more difficult. Fiscal monitors disagree, for example, on when the city will come out of the recession. The city comptroller sees a turnaround starting in the middle of calendar 2009; the IBO does not see even slow job growth beginning until the second quarter of calendar 2011.

The IBO acknowledges that just a year ago, its analysts, like other economic forecasters, did not expect a U.S. recession. Now many agree with the city comptroller who last month acknowledged that "additional shocks to the financial system" could result in "a truly epic slump."

New Yorkers Rate Their Government


As the city's budget woes escalate, tensions between Mayor Michael Bloomberg and the City Council over taxing and spending also have increased. While the fight over where and how to cut certainly will continue into the planning for the 2010 preliminary budget, due out in just a few weeks, both sides might take a step back and look at the NYC Feedback Citywide Customer Survey, released in early December by the mayor and Public Advocate Betsy Gotbaum.

What a close reading of this survey of over 24,000 city respondents, conducted by the National Research Center, a private firm, suggests is that New Yorkers have serious concerns about city spending and the effectiveness of a number of city services, including child protection, youth employment, homeless services, police-community relations, and protecting them from crime. Across-the-board cuts in these and other crucial areas -- as opposed to selective cuts based and new progressive revenues -- cast doubts on the mayor's budget strategy.

The Current Mayoral/Council Fight

With a vote on the modifications slated for today, the council has resisted its usual rubber-stamping of the November changes in the approved budget for the current fiscal year, which ends June 30. Much of this tension has focused on the mayor's plan to cancel this year's $400 rebate to residential homeowners and raise property taxes on all commercial and residential property in January by 7 percent.

The council issued a plan with alternative agency cuts, worth $170 million in savings in the current fiscal year, and over $325 million in 2010. The council also proposed an increase in the city hotel tax, from its current 5 percent to 5.875 percent, worth about $80 million in new revenues.

Meanwhile, with city tax revenues dropping faster than projected (and perhaps in frustration over the council's delays) the mayor on Dec. 9 issued yet another warning about next year's problems. The city's budget director, Mark Page, told agency heads in a memo to come up with plans for yet another across-the-board budget cut for fiscal 2010 -- this one for 7 percent, saving $1.4 billion.

The new reductions translate into a $527 million cut in education and $286 million for the police department. These would be on top of 5 percent across-the-board cuts already under way as part of the November modification and estimated to save an initial $1 billion.

The Public's Perceptions of City Services

While the mayor has called for across-the-board cuts in all these cases, however, the public, according to the new survey, takes a far more nuanced view of city services. Respondents see different service results in different agencies. The Bloomberg/Gotbaum survey can help us see this, offering a sense of what the public thinks about much of city government today.

To the mayor's credit, many of the survey's 34 questions are tough, asking the public to grade his administration in several direct-service areas. On the other hand, the survey uses a grading system that makes the results look rosier than the actual data show. The press release from the mayor's office, for instance, suggests that in five of six broad service areas, 85 to 92 percent of the responses were positive.

This results partly from a generous grading system. Respondents can award services one of four grades: excellent, good, fair and poor. The first three are all aggregated for a single positive score, while only the fourth response, poor, is left out. Lumping fair responses with more positive responses seems to set a pretty low bar.

In addition, grades for various parts of a service area are combined for a single index score. Averaging responses across a number of questions in this way dilutes a range of responses within certain services areas.

Take the sixth area noted in the press release, social support services, which has an Index Score (excellent, good and fair responses added together) of 58. That means 42 percent of the respondents thought such services were poor. Bad enough. But, if we raise the bar to consider the fair responses (35 percent) as less than positive, then only 23 percent of responses (good and excellent) consider the quality of social support services positive.

More specifically, the social support services index score of 58 aggregates scores from five questions. Three specific questions paint an even more negative picture. Some 44 percent of respondents, for example, thought child protection services were poor, 46 percent said the availability of youth employment programs was poor, and 48 percent said services addressing homelessness were poor. (In those same three questions fair responses ranged from 33 percent to 35 percent.)

The limitations of the index scores are also evident in the citywide public safety score. The overall score of 85 averages answers on services in five separate areas, including police and fire. A close look shows that the public judged fire and emergency services much more positively (76 percent and 67 percent of respondents said they were excellent or good, respectively) than crime control and police-community relations (which were rated only 42 percent and 40 percent excellent or good, respectively).

The different opinions about services persist in the neighborhood public safety index score, where respondents assessed the quality of services in their own neighborhood rather than citywide. Some 82 percent of respondents judged their own fire protection services excellent or good, and 72 percent thought their local emergency services excellent or good. Yet only 49 percent considered crime control and police-community relations in their neighborhoods excellent or good.

The survey includes questions about the city's largest budget area: public education. All respondents, whether they have children in public schools or not, were asked about the quality of public education and after-school programs. On public education, 78 percent of respondents said they were excellent, good or fair; on public after-school programs, 71 percent.

But in both questions, the fair responses were by far the largest. Only 38 percent of respondents judged public education excellent or good. Only 33 percent said after-school programs were excellent or good.

On the other hand, among those respondents who have at least one child in the public schools, the results were more positive. Fifty-six percent thought the public schools are excellent or good, and 57 percent thought after-school programs are excellent or good.

A section entitled "Overall Quality of Government Services" drew especially interesting responses. On the title question, 4 percent said the overall quality was excellent, 38 percent said good, 44 percent fair and 15 percent poor.

But in a second question in the same section, "Does the city government spend tax funds wisely?" the results were much more negative. Only 22 percent replied excellent (3 percent) or good (19 percent), while 37 percent said fair, and 41 percent said poor. Those numbers could serve as a sobering backdrop for the mayor and council as they fight over tax increases and agency cuts.

More Budget Data

The survey deals only with public perceptions. For those interested in more quantitative data, the mayor's Office of Management and Budget also released in December its latest Budget Function Analysis report, 513 pages that provide a highly detailed budget benchmark for current revenue sources and expenditures in 16 city agencies. (The education department, by far the city's largest, is not included.) In the case of the police department, for instance, the report lists 20 operating functions and what is spent for each in the $4.4 billion department budget.

Unfortunately, welcome as more budget information is, the Budget Function Analysis does not link program functions to performance outcome data, although each agency's report does offer an electronic link to the Mayor's Management Report. This is a reminder that the City Council has done better work than the administration in this area. Its little-known Budget Transparency Initiative not only breaks down agency budgets into program areas, but also includes relevant Mayor's Management Report data in an attempt to match dollars spent with performance outcomes.

All these tools could, of course, work together. The mayor's willingness to allow the new survey to test public perceptions of his administration's performance and the council's own focus on performance measures could generate a joint fiscal strategy that acknowledges the need for new priorities and sacrifice, goes beyond across-the-board service cuts and takes a serious look at a more progressive tax system.

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



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