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The Property Tax Proposal


With the state elections over, Mayor Michael Bloomberg and City Council Speaker Gifford Miller can no longer evade the tough choices they face in filling an immediate $1 billion budget gap, as well as the $5 billion or more gap projected for next year. And suddenly, after months of vague promises from both sides of City Hall that "everything is on the table," the mayor has produced a bold property tax proposal.

If history repeats itself, the mayor's plan will be countered or supplemented by City Council ideas on the city's other major tax resource, the personal income tax.

The new-tax debate -- the first in more than a decade -- will make the news in the next few weeks as a mandated November budget modification and a January 2003 preliminary budget for next year force decision-making.

The mayor has tossed the biggest tax idea in at least a generation at the City Council: a property tax increase up to 25 percent that would produce as much as $2.5 billion! This increase would follow 11 years in which the city's average property tax rate has been frozen and property tax revenues generally flat. The lively debate that this proposal should prompt will be somewhat muffled, however, by the mayor's clever timing. Using all the executive powers at his disposal, the mayor apparently wants to include the property tax increase in the November modification. Since the council can only accept or reject that modification, the public debate and council powers will be unfortunately constrained.

Nevertheless, the mayoral/council negotiations and limited public debate will be enriched if the City Council adds its best thinking on how to use the city personal income tax, which is more progressive (i.e., puts a greater burden on the taxpayers who can best afford it. The tax burdens that accompany changes in the property and personal income taxes are quite different, so it is important to determine who pays and who doesn't in these big-ticket choices.

Tax Burdens

The mayor's timing is not only politically expedient in terms of his enhanced mid-term budget powers, but in the fact that the property tax rate is the one tax the city can do on its own, without state approval. A 25 percent January 2003 property tax increase - half-way through the current fiscal year - would raise over $1 billion this fiscal year, and $2.5 billion next year. That would solve a lot of fiscal problems.

Selling it to New Yorkers is another matter. There are several reasonable arguments the mayor can use to justify the increase, but the fact that the tax is basically regressive is a roadblock.

The inequities in the property tax are clear in the distribution of 25 percent increases, which must be across-the-board and would, on average, have the following residential impacts, based on Independent Budget Office data:

  • 1-, 2-, and 3-Family homeowners would pay $475 more a year.
  • Coop owners would pay $670 more a year.
  • Condo owners would pay $1,095 more a year.
  • Renters would pay $412 more a year.

The average renter would pay a total of over $2,000 a year in property taxes, payments that - unlike owners' payments Ð are not deductible from personal income tax. This is true even though renters' average household income was $33,000 in 1998, compared to average house-owners' household income of $60,000 and coop-condo owners' $177,000.

One of the most reasonable arguments for a property tax increase - questions of equity aside - is the inclusion of commercial properties. Commercial properties have benefited from the city's property tax system in recent years. The five-year phase-in of commercial assessment increases means businesses have been spared paying hundreds of millions of dollars in property taxes during the prosperous late 1990s.

Personal Income Tax

The property tax has the advantages of raising a lot of money quickly and spreading the tax burden very broadly to commercial properties as well as relatively-low-taxed homeowners. But it is regressive, which suggests that the personal income tax should be addressed concurrently. Rate increases here require state approval, but changes in the tax were quite common in the 1990s, so there are political precedents for quick state action.

The council's spring 2002 plan to raise $400 million from a permanent pe rsonal income tax surcharge illustrates how a tax can be made progressive:

  • Households earning up to $40,000 would pay only a flat five dollars more.
  • Households earning $40,000 to $100,000 would pay three percent to eight percent, or $25 to $142 more a year.
  • Those earning over $100,000 would pay nine percent to 14 percent more:
  • At $150k to $250k, households would pay about $600 more.
  • Households earning over $1 million would average $14,500 more.

The mayor rejected the council's plan.

A focus in the next few weeks on personal income tax increases as a counter to - or supplement to - the mayor's sudden focus on property taxes, would help sharpen public understanding of just what the mayor is proposing here. A complete dependence on the property tax would, on one hand, protect "average" millionaires, whose taxes would generally be far lower with a property tax increase than with the progressive personal-income tax options listed above. For example, the property tax on a $1 million coop is, c onservatively, about $12,000 today. A 25 percent increase amounts to only about $3,000

On the other hand, complete dependence on the property tax would be a severe burden on renters. Additional exemptions from increases for lowest-income renters would be one way to ease that burden. Innovative thinking -- such as making renters' property tax expenditures deductible just like owners' - would find more ways.

Best Opportunity For Balance

Mayor Bloomberg's remarkable property tax proposal is actually his second bold revenue plan. He included a plan to toll the city's bridges in his first four-year plan last year, which would generate as much as $800 million a year in the near future.

If the mayor's ambitious bridge tolls and property tax plan are combined with the City Council's interest in the city's personal income tax, that would mean over $4 billion in new revenue on the table. The city would have its best opportunity in at least a decade to craft a structurally balanced budget plan. No longer would the city need to depend on the multi-billion dollar one-shot financing that characterized the second-term Giuliani budgets and the first Bloomberg budget, which helped create the current crisis.

Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.

The Mostly Mozart Strike: Music, Money and Maybe Better Art


Just before the opening of Lincoln Center's Mostly Mozart Festival, in August, the 42 members of the Festival Orchestra went on strike over an issue that had nothing to do with wages or benefits. Instead, it boiled down to a struggle over job security and artistic control-issues that underlie most cultural endeavor but only occasionally make it into the public eye.

The conflict was framed by Lincoln Center's search for a new music director to replace Gerard Schwarz, the director from 1982 to 2001 and the man widely credited with building the festival into what it is today-an extremely popular, generally acclaimed, consistent moneymaker. This summer, 60,000 patrons were expected to attend. Twenty of the festival's 31 concerts were cancelled as a result of the strike.

The orchestra players rehearse and perform for four to six weeks each summer and take freelance engagements for the rest of the year; the festival is thus an important and stable source of revenue for them. After settling on an 18-percent pay raise over three years, negotiations broke down over the issue of job security. Bill Moriarty, president of Local 802, the professional musician's union for the New York City area and the largest such union in the world, says that problems arose when Lincoln Center's management suggested amending a longtime provision regarding contract renewal for a tenured musician. (Players go through a period of probation, generally one to two years, before getting tenure. Just as it is hard to fire a tenured professor, it's hard to fire a tenured musician, and the issue has only been brought to arbitration once in the festival's history.)

Past contracts named a professional arbitrator to resolve disputes over the firing, or non-reengagement, of a player. According to Moriarty, management suggested doing away with this process and giving the music director control of such disputes. This set off alarm bells for the musicians, who worried that a new music director might want to "clean house" upon arrival. Many of the players had been with the festival for well over a decade, some since its beginning 36 years ago. "One of the sources of tension in this negotiation was the longevity of most of the orchestra members and their proprietary feelings about their place in the orchestra and the concern that they have for its quality," Moriarty says.

Jane Moss, vice president of programming for Lincoln Center, tells a different version of events. According to Moss, the union first brought up the contract provision, suggesting that disputes over hiring and firing be settled by a committee of the musician's peers. Management countered that such a group would not be disinterested enough, and Lincoln Center's president, Reynold Levy, told The Times that "first-class conductors wouldn't accept those terms." The compromise decision that emerged after a few days of the strike, about which both sides claimed victory, holds that future arbitrations will be settled by a three-person panel: one representative from the union, one from management, and a third party, agreed upon by management and the union. This third party-who may well carry a swing vote-potentially could be a musician.

Typically, labor arbitrators are squeamish about making artistic judgments, and tend to defer to the opinions of management. By bringing a musician to the table, arbitration will take into account the opinion of a peer. "At the very least," Moriarty says of the result, "we will stand more of a chance that the third arbitrator . . . will understand better what should go into an artistic decision and where the line is drawn for arbitrary and capricious action. Because that's what you're looking for; nobody is looking to keep people in an orchestra who cannot play well enough to be in that orchestra. You're dealing here with art. While [players] value their labor rights they also value their art."

The details of the dispute were perhaps too obscure for the Mozart-deprived public to understand; even in the press, the most-often repeated phrase was that the players belonged to "the highest-paid freelance orchestra in the country." Moriarty disputes the term "freelance," though not that the players are well paid. "We got a fairly decent economic package in this negotiation," he says. "We got that far more easily than we could get this non-renewal provision, which is a matter of power. To wrest some kind of decision-making power from management is always far more difficult than squeezing money out of them."

Clearly, the life of a classical musician has improved in past decades, thanks to the strength of music unions. "I worked part time in the St. Louis Symphony in the early 1960s," Moriarty recalls. "Basically, then, you were the same as a factory workers-you were an ad hoc employee, they could fire you at will, and in fact one of the things that often happened in those days, when a new music director would come in, he would change about a quarter of the orchestra, just to show the power he had." And there are precedents for power-sharing at Lincoln Center. The players of the New York Philharmonic have, over the years, won a measure of artistic control, electing an artistic committee, which gets involved in the hiring of new musicians and the evaluation of guest conductors. Jane Moss declined to comment on the issue of power-sharing among the new music director and Festival Orchestra players.

Conflicts over power-sharing arise in most artistic fields. Actors in a resident theater company or members of a corps de ballet often complain that they have no role in their institutions' decision-making. Most arts institutions are fairly hierarchical, with directors generally calling the shots in conjunction with managers and boards. This kind of hierarchy may to some extent be necessary: any kind of artistic collaboration requires discipline and boundaries, as a quick viewing of tapes of the less successful experiments of the 1960s shows.

And yet, it's useful to remember that directors-in music, theater, and visual arts-are relative latecomers to the arts scene. Theater directors began working in the early nineteenth century, when massive spectacles required coordination apart from the actors. Formal music conductors were not commonly used until the Baroque period, when music became increasingly complex and the number of performers expanded. It's probably inevitable for directors and those being directed to clash; but it's also true that sometimes this push-and-pull is what makes for great art.

Martha Hostetter writes for American Theatre magazine.

The Tax Whose Time Has Gone


 

As New York's budget gap grows larger, calls for a renewed tax on the city's roughly 1 million daily commuters are growing louder and more insistent than ever in some quarters -- especially in the City Council.

Reinstating the tax repealed by the state Legislature in 1999 would close about one-tenth of a budget gap estimated to be well over $4 billion for fiscal 2004. Proponents insist it isn't just a matter of revenues, but of basic fairness.

The Daily News recently editorialized, "Every day that they come here, commuters avail themselves of city services, utilize the infrastructure, know that, if necessary, city hospitals are there to treat them, and depend on the security afforded by New York's Finest and Bravest. It's only fair that they help pay for some of what the city spends on all this."

The notion that non-resident workers are a bunch of well-paid freeloaders has long been treated as the truest of truisms in New York and other financially strapped cities. There's just one problem: it's a fallacy.

Many of the middle- and upper-echelon jobs in corporate offices, brokerage houses and law firms in lower Manhattan are held by people who live in the suburbs. Ask yourself: If these jobs are so costly to New York, why does everyone get so worked up about the possibility of losing them to New Jersey?

Would the city be better off with no commuters? Of course not.

That is because the workers who flow into New York every day from surrounding suburbs are an indispensable source of economic prosperity for the entire city. (If you want to get an idea of what happens to small service businesses when thousands of commuters suddenly vanish, talk to a coffee-and-sandwich vendor in Lower Manhattan.)

As for budget revenues, everyone who works in New York contributes to the city treasury -- both directly, through sales taxes on purchases in the city, and indirectly, through an exceptionally wide array of heavy city corporate and property taxes paid by the firms that employ commuters and profit from their productivity. To the very limited extent that commuters actually "avail themselves of city services" (to use the News' phrase), the cost is easily covered by the tax revenues they generate.

Moreover, commuters from neighboring states already pay a tax premium to work in Manhattan -- because they are subject to the New York State income tax, no matter where they live.

In recent years, New Jersey and Connecticut residents who work in New York have generated nearly 10 percent of the Empire State's total income tax collections, equal to $2.5 billion this year. And at least a third of that money (plus a similar share of state taxes on business income attributable to their labor) flows back to the city in the form of state aid or direct spending.

WHAT IT COSTS NEW YORK CITY

Unlike the regular income tax (with its graduated rate schedule for different income brackets), the commuter tax was a flat rate applied to a worker's entire city income. This meant it could raise a commuter's New York income tax bill by 10 percent or more, depending on his or her level of income. As a result, the commuter tax represented a proportionately bigger add-on for lower-income workers than for high-income workers.

Many supporters of the reinstatement argue that the commuter-tax rates are too small to affect the number of jobs created or retained in the city. But this overlooks what might be called the final-straw factor, especially post-9/11.

Suppose you are a junior investment adviser with a Manhattan-based securities firm, earning $100,000 a year. Married, with two kids and a house in the North Jersey suburbs, you are already effectively paying a $2,000 commuter tax -- the difference between what you would owe on the same salary in New York and New Jersey state income tax. Assuming your employer will not make up the difference, an added city commuter tax at the former rate would cost you another $450 a year.

That $450 might not look like much. But combined with other factors -- such as commutes two to four times as long as before 9/11, and general anxiety about returning to an area stigmatized by death and destruction -- a few hundred more dollars in taxes per commuting employee certainly will not strengthen the case for staying in New York. That is especially true at a time when many firms are pondering relocation decisions.

To be sure, the 1999 repeal of the commuter tax was not Albany's finest hour.

By all accounts, it had nothing to do with the substance of tax policy and everything to do with the politics of a hotly contested special state Senate election in Rockland County, with leaders of both parties eager to pose as champions of suburban interests. The move was angrily condemned by Mayor Rudolph Giuliani, Council Speaker Peter Vallone and the editorial pages of the city's newspapers, all to no avail.

Nonetheless, it is safe to say that the repeal of the commuter tax made virtually no difference in New York City's bottom-line. That's because Giuliani and the City Council were already planning a different set of tax cuts and spending hikes for the same amount of money before the commuter tax was repealed. When the commuter tax disappeared, those other programs were pushed aside.

The loss of commuter tax revenue is not the reason New York finds itself in a new fiscal crisis. However, the restoration of the tax would pose a very real threat to the city's recovery.

In this shaky economy, the city desperately needs to attract and retain more commuters -- a goal that will not be served by slapping them with what amounts to a wage toll.

E.J. McMahon is a senior fellow for tax and budget studies at the Manhattan Institute's Center for Civic Innovation.

For the opposite view, see "Bringing Back The Commuter Tax," by Glenn Pasanen

 



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