Mayor Michael Bloomberg has had a terrific budget year. New tax revenues keep rolling in, driving the budget toward a record-setting surplus. The City Comptroller reported in late May that the surplus may exceed $5.8 billion by the end of June. The fiscal monitors are pleased with the surplus and what the mayor has done with it. But some interesting questions about what to do with that surplus remain as the mayor and the City Council enter into the last weeks of negotiations over the fiscal year 2008 budget.
The mayor always holds the upper hand at this point in the budget year because he controls the revenue estimates that dictate how much city government can and cannot spend. Because the city must have a balanced budget, any money the council adds to the mayor’s executive budget must be paid for by adding revenues and/or cutting other expenses. Nevertheless, in a $60 billion budget there is always some wiggle room.
Tax Cuts for Low Income New Yorkers
With such good budget news, the budget negotiations have been fairly low key. But the mayor has yet to react to the council’s proposal for several relatively inexpensive, progressive tax cuts that would benefit renters, seniors and the disabled.
The proposals, outlined in the council’s response to the mayor’s preliminary budget, would benefit well over a million city households that would not see any savings from the mayor’s generous tax-cut package. That plan – endorsed by the council -- gives residential and commercial property owners $1 billion in savings through an across-the-board (5 percent) cut in the property rate tax cut and a $400 rebate to home owners, who represent only one third of New Yorkers. These savings are proposed to continue through 2011.
The council’s $300 tax credit for renters is progressive in that it only would go to some 1.1 million lower- and middle-income households – families earning less than $75,000, and individuals earning less than $43,000. If enacted, it would cost the city $261 million in lost revenues -- almost exactly what the homeowner rebates cost.
The council’s proposed expansion of the city’s earned-income-tax-credit – from 5 percent of the federal credit to 10 percent – is also targeted, in this case to working households earning less than $38,348. The total benefit would then range from $42 to $454 for eligible residents. Over 75 percent of the benefit would go to working households with incomes under $20,000. Combined with the $300 renter’s rebate, the council says, many working families would be raised above the poverty level, at a cost to the city of $62 million.
Council proposals for increased tax relief for seniors and the disabled would cost only $6 million in 2008, rising to $24 million in 2010. The council combines this with a proposal to eliminate the $12 million annual tax exemption for Madison Square Garden. This 25-year old political deal originally intended to keep the New York Knicks and Rangers from fleeing the city, has cost the city almost $300 million in inflation-adjusted tax revenues.
Money for Council Programs
On the expenditure side of the budget, the council has had some success in getting the mayor to include council priorities in the executive budget, including $12.9 million for district attorneys and support (for one year anyway) for 10 primary care clinics in high need communities.
The preliminary and executive budgets also “base-lined” some favorite council programs. These are programs that mayors traditionally fund for only one year at a time, resulting in a so-called budget dance as the mayor cuts the programs from the budget every year, and the council tries to bring back funding for them. Now these items will be included in the four-year plan, so they don’t need to be “restored” every year. Nevertheless, the council in its preliminary budget response noted that $266 million of council programs still are not base-lined and need to be restored in the negotiations this year – minimizing the council’s ability to fund new programs.
A Rainy Day Fund
The council’s comments on both the mayor’s preliminary and executive budgets include strong pleas for a rainy day fund, a city savings account for surplus funds from happy budget years like the current one. The money would then be available in tougher years to help stabilize city budgets.
Such an account would require approval by the state legislature and governor. Under current state law, the city cannot end the fiscal year with a surplus of more than $5 million and so cannot, the council has said, “carry forward funds from one fiscal year to the next.”
As a result, mayors spend down any surplus before the fiscal year ends. Generally, the city has pre-paid expenses, especially for debt service, that would otherwise be due the next year. This is called “rolling the surplus forward.” (In fact, Bloomberg has rolled part of the surplus into both the 2009 and 2010 budgets as well as 2008!)
Fiscal monitors say that, in effect, this technique works as a kind of rainy day fund. According to the council, “The problem with using the â€roll’ as a rainy day fund, however, is its lack of planning and transparency. The techniques used to move funds from one year to the next make it difficult for the council and the public to determine how much funding is available, how much was added in a given year, and how much would be subtracted, if applicable from it in the following year.”
The release of the executive budget pointed up this concern. In it, the mayor, faced with another $1 billion in unanticipated tax revenues, introduced a new way to spend down the expanding surplus, retiring $1.2 billion of debt (thus saving future debt retirement costs, mostly in 2009 and 2010). But the stated 2007 “surplus” of $4.4 billion doesn’t include that debt retirement, thus understating the resources available in 2007.
The confusion is apparent in reports by fiscal monitors. The state comptroller and the Independent Budget Office both say in their May reports on the executive budget that the 2007 surplus is $4.4 billion, but a third monitor, the city comptroller, includes the $1.2 billion debt retirement and says it’s $5.6 billion.
Of course, the issues here go beyond the numbers and the question of transparency to political concerns surrounding who makes the decisions on budget surpluses – the mayor, the council, or both. At the moment, the mayor seems to have total control. For instance, the May Independent Budget Office report notes that the mayor’s debt retirement “serves to take $1.2 billion â€off the table’ so it cannot be used for recurring expenditures or tax reductions that could be difficult to sustain.” So much for the council’s role.
A state-authorized rainy day fund, crafted by the mayor and council, would presumably give council a stronger role in decision-making about budgets than it has now. It would establish procedures – probably involving City Council in some way -- for determining how much money would be put aside and how that money could be used. Mayor Bloomberg, like his predecessors, would presumably prefer to keep things just as they are.
Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001.Â
Governor Eliot Spitzer and members of the State Legislature came to Albany in January promising to change the way the state government does business. Now, with less than a month remaining before the scheduled end of the state legislative session, the Senate and the Assembly need to act on an issue that has the potential to change significantly the culture of Albany: reforming the state’s lax campaign finance laws.
New Yorkers have grown tired of the way in which special interests affect their state government and want to end the undue influence money has on campaigns, candidates and elected officials. Along with legislative gerrymandering (see related article), the flow of dollars to the re-election campaigns of elected officials enhances the power of incumbents, making it diifcult to challenge them and virtually impossible to unseat them.
In the past several years, reform proposals have passed in the Assembly but then died. Now, Governor Spitzer has proposed meaningful campaign finance reform that would take several necessary steps forward in limiting the influence of money in politics and thereby weaken the role of special interests.
The legislature must stop delaying action on this issue, because we have some of the weakest campaign finance laws in the country.
How out of whack are our laws? Consider that campaign contributors can give 10 times as much to candidates running for governor of New York State than president of the United States. Candidates for federal office, including president, can't accept contributions larger than $2,300 per campaign or $4,600 per election, while in New York City, limits vary from $2,750 for City Council to $4,950 for mayor per election. But in New York State, contribution limits range from $7,600 for candidates for Assembly to $56,000 for governor.
Such high limits encourage candidates to go after contributors who can give the most rather than create a grassroots base of smaller donors. This lets a small but powerful group of campaign contributors hold significant sway over public policy decisions, arguably at the expense of the broader public interest. In fact, these special interests can stop just about any legislative action detrimental to their interests, adding to the gridlock that saddles our state government. If truth be told, many of contributors give not because they necessarily want to, but because they feel they must in order to protect their interests or advance their agendas.
To make matters worse, the current system allows unlimited "soft money" contributions. These "housekeeping" contributions are intended to support the organizational activities of the political parties and their various subsidiaries, but are often used surreptitiously to support the campaigns of candidates who need the party's help. Consequently, individuals and companies can give hundreds of thousands of dollars to party committees and flout the already high contribution limits of campaigns. "Soft money" contributions, along the money given to candidates, make up what has been tagged the "pay to play" culture where special interests feel an obligation to pony up to ensure access or favorable consideration of their issues.
Although corporations can contribute no more than $5,000 total in a calendar year, many get around that limit by forming various different and separate limited liability corporations that are subject to the same sky-high limits as individuals. Many of the corporations are established for the express purpose of getting around these minor restrictions and increasing the amount individuals and entities can contribute.
New York State also is exceedingly generous in how it lets politicians use their donations. Broad definitions of what are allowable campaign expenses encourage legislators to use their campaign accounts for personal reasons. The vagueness of state law permits them to use funds to pay for such items as swimming pool covers, vacation trips, rental cars, flowers, country club membership dues and so on.
New York State suffers from lax enforcement of its weak laws by a state Board of Elections, which is under funded and has limited authority. Tens of millions of dollars were spent in the last statewide election, but the state Board of Elections found only a handful of campaigns or committees guilty of violating state law and meted out less than $50,000 in fines. The board penalizes too few campaigns and fines them far too little for its actions to serve as a meaningful deterrent to violators.
New York's disclosure laws do not require contributors to list their occupations or employers. They also don't require campaigns to report the names of those who helped solicit or deliver the contributions if there was a third party intermediary involved in the raising of the money, a practice known as bundling. Large campaign expenditures are also often not detailed, making it difficult to know what the expenses were for. And only expenses that have been paid for need to be reported, meaning a campaign may not report some expenses it incurred, but did not yet pay until after the election was over.
It is also very difficult to track the flow of campaign cash to incumbents during the legislative session. While there can be 10 or more campaign fundraisers every week from January through June, incumbents are not required to file even one campaign finance report during the legislative session. The first report due date comes in July, one month after the scheduled end of the session when all its business is done. This forecloses any real scrutiny of how contributions affected what happened or did not happen in Albany.
This dizzying array of sky-high contribution limits, multiple loopholes and loose enforcement have led good government groups like Citizens Union to call for major reform in the area of campaign finance. With the governor rightly connecting the dots among campaign contributions, undue influence and legislative gridlock, New York has reached a moment in time to change its laws, and hopefully before the legislative sessions ends in late June.
Whatever reform gets enacted needs to accomplish the following:
--Significantly lower the limits on campaign contributions from individuals and political action committees to candidates and party committees.
--Ban or restrict institutional contributions from limited liability corporations, partnerships, unions and corporations.
--Limit soft money contributions.
--Require greater disclosure of information about contributors and those who solicit and deliver the contributions.
--Require the filing of at least one campaign report during the legislative session.
--Restrict the "personal use" of campaign funds.
--Strengthen the power of the state Board of Elections to enforce these laws and increase the penalties and fines the board can assess.
In this fog of discussion about campaign finance and the race to enact real reform, it is difficult for voters to know where legislators stand on the specifics of the issue. This is why Citizens Union, Common Cause/NY, League of Women Voters and NYPIRG are pressing legislators to stand up and disclose their positions.
The legislature began its session in January by passing sorely needed and significant changes to our state’s ethics and lobbying laws. In doing so, the State Senate and Assembly signaled that fundamental change of state government was possible. It would be great and remarkable if they ended the session by changing New York’s notoriously weak campaign finance laws. Such action would help restore a small measure of citizens’ faith in our state government and send an important message to New Yorkers that the power of special interests in Albany can take a back seat in favor of the public interest.
Dick Dadey is executive director of Citizens Union and Citizens Union Foundation, which published Gotham Gazette.
Â
JP Morgan Chase, which boasts $1.4 trillion in assets, is a rich, powerful, and iconic New York City institution: the financial world’s equivalent of the New York Yankees.
And like the Yankees, who are building a new stadium with the help of more than $800 million in tax breaks and aid from the state and city, JP Morgan Chase also wants a new headquarters - and wants the public to help pay for it.
Representatives from JP Morgan Chase and the Bloomberg administration are currently meeting behind closed doors, trying to work out a deal for a 50-story, 1.3 million square foot skyscraper at the site of the old Deutsche Bank building near Ground Zero. The city is reportedly offering the bank about $100 million in tax breaks and subsidies. But Chase wants something closer to the $650 million deal that the city and state gave Goldman Sachs to build its headquarters in 2005.
And also like the Yankees –- who once threatened to leave the city if the team did not get a new stadium –- JP Morgan Chase has told city officials that if it does not get what it wants, it may move to Stamford, Connecticut.
"There's a viable alternative for them," Jim Fagan, of Cushman & Wakefield told the Stamford Advocate. "This should be a threat that New York should take seriously."
The current standoff between the city and JP Morgan Chase is just the latest example in a long running policy debate. Are tax breaks for big corporations a wise investment to keep jobs, businesses and tax revenue in the city? Or do they amount to corporate welfare?
In the 1970s when the New York was in financial trouble, crime was high, and the future looked bleak, many Fortune 500 companies left the city. Since then, the government has looked for ways to use tax incentives to help create and keep businesses and jobs in New York, But over the last two decades, the practice – and the amounts given – have increased dramatically.
The main beneficiaries have been financial, insurance, media or real estate firms. But in the late 1990s the city gave aid to a number of dot com companies, according to a report by the Center for an Urban Future. Then as the dot com boom collapsed, the report said, many of the companies that “benefited from city retention deals … announced large-scale layoffs or merged with other media/Internet firms.” Manufacturing companies have also received incentives, mostly from the city Industrial Development Agency or from Industrial and Commercial Incentive Program, according to Jonathan Bowles, director of the nonprofit urban policy think tank Center for an Urban Future. Because manufacturing companies in the city tend to be smaller than the financial and media behemoths, these deals tend to involve less money – and receive less attention – than those affecting bigger corporations.
Precise numbers of the amount of subsidies are hard to come by. Since 1994, the state and city have announced more than $2 billion in subsidies to New York City companies in the name of "job retention," according Good Jobs New York, although they say the real costs are likely much higher since the details of many deals are not disclosed to the public.
Giuliani made subsidies an essential part of his economic policy, negotiating nearly 100 high-priced deals.
In these deals, the city and state usually promise to forego up to a certain amount in taxes, most often sales taxes, said Bowles. He estimates that since 1998 New York City corporations have received “upward of a billion dollars” in such commitments, although it is difficult to determine how much this actually cost the city and state in lot tax revenue.
Whatever the exact figures, Mayor Rudolph Giuliani made such subsidies an essential part of his economic policy, negotiating nearly 100 high-priced deals, according to a database compiled by the watchdog group Good Jobs New York.
The incentives included:
- $52 million for NASDAQ
- $20 million for Met Life
- $29 million for Reed Elsevier
- And $75 million to Bear Sterns and Young.
The biggest retention deal of the Giuliani-era involved the New York Stock Exchange. The city and the state agreed to shell out as much as $1.1 billion over a number of years to keep the stock exchange from leaving the city. The deal eventually fell apart after the September 11, 2001, attacks as Mayor Michael Bloomberg said the city could not afford such a massive investment. However, by that time, the city had already spent about $80 million. The stock exchange, of course, has remained in lower Manhattan.
Bloomberg, who faced budget deficits in his first few years in office, promised to be more disciplined than Giuliani in granting subsidies to big corporations.
"We have basically ended the era of corporate welfare, basically paying people to stay," Deputy Mayor Daniel Doctoroff said in 2003. Doctoroff’s boss – Bloomberg – said, "Any company that makes a decision as to where they are going to be based on the tax rate is a company that won't be around very long."
Despite this rhetoric, Bloomberg has agreed to large subsidies for new stadiums for the Yankees and Mets, and the Atlantic Yards project. He has also given tax credits to large corporations like Time Warner, Hearst, the New York Times, Bank of America, Pfizer, Aon and the Bank of New York.
The main difference between Giuliani’s and Bloomberg’s subsidies, Charles Bagli argued in a New York Times article, is the rationale.
“During the recession in the early 1990s, city officials argued that the incentives were necessary to persuade corporations not to abandon the city,” Bagli wrote. “Now, city officials argue that the city economy is so robust that companies cannot find large blocks of prime office space and cannot afford new construction without city subsidies.”
In 2005, Mayor Bloomberg signed off on one of the biggest corporate retention deals in the city history.
To lure Goldman Sachs, which had recently moved 3,000 employees to New Jersey, back to the city, the New York State’s Liberty Development Corporation issued $1.6 billion of federally funded Liberty Bonds to pay for most of a new $2 billion headquarters near Ground Zero. And Goldman Sachs received an estimated $650 million cash grants, tax-exempt bonds, sales and utility tax breaks and discounts on required payments in lieu of taxes.
“I think this may have been something the Bloomberg administration believed was an important chance to keep these jobs and tax revenue in the city, as well as create an anchor tenant for the World Trade Center site,” said Bowles. “They believed this would have a domino effect and attract additional developers and investors to the neighborhood, many of whom wouldn’t even consider commercial projects in the area for years after 9/11.”
The destruction of the Twin Towers and recent conversions of office buildings into residential buildings has reduced lower Manhattan from the third to the fourth largest central business district in the country, behind Midtown Manhattan, Chicago and Washington. And firms such as Brown Brothers Harriman, the Royal Bank of Scotland and UBS Warburg have recently relocated or in the process of relocating thousands of jobs and a substantial amount of tax revenue to Connecticut and New Jersey.
Despite that, other financial firms like JP Morgan Chase, Lehman Brothers, and Merrill Lynch have pushed for deals similar to the one given Goldman Sachs, but officials have not anted up in the same way.
Recently, Bloomberg said that he would not agree to such lucrative incentive packages for companies in lower Manhattan in the future. “If anyone builds downtown now, they will get normal, as-of-right tax breaks and nothing more,” the mayor said in April.
But given the increased competition from other cities and state, some argue that New York must be generous if it hopes to retain its title as “the world’s financial capital.”
“Having commercial activity like this is very important to the future of the World Trade Center site in terms of keeping it an active, public and welcoming location, as well as a magnet for other major businesses,” said Carl Weisbrod, a board member of the Lower Manhattan Development Corporation and president of the city’s Economic Development Corporation from 1990 to 1994.
In the case of JP Morgan Chase, Kathryn Wylde, president of the Partnership for New York City argues that historically, the various banks that today make up the bank (Chemical Bank, Manufacturers Hanover, JP Morgan and Chase Manhattan) were anchored in the financial district and played a key role in the development of Wall Street and New York City becoming the global center of the financial services industry.
“I think JPMorgan should receive subsidies from the city so the deal could go forward – it represents the best way to really complete the solidification of Lower Manhattan as the world financial capital,” argues Wylde.
But others counter that the Lower Manhattan has changed dramatically since September 11 and particularly in the past two years.
At the time of the Goldman Sachs deal, for example, 7 World Trade Center had no tenants, and some real-estate experts feared that lease-holder Larry Silverstein would not be able to secure any major corporations to occupy the building. But now, Bowles notes, 7 World Trade Center is completely pre-leased, and the high vacancy rate for office space in Lower Manhattan post 9/11 has dropped significantly.
“There’s currently a lot of positive momentum for that area right now and simply not the same kind of need for Bloomberg to use financial incentives to keep businesses there,” said Bowles.
The primary argument for corporate subsidies is that they help the city keep and create jobs.
“Everyone agrees that one-off deals are, in the abstract, bad policy, but everyone also agrees that having a company forced to relocate thousands of jobs out of New York … is even worse public policy,” said Wylde.
But critics say that there is no guarantee that millions in tax breaks actually translates into increased employment.
The 2001 study by the Center for an Urban Future found that “a large percentage of the firms that have benefited from city retention deals during the past decade have been acquired by other companies, put themselves up for sale, gone belly-up, moved major parts of their business out of the city or simply eliminated many jobs in New York shortly after taking advantage of city incentives.”
In 2005, Bloomberg signed off on one of the biggest corporate retention deals in the city history.
In other words, the city actually lost jobs rather than gaining.
In 1997, for example, the city and the state awarded Merrill Lynch $28 million in tax breaks over 15 years in exchange for the firm staying in the city and hiring an additional 2,000 employees. But as of last year, Merrill Lynch had fewer employees than it did when the deal was made. Now with its lease at the World Financial Center and its tax breaks set to expire in 2012, the firm has been threatening to move its headquarters out of the city again.
Bettina Damiani of Good Jobs New York argues that if subsidies are going to be used, the deals should guarantee a certain number of jobs stay in the city. She also says that there needs to be an emphasis on training and placing city residents in any jobs that are created.
“We should use any money for subsidies as leverage for these employers to provide work opportunities to residents if we are using their tax dollars, and right now that simply isn’t happening,” said Damiani.
While some companies threaten to move out of New York City if they do not get subsidies, many get handouts for just moving to a different part of town.
In 2001, the city gave Metro Metropolitan Life $26 million in subsidies to move its 1,700 employees from Midtown to Long Island City, Queens, and stay there until 2021, rather than relocate them to Jersey City.
Five years later, the company had a change of heart and wanted to move back to Midtown Manhattan.
The city could have fined Met Life $24 million for breaking the agreement. Instead, it chose to fine the insurer $5 million and obtain another promise that the company would keep at least 1,800 employees in Queens.
JP Morgan Chase’s current headquarters is at 270 Park Avenue in Midtown, and if it builds its new headquarters downtown as many predict, the city will give incentives to move the company just a few miles south.
“This deal is simply pitting lower Manhattan against Midtown, and it is unclear as to what kind of net benefit this deal would have for the city as a whole by shifting employees from its Midtown office to a new office downtown,” said Damiani.
The subsidies offer no guarantees that the firms that get them will keep employees and revenue in the city long-term. Rather, critics charge these arrangements only buy the city five to ten years of guarantees, after which the firms return to the mayor with their hands out, seeking a second round of subsidies.
And some companies receive generous subsidies meant to keep them in the city, even though they never even consider leaving.
“We realize it's not the cheapest place to do business, but we're already here,” Greg Vahle, a vice president of Pfizer told Crains NY Business in 2004, shortly after it received $46 million in subsides. “We attract a high-quality workforce in New York City, and we think it's advantageous to be in the country's business and financial capital.” Only up to a point apparently. Earlier this year, Pfizer announced it was closing its Brooklyn packaging plant, eliminating 600 jobs in the process.
Related Articles:
Industries That Got Away (2004)
The New York Stock Exchange And Wall Street's Future (2003)
NYC vs NJ (2002)
Â