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Budget Battles In The Arts


A recent New Yorker cartoon portrays a distraught caveman shouting out from a crowd at his tribal leader: Why is the arts budget always the first thing to be cut, he demands, when you know damn well it's the only thing that separates us from the monkeys?

The debate over the value of the arts is ancient, and gets rehearsed at least once a decade.

State budget proposals and counterproposals for fiscal year 2003 have sent the arts community around the nation and in New York into high alert. Facing yawning deficits, governors in New Jersey, Florida, California, Colorado, Oregon, and elsewhere have threatened to halve or, in some cases eliminate, arts funding.

Proposed cuts in New York, while less draconian, are still significant, particularly while foundation and corporate funding continues to decline. After nearly a decade of expansions, we will see museums and theaters with reduced hours and scaled-back ambitions, stalled building projects and some closed doors.

What's different about this latest "Why should taxpayers support the arts?" debate is that, over the past 10 years, arts advocacy has caught up with social sectors like education and housing. The Culture Counts report, published in 2001, found that the arts bring around $12 billion each year into the city's economy through job creation and taxes - a 240 percent return on the city's investment. Early results from a three-year study of the value of arts across the nation, sponsored by the Pew Charitable Trusts, have just been released. During the recent round of budget hearings and negotiations, such tools provide hard evidence of the cultural sector's value to tourism, education, and local economies.

Department of Cultural Affairs

The preliminary city budget proposes cuts of an additional 11.5 percent, on top of this year's six percent cuts, from the Department of Cultural Affairs, returning funding levels to 1999. The 34 city-owned cultural organizations known as the Cultural Institutions Group (CIGs) would get $86.7 million. Maintaining that larger groups have the wherewithal to reach out to other funding sources, Commissioner Kate Levin designed the budget so that the smaller CIGS would take less of a hit. Thus, the 14 CIGs with budgets of $6 million or more (e.g., The Met) would have their funding cut by 35 percent, and the 20 groups with budgets less than $6 million (e.g., Jamaica Center for Arts and Learning) would be cut by 24 percent.

The Program Groups would have their funding reduced from $18.7 million to $12.3 million -- a small pie to be shared by some 500 nonprofits, who typically receive grants in amounts ranging from $5,000 to $2 million. The Cultural Challenge Program, which rewards competitive grants, would be eliminated altogether.

Cultural Affairs Advisory Commission

An anonymous $10 million donation to arts agencies, widely believed to come from Mayor Michael Bloomberg, reminded city arts leaders that this mayor seems to appreciate the economic importance of the arts. So did his creation, in late February, of the Cultural Affairs Advisory Commission. Invoking the same charter provision that allowed Mayor Rudy Giuliani to create a "Decency" Commission, Mayor Bloomberg's group has been described as an advocacy body, designed to assist nonprofits arts community with management and board development, arts education, marketing and outreach, and capital assistance (e.g., technical advice on constructive projects; there are currently 120 groups engaged in building projects). The 21 advisors, including former Museum of Modern Art director Agnes Gund, the painter Chuck Close, philanthropist and art-lover Robert Soros, and other such powerhouses, may be able to create the cohesive strategy for cultural development that New York so clearly needs.

State Council on the Arts

In the past year's budget, New York spent more than any other state on the arts, $44.4 million. Now, with the state arguably facing the biggest budget crisis since the Depression, Governor George Pataki proposes to trim grants to arts organizations by 15 percent, to about $37.8 million. But critics want deeper cuts.

E.J. McMahon, of the Manhattan Institute, told the Rochester Democrat and Chronicle that cultural funding "is not a core government service," and that, "there's a lot of feel-good stuff that there's no way you can argue is essential in the midst of the worst fiscal crisis in a generation."

Thankfully, Albany has had a long commitment to the arts, and is not likely to impose the short-sighted, slash-and-burn cuts to cultural funding demanded in some quarters. Moreover, with respect to the overall budget, arts allocations are so miniscule that even cutting them dramatically provides few gains. In last year's total state budget of $89.6 billion, $44 million for the arts amounted to one-half of a tenth of one percent. Yet, these small allowances can mean a great deal to individual nonprofits: city and state public art agencies often pay for operational needs of arts organizations -- such as energy, audience development, or technology -- that other funders are less likely to sponsor.

Because of ancient prejudices and competing priorities, arts funding will always be questioned, no matter how much evidence is found demonstrating its value. Discussing the cuts across the nation and in New York, Commissioner Levin told The Art Newspaper that "There's a lot of concern that somehow it's okay to eliminate arts funding altogether. That's true not just for government, but some major foundations, as well. The work this sector does isn't as evident as it should be to people making funding decisions."

Martha Hostetter writes for American Theatre magazine.

Evicting Bears Won't Balance the Budget


The day after Mayor Bloomberg presented his budget plan for the forthcoming fiscal year, newspaper headlines screamed the bad news: More fire houses could close… zoos could be shut…mountains of trash could go uncollected for days.

But turn the page past the headlines and take a step back.

The $44.5 billion executive budget released last week shared many similarities with the preliminary budget issued in January. The January plan had few portents of doom, but it did feature a heavy dependence on Albany for help, including a commuter tax proposal for which both the governor and senate majority leader have expressed little enthusiasm. To bridge the city's $3.8 billion budget gap for fiscal year 2004, the mayor's new budget counts on $2.7 billion in help from Albany – roughly 70 percent of the entire gap-closing plan.

What has changed between January and April is time. The clock is ticking rapidly towards July 1, when the new fiscal year begins and the city must have a budget in place. The mayor's most recent budget presentation emphasized the amount of cuts the city already had made and the increasing effects on services that will come with the $620 million in cuts. The $1 billion "contingency plan," to be implemented if the needed help does not materialize, painted an even starker picture of reduced services.

The approach is borne of political tactics and fiscal reality.

Tactically, the mayor is seeking to increase the pressure on Albany, and to do that some of the proposed cuts are designed for maximum impact. Take the plan to close the Brooklyn and Queens zoos to save $5.8 million. It grabbed headlines – and howls of protest from constituents whose voices could quickly echo up the Hudson River Valley. But similar savings could be gained from other, considerably less provocative, cuts. For example, $5 million could be saved if the sanitation department stopped collecting grass clippings.

Fiscally, the city already has taken steps to reduce spending. Most service providing agencies have had their city-funded spending reduced. So far, the city has been able to cut this spending without a significant effect on the provision of existing services. As the budget illustrates, that will become harder to do as the spending reductions mount in the programs and services areas the city can control.

But even under the mayor's proposal to cut an additional $695 million in agency spending, total city spending would continue to grow. That is because some of the key components of the budget are effectively out of the city's control.

One of these out-of-the-city's control components is Medicaid. Based on the Independent Budget Office's most recent estimate, the city's share of Medicaid spending will rise by $330 million in 2004 and total $4.2 billion. Debt service – the interest and principal the city must repay on the money it borrows to build schools, fix roads, buy fire trucks, and other capital expenditures – is another example. Pension and fringe benefit costs for municipal workers also are rapidly growing expenses. Bloomberg's budget estimates that such "nondiscretionary expenditures" will rise 24 percent next year and total $16.8 billion.

That means Albany and the labor unions have to be part of the answer.

How much the city has to spend on Medicaid is determined by policy decisions made in Albany. And in recent years, including the governor's most recent budget proposal, Albany has been adding to rather than reducing the city's Medicaid costs. The state also added substantially to the city's annual pension costs by requiring that pensioners receive cost-of-living adjustments. The mayor's budget estimates that change will cost the city $480 million in the coming fiscal year. Additionally, other changes in the city's contribution to pensions as well as for fringe benefits for its workers must be negotiated with the unions – negotiations that have not yet proved fruitful despite the mayor's plan to lay off roughly 4,000 workers, and the contingency plan of 10,000 more.

Given these circumstances, the options directly under the city's control are limited. If the mayor wants to soften the effect of budget cuts on services – and a significant deterioration in basic services can be as damaging to the city's competitiveness as a place to live or run a business as a spate of tax hikes – then he has to look for outside help.

The most recent budget plan certainly looks for considerable help, but the particulars of much of that help seem ill-defined and increasingly uncertain.

The single biggest portion of that help—a new commuter tax proposal—came with a $1.4 billion figure for how much revenue it would generate but few details on how it would work. Nor did the mayor offer any reasons why the legislators who did not show much interest in his prior proposal would be willing to accept one that seeks even more tax dollars.

This is the third time the mayor has floated a commuter tax plan along with other substantial requests of assistance from Albany – so far without much success. Some might say the third time is the charm. But baseball fans like the mayor also know that on the third strike you are out.

Last February, the Independent Budget Office published a list of nearly 60 ways (available in PDF format) the city could save money or increase revenue. For example: Now that talk of raising the state sales tax is coming from the statehouse, it may be an opportune time to reconsider the idea of swapping part of the local Medicaid burden for a share of local sales tax receipts. This could gain $2 billion for the city. Another option would be to extend the mortgage recording tax to sales of co-op apartments, which could generate $73 million in revenue in 2004.

With the deadline for enacting the city budget fast approaching, it may be time for the mayor to shift his lineup of Albany requests for closing the city's budget gap.

Doug Turetsky is on the staff of the Independent Budget Office.

 

RELATED ARTICLES:

Mayor Bloomberg's 2004 Budget
The Mayor Is Right to Go After Commuters, Albany, and Labor Unions by Douglas Offerman
Stop the Rhetoric – Raise the Income Tax by Glenn Pasanen

Stop the Rhetoric -- Raise the Income Tax


Mayor Michael Bloomberg continues to think big. His executive budget for fiscal year 2004 offers dozens of sweeping changes, frightening millions of New Yorkers. The mayor would be well advised to follow the lead of City Council, which has offered a more realistic revenue plan. But the budget proposals and political pleadings by both the mayor and the council ignore a practical and equitable solution to the city's budget crunch.

Faced with a $3.8 billion deficit and the Byzantine politics of Albany, the mayor has made two sets of cuts. Each seems more designed at scoring political points than offering real solutions.

One list details $600 million in budget cuts, many of which are already being made. This is intended to place blame on leaders of the city's municipal labor unions. In case anyone misses the point, one page of the mayor's presentation is devoted to a list, under the sarcastic headline "Expressions Of Support Of $600 Million In Savings By Leading Labor Leaders" (see ninth item, Section IV), of three comments by labor leaders. One quote reads, "If the mayor thinks I'm going to bail the city out, he's nuts..."

The other list of cuts — the so-called contingency plan with $1 billion in reductions — is designed as a special pleading to the Albany trio of Governor George Pataki, State Senate Majority Leader Joe Bruno, and Assembly Speaker Sheldon Silver. It is a blunt instrument — eliminate homecare for seniors, do away with after-school programs, close all summer pools, lay off another 10,000 city workers, etc.

In proposing this, the mayor makes two appeals: one for more expenditures, the other one for more revenues. In the case of expenditures, the mayor presents a powerful case that the governor's proposed cuts in state aid to the city must be restored, especially the $753 million public education reduction. Since other state school districts also fear the loss of aid from Albany, there is obviously a deal to be struck here, particularly with Bruno, whose Republican constituents worry about the higher local property taxes that would be needed to make up for the shortfall in state help for education.

But the mayor's other plea – for revenues — is muddled. He again asks for state authorization of a new commuter income tax. The commuter tax Bloomberg proposed in November would have had commuters pay the same personal income tax rate as city residents. But the top rate would have been lowered by nearly 40 percent over three years. In other words, commuters would pay for a substantial tax cut for city residents. And in revenue terms, the city would be worse off over time.

This idea met prompt and nearly universal rejection in Albany. Despite that, the mayor's budget released last week calls for a much bigger commuter tax, although Bloomberg provides no details on it in his publicly released budget documents. The three-year $1.8 billion tax plan has become a three-year $4.6 billion tax plan – still requiring Albany's approval and still having commuters paying for a tax cut for residents. This is an idea that Albany will almost certainly reject.

The mayor must realize this. The fact that he continues to make his commuter tax proposal with only seven weeks until the budget is due makes the budget negotiations highly uncertain.

POLITICAL REALITY

In its recent response to the mayor's preliminary budget, the City Council has introduced some revenue plans that could provide a clue to what happens next.

The council suggests a much smaller commuter tax than the mayor's. It would bring in nearly $1 billion. Unlike the mayor's plan, the council provides no tax break for city residents. And its proposal includes a clever $69 million "reverse-commuter" reimbursement to New York State suburban communities where city residents work.

To bring in more money, the council and the mayor agree on increasing the tax on absentee landlords of one-, two- and three-family homes. An estimated 75,000 such landlords enjoy the low property tax rates of owner-occupied houses, but use the homes as commercial properties. The council would impose a 150 percent surcharge on the absentees, raising $263 million in 2004; the mayor is proposing a much lower surcharge that would raise $44 million.

The council would use some of the revenues from its tax to provide property tax relief to low-income seniors who own their homes. A second program would indirectly assist low-income seniors who rent apartments in buildings not covered by rent regulation.

But the council, like the mayor, continues to ignore the elephant in the room - an increase in the personal income tax.

Any equitable program to bring in more revenues would start with the personal income tax, a modestly progressive tax that puts more of the tax burden on high-income New Yorkers than less affluent ones. The current top rate - 3.65 percent - is well below the top rate from 1991 to 1998 of 4.46 percent. This cut has helped reduce the city tax burden – the total city taxes paid divided by total city personal income – to 6.5 percent in 2002 from a high of 10.4 percent in 1977.

Adding 10 percent to each resident's New York City personal income tax bill would raise more than $500 million. Increasing the top personal income tax rate to 4.65 percent would bring in almost $600 million. Together with the council's modest commuter tax and $200 million from its absentee landlord surcharge, either of these two measures would bring in an additional $1.7 billion to $1.8 billion. That would make both the $600 million in cuts and the $1 billion "doomsday plan" unnecessary.

Any increase in the city income tax requires approval from Albany. But the legislature and governor are far more likely to approve a request for a hike in the personal income tax for city residents than a commuter-funded tax cut for residents. Until city officials seriously consider this solution to the city's difficult financial problems, they will only compound the anxiety and confusion now rampant in our city.

Glenn Pasanen, Gotham Gazette's finance columnist, teaches political science at Lehman College of the City University.

 

RELATED ARTICLES:

• Mayor Bloomberg's 2004 Budget
• Evicting Bears Won't Balance the Budgetby Doug Turetsky
• The Mayor Is Right to Go After Commuters, Albany, and Labor Unions by Douglas Offerman



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