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Economy

The Fiscal Crisis After 30 Years


It was a dramatic time, Felix Rohatyn recalled: “Almost daily crises … heroes and villains; us against them." In short, he said, it was “the most rewarding experience of my professional life."

Few people would sound so nostalgic about the fiscal crisis of 1975, a time that saw massive layoffs, piles of garbage in the street because of cutbacks in the Sanitation Department, and a dangerous decrease in police patrols. But of all the experiences in his long life, Rohatyn takes the most satisfaction from his role in saving New York City from bankruptcy.

At the time, the federal government accused the city of handling its money like a heroin addict, focusing only on its next fix -- relying on deceptive accounting, borrowing excessively, and refusing to plan. This led banks to stop lending the city money.

Ballot Questions

Question 1 -- Amending the state budget process.

Question 2: Transportation Bond Act

Question 3: Establishing an Ethics Code for Hearing Officers

Question 4 -- Adding financial management requirements to the City Charter.

Now, 30 years later, says Rohatyn, the city’s good financial management is taken for granted. It has honestly balanced its budget for over 25 years, and has rebuilt trust among the banks that refused to lend it money in the 1970s. The Financial Control Board -- a state-ordered budget watchdog that Rohatyn helped form -- is given much of the credit for this turnaround.

But with the law that created the Financial Control Board set to expire in 2008, Rohatyn and others are concerned that the city may relapse.

This November, New Yorkers will vote on whether to put some of the practices that the Financial Control Board requires into the city charter. Most budget experts agree that these requirements are good ones. But some worry that without an external monitor New York City will slide back into the habits that caused it so much trouble in the past.

To see what happens when no discipline is imposed on budget makers, many point to New York State. Albany now regularly engages in the kinds of behaviors that the Financial Control Board has weaned the city from.

The state’s budget is also the subject of a referendum this November. If passed, it will change the roles of the governor and the legislature during budget negotiations. This proposal will not directly address financial mismanagement, but its advocates hope that by increasing accountability and transparency, the new budget process will force state officials away from their worst budgetary tendencies. Opponents of the measure, though, say that the amendment will only make such problems worse.

THE 1975 FISCAL CRISIS

New Yorkers continue to debate what drove the city to the brink of bankruptcy in 1975.

Some argue that New York City’s liberal officials borrowed money freely to spend on social programs, while powerful municipal unions forced them to agree to obscenely generous contracts. Others say that a variety of outside factors were a driving factor -- the city was increasingly tied into a world economy that was in shock from the 1973 Arab oil embargo; it was victimized by the banks upon which it relied to buy bonds; the federal government left the city in the lurch.

Rohatyn saw enough blame to go around (in pdf format):

"The banks had lent too much and checked too little; the unions took more than the city could afford; the city cooked the books, and borrowed; and the state encouraged this whole exercise," he said.

Whether or not they were the root cause of the crisis, New York City’s financial practices were out of control at that time, say experts. The city was relying excessively on debt; by Rohatyn’s account its short-term debt had risen from about zero in 1970 to $6 billion in 1975. The city relied increasingly on budgetary tricks to balance the budget –- reclassifying operating expenses as capital investments; continuously pushing expenditures onto the following year’s budget; or simply not keeping good enough records to know what was really going on.

Ken Auletta writes in his book The Streets Were Paved With Gold –- one of numerous books written on the topic -– that the city acted as if it wasn’t bleeding to death when in fact it was hemorrhaging severely. But when first the banks, and then the federal government, declined to bail the city out (the latter prompting one of the most famous tabloid headlines in New York history: FORD TO CITY: DROP DEAD), it became apparent that something needed to be done.

The answer, in Auletta’s words, was “fiscal martial law.”

THE FINANCIAL CONTROL BOARD

To get the city's fiscal matters in order and convince investors to resume the purchase of the city's bonds, New York State established the New York City Emergency Financial Control Board. The board was comprised of the mayor, the governor, the city and state comptrollers, and three private industry experts. It held veto power over the city’s budget.

The board required the city to adopt accepted accounting practices, to end the most egregious budgetary sleights of hand, and to work towards the type of fiscal responsibility that would convince banks to trust New York. The city was able to avoid declaring bankruptcy, and in 1982, banks resumed buying short and long term municipal bonds.

The board’s veto power over the city budget -– the so-called control period -- ended in 1986. Since then, the board has served a monitoring role, with the ability to resume its active role if the city’s budget deficit exceeded $100 million at the end of a fiscal year.

So far, the city has successfully avoided such action.

"The city of New York today, I believe, is probably the best governed in terms of finances," said state comptroller Alan Hevesi. "Our reporting systems, our financial transparency, are probably the best in the country. And that's because of this law [that created the Financial Control Board]."

The board has had several lasting effects on the way the city's budget process works:

Making the Governor a Partner: One of the primary reasons for establishing the financial control board was to force the governor and the mayor to be partners in making sure the city is healthy financially. Because the governor sits on the board, he is directly responsible for the city’s performance. The board also provides the state with a permanent structure for keeping abreast of the city’s finances without creating the tension that can arise from state investigations of specific city practices.

Political Cover: Something that became clear during the 1975 fiscal crisis was that good financial and budgetary practices sometimes run counter to good politics. City officials have an incentive to put off difficult decisions. By forcing officials to make these decisions, the board becomes a willing scapegoat.

"Whatever those decisions are -- taxes, service cuts -- they are going to be unpopular to some sector of the city," said Jeffrey Summer, executive director of the board. "And if we take the blame for it, that's fine, so long as the city does it."

A Culture of Accountability: The board’s most widely cited accomplishment has been to give an air of credibility to the city's budget numbers. New York City's accounting, which has been suspect in the past, is now trustworthy. Because the board requires the city to have a four-year financial plan, officials must also address future consequences of their actions. Good financial management, said Rohatyn, has become “part of the city’s DNA.”

There is a general acknowledgement there is a culture of discipline among city officials that has not existed in the past. Still, some remain skeptical about the durability of this shift.

"There has been a vast change in what people think they can get away with," said E.J. McMahon of the Manhattan Institute. "But has the culture really profoundly changed? No."

THE END OF THE BOARD?

The control board is scheduled to exist until 2033. But in 2008 it will lose its $3 million in annual funding and its ability to impose a control period over the city.

Some think that the board should be allowed to expire, arguing that the city has earned its independence through its performance since the 1975 fiscal crisis. They argue that the city and state comptrollers, the Independent Budget Office, the Citizens Budget Commission are monitoring the city closely enough to make sure it doesn’t backslide -- despite the fact that all of these organizations except the Independent Budget Office existed before the fiscal crisis.

"I think that [the board] has handled itself very well, and I think that when it expires it did a good job and left a legacy, but there's no reason for it to be in business," said former mayor Ed Koch.

Not everyone agrees. Because the board has the option to impose a control period, it alone has the power to force the city to act responsibly. Taking this away, some say, is dangerous.

"This is like talking about allowing just a little sip of table wine in the house of a raging alcoholic who once almost killed himself," said McMahon.

McMahon argues for a “permanent, semi-mothballed” board that can step in if the city performs badly. Both the state and city comptrollers also say that the law that created the board should be extended in some form. (The board itself has no stance on whether it should continue to exist.)

BALLOT QUESTION 4: PROPOSED REVISION TO THE CITY CHARTER

Seemingly in preparation for the board’s expiration, Mayor Michael Bloomberg has proposed revisions to the city’s charter that voters will decide on in November (in .pdf format). These revisions would require the city to balance its budget using generally accepted accounting standards, create a four-year financial plan, and limit the use of short-term debt – all things the board currently requires.

This would give the city added independence while guaranteeing continued financial responsibility, argue proponents: “As there always has been the sense that the city should have more autonomy in self-government, this proposal would create the ability for the city to monitor itself regarding financial matters,” wrote the Women’s City Club of New York in a statement.

Frank Mauro of the Fiscal Policy Institute, however, argues that the provisions become ineffective when there is no one outside the administration specifically assigned to make sure that the city upholds its responsibilities.

Still, other fans of the board don’t necessarily object to the city charter revisions. Deputy City Comptroller Marcia van Wagner says that the revisions encourage good behavior and should be supported; they should just not be used as justification for eliminating the board itself.

“There's no harm in [the revisions],” she said. “But I think what people feel is that there needs to be some kind of discipline that is imposed externally."

NEW YORK STATE’S FISCAL MISMANAGEMENT

In contrast to New York City, New York’s state government has not been forced to answer to an outside entity. The results, say budget experts, have clearly been destructive.

“I think the behavior of the city and the state, in terms of how they run their budget process, has diverged tremendously to where the city now adheres to very high standards, and the state is not adhering to the low standards it has,” said Diana Fortuna of the Citizens Budget Commission.

Among the behaviors cited as particularly dangerous are:

Borrowing for Operating Expenses: While the city has limits on short-term debt, Albany borrows to pay its operating expenses. State comptroller Alan Hevesi refers to this as the “cardinal sin” of finance, and others have likened it to taking out a mortgage to pay for groceries.

Unbalanced Budgets: Unlike city officials, state budget makers are not required to balance the budget according to general accounting principles. Albany regularly runs large deficits.

Outstanding Debt: The state doesn’t have the debt limits imposed on the city, and total outstanding debt in the state is $48 billion. As a result, credit rating agencies give low marks to New York State’s bonds, making borrowing more expensive.

Abuse of Public Authorities: The state borrows large sums of money through the public authorities, removing this money from the budget process completely. Public authorities, funded by the state but outside of the control of voters, have increased their debt by almost seven-fold over 20 years. The 18 largest authorities now have about $120 billion in outstanding debt.

These practices are symptoms of a culture that discourages good fiscal practices in the name of political expediency, says Fortuna. They affect not only the fiscal health of the state itself, but also local governments that are forced to assume greater responsibilities as Albany increasingly shifts the burden for expensive programs onto them.

The state’s dysfunction has become the subject of much attention in the past year. Good government groups, the press, and lawmakers themselves have called for changes in the way the state’s affairs are run. These reforms have not only dealt with the budget process – everything from the non-competitive nature of elections to how committees work to the way lawmakers vote on bills has come under criticism. But with a string of late budgets 20 years long (broken this year), the budget process ranked high on the list of issues to confront.

BALLOT QUESTION 1: PROPOSED STATE BUDGET ADMENDMENT

To address problems in the state’s budget process, legislators and some good government groups are backing an amendment to the state constitution, which will be put to voters this November. While this does not directly require anything specific in terms of financial management, its proponents hope that it will encourage more responsible practices through transparency and accountability.

The main provision transfers power over the budget from the governor to the legislature. Currently, the governor creates an executive budget that lawmakers have limited powers to change. Under the proposed amendment, if no agreement is reached on the budget by the beginning of the fiscal year, then a contingency budget based on the previous year’s budget would go into effect. This would automatically become the basis for the new budget, and the legislature would have more power to amend it. Other provisions would establish an independent budget office whose members are picked by the legislature, and make expenditures that are currently not part of the regular budget part of general budget negotiations.

Supporters of this proposal (in .pdf format), which include good government groups Common Cause and the New York Public Interest Research Group as well as many legislators, say that this amendment will give the public more information about what officials are doing, making them more accountable. It will also bring the balance of power between the governor and the legislature more in line with that of other states, they say, and make sure the budget is on time. The overall effects, they say, will be modest, but will lay the foundation for future reforms.

Critics of the amendment believe the effect will be more profound (download video clip). Among the opponents of the proposal is Citizens Union, (whose sister organization, Citizens Union Foundation publishes Gotham Gazette), the Citizens Budget Commission, the Manhattan Institute, and the Business Council of New York State.

Instead of guaranteeing an early budget, they say, the amendment gives lawmakers a reason not to negotiate with the governor until after the budget deadline, at which point they will have much more power. Had lawmakers been given such power in 1975, some say, upstate legislators would have kept Governor Carey from funding the Financial Emergency Act. Today, they say, this increased power will encourage lawmakers to spend money freely.

While they question the reform’s potential to make a positive impact, critics of the amendment do not question the need for change itself. Almost no one believes the state is handling its financial affairs sensibly.

“Change is very, very badly needed,” said Fortuna.

THE FISCAL CRISIS OF THE 1970s AND THE FINANCIAL CONTROL BOARD

BALLOT PROPOSAL FOUR: PROPOSED CITY CHARTER REVISION

NEW YORK STATE’S DYSFUNCTIONAL GOVERNMENT

BALLOT PROPOSAL ONE: PROPOSED AMENDMENT TO STATE CONSTITUTION

Mayoral Issue Grid: Finance



Mayoral Issue Grid

FINANCE

New York City’s annual budget will pose a problem for the next mayor. Experts project that the city will face a $4.5 billion deficit in each of the next two years. If the mayor cannot reduce spending, he or she will be forced to raise taxes or generate revenue from fees, fines, or tickets. The property tax is the only tax the mayor and City Council can raise without the approval of the State Legislature.

Fernando Ferrer

To reduce the city’s projected budget deficit, Fernando Ferrer says that he will eliminate loopholes in the tax code that he says costs the city $2 billion a year. He also promises to fight for more funding from Albany, particularly Medicaid payments. Ferrer also believes that the commuter tax should be reinstated, which would require the approval of the State Legislature.

While Ferrer says he will not raise taxes to balance the budget, he has proposed a stock transfer tax to help raise $1 billion for education.

Ferrer outlined a property tax rebate plan that would "offer a $100,000 property tax exemption to the approximately 600,000 New York homeowners of coops, condominiums and 1, 2, and 3-family homes valued under $800,000. Every qualified homeowner whose home is valued at $100,000 or more would automatically enjoy $973 in savings. Meanwhile, homeowners with homes valued above $800,000 would continue to receive the $400 rebate."

Renters would also receive relief. Under the HOPE plan, Ferrer would provide "an average annual benefit of $295 to renters living in rent-regulated units who have a household income below $60,000 and at least one child under the age of 18."

Michael Bloomberg

Michael Bloomberg says that the city’s budget can be divided into two parts: the spending that the city controls and the spending mandated by the state.

Bloomberg argues he has taken steps to reduce the budget where he can, cutting $4 billion from the budget and reducing the city’s workforce by 15,000 employees.

The city’s projected deficits, he says, are a result of things out of the city’s control, like Medicaid and pensions. He supports Medicaid reform and worked to reduce pension costs.

Although he raised taxes in the past, Bloomberg opposes increases in the income taxes or a tax on Wall Street stock transfers.

RELATED ARTICLES:

- 10 Budget Choices Facing The Next Mayor
- The Mayoral Candidates on Budgets, Taxes and Spending (Forum)
- $50 Billion Budget -- A Shortsighted Use Of Surpluses
- Budget Transparency After The West Side Stadium 

Mayoral Issue Grid: Jobs



Mayoral Issue Grid

JOBS

-Top Priority

Although the city’s economy has recovered since the months after the terrorist attacks of September 11, 2001, an estimated 230,000 New Yorkers are unemployed. African-American and Latino males have a particularly difficult time finding a job; 40 percent are unemployed.

The Democratic candidates are focusing most of the attention on small businesses. Small businesses account for 50 percent of all New York City private-sector jobs and generate $4.5 billion in annual city tax revenues.

Fernando Ferrer

To help small businesses, Fernando Ferrer proposes a three-month amnesty program to give small businesses the opportunity to pay outstanding fines. He plans to provide real estate assistance, micro-loans, and new programs for women and minority-owned businesses.

He also plans to form a small business advisory council that reports to the mayor, deputy mayor for economic development, and commissioner of the small business department. The panel would make recommendations and proposes policy.

(Read Ferrer’s small business plan)

Michael Bloomberg

Michael Bloomberg says he has created 62,000 jobs since July 2003.

He has given tax credits to large corporations like Time Warner, Hearst, the New York Times, and Goldman Sachs to encourage them to build new headquarters in Manhattan.

Bloomberg believes tourism – which is at record levels – is a main engine for job growth.

He has undertaken development projects in Brooklyn, Queens, and Harlem to spur new construction and job growth.

To help small businesses, he opened satellite small business services in each of the five boroughs that offer assistance to owners.

(Read Bloomberg’s job platform)

RELATED ARTICLES:
- Debating Jobs and Economic Development
- In Big Projects, Where Do The Jobs Go?
- Tourism and Jobs

 

Mayoral Issue Grid: Finance



Mayoral Issue Grid

FINANCE

New York City’s annual budget will pose a problem for the next mayor. Experts project that the city will face a $4.5 billion deficit in each of the next two years. If the mayor cannot reduce spending, he or she will be forced to raise taxes or generate revenue from fees, fines, or tickets. The property tax is the only tax the mayor and City Council can raise without the approval of the State Legislature.

Fernando Ferrer

To reduce the city’s projected budget deficit, Fernando Ferrer says that he will eliminate loopholes in the tax code that he says costs the city $2 billion a year. He also promises to fight for more funding from Albany, particularly Medicaid payments. Ferrer also believes that the commuter tax should be reinstated, which would require the approval of the State Legislature.

While Ferrer says he will not raise taxes to balance the budget, he has proposed a stock transfer tax to help raise $1 billion for education.

Ferrer has not outlined any proposed tax cuts.

C. Virginia Fields

To reduce the city’s projected deficit, C. Virginia Fields says she will reform the city’s tax code and work toward 100 percent collection of taxes. Fields also believes that the commuter tax should be reinstated, which would require the approval of the State Legislature.

Fields says that “increasing taxes harms our economy” and does not plan to raise taxes to balance the budget.

She opposes an income tax increase and a tax on Wall Street stock transfers.

Fields has not outlined any proposed tax cuts.

A. Gifford Miller

To reduce the city’s projected deficit, Gifford Miller says that the mayor must do more to fight for New York City’s “fair share from Washington and Albany.” City taxpayers currently pay $24 billion a year more in taxes than they receive in services from the state and federal government. Miller also proposes a commuter tax of 1.1 percent, which would require the approval of the State Legislature.

While Miller does not want to raise taxes to balance the budget, he has proposed an income tax surcharge on New Yorkers who make more than $500,000 a year to help reduce class size.

He opposes the idea of a tax on Wall Street stock transfers.

Miller has proposed doubling the Earned Income Tax Credit for low income New Yorkers. He also wants to give a renters tax credit to all households that make under $100,000 a year.

Anthony Weiner

To reduce the city’s proposed budget deficit, Anthony Weiner promises to cut $1 to $2 billion a year from the worst-performing city agencies. Weiner also wants to sell government property through an open bidding process, which he says will generate more revenue. He also says he will fight for more aid from Albany and Washington.

Weiner proposes increasing income taxes for those who make more than $1 million a year.

He opposes taxing Wall Street stock transfers.

Weiner has proposed a 10 percent income cut for those making $150,000 or less. (Read Weiner’s tax plans)

Michael Bloomberg

Michael Bloomberg says that the city’s budget can be divided into two parts: the spending that the city controls and the spending mandated by the state.

Bloomberg argues he has taken steps to reduce the budget where he can, cutting $4 billion from the budget and reducing the city’s workforce by 15,000 employees.

The city’s projected deficits, he says, are a result of things out of the city’s control, like Medicaid and pensions. He supports Medicaid reform and worked to reduce pension costs.

Although he raised taxes in the past, Bloomberg opposes increases in the income taxes or a tax on Wall Street stock transfers.

RELATED ARTICLES:

- 10 Budget Choices Facing The Next Mayor
- The Mayoral Candidates on Budgets, Taxes and Spending (Forum)
- $50 Billion Budget -- A Shortsighted Use Of Surpluses
- Budget Transparency After The West Side Stadium 

Mayoral Issue Grid: Jobs



Mayoral Issue Grid

JOBS

-Top Priority

Although the city’s economy has recovered since the months after the terrorist attacks of September 11, 2001, an estimated 230,000 New Yorkers are unemployed. African-American and Latino males have a particularly difficult time finding a job; 40 percent are unemployed.

The Democratic candidates are focusing most of the attention on small businesses. Small businesses account for 50 percent of all New York City private-sector jobs and generate $4.5 billion in annual city tax revenues.

Fernando Ferrer

To help small businesses, Fernando Ferrer proposes a three-month amnesty program to give small businesses the opportunity to pay outstanding fines. He plans to provide real estate assistance, micro-loans, and new programs for women and minority-owned businesses.

He also plans to form a small business advisory council that reports to the mayor, deputy mayor for economic development, and commissioner of the small business department. The panel would make recommendations and proposes policy.

(Read Ferrer’s small business plan)

C. Virginia Fields

C. Virginia Fields promises to use the city’s $18.8 billion in annual spending to help small businesses grow. She proposes giving a specific percentage of city contracts to small businesses. She also wants to provide loans and provide training in entrepreneurship.

Fields also wants to grow the biotechnology industry, offering tax incentives for new companies to do research in the city.

(Read Fields’ business plan)

A. Gifford Miller

Gifford Miller points to his efforts as Speaker of the City Council in creating job training programs, workforce protections, and the “Living Wage” bill, which requires certain city contractors to pay their employees $8.10 an hour, rising to $10.00 per hour by July 2006.

Miller promises to cut taxes for small businesses and expand tax credits for industries in the outer boroughs. He says that the foundations of economic growth are “great neighborhood schools, reliable transportation, and flourishing small businesses.”

Anthony Weiner

Anthony Weiner wants to reduce tickets and fines for small businesses. He also wants to create an ombudsman position at the Department of Business Services to help small business owners.

He would create a $10 million micro-loans program, which gives low interest loans of $100,000 to $200,000 to emerging businesses.

Weiner also promises to increase subsidies for businesses outside of Manhattan. He would require that at least 25 percent of all Economic Development Commission funds be distributed to the boroughs on an equitable basis, by jobs per borough, or population.

He also wants to create a “ShopNYC.com” Web site to help small businesses sell their goods on the Internet.

(Read Weiner’s economic development plan)

Michael Bloomberg

Michael Bloomberg says he has created 62,000 jobs since July 2003.

He has given tax credits to large corporations like Time Warner, Hearst, the New York Times, and Goldman Sachs to encourage them to build new headquarters in Manhattan.

Bloomberg believes tourism – which is at record levels – is a main engine for job growth.

He has undertaken development projects in Brooklyn, Queens, and Harlem to spur new construction and job growth.

To help small businesses, he opened satellite small business services in each of the five boroughs that offer assistance to owners.

(Read Bloomberg’s job platform)

RELATED ARTICLES:
- Debating Jobs and Economic Development
- In Big Projects, Where Do The Jobs Go?
- Tourism and Jobs

 

NY's Ports Booming, But High Costs Of Security Are Eroding Gains


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Published: August 16, 2005, NY Times
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Although the ports of New York and New Jersey have improved their productivity to handle a rising flow of imports, their increased security costs since 9/11 have eroded some of the gains, according to a study released yesterday.

The ports have been booming as they attract a larger share of the goods bound for the Northeast from China and other foreign countries.

But despite huge investments in machinery and computers to improve their efficiency, terminal operators have been hiring at an equally fast pace, according to the report, the first independent study of local port activity since 2001.

The study was commissioned by the New York Shipping Association, whose offices were in the World Trade Center and are now in Iselin, N.J.

The number of jobs at cargo terminals in the ports has increased by more than 29 percent, rising to 20,947 in 2004 from 16,232 in 2000, the report shows.

The volume of cargo flowing through the port increased 27 percent, to 99.9 million tons from 78.6 million tons in 2000.

The growth in productivity in recent years was offset partly by the hiring of additional security guards to screen cargo and workers, the report said.

Frank M. McDonough, president of the association, whose members are shipping companies, terminal operators and stevedores, said they had added about 300 security workers.

The study found that cargo movements through the ports directly supported the equivalent of 122,550 jobs in the region and were indirectly responsible for almost as many jobs in other industries, including wholesale trades, banking and insurance.

The study estimated that the direct and indirect jobs resulted in $12.6 billion in income annually and contributed $5.8 billion in taxes.

It was conducted by researchers at Rutgers University and A. Strauss-Wieder, a consulting firm in Westfield, N.J.

The biggest increases in employment have been in the warehouses and distribution facilities in northern New Jersey, Mr. McDonough said.

Those facilities, way stations for the goods unloaded off ships before they land on store shelves, have added 23,000 jobs since 2000, he said.

Mr. McDonough said the number of stevedores has declined slightly to 2,495, with average salaries of $87,000 a year. About 15 percent are women.

Security has become a big expense since 9/11 as operators like Maher Terminals have had to install radiation portals to check every outgoing cargo container for explosives.

Maher, a family-owned company, is installing a system of gates at its terminal in Elizabeth, N.J., to speed checks on each container and driver entering or leaving the waterfront, said Sam Crane, Maher's vice president for external affairs.

But it will still take at least 35 minutes and, during busy periods, more than an hour, for a truck to drop off an outgoing container and pick up an incoming one, he said.

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The Mayor's Money


“So most people look at this as a David and Goliath sort of thing,” Fernando Ferrer was saying last month, describing the mayoral race to a group of reporters. “But I do remember my Bible studies, when all the smart money was on Goliath, the guy with the shiniest armor, the biggest guy. All the Philistines were on the sidelines placing bets on their guy. And here was David. And the rest is history.”

To an outsider, it might seem strange for Ferrer to liken Mayor Michael Bloomberg to a nine foot tall Biblical giant – for one thing, the mayor is 5’7’’ (at best), three inches shorter than Ferrer. It is also hard to call Bloomberg a Philistine when he has donated so many millions of dollars of his personal wealth to the arts. But one can understand why Ferrer might feel as though he’s armed only with a slingshot. Ferrer had spent $1.4 million on his campaign at the time of the last campaign finance disclosure in mid-July. Bloomberg had spent $23 million.

If the mayor's campaign looks big and shiny to his opponents, it is for one main reason: his money. Bloomberg has spent about six times the total amount spent by the four major Democratic candidates combined. Indeed, the money he has contributed to his campaign so far is reportedly 40 percent of all the money contributed by anybody and everybody to almost all 200 or so local political campaigns this year.

His television ads alone – which started running in May -- have cost him $8.8 million; no other candidate had even run a TV commercial until Ferrer aired one last week. And if several of his opponents have stumbled lately over their campaign literature, the mayor’s glossy eight-page booklet is even more impressive than it looks: Whole pages of it are different depending on which specific neighborhoods it is being mailed to. Italian neighborhoods get testimony from Rudolph Giuliani; Latino ones get Herman Badillo.

Overall, Bloomberg is expected to spend $100 million -- two and a half times what John Kerry’s campaign spent securing the Democratic nomination for president.

Bloomberg’s billions have become a major campaign issue, as they were in 2001, possibly the only issue that puts the mayor firmly on one side and his challengers united on the other:

  • Anthony Weiner’s Web site keeps a running tally of the mayor’s campaign spending, a la the national debt clock. The site also has a video clip entitled “Ideas Not Money,” where Weiner stands in front of a Bloomberg ad and outlines part of his platform;
  • Gifford Miller alternately describes the mayor’s campaign spending as “obscene” and “flabbergasting”;
  • Conservative Party (and erstwhile Republican Party) mayoral candidate Thomas Ognibene was asked about the major difference between himself and the mayor at last month's mayoral forum on poverty issues (Bloomberg was invited to the forum but did not attend). "He's got $6 billion and I don't," Ognibene replied. "...I think he thinks that the Republican Party and the people of this city are for sale." [Read a transcript of the poverty forum].
  • “Bloomberg spent $74 million running for mayor in 2001. That's an enormous amount,” Ferrer said recently. “When the reporters asked him why, he said 'well, I have to get New Yorkers to get to know me.' Now he's going to spend tens of millions of dollars more even than that in an effort to get New Yorkers to forget what kind of mayor he's been in the last three and a half years.”

The incumbent is attacked for his wealth itself, such as in an email sent out by the state’s Democratic Party after it found out how much Bloomberg spent to set up his campaign office: ''Only an out-of-touch billionaire could afford to spend more than $1 million on office remodeling,” the email read. “No amount of campaign propaganda will convince New Yorkers that billionaire Mike Bloomberg understands their cares and concerns."

It's his campaign spending, though, that is generating much of the criticism. In effect, his opponents accuse Bloomberg of trying to buy his office.

But even some of his supporters (and those who keep officially neutral) worry about the long-term effect that his campaign spending might have on a program that, though just 17 years old, is considered in some quarters to be a hallowed institution -- the campaign finance program.

Last week, the city’s Campaign Finance Board sent out $13.4 million to 53 candidates in various city races -- money that many of them would surely say is the only reason they are able to run for office.

Bloomberg has not only opted out of this program; he also has questioned its value.

Gene Russianoff of the New York Public Interest Research Group is (like the city's other good-government gurus) not pleased with Bloomberg’s snub of the program. “At its worst, it certainly chips away at the campaign finance system,” he said.

"I'm not chipping away,” Bloomberg shot back when told of Russianoff’s remark. His wealth, Bloomberg said, gives him a level of independence that his predecessors have not had; he is beholden to nobody. And besides, he added, “I have a right to spend my own money.”

CAMPAIGN FINANCE IN NEW YORK

Campaign finance reform became a major issue in New York City quite suddenly one day in January 1986 when Donald Manes, then borough president of Queens, was found bleeding in his car near Shea Stadium. Manes, who had recently being caught taking bribes from companies seeking city contracts, had slit his wrists with a kitchen knife. He later died of his wounds. For the next several years, the seamier side of New York politics was exposed again and again, with more than 25 public officials indicted on corruption-related charges.

In response to such systemic corruption, Mayor Ed Koch decided to pursue a campaign finance program. While the scandals were not directly related to campaigning, the mayor hoped that tough campaign restrictions would cut down on two problems they had exposed – one, that private interests were using money to influence officials; and two, that the political system was inaccessible to outsiders, who to that point had found it difficult to run for office against well-financed political clubhouses.

“I think there is a perception ... that there's too much of a closed system in which access to government is dependent on access either to private money or the political party apparatus,” said Koch’s Corporation Counsel Peter Zimroth at the time. “I think it is incumbent upon us to look for ways to open up that system to increase the competition, to increase the number of people willing to run for office, to increase the ability of less-rich people in this city to participate in campaigns.”

The Campaign Finance Board was established in 1988. Its program works by offering to supplement the money that candidates raise with public funding if those candidates agree to limit the both what they raise and spend, and to put it all on the record. They are also required to take part in debates. The program, which is often cited as a national model for local campaign finance reform, is lauded for its rigor and its ability to adapt.

In New York, participation has become somewhat of a political imperative, said Democratic political consultant Hank Sheinkopf. The editorial boards of newspapers and good government groups “hold the campaign finance regulations sacrosanct,” he said, “and to cross them by opting out would result in not getting valuable endorsements.”

Evidence of the program’s effectiveness, say its boosters, is the way that it has held officials accountable. Mayors David Dinkins and Rudolph Giuliani were both fined by the program for inappropriate campaign spending. They each struck back – Dinkins by firing then chairman Joseph O’Hare (he was reinstated); and Giuliani by attempting to cut the program’s budget and move it to Brooklyn (he failed).

But if some candidates have bristled at the board’s aggressiveness, increasing numbers have found that the program’s benefits outweigh its burdens. The number of participants rose from 57 in its first year to a high of 353 in 2001 when the program – along with term limits that left an unprecedented number of city offices to open competition – led to a full-scale changing of the guard in city government. This year, 188 candidates are participating; 50 are on the ballot without taking part in the program.

But in 2001 and again this year, there has been much attention dedicated to a certain elephant in the room -- the billionaire who won't participate.

BLOOMBERG: A NEW CHALLENGE

When Michael Bloomberg ran for mayor in 2001, he became the first major candidate to do so without participating in the campaign finance program since its inception. Instead of accepting public funds, Bloomberg spent $74 million out of his own pocket. He edged out Democrat Mark Green, who spent $16 million, about $4.5 million of which came from the campaign finance program.

Because he opted out of the program, Bloomberg could have also chosen not to take part in the Campaign Finance Board’s debates, required of those who take public funds. But Bloomberg did debate Mark Green in 2001, and he says he will debate his Democratic opponent this fall.

Green's campaign complained that it was outgunned in the weeks running up to the 2001 election, and Bloomberg's self-financed campaign caused concern among advocates of campaign finance reform who saw his private wealth as a new challenge to the program’s relevance. “But,” said Rachel Leon of Common Cause, “I believe it is a challenge that the program survived virtually unscathed.”

In assessing whether the program works, said Nicole Gordon, executive director of the Campaign Finance Board, “the question is whether all serious candidates have the opportunity to get their message out.” Paul Ryan of Campaign Legal Center, and author of Statute of Liberty: How New York City’s Campaign Finance Law is Changing the Face of Local Elections, said that in 2001 the program did this: “There were few voters who didn’t know who Mark Green was.”

Still, concerns remained, and, late last year, the City Council made an attempt to address the problem of Bloomberg’s money. They tread carefully. The United States Supreme Court has ruled that mandatory limits on how much a candidate can spend violate the first amendment of the Constitution. The campaign finance program can put such limits only on candidates who receive public money. If someone with access to their own resources rejects public financing, there is little the city can do.




Page 4 of Bloomberg's 8-page glossy brochure -- in Sunset Park, above; in Carroll Gardens, below.

Over the mayor’s veto, the City Council decided to give participants in the program a higher matching fund if they face high-spending candidates. Bloomberg ’s Democratic opponent in the general election will get $6 in public funding for every $1 he or she raises. The council's law also lifted the expenditure limits for candidates facing a non-participating opponent who spends over a certain threshold, which Bloomberg has already surpassed.

For the first time, all candidates have to disclose their contributions and expenditures, whether they get public financing or not. Information about Bloomberg’s contributors contain no great revelations – a search on the Campaign Finance Board Web site shows ten contributions, all from a city employee named “Bloomberg, Michael R”. But as opposed to 2001, when Bloomberg did not have to disclose what he was spending, the fact that his campaign has spent $412,100 on polling expenses and $53,600 on buttons and stickers this year is now a matter of public knowledge.

There was also a special category created for Bloomberg, who said he didn’t want to take the public’s money: the “limited non-participant.” The council hoped to entice the mayor into accepting spending caps by setting up a program that would give his opponents less money if he did so.

But Bloomberg decided against participating at all, which makes him the first sitting mayor to opt out of the program.

REAL CAMPAIGN REFORM?

When critics attack Bloomberg for his wealth, his spokesman William Cunningham replies with calculated digs at his political opponents: “They are jealous. He made that money, he doesn't take it from any special interests, he doesn't take it from landlords, he doesn't take it from people who have contracts with the city.”

When he is attacked for his campaign spending, Bloomberg questions whether the system is achieving its purposes.

“New York likes to consider itself a national leader in campaign finance reform,” he said in a speech at the Fund for Modern Courts. “But I think it's fair to say that on the most basic criteria, restricting the influence of special interests, we have fallen behind many other jurisdictions.”

Far from opening up elections to outsiders, Bloomberg says, the current electoral process in New York “is an inside baseball game. This is the party bosses, they pick the people in every place.” Real reform, he says, will come with the institution of non-partisan elections – which he pushed for in 2003, unsuccessfully. “Short of that, I don't care how much matching funds [you give someone].

Late last year, Bloomberg took up the cause of restricting funding from city contractors. Regulating so-called pay-to-play has been on the campaign finance board’s list of things to do since 1998, when city voters called for such regulation in a referendum. To date, however, the board has not managed to form a real response.

The mayor recently proposed a plan that would make candidates responsible for disclosing contributions they get from those doing business with the city, and would cap such contributions at $250. The city has moved forward on creating a computer system that would track city contracts of over $100,000. This would not affect the self-financed mayor, but it would be a burden on his opponents.

Civic groups have been receptive to the general idea of the mayor’s proposal, if not the specifics, and the campaign finance board has lauded his administration’s work on establishing a computer database as a good first step.

Investigative journalist Wayne Barrett called the proposal the best opportunity for reform in the program’s history – even if the mayor is pushing it for self-serving reasons.

“To Bloomberg, this proposition offers the added advantage of distracting attention from his own wholesale disregard of decent campaign finance,” he wrote in the Village Voice. “As impure as his plausible motive might be, and as flawed as the versions of his initial plan are, Bloomberg is again reaching outside the box for a transformation of city politics that will, if tried, be appreciated long after he is back to being a billionaire."

Despite a hearing earlier this year, however, the proposal has gained no momentum in the City Council. The campaign finance board doesn’t believe the database of city contractors is ready yet, and has not even formed a solid definition of “doing business with the city.” The mayor’s proposal has been shelved until after the election.

THE FUTURE?

Some say that Bloomberg’s fortune has not undermined the campaign finance system where it really counts. “The fact that the campaign finance program may not be working in an ideal fashion in the mayoral race doesn’t indict the effectiveness of the whole system,” said Paul Ryan. “It’s working for the people who need it most” – the races at the level of City Council.

Others are not as sure: “The question New Yorkers have to ask themselves is do we only want candidates who are independently wealthy, or do we want a system that actually encourages grassroots campaigns?” said Leon of Common Cause.

There are plenty of signs that finding a way to help candidates of modest means compete with self-financed opponents may become a big issue in the future. The United States Senate has long been referred to as a “millionaires club”, where personal wealth is almost a prerequisite for membership. Across the Hudson, two multimillionaires are currently competing for the governor’s seat in New Jersey. And as the Republican Party begins looking for a successor to Governor Pataki, the personal wealth of the potential candidates is being taken into account.

The party is considering grooming billionaire Tom Golisano for a gubernatorial run “if for no other reason than the man is rich," state GOP chair Steven Minarik told reporters late last year. “I would be willing to consider anyone who could bring $100 million to the table."

Related Article

Pushing Papers and Principles (May, 2001 article on the Campaign Finance Board)  

$50 Billion Budget -- A Shortsighted Use Of Surpluses


The New York City Council and Mayor Michael Bloomberg agreed on a $50.2 billion budget for the 2006 budget a few hours before the fiscal year began on July 1, and, though it is an election year and Speaker Gifford Miller is running against Bloomberg for mayor, they were cordial to each other around the new budget -- some would say too cordial.

In the several weeks before the budget agreement, the good news had turned even better. The surplus for the 2005 fiscal year grew by yet another $300 million, for a total of $3.6 billion.

Such a large surplus offered an opportunity to the mayor and the council to tackle the city's long-term budget problems in a variety of ways:

They could have paid off a good hunk of the city’s capital debt, for example, which would have reduced the debt-service costs (the interest due each year on the money the city has borrowed); similarly, they could have paid in cash for capital projects, such as new affordable housing projects, which would have avoided long-term borrowing costs. Or they could have used some of the surplus to make major improvements, such as buying adequate textbooks for the city's public schools.

Instead, they were each content to take credit for a few minor new programs and some tax cuts. The adopted budget simply postpones any solution to the fiscal problems that the city is going to face very soon: The budget for fiscal year 2007 (which begins next July) is expected to show a deficit of $4.5 billion.

As this year's short-sighted budget was being settled, however, the mayor’s charter revision commission was thinking over the long term, with several proposals for the November ballot.

The Council’s Budget Contribution

Mayor Bloomberg has successfully followed the political and fiscal strategy of former Mayor Rudy Giuliani: putting the council on the defensive by refusing to make many of the council’s favorite programs part of the city’s four-year financial plan. Instead of being “base-lined” in the four-year plan, they become one-year programs, so that each year the council has to start from scratch to restore them. Thus much of the council’s time, energy,and political vision is trapped in this annual political ritual.

The council reportedly wound up adding about $230 million to the mayor’s May budget proposal, which is less than one-half of one percent of the total budget -- most of it to restore funding the mayor had cut from existing council-supported programs. A 65-page council “Adjustments Summary” lists the restorations, initiatives, and enhancements. In an election year when most council members are running for re-election it is no surprise that the new money begins with the council members themselves.

There was, for instance, a $13 million increase in council discretionary spending for youth and senior services in their districts. Each council member got nearly $109,000 for senior services, some 83 percent more than in 2005, and each got nearly $152,000 for youth services, up 48 percent over last year. Among the larger changes:

  • An infant mortality reduction program saw a $2.8 million restoration and a $2 million enhancement (the infant mortality rate went up for the first time since 2000).
  • An HIV/AIDS prevention and education program got a$2.4 million restoration and a $1 million enhancement.
  • A summer youth program received a $6.9 million enhancement.
  • An immigration initiative that provides English-language training and legal services got a $1 million restoration and $6.3 million in new money.
  • A workforce development program run through the City University saw a $10 million restoration and an $8 million enhancement.
  • The council’s tribute to its former speaker, the Peter Vallone scholarships at CUNY – eliminated by the mayor – received $4.4 million in new and $7 million in restored dollars.

The pattern here is clear. Council members identify specific problems in specific neighborhoods and support relatively low-cost programs to help solve them. That makes sense. But citywide, expensive council proposals – such as hiring 1,000 police officers and lowering business taxes – fell by the wayside, perhaps in part by concern about costs of future wage settlements with city workers.

City Revenue Base

As the council and mayor negotiated over hundreds of small programs, the city’s revenue future was ignored. The Independent Budget Office’s May analysis of the executive budget points out that over the next four years total city expenditures are expected to rise by two percent each year -- which seems modest, except that, by contrast, City Hall's total revenues will rise by only half of one percent per year. Thus we have ahead of us multi-billion dollar deficits.

The mayor’s most brilliant tactic in four years of budget-making remains the 18.5 percent property tax increase he pushed through the council in November 2002. (It does not even seem to have harmed him politically.) That rate increase, coupled with a hot real estate economy that has raised property assessments, has produced a surge in revenues. The Independent Budget Office predicts $12.4 billion in property tax revenue for fiscal year 2006, billions more than previously expected.

The budget office expects such revenue to continue to increase through 2009. However, revenue from other taxes -- with the exception of the small-revenue hotel tax -- will increase very little, or actually lose ground. The personal income tax -- the most progressive tax in the city’s control (higher income households pay a higher tax rate) -– averages only a 1.3 percent increase annually over the next four years, in large part because the two higher rates for wealthier households expire at the end of this calendar year.

The combined effect of the surging property tax revenues and flatness in the other taxes, particularly the personal income tax, means a shift in burden from higher-income taxpayers to the rest of the city’s taxpayers.

In spite of the bleak forecast for future revenue, the mayor and council have adopted a budget that in its homeowner tax cuts, sales tax exemptions for clothing under $110, and expiring income tax rates will cost the city well over a billion dollars a year from now on. This reality dwarfs the modest good news in the adopted budget.

Long-Term Thinking From Charter Revision Commission

If the adopted budget does not reflect much long-term rational planning, the mayor’s charter revision commission shows the mayor thinking way ahead. In a July 5 meeting, the commission voted unanimously to place on the November ballot a proposition that would add to the city charter certain budget reporting provisions required now by the state Financial Emergency Act (prompted by the city’s near-bankruptcy in the mid-1970s), requirements that expire in 2008.

The city’s record of more than 20 years of balanced budgets under state oversight is admirable, but some fiscal monitors worry that the absence of any formal state oversight will make city budgeting less open and therefore less accountable. Of particular concern is access to all essential budget information, access that is currently required through the state Financial Control Board.

In testimony before the commission on June 27, Independent Budget Office director Ronnie Lowenstein said that the commission proposal would make available “just a fraction of the routine flow of information IBO, [the state and city comptrollers and the general public] rely on to monitor the city’s fiscal condition.” The IBO stresses that “the city’s ability to manage its own fiscal affairs without state oversight would depend on continued strong local oversight.”

Lowenstein urged the commission to recommend a mechanism -– preferably in the charter –- that would maintain a “seamless flow of the information needed to monitor the city’s finances.” However, a few days later, after the July 5 vote, commission chair Ester Fuchs, a special adviser to the mayor, said, “We could not re-create [the Financial Control Board] in the city charter.”

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

Fees


When New York City homeowners open their $400 property tax rebate this year, Mayor Michael Bloomberg wants there to be no mistaking who sent it.

The mayor’s name appears on the rebate four times: once on the envelope, once on the rebate check (unusual for city issued checks), and twice in an attached letter, which also includes a reference to “my rebate.”

“This rebate honors the sacrifices you made in order to help New York City's recovery during difficult times,” the letter concludes. “Sincerely, Michael R. Bloomberg."

What the mayor does not mention in any letter or in any of his campaign literature, however, is that over the last three years, the city and the state have offset the cost of tax cuts and rebates with hundreds of “miscellaneous” fee increases.

In the last three years, the city and state have raised the price of, among other things:

  • Buying a new car
  • Obtaining a photo ID
  • Parking a car in a city owned lot
  • Having a car towed
  • Making a cell phone call
  • Fishing
  • Playing tennis
  • Sailing a boat
  • Visiting the zoo
  • Visiting someone in jail
  • Shooting a turkey

Such fees do not show up on a New Yorker’s tax bill and seldom make headlines, but they cost taxpayers billions of dollars.

When these fees are added to other recent increases in subway and bus fares, bridge and tunnel tolls, taxi fares, water rates, and rent-regulated apartments, the cost of living in New York - already one of the most expensive cities in the nation -- becomes even pricier.

“There is definitely a sense that New Yorkers are being nickel and dimed to death,” said Bonnie Brower of City Project, a fiscal watchdog group.

This year’s city budget - which must be approved by the mayor and City Council by July 1 - contains no tax increases, no drastic cuts to services, and only a few additional fee increases. It’s an election year. But next year, the city will face a huge deficit, which means New Yorkers will be looking once more at new and higher fees.

SAMPLE OF INCREASES IN STATE OR CITY FEES
Official Documents
Documents Filed with City Clerk $.15 (old) to $9 (current)
Documents Requiring Signature from City Clerk $3 to $10
Copy of Marriage License $1 to $10
Copy of Marriage License for use outside of U.S. $5 to $15
Marriage Record Change $25 to $40
Telephone
Monthly 911 Emergency Phone Service $.35 to $1
Monthly City Cell Phone Usage Fee $0 to $.30
Parks and Sports
Parks Department Recreation Center Membership $25 to $50
Recreation Center (with Indoor Pool) Membership $50 to $75
Stadium Parking $10 to $12
Prospect Park and Queens Zoo Admission $2.50 to $5
Seasonal Adult Tennis Court Permit $75 to $100
Golfing Greens Fees Increased $10
Transportation
New Car Ownership Title $10 to $25
All-Terrain Vehicles $10 to $25
Department of Motor Vehicle Fee $5 to $10
Photo ID $3 to $5
License Plates $5.50 to $15
Towing Fees $150 to $175
Rents
Rent Regulated Apartments Increased 8.5 percent
Water
Water Rates Increased 5.5 percent
Toll or Fare Increases
Single Subway Ride $1.50 to $2
Daily Unlimited MetroCard $4 to $7
Weekly Unlimited MetroCard $17 to $24
Monthly Unlimited MetroCard $63 to $76
Bridge and Tunnel Tolls Increased $4
Taxi (Base Fare) $2 to $2.50
Taxi (Per 1/5 mile) $.30 to $.40
Taxi (Flat Rate from JFK Airport) $35 to $45
Other
Sidewalk Café License (varies by size)
Hair Cuts for Jail Inmates $0 to $2
Lobbyist Registration Fee $100 to $150
Shotgun License $55 to $140
Handgun License $170 to $340

FEE MANIA

When Mayor Michael Bloomberg took office in 2002, the city was still reeling from the terrorist attacks of September 11, 2001 and the economic turmoil that followed. As a result, New York City faced its worst fiscal crisis since the 1970’s and struggled to close billions of dollars in deficits.

But the mayor had announced that he would not raise taxes, and in his first year, he kept to that pledge. How? He told the commissioners of each city agency to generate revenue in other ways -- by instituting new fees, and raising old ones.

How is a fee different from a tax? There are at least two ways to answer this:

1. A fee is a charge for a specific service or product, or the price for permission to engage in certain activity (e.g. the price of a license to practice a particular profession).

2. A fee is something that a politician doesn't want to call a tax.

“There are legal and technical differences between a fee and a tax," said Doug Turetsky of the Independent Budget Office, "but for New Yorkers, it comes out of their pocket just the same."

In the last three years, local government has hiked a slew of fees, and instituted new ones where none before existed.

The City Council passed a 65-cent monthly fee added to every New Yorker's phone bill to pay for 911-phone service, and a 30-cent monthly “usage fee” on cell phones. This money does not go to the telephone company, but directly to City Hall.

Filing a document with the city clerk’s office, which used to cost 15 cents, is now nine dollars.

Parking fees at city garages and at Yankee and Shea Stadiums went up, and 3,500 parking meters were adjusted so they have to be fed seven days a week. Those who parked in the wrong place or forgot to feed the meter found that the cost of having their car towed also increased from $150 to $175.

The Department of Corrections came up with inventive ideas to raise money from a population with little disposable income: inmates must now pay two dollars for a haircut and visitors must lock their belongings in coin-operated lockers before entering a jail.

But one of the biggest sources of fee revenue is city parks. Fees for using ballparks and fields, swimming at recreation center indoor pools, playing tennis on city owned courts, lifting weights at a city-run gym, or visting a zoo have all increased.

This year, Governor George Pataki and the State Legislature also approved nearly three dozen fees totaling about a billion dollars, hiking the cost of getting a title for a new car, registering an all-terrain vehicle, getting a photo taken at the Department of Motor Vehicles, and spending the night in a state campground.

“Everything in this city is getting so expensive. How are you supposed to live?” a 77-year-old Bronx resident Frank Cervatini told the New York Times after the last round of fee hikes. “Thank God I’m nearly dead.”

But even death could soon cost more. This year, the mayor plans to raise fees for birth, marriage, and death certificates in order to generate an additional $10 million.

THE COST OF DOING BUSINESS

It is not just individuals who are paying more; businesses in New York also face an increasing list of fees, a cost that they pass on to customers in the price of their products.

In 2003, the cash-strapped city increased their fees for sidewalk cafés for the first time in a decade, drawing complaints from café and restaurant owners who said their business was already being hurt by the smoking ban. Under the fee increase, a large café on the Upper West Side saw its annual fee increase from $3,052 to $8,109. A small café in downtown Brooklyn paid $1,440, up from $435.

The Bloomberg administration has proposed an increase in the registration cost for companies that sell products in wholesale markets, like the Hunts Point produce market in the Bronx, arguing that it needs more money to do background checks to ensure companies do not have ties to the mob.

The City Council recently voted to increase the fee paid by property owners seeking special building permits by 25 percent.

While these various fees are relatively small when compared to the total cost of doing business in New York -- which is already high because of rent, transportation costs, and business taxes -- they do add up.

“They probably affect small businesses that have a narrower profit margin the most,” said Elizabeth Lynam of the Citizens Budget Commission.

DEBATING FEES

The argument for fee increases is that when the city provides a service to its citizens or regulates a specific activity, it is not unreasonable to charge those who use the service to help cover the costs.

“When a fee is used primarily to cover the cost of an activity, then there is some justification,” says Frank Mauro of the Fiscal Policy Institute, a group that monitors the state and city budget.

However, most government fees do not go directly to cover the cost of a specific service or even to the agency that oversees it. They go back into the city’s general operating budget.

For example, when a New Yorker pays $100 for the seasonal permit required to play tennis in a city park, that money does not go to help maintain that specific tennis court, nor the park it is located in, nor even to the Department of Parks and Recreation.

Officials argue that earmarking funds for a specific service would limit government’s ability to spend money where it needs it most.

“[If park fees went to the parks department] that is money that would not go to education or firehouses and would have to be generated elsewhere,” said Parks Commissioner Adrian Benepe at a recent City Council hearing.

However, some economists argue that unlike income taxes, which are proportional to a person’s income, fees are “regressive” because lower-income people end up paying a more significant portion of their salaries for the service -- or they simply give up the activity because they can not afford it.

“Fees have a more significant impact on lower- and moderate-income people than on high-income people,” said Mauro.

In New York, government is increasingly relying on these sources of revenue.

In the last four years, the “miscellaneous” category of the state budget -- which is comprised of fees, fines, college tuition, and lottery profits -- has risen from 18 to 26 percent of the state’s entire revenue, according to E.J. McMahon, who writes about budget fiscal issues for the Manhattan Institute.

HIDDEN TAXES

For politicians who are reluctant to raise taxes, fees are a less visible and less controversial way to fill the city’s coffers.

“Fee increases are a fast, cheep way to get revenues without generating organized opposition,” says Bonnie Brower of City Project.

At a recent forum, San Francisco Mayor Gavin Newsom argued that many cities across the country have been forced to raise fees because the federal government is cutting taxes and then reducing funding for health care, housing, and education programs.

“Look at your parking tickets, look at the cost of getting across the bridge or using a roadway, look at the cost of your recreational facility,” said Newsom. “You are getting squeezed across the board. We don’t have a choice.”

Still, many citizens, who learn about tax hikes either from news headlines or their annual tax bill, are not necessarily aware of what is happening with fees.

“From the public perspective, many of these things aren’t even viewed as taxes,” said Lynam.

This is not surprising since officials make fee increases difficult to track.

Some fees are built into the bottom line of a specific agency’s budget, so it looks like politicians have not made cuts, when in fact they have reduced funding and then offset them with new fee revenues.

How the city’s financial information is made available may become increasingly critical in the future.

Since the 1970s fiscal crisis, the state has overseen aspects of the city’s budget and made local officials adhere to a set of strict financial requirements. That oversight power ends in 2008 and local officials (in particular the members of the New York City Charter Review Commission) are currently looking at how the city will report its finances once those rules are lifted.

FUTURE FEES?

Although it may seem like the government is already charging for every possible service in the city, there are still plenty of new ways that the city could generate revenue.

One famously free service is the Staten Island Ferry. Until 1997, passengers paid a roundtrip fare of 50 cents, and if the city reinstituted it, it would generate $4.5 million a year.

There are 12 city-owned bridges between Manhattan, Brooklyn, Queens, and the Bronx that are free to cross. Some estimate that charging $7 to cross the East River bridges and $3 for the Harlem River bridges could generate as much as $690 million a year.

Others have argued that libraries should charge a fee for video and DVD rentals just like Blockbuster or the local video store.

Even tossing out a bag of garbage may someday have a specific price tag. More than 6,000 towns and cities across the nation already charge individuals for the amount of trash they throw out in the same way residents are charged for water and utilities.

The new city budget contains only a few fee increases. Incumbents have been talking of a budget surplus and of tax breaks. But once Election Day has passed, the city faces a projected $4.5 billion deficit for the fiscal year that begins in July, 2006, and another $4.2 billion deficit the following year. Tax breaks of one year can often lead to fee increases in the next.

 

 

 

 

 

 

 

 

 

 

The Mayoral Candidates on Budgets, Taxes and Spending


Four Democratic mayoral candidates discussed budget and fiscal issues facing New York City at a forum on June 2 sponsored by the nonpartisan Citizens Budget Commission, an independent watchdog group. Participating were Fernando Ferrer, the former Bronx borough president; Manhattan Borough President C. Virginia Fields; City Council Speaker Gifford Miller and U.S. Representative Anthony Weiner.

This is an edited transcript.

 

 

OPENING STATEMENTS

Fernando Ferrer: Budgets are always about choices, and budgets, in this city, are about our values as well--our priorities, things we think are important. The macro choices we make in budgets affect people on a micro level in every neighborhood, on every block, every day. Things like pensions, healthcare, Medicaid in particular, and the management of our construction projects really do not only affect the quality of peoples' lives on a day-to-day basis, but lay the groundwork for economic growth in this city.

I am glad to be part of this forum, because it is about choices. Mike Bloomberg has made some choices that, frankly, should astound anybody who's concerned about the fiscal health of this city. A recent court decision has made clear that his iteration of the Jets stadium will go through—at least at the court level. But it's still bad public policy. It's still an expenditure of untold hundreds of millions of dollars when this city's got to get serious about the good repair and maintenance of our subway system, about affordable housing, and about good schools without excuses in every neighborhood.

That's the kind of city Mike Bloomberg wants to build. I want to build a different kind of city. The kind of city that does have schools that stand for equity and excellence in every neighborhood. The city that doesn't squeeze the working-class and middle-class out of this city, but finds decent places for them in which to live, at prices that they can afford. And a city that doesn't preside over a transportation system that strands straphangers, literally by the hundreds of thousands, at every mishap, but concerns itself with the good maintenance and repair of the system that is an essential part of our economic engine.

Virginia Fields: One of the things that I think that we probably all agree with is the budget process in New York City takes us on a roller coaster of tax hikes and projections of huge deficits, followed by big surpluses and rebate checks, and the public, especially city workers, really don't know what to believe. Are we headed for disaster or swimming in money? Meanwhile, the Citizens Budget Commission and other experts have sounded the alarm over ever-increasing obligations, which will continue to squeeze resources for not only essential programs and services, but jobs and overall economic growth and development.

So clearly our city's budget process must be reformed. We must get off the roller coaster and into fiscal stability. As mayor, I would tackle the city's escalating obligations. I would immediately begin to pay down debt and put more of our capital budget on a pay-as-you-go basis as part of an annual plan to reduce our debt by $2.4 billion over four years, if fiscal conditions provide.

I would lower Medicaid costs by reducing the number of people on Medicaid in the first place. Let's put people to work, with good health benefits. Let's lower the number of seniors going into nursing homes. Keep them in their homes, where the costs are considerably less, as well as providing them with independence and dignity. I would strengthen the finance department to aim for 100 percent collection of existing taxes and fees. And yes, I would be a mayor with good will and credibility among labor unions, bringing them to the table, forging new relationships that benefit their work and our city's ledger sheet.

Yes, I would fight in Washington, D.C. and Albany for the funding that we deserve, but I also recognize that we must make some tough choices right here in this city. So as mayor I will take action, make our budget the tool that it should be for long-range planning to build a more prosperous city-—affordable housing, jobs, economic growth, and development among them.

Gifford Miller: When I took office as speaker of the council in January of 2002, the city was facing some very tough choices. We had just experienced, in the wake of September 11, enormous fiscal difficulties in addition to all the spiritual and human emotional problems we were facing. I was the first person in this city to talk about the need for us to grapple with the fiscal crisis head-on, to be honest about the challenge that this city faced, and that we were not going to be able to just cut our way out of the problem, we wouldn't be able to just tax our way out of the problem.

I recall that, in contrast to the approach that I put forward—which was responsible and has been very steady about the need to protect basic services but to deal honestly and openly with our serious problems--what we've had from the mayor over the last three years is more bouncing around than a ping-pong ball.

You recall him standing in the spring of 2002 before this group at their dinner, vowing seven different times that he would never raise taxes and that we could just cut our way out of the problem. All of us assumed he was doing it so that the governor could get re-elected by 30 points instead of 20 points, and that there was going to be some benefit, some pay-off, to the city of New York. And then it turned out, in the end, that [Bloomberg] got nothing for this enormous fiscal aid that he provided.

So the mayor suddenly announced, six months later, that it was the worst fiscal crisis in the history of our city. And then there was no tax that was high enough that he could raise. A year later, he decided happy times have returned again. It’s time to start sending people checks and building football stadiums with billions of dollars of taxpayer money.

My approach has been opposite to that. It’s been steady, it’s been honest with people from the very beginning. It starts by protecting programs and services that make New York, New York. I’m proud of the fact that we prevented senior centers from closing, prevented daycare slots from being eliminated, because in the end, if we don’t give our kids a chance at a good daycare, they’re not going to be fully educated human beings and parents are going to lose their jobs. If we don’t make it possible for seniors to grow old with dignity in this city, then no one’s going to want to remain here, and it’s not doing the right thing by our values and by our priorities.

If I’m elected, I’m going to maintain that same kind of commitment—the willingness to grapple with the serious problem. And we face serious problems. We have underlying structural problems that send us into fiscal crisis every 10 years. Our schools are broken, so our tax base erodes, and we can’t keep attracting businesses. We have an economic environment in which it costs too much to do business in the city of New York and a mayor who basically says there’s nothing he can do about it, and he’s not going to do anything about it except get us the Olympics. That’s not a plan. That’s a prayer. And, finally, we send $24 billion more to Washington and Albany than we get back every year. $24 billion.

We can’t continue to compete on that unlevel a playing field. We have to bring better fairness. We have to have leadership with a proven record of accomplishing things that people said were tough to do. I have that proven record of accomplishment.

Anthony Weiner: I want to join in expressing gratitude to the Citizens Budget Commission for having a forum that hopefully begins to re-focus, not only the Democratic primary, but the direction of our city on some of the fundamental realities that we all too often glibly walk past from year to year. First is that we have to start dealing with real fiscal responsibility. We are facing $5 billion, $6 billion deficits in the years to come. In fact, the mayor’s own plan concedes that in 2009 he still thinks there will be a $4 billion deficit.

We need to realize that things are not nearly as good as the mayor portrayed them to be when he gave his State of the City address in the Bronx and practically dislocated his shoulder patting himself on the back.

I gave a speech earlier this year where I laid out what my budget plan would be, and one of the important components of it was I believe that, just like a good business, every year we need to be examining what works and what doesn’t. I’m going to ask my commissioners, every year, twice a year, to tell me “What are the bottom five percent performance programs in your agency? What are the things that aren’t working as well as they should be?” And then do one of two things: reprogram it to something that will work, or eliminate it.

A second thing, hopefully, this debate begins to do in terms of refocusing is remembering the middle-class, focusing like a laser-beam on the idea that we have been ignoring the need to foster a middle-class in this city. The mayor begins to talk about the rise of property values as this great thing for the city, and it is very good for many people. But for many people it has meant that they have a $300,000 home in Sunnyside, let’s say, that now, after three or four years of meteoric growth, is worth $600,000. But for that family, you know what that means? Not that they’re going to cash in and move. They have no place to move that they can afford. What it means is that their property taxes have gone up exponentially. That’s why I proposed a 10 percent tax cut on all of those making $150,000 or less.

And the third thing, and this is perhaps the most important: no more of the same. We cannot keep doing things the same exact way. I released a report in June of 2004, a year ago, decrying the amount of debt that we were ladling on the top of our budget. And I said at that point, while everyone was trying to decide which kind of gimmicky tax-cut to give, I said let’s put at least a portion of it aside for debt, health care. I gave a speech two months ago that talked about some of the things that we needed to do to reduce the costs of Medicaid, not by reducing the number of people, but making it more efficient.

And I would agree with what all of my colleagues are saying about our need in Albany. I believe that many of our friends thought that Mike Bloomberg was going to be a reformer, comes from a different place not really party affiliated, doesn’t get his campaign funded the same way. He has not reformed our government, he hasn’t fought for us in Albany, hasn’t kept in mind the middle class. It’s been more the same. That’s going to stop in January.

CONTROLLING ‘UNCONTROLLABLE’ EXPENSES

Question: Mayor Bloomberg says that about half of the city’s spending is uncontrollable. These costs include Medicaid, pensions and other fringe benefits. and debt services. They are growing at about 7 percent a year, while the rest of the budget is growing at about 2 percent a year. Do you agree or disagree that there is little or nothing that the mayor can do about that half of the budget that he calls uncontrollable.

Virginia Fields: I do not agree with the mayor that they are uncontrollable. There are things that we can do, and that is why I talk about a plan, a debt-reduction plan, to eliminate debt within our capital budget. I talk about a commitment to use parts of a surplus to pay down debt. We can do that. I talk about the need to gain greater control and transparency of those other entities that create debt that is outside of the limit.

When we look at Medicaid again, my proposals in terms of putting people back to work will help to reduce the number of people on Medicaid. A work program. This mayor is not addressing that. And I think it is incredibly important that we have good will and credibility among our labor unions so that together we can address pension and health care services. But this mayor has been very dismissive of labor leaders. We must work with labor. We must work with our state legislators. And I think providing the leadership, the political will, we can address all four of these areas and begin to see costs reduce.

Gifford Miller: I agree with the mayor that he can’t control them, because he’s not trying. I think that’s what he means when he says that it’s uncontrollable. He’s just basically throwing up his hands.

Most of those things are driven by Albany and Washington. We are enormously dependent on our relationship with Albany and Washington. And it has to change. I’ve been talking about this since the first moment that I became speaker of the council. We can’t keep competing in an environment in which we are sending $24 billion more than we get back. It was bad enough when Mayor Bloomberg took office and it was $20 billion more than we give back.

The mayor needs to do something about this and mayors can do something about this. First, you have to acknowledge that our delegations are fighting hard for us in Albany and Washington but they are outnumbered. I think the congressman [Weiner] is doing a great job and we need him there to keep fighting for us in Washington. But he needs the support of a mayor who is going to recognize that we have to galvanize and bring together leverage points that this city has.

We are not a powerless city. We’re just acting powerless. We actually are the most powerful city in the world. We have the most powerful business community, the most powerful labor community, the most powerful political donors.

Every time I have breakfast at the Regency, there’s another U.S. senator that’s having breakfast there, having his coffers or her coffers filled up and then we send them home and he votes to take our money again. We have to change that. We have to have a mayor who is going to stand up and bring together those diverse coalitions, understand politics, understand how to get into the trenches and fight to make a real difference. That is what I will do as mayor of the city of New York.

Anthony Weiner: Every time I have breakfast at Three Star on Avenue U, I find -- just kidding. Part of the problem is that localities and municipalities and cities around the country are dealing with many of the similar problems that we are in New York City. They are trying to figure out ways to deal with the abject lack of leadership in Washington, the abject failure to come to grips with the idea that the rising health care costs simply can’t all be born by municipalities.

But that doesn’t mean you simply point at the graph as the mayor does every year and say that this is out of my control.

Let me give you a couple of examples. We are among the last localities in the country that still have hand-driven, paper-driven enrollment processes for Medicare. As a result, it probably costs us about an extra $500 million. Now we contracted in 1999 with a firm to start to computerize it. What’s happened? Where’s it been? Every year that we fail to do that we fail to do two things: one, the obvious saving you get by having a computerized system. But also our ability to weed out fraud, to weed out waste, is completely gone with the wind because we have stacks and stacks of paper.

Secondly, we incentivize the most expensive types of care. Hospital care, $600 a night? Oh yeah, we’ll pay that. Someone in a nursing home for a couple of hundred dollars a night? Oh yeah sure, we’ll pay that. But we don’t do the least expensive things trying to keep senior citizens out of those types of care.

For example, there have been programs set up in other places, and there have been programs set up by non-profit organizations that say, let’s go out to seniors, in their home, and see ways that we can make them safer from trip hazards –- broken hips are the number one reason that most seniors wind up in hospital care. And bring them in, give them nutritional care, give them exercise, do whatever it takes to keep them out of the most expensive care.

We don’t do that because ultimately Mike Bloomberg is just not a very creative leader of our city. He looks at things in a very old-fashioned way. I think this is an opportunity to start thinking about some of these almost existential problems. Maybe they’ll force us in the context of this campaign to come up with some innovative solutions.

Fernando Ferrer: I agree with the premise that, in the Bloomberg administration, these costs are uncontrollable because he can’t control them.

First pensions. Citizen Budget Commission proposes to save $2.4 billion, $2.5 billion with cost cutting, cost containment measures. An actuarial mistake has cost this city one third of that -- over $860 million. That’s about the management of our pension system.

Second, health insurance. One of the largest cost drivers in health insurance for public and private sector employees, as well as the Medicaid program, is the cost of prescription drugs. Absolutely no leadership from Republican Mike Bloomberg with his Republican colleagues in Albany and the Republican Congress over containing the cost of prescription drug. It is wreaking havoc with not only our public sector health care benefits but our private sector health care as well.

And finally construction costs. There again, Mike Bloomberg is willing to put forward, for example, $2.5 billion, which is an original estimate, to extend the number 7 line instead of considering more efficient alternatives like the two underutilized tunnels of Amtrak that go straight to the site that he proposes and connect with Penn Station, which his plan for extending the number 7 line does not.

There are more efficient ways and important ways and effective ways how to manage your spending. The alternative is, in health care, keep on making marginal tweaks to the budget so that some people are left out like the poorest of the poor and most defenseless instead of proposing important things like getting the state, which makes 100 percent of the decisions on Medicaid and yet pays 25 percent of the cost, to assume the full burden of the non-federal match and do its job to rationalize the system to avoid duplication, waste and abuse. Those are the important areas that this mayor has completely been missing in action on -- the important areas of our budget, the important areas of political and social discourse in this city.

311 AND INNOVATION IN GOVERNMENT

Question: The Citizens Budget Commission just awarded its prize for public sector innovation to the 311 program. What innovations in government, with or without technology, would you put into place if you were to become mayor and what benefits would you hope to obtain from them.

Gifford Miller: I think it’s great that you’ve given an award to the 311 program, but I think it’s a program, which really hasn’t reached its potential at all. 311 is a very good idea. It should be easier for government to respond to people so that you don’t have to figure out where to call, you call one place. But in the end, under this administration, 311 has been a way of directing phone calls better. It has not been used as a real management tool.

It has not taken the information that you’re gathering from 311 to better manage government. What doesn’t happen is the next step, which is to say, “OK, we’ve received 20,000 phone calls. Where are those phone calls coming from, how can we now better direct our resources to place them in the places. We have these pothole issues and who’s doing a good job and who’s doing a bad job?

What hasn’t happened is applying the new technology and information from this 311 program and giving it to the public, so the public can actually review this.

Over and over and over again in this administration, they have fought against the City Council when we tried to make the government more accountable. We had to pass, over the mayor’s veto, legislation to require that, on capital projects, information be reported every quarter as to their progress and how over budget they are. We had to pass, over the mayor’s veto, legislation to require that for schools, we find out where the incidents of violence are in order to put our resources there to fix them.

I would apply the Compstat approach...which would use 311 and the other information that exists now into actual government improvement by using the information that’s there to better manage our city.

Anthony Weiner: If I had a business and I opened up a complaint line and I got 5 million calls, I’m not sure I would be celebrating so much. Part of what we need to acknowledge about this administration is we give them a great deal of credit for the juxtaposition with the Giuliani administration -- we’ve become a little more relaxed, we’re not all so tense all the time -- but they have been about as close-fisted with information in this administration as they were in the last.

I ask many of you who look very carefully at budgets, very carefully at the operations of the city, when you’re done with this lunch go back to your desk and see if you can find out any data on the Board of Education that they haven’t provided you in a press release. See if you can find, for example, how much money is spent by district, how much is spent by school.

There is no reason for us not to have this type of information at our fingertips. Technology, at the end of the day, is a very formidable democratizing force. It allows people in every corner of the city to compare how their schools are doing with others. It should be absolutely, 100 percent transparent.

That’s what I would do, and I proposed this back in November. Why don’t we save the data about spending, the data about headcount, the data about population, every single piece of information you can imagine about your school, give everyone the ability to advocate on behalf of their own school?

Let’s do the same thing with test scores. In the matter of two weeks, we see underperforming fourth grade tests--we didn’t do as well as the rest of the state --dramatic drops in the eighth grade tests. Suddenly, we see fifth, sixth and seventh grade tests spiking up the likes we haven’t seen in 25 years. You’ll forgive me if I’m just a little bit suspicious.

Fernando Ferrer: There is no question that the most important technological breakthrough in this city and the most important democratic, with a small d, breakthrough in this city will be total transparency of our dealings. Putting the city’s checkbook on line would be an enormous step, but doing more than that.

Let me begin with the police department. The seven indexed crimes and those statistics by community, by precinct, are important But the other crimes need to be more widely and more clearly available and understandable to people who have access to them on line.

Information from our child welfare system, to procurement, to all the things that this city pays for, not only lends a greater transparency, and better sharing of information, but also can lead to important economies. For example, people ought to know why it would cost $1 million to build a comfort station in a park. They need to know how the process works. They need to know at every step of the process what adds cost.

When we put those things on line, when we begin to make them more available, when we begin to add functionality to them so that people will be able to get their arms around important pieces of information in a better way, we not only have the kind of transparency that governments, big d and small d democratic, should be for, but something else too: The ability of people to weigh in on the spending of their own tax dollars, the ability of people to weigh in on how those tax dollars are applied in their neighborhoods and in every neighborhood across the city.

Virginia Fields: One of the system changes and improvements I would like to see is a better tracking of the unemployed in this city. This mayor often talks about the fact that we have turned the corner. Yet every day we are still faced with chronic unemployment among certain populations, particularly African American men and Latino men. As a result of a failure to track and create much more transparent information as it relates to this population, very little is being done.

That is why I talk about creating a deputy mayor for employment to look at ways we can coordinate all of the relevant resources and services for putting the chronically unemployed back to work. Without tracking, monitoring, making information available, it is creating almost an out-of-sight, out-of-mind population. And of course the benefits of putting people back to work will greatly increase our economic growth in this city.

PAYING FOR THE SUBWAY

Question: I would like to ask you a question about our subway system and how hard it is to expand it. For the first time in 25 years, the state is not coming up with enough money to provide for basic system upkeep and the Metropolitan Transportation Authority’s borrowing capacity is tapped out. What should the city’s role be in financing the capital needs of the subway system? Specifically, should the city resume the use of its capital budget for this purpose and how should it target its expenditures?

Anthony Weiner: First of all, there’s almost a direct relationship between the decline in the city and state participation in the budget of the subway and bus system and the increase in the problems that we have had in service. It’s not mysterious. We went from a period in the mid 80’s, late 70’s to mid to late 90s where we were getting better and better and better. Anyone who knows anything about the city would say our subway system is worlds better than it was when I was growing up.

But it also means that you cannot simply step back and say now is the time to stop with our contributions, which is why the amount of debt that we have been wavering onto our municipal budget has been irresponsible.

We’ve got to follow the Clinton model. There are times when the economy is slow, when money is cheap. It is reasonable to invest in capital expenditures if for no other reason than that’s the best time to do it, you create jobs and the like. But now we are going through, theoretically, a better time where we have surpluses in the $3 billion some odd range yet we have an arch in every budget document toward a doubling of our debt burden.

We should not accept a budget as being successful if it doesn’t do a couple of things this year. It should pay down a substantial portion of our debt with that added money and, two, it should have lower head counts than in the years past. Only then will we be able to increase the investment in the subway system or anything else. We have to stop with this fiscal unreality of saying, “Well let’s keep doing things the same way. We have a surplus this year, let’s just roll it over to paper over some of the problems we have coming up next year.” That’s not the way to do this.

If there is something good about the back and forth of a campaign, it’s that moments like this help us focus on what the long-term plan is for the city. What is Mike Bloomberg’s long-term plan? Well I can tell you what his short-term plan is: In the next 5 years to double the amount of debt being passed along to our kids and grandkids.

Fernando Ferrer: Probably one of the biggest--and I wouldn’t say lost opportunities, I would say thrown-away opportunities—[has been]to get for our subway system a nearly billion dollars of needed revenue to make investments in station, tracks, switch and relay, repair, replacement and upgrade. This, by the way, has an impact on every business in this city, whether we want to recognize it or not.

The loss of the revenue for the development rights over the Hudson yards is probably the largest dereliction of duty I have seen in a long time. It is gargantuanly bad public policy. MTA transparency would be helpful here too -- how they spend their money. There are choices that are important for us to discuss. Seventy fewer toll booth agents, or 70 fewer public relations professionals at MTA headquarters? I pick the token booth agents.

Ask any woman who takes a subway after the fall of the sun on the way home, and she wants to see -- we all want to see, if we are husbands and brothers and sons–-token booth agents there. Ask cops who try to keep us safe, they want to see them there too.

This is about the transparency of the MTA. It is about the transparency and the promotion of good policy for this city. When we go for a sweetheart deal, that gives away the development rights for literally pennies, that is just awful public policy and it’s got to be called that.

Virginia Fields: Since roughly about 1993, the city has not paid its share. And as a result, we are seeing deterioration of our system. Since the very tragic events of 9/11, I cannot think of a better investment for this city to make than to make sure that our subway system is safe, is secure, and that it is providing the opportunity for us to grow our economy, making sure that riders are going to be able to use a safe and secure system to move throughout the city.

It is about investment. It is about the city taking its share of responsibility, and as mayor I will restore our obligations to ensure that we have the best system possible. At this time, we do not. We continue to see breakdowns daily, commuters are being interrupted in terms of being able to travel from their homes to work, and a lot of it is due to the lack of investment, not only at the state but also the city.

Gifford Miller: There is good debt and bad debt. There are some things that are worth borrowing for, because they are good investments for the city, like schools and like subways, and there are things that are not worth borrowing for like football stadiums. And even when you are borrowing, there are good ways to borrow and bad ways to borrow. Just an example, in the Clinton-Hell’s Kitchen rezoning that we did I forced this administration to completely recalibrate the way they wanted to borrow for the investments in order to create that economic development, which is a good opportunity for the city, in a way that in the end, lowers the cost of the borrowing by about a billion dollars over the life of those loans.

One of the things the Citizen’s Budget Commission talks about a lot is that there are better ways to borrow in the city. We do not efficiently use our borrowing capacity to make sure that we are getting the lowest interest rate loan possible and that we are appropriately stewarding the public first.

With regard to the subways, this is a good investment for our city because it is a huge economic development issue, because it is what makes the city livable. We sit on a subway and we hear that voice that sounds like it’s from a Peanuts cartoon telling you it's an unavoidable delay, and you know it’s not unavoidable, it’s only not being avoided because no one has bothered to fix signals that are almost 100 years old.

As mayor I would restore the city’s commitment to the capital plan. But in truth that’s not very much money. It’s about $100 million. It’s not enough money to fix our subways’ problems. It’s almost, in the end, a leverage point.

More broadly we need to have a plan to really fix our existing subway system, and that means developing new revenue in order to do it. A stable stream of revenue, which backs bonds that are good investments, is an appropriate thing for our city to go on. We are ought to reinstitute the commuter tax, which I think commuters would be willing to pay for if they knew that it was going directly to mass transit services that they use every day. That could give us $5 billion a year worth of real money that could fix our subway system now so we don’t all have to sit on trains forever and not get the service we deserve.

THE TAX BURDEN

Question:Most of us believe that New York City’s tax burden is very, very high, compared to other jurisdictions. In speaking about this, Mayor Bloomberg has likened New York to a luxury good, saying that while taxes are high, New York offers so many advantages that it offsets this high tax burden. Do you think that New York City's taxes are too high, and if so, what taxes would you give priority to cutting and how would you pay for it?

 

Fernando Ferrer: There’s another burden in this city. The burden of a good memory. I have a good memory. I remember when a guy named Mike Bloomberg stood on the floor and said, “I will not raise taxes,”--in 2001, when everybody who was sentient had a sense of what this city’s fiscal condition was. That needs to be said, because anyone who says that they’re going to lower taxes without an alternative stream of revenue is a fool or a liar or both.

Here are some facts: Our property tax is far too high. We ought to find ways to bring that down. That affects not only owners and renters, but consumers as well.

Our sales tax is far too high. That is a job killing tax that sends retail jobs right across the Hudson River. Anybody who has got a car and an EZ Pass will be taking advantage of it to the detriment of the collection of New York City sales taxes, to the detriment of New York City residents being able to earn a living.

We have got to find ways how to make business taxes more rational and more transparent. For example, our tax incentive policy is the taxes we forgo. We give [incentives] pretty generously to corporations who threaten to leave all the time. I believe one of the ways we begin recapturing that is indexing those incentives to the actual number of New York City residents’ corporations employ. If we can’t have for some bizarre reason a commuter tax, let’s have it that way.

Virginia Fields: Indeed our taxes are too high. When we look at the combined tax rate for businesses, city and state, we have perhaps the highest in the nation. and that directly affects our ability to attract as well as retain some of the businesses in New York City. So in order to be competitive, we must look at this.

Depending on fiscal conditions, yes, let’s reduce property taxes, an extreme difficulty for many of our homeowners. Let's reduce businesses taxes across the board. But again I preface that by making sure that fiscal conditions enable us to do that. Otherwise we will simply be taking away revenue, preventing us from stabilizing our budget in a way I believe we must do first.

Gifford Miller: When Mike Bloomberg gets up and says that it doesn’t matter how much it costs to do business in the city of New York, it’s not only damaging because he has been putting into place policies that reflect it, it’s damaging because businesses in the city want to know that they have a mayor who understands what they are struggling with -- particularly not the large businesses like his business, but small businesses who are creating jobs and opportunities for New Yorkers.

We do need to do something about. We can’t just talk about it. We have to have a specific proposal on how to pay for it. I would lower businesses taxes by treating everybody equally. Insurance companies in this city pay no general corporate tax. Everyone else pays a corporate tax rate. Insurance companies pay nothing. That’s ridiculous, and no one has given me a good reason why. I would assess insurance companies at the same rate as everybody else, which would allow me to lower corporate tax across the board by five percent.

That’s a specific proposal that could lower taxes considerably and meaningfully and send a very clear message that the mayor of the city of New York does care about how much it costs to do business in the city of New York and we’re going to do something about it.

Anthony Weiner: I mentioned this in a speech I gave. I’ll summarize it.

One, a 10 percent tax cut for anyone making less than $150,000 a year. An income tax cut, the most progressive way to reduce tax burden, the way that reaches the most people, that would cost about $206 million. A seven-tax bracket, to make the income tax more progressive on those making more than a million dollars a year. It simply says that if you make $500,000 a year and $1,500,000 a year you should not make the same tax cut. It makes it more progressive by adding that tax bracket. That would raise us an additional $79 million.

So far, I've outlined tax cuts that are more than two and a half times the amount of the tax increases. But the third part is important. I am committed to instructing my commissioners twice a year to assess every single thing we do in the city. Everything from top to bottom. No agency is spared. And say the bottom 5-percent-performing programs, say we’re either going to cut you or reprogram you if you can’t justify why things are not getting better.

And let me just say one final thing. We have to start fighting a little bit more to get things from Albany. We have over 1,000 buildings owned by the state in this city. We don’t apply taxes to any more than 12 of them. Why 12 and not 1012? It’s a mystery but it’s a $1.5 billion mystery.

IMPROVING PRODUCTIVITY, NEGOTIATING WITH LABOR UNIONS

Question:Mayor Bloomberg has sometimes stated as a policy on collective bargaining that future raises be conditioned on productivity improvements. The Citizens Budget Commission believes that collective bargaining negotiations are an opportunity to reach agreements on how to transform how the city does business and get rid of antiquated work rules. What would your policy be on negotiations with the city’s labor unions?

 

Virginia Fields: Productivity savings can indeed generate much needed revenue. However, it begins with goodwill, and one of the things that this mayor has failed to do is to create goodwill in terms of negotiating and bargaining with labor leaders. The failure to really sit down, bring them to the table, come to a win-win, is costing the city tremendous delays in negotiating contracts. As a former chapter chairperson of a labor union, I know it is possible to get to a win-win, so I begin goodwill, outreach, let’s get the job done.

Gifford Miller: Goodwill is important, but in the end it is about relentlessly negotiating on behalf of the interests of the people of the city of New York. That doesn’t mean that every single point of contention between the union and the city is actually a point of contention. There are points in which there can be common agreement. Productivity increases can be one of those points if you understand how to negotiate and how to create an outcome.

Unfortunately we have with this mayor someone who’s not interested in either of those things. There’s no [teachers’] contract. The reason? The mayor wanted somebody to be able to blame for his failure to fix the education system. What’s going to happen-–and everybody in the system knows this--he’s going to offer them a contract, so right before his election he can say, “Well now I’ve removed the last remaining obstacle and now I really can create improvement.”

This is a mayor who has not used the opportunity that he has to relentlessly negotiate on behalf of the city of New York, and the result has been that we’ve made very little progress in our contract negotiations in the last three years.

Anthony Weiner: I think I’m going to be pretty tough. I’m going to work very hard to wring out productivity wherever I can. I’m going to see budget negotiations as a chance to do it. But I’m going to have a respectful conversation with the labor force in this city and I’m going to have it with people in this room as well.

I want to transform this city. I want the city to be able to move forward to the next century, the next generation. We see transformational changes through the economy, we’re seeing it in business, we’re seeing it everywhere. It’s got to happen in the City of New York.

But I’m going to do it in a different way than Mayor Bloomberg’s doing it. I’m going to use the bully pulpit of the Blue Room. I’m going to go out and campaign in order to get some of these concessions, but I’m never going to allow it to be a substitute for going behind closed doors and respectfully negotiating. My commitment to the middle class includes the idea that many of the workers for the city are not liabilities on a chart, like Mike Bloomberg sees. They’re assets. They’re my middle class. They’re the people who I care about. But that doesn’t mean I’m going to be a pushover. I may not look like much, but I can take care of myself.

Fernando Ferrer: Let me give you two examples: Our police department currently is not doing one job anymore. It’s doing two--keeping us safe from domestic criminals and keeping us safe from international criminals. They’re doing it with about 3,000 fewer officers than at the end of 2000. One way to get more cops on the street, given the fact that the Bush administration ended the COPs program, which was a federal program to pay for our cops, would be to increase civilianization.

Let’s talk about the teachers. A year and a half ago, the head of the teachers union, in response to a demand by the chancellor and the mayor that we have an eight-page simple contract, said, “Let’s pick 100 schools right now, we’ll pick them together, we’ll pick the low-performing schools. We’ll do that contract, and let’s have an experiment we can all evaluate and measure.”

As mayor, I would have taken that offer in a heartbeat. It would have begun one of the most important experiments in education in this city in over four decades.

These two areas at least are two areas of single failures in the Bloomberg administration to take advantage of resources already in our hands that will give us the ability to manage this city more effectively.

FUNDING THE SCHOOLS

QUESTION:As mayor, what would be your approach to bring the Campaign for Fiscal Equity suit on funding of education in New York city to a successful conclusion?

 

MILLER: This is one of the most important moments in our city’s history because this decision orders an additional $5.6 billion for the city a year to transform our schools if we have a mayor who goes out and gets it. We have a chance, if we use that money wisely, to transform our schools. If we pour it into the same programs that this mayor has been focusing on, the same bureaucracy, we will waste billions of dollars, we will drive our tax base away, and we will tell generations more of the city’s children that we’ve lost.

I would focus on two things. One, smaller class sizes. I’ve laid out a specific plan to reduce class sizes to 17 kids in a class, kindergarten through third grade, by just leaving the personal income tax surcharge on people making more than $500,0000 a year. This could form the basis of putting some money into the Campaign for Fiscal Equity. We need to put something up, because while I agree it should be zero, it’s not going to be zero. And it’s too important for us to get something for us to just turn it down.

So, lower class sizes and top quality teachers--pay teachers more competitively, pay them more to teach in low-performing high need schools and also transform the career track for teachers so we have novices, tenured teachers, and master teachers and becoming tenured means something. I’ve laid this out in a comprehensive commission report, which I appointed, and I think that that is the direction we need and probably the greatest challenge that our city faces today.

Anthony Weiner: Part of what I’ve argued in this campaign is that when it comes to being the mayor of the City of New York, being active and aggressive is fundamentally a better place to be than being passive. Mike Bloomberg has made the argument time and again, sometimes directly, sometimes euphemistically, you get more with sugar than you get with vinegar. We have learned through the negotiations over issues with the governor, whether it be Ground Zero or the fiscal equity suit, that is not the way you play this game.

This is a lesson for how you do things: After this year’s election, I'm going to be a pretty popular guy with anyone running for governor. And anyone who comes to me and says, “Mayor Weiner, I need your help getting elected and making me Governor Spitzer, or Governor Suozzi or Governor whoever.” The absolute criteria for my support is not what your party affiliation is, it’s whether you have my constituents, the residents of the city of New York, at heart. And my bargaining position and my final position is, “We’re not paying. This is Albany’s shortcoming. You fix it.” And if they don’t walk out of my office and stand next to me and say, “I’m committed to that position,” they don’t get my support. That’s how you engage in politics. What Mike Bloomberg doesn’t know about doing this can fill a book.

Fernando Ferrer: The elephant in the room in improving our schools and coming up with the $23 billion prescribed in the court decision is how we come up with the city’s portion of it. Mike Bloomberg’s approach stated by the chief legal officer of the city, the corporation counsel, is if we have to come up with anything and – I quote – “No thanks.”

No thanks to $9 billion to modernize old school buildings? To build new ones, to really reduce class overcrowding? $14 billion to improve teaching and learning and give our city school kids – all 1.1 million of them – the same thing that every kid gets in every suburban system around our city? That was the reason for the lawsuit.

If you paid attention carefully to the legislative leaders of this city they have said, clearly, the city will have to come up with between 20 and 25 percent of the $14 billion in operating funds in order to access the rest of it.

I’ve come up with a way to do that. It’s a stock transfer charge, one tenth of what used to exist in 1981. Now if anyone has a better way of coming up with over $3 billion to do that, let’s put it on the table. Let’s have an open, honest debate because this is about the future of this city.

And if anyone believes that improving our system does not pay huge dividends to our economy, then we’re not thinking clearly about the future of this city. People will leave this city if we graduate kids who cannot compose a standard English paragraph, cannot compute, cannot reason, and cannot compete in this increasingly complex local, regional and global economy that is New York City.

Virginia Fields: The same kind of passion, determination, tenacity we have seen this mayor use to fight for a stadium on the West Side of Manhattan is missing when it comes to fighting Albany for funds for our schools. That is the kind of determination that is needed, and as mayor, I will provide an active and aggressive leadership to come up with a workable plan.

I would use the moneys to implement my plan called simply SMART: smaller class sizes, massive interventions at the earlier levels, academic partnerships with our universities, recruitment and retention for teachers as well as technology and tutorial help. We can do it. We must do it. We cannot afford to lose another generation plus of children.

QUESTION: Mr. Ferrer, what makes you think that $3 billion is not a sufficient incentive to cause the stock transfer business to move across the river?

Fernando Ferrer: Some have argued, the mayor has argued, that we will lose 10,000 jobs. I argue just the opposite. Businesses will leave if we don’t make these investments...I remember when the stock exchange threatened to move across the river if it didn’t get a billion dollars in joint subsidies from the state and the city. Do you remember that? I do. It didn’t and it didn’t.

Anthony Weiner: You’re right about the impact but I’ll tell you who it’s going to have an impact on-–not the very well-to-do stock barons. It’s going to be the people who do the trades, the people who support the stock market. Middle class New Yorkers are the ones who are going to pay for this.

I just have to tell you, Borough President Ferrer, every time you say we’re going to put in $3 billion, [Senate Majority Leader] Joe Bruno says $5 billion, then he says $6 billion, then he says $7 billion. We have to understand, we have to be completely unified with our position here and that is they shortchanged us. The moment we start negotiating against ourselves by saying, “Well, you got to put in $3 billion, next week it will be you have to put in $4 billion and $5 billion and $6 billion.” Our position should be we don’t put in money because we’re the ones who have been victimized. Mr. Ferrer, you’re 100 percent wrong.

Fernando Ferrer: Then let’s have a real debate about this. If you think zero is a sound negotiating strategy, that has gotten us exactly zero. And it will continue to get us zero. Read the court decision carefully and listen very carefully to the legislative leaders. Yeah, we have to have a hard bargain, hard negotiation about this, but at the end of the day it’s got to be more than zero for our city’s school kids.

Gifford Miller: Let me jump into that. The stock transfer tax is the wrong idea partly because it’s not sustainable. And in this electronic age, it’s too easy for the exchange to move.

I certainly agree with Borough President Ferrer that we have to be honest about the Campaign for Fiscal Equity decision. It clearly stated, the judge has said, the city is going to have to come up with something. Pretending that the city is not going to come up with something is exactly how we’ve gotten to the point where we’ve gotten nothing through this mayor’s entire tenure-- nothing, zero. We didn’t get any money for the capital budget. We didn’t get any money for the operating budget. As speaker of the council, I have to look these kids in the eyes and say, “You know what? I can’t do anything for you because the state isn’t coming up with the money.”

At the end of the day, we have our own responsibilities and that’s why my proposal, which is to just leave taxes where they are on people making more than $500,000 a year, to pay immediately to reduce class size makes sense right now. That’s a good place to start and that’s a sustainable level for us to have out beyond the four years.

And that puts us in a place where we can have the discussion, which is, “We’re not going to keep pointing fingers at each other. It’s time for all of us to step up to our responsibilities because we cannot have a system where half of the kids are not meeting basic standards.”

Virginia Fields: While these are indeed good places to start, I think we’re also overlooking the fact that, although not sustainable in the term of revenue, we have a surplus. Let us take a portion of that to begin in September as far as getting started. What I have talked about – and I think it is critical – is that we do a complete audit of this $14 billion education budget in terms of exactly how dollars are being spent. Our comptroller, the city comptroller has said, that we don’t know how dollars are being spent within the existing budget. So I think as we look to establish fiscal stability, as we look to address some of the concerns that we must also be responsible for, these are some of the ways we can look to get started.

CLOSING STATEMENTS

Anthony Weiner:I appreciate the chance to share the stage again with my three colleagues. They are, as I’ve said many times before, leaps and bounds better than the incumbent. I would sprint to the polls if one of them was the nominee, but they’re not going to be.

 

I grew up in New York, a middle-class kid, love this city, I don’t have many marketable skills but what I have I’ve put toward working in the City Council, working in Congress. But I do have a vision of the city.

Are we going to keep doing things a similar way that we’ve done them before? If we get a surplus, we celebrate, roll it to the next year and paper over some of the challenges we face.

One of the things the Citizens Budget Commission has done an extraordinary job at is helping us look a little bit around the corner. I have to tell you the incentives for elected officials to think about things that redound to our benefits in 10 or 15 years are not very strong. We’re told essentially to get to the next budget, get to the next election.

Election time should be different. This is a time we should be talking about four years, eight years. Let me see one of those gauzy 90-second ads for Mayor Bloomberg talk about how you deal with some of these problems. I’ve laid out in a substantive way what my proposals are. I welcome the chance to engage any of my colleagues or the mayor in a discussion about which way is better. But we cannot keep whistling past the graveyard and saying, “You know what? Things are great. Let’s just keep going like this."

We have an obligation to do for our children what our parents did for us, which was leave a better city, stronger city. You know you read biographies of mayors gone by, read the book that’s out now about the Bronx is burning, you realize how much better a city we have now than we had a generation ago on just about every level. What are we dong today to make sure we’re doing that for the next generation? If that’s your agenda, I’m going to need your help in the next four years.

Fernando Ferrer: This is a forum about the future of New York and how we make it a fairer and better future for every New Yorker in it. I don’t believe this is a city–-all 8.1 million people--who want to be treated like a wholly owned subsidiary of Bloomberg, Inc. I don’t believe in Mike Bloomberg’s vision for the city--building a playground where only those who can afford the high privilege of a personal seat license would prosper. I believe in growth, and he confuses that with growth

Let’s talk about the kind of city that will lend itself to growth. The kind of city I want to build has good schools in it, schools that stand for quality and excellence, not just in some neighborhoods, but in every neighborhood. A city that gets serious about affordable housing so our middle class and working class aren’t squeezed out of this city. A city that gets serious about the maintenance and good repair of our subway system so it is reliable and affordable in the long term. A city that works better for everybody.

That’s the kind of city that I believe is not only worth fighting for, but for me it is a cause because I know the power of a good education in my own life. I know the power of having a decent place to live and a place that you can afford in my own life. I know the power of a good after school program that kept me off a pretty tough street as a fact in my own life. That’s the kind of city I want to build for the generation of New Yorkers yet to come.

Virginia Fields: My vision for this city, which allows us to address the priorities that impact our daily lives including affordable housing, good schools, jobs, healthcare, all of this is directly related to getting off of this roller coaster and creating fiscal stability. That’s why I have talked about my efforts to move forward in reducing debt, making sure that we address issues of Medicaid, putting people to work, keeping seniors out of nursing homes, which are more costly, working with labor and our state legislators to address issues of pensions and health care.

We can do that but it requires a mayor who’s going to take the action and has the political will and is concerned about everybody in this city. Putting people back to work, the chronically unemployed. We’re going to have to look at growth industries, but to be able to move toward creating that growth we have to make some critical decisions. That’s not happening with this mayor.

Many people who elected this mayor elected him because they felt that he was--he is--a businessman. Well, we’ve seen some of the highest tax hikes since he has been in office, the highest user fees since he has been in office, and little or no attention given to the priorities that affect our daily lives.

I want a different city and, as mayor, I will lead us forward using the tremendous knowledge and experience that I have gained over the last 16 years as an elected official, including eight years as a city councilmember and now in my eighth year as president of this borough of Manhattan. We can do it--we must do it--in order to insure that this is a city where all of us would want to raise our children.

Gifford Miller: Being mayor is about making tough choices. The challenge for voters in this city is they are going to have to decide who is it that is going to be able to make those choices that we talked about today. I think that I’m the candidate because I’ve already been making the tough choices. I’ve closed billions and billions of dollars worth of gaps, I’ve cut $3 billion out of a budget over the last three years,

Every single proposal that I’ve made for the future, whether it’s lowering class size, cutting taxes for small businesses, I’ve paid for because I’m the speaker of the council. I don’t have the luxury of saying I want to cut $1.7 billion out of the budget. but I’ll tell you later what it’s going to be. I’m going to tell you now.

I love this city. We all love this city. And I want a better future for my children and for everybody else’s children. I’m not going anywhere. We’re gong to stay here and fight for it but we have to acknowledge we’ve got real challenges that need to get fixed. We have a school system that’s failing half of our kids. We have an economy that is being held back by the cost of doing business in this city. We have a situation in which we’re sending $24 billion more to Washington and Albany.

All of those things have been the same for the last 10, 20, 30 years in different forms. The question is who has the leadership, who has the proven ability to tackle the kinds of things that people haven’t been able to solve for decades. I think I’m that candidate because I’ve proven that I have that ability.

People told me , when I took over as speaker of the City Council, that we’d never be able to bring together a diverse legislature and deal with anything, I’ve proved them wrong. They told me we wouldn’t have a living wage bill in this city, it would destroy everything. I’ve proved them wrong. We couldn’t have a lead paint bill in this city–-it would drive the costs of housing through the roof. I’ve proved them wrong. Over and over again in my career, I’ve never listened to the people who tell me what I can’t do. I’ve gone out and done what needs to be done. That’s why I’m running for mayor.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Budget Transparency After The West Side Stadium


Among the many problems posedby the proposal for a West Side Stadium, were the ways it violated fundamental principles of a democratic budget process – an early failure to disclose funding sources; uncertainty about full public costs; and a lack of public representation in the decision-making about the project.

The stadium is now, apparently, dead. But the issue of transparency in the budget process is involved in several other stories that have gotten much less attention.

2006 BUDGET UPDATE

One story that is being followed less avidly than in past years is the city budget, because Mayor Michael Bloomberg and the City Council seem to be negotiating their differences with little difficulty, and because the city’s short-term fiscal prospects remain bright. The Independent Budget Office in its analysis of the mayor’s executive budget agreed with the city’s projection of a $3.3 billion surplus for the current fiscal year, which ends on June 30th. At the same time, Standard & Poor’s, the credit rating agency, gave the city an A+ rating on its $32 billion of general obligation debt, the city’s highest rating ever. That makes city borrowing easier and cheaper. S & P praised the city’s “steady fiscal and economic recovery since 2001 and strong budget management.”

Standard & Poor’s additional comment that “the outlook is stable,” though, seems contradicted by the $4.5 billion deficit projected for fiscal year 2007, which begins next July. S & P doesn’t seem to be too worried about this, but the Independent Budget Office is worried, labeling as unworkable the mayor’s “wait and see” approach to future budget gaps.

LOCAL LAW 69: TRANSPARENCY IN CORPORATE SUBSIDIES

Questions about deals like the West Side Stadium -- negotiated separately from the normal budget process, and involving millions if not hundreds of millions of taxpayer dollars -- have been around for decades. Few would deny that business incentives have a place, but the problem is how to judge their effectiveness. Local Law 69, passed in 1993, was supposed to make sure that firms receiving tax breaks and other benefits from the city were held accountable. Each year, these companies were required to issue reports explaining how they had used the benefits, and presenting such statistics as the number of jobs they had created.

 

But in June 2001 -- the last year of the Giuliani administration -- a study by the Independent Budget Office, “Full Disclosure? Assessing City Reporting on Business Retention Deals,” delivered a devastating indictment of the Local Law 69 annual reports, demonstrating that they understated the cost and overstated the positive effects of the tax breaks, and that most of the data was unreliable, inconsistent, and not easily available to the public.

Three years later, Good Jobs New York published “Know When to Fold’Em: Time to Walk Away from NYC’s ‘Corporate Retention’ Game,” a study that showed how 13 companies had laid off employees after signing agreements that gave them huge tax breaks to create new jobs. As of June 2002, ten of these companies had actually lost jobs -- a total net loss of 3,000 jobs -- in spite of their use of $120 million in subsidies.

The study reported that between 1988 and 2000, “the city negotiated approximately $2 billion in retention deals worth over $1 million each.” The study goes on to note the Bloomberg administration’s “notable improvements” in the public hearing process with more recent deals. Notices of these hearings are now posted online. The study also notes that the mayor finally killed former Mayor Giuliani’s proposed $1.1 billion subsidy to keep the New York Stock Exchange in the city, an effort that nevertheless cost the city at least $110 million in its preliminary stages.

Errol Louis has reported in the Daily News on the key role of Good Jobs New York in the subsequent council legislation. The newly amended Local Law 69 –- introduced as Resolution 373-A in May and signed by the mayor in late May -- does several things to improve fiscal transparency, including lowering the threshold for the costs of deals that need to be reported (now $150,000).

The new law also requires more detail on the kinds of jobs (including the number of part-time and contracted-out jobs) and wage levels. It also requires the reporting on new deals be extended to the life of the deal, not simply the first seven years as in the original law. Lastly, each report has to be widely distributed and easily accessible.

THE CHARTER REVISION COMMISSION AND BUDGET TRANSPARENCY

As the mayor and council were resolving the issues around an amended Local Law 69, the mayor’s Charter Revision Commissionwas continuing its lengthy deliberations, many of which could affect fiscal transparency, for better or worse. The commission, appointed in August 2004, is chaired by mayoral advisor Dr. Ester Fuchs, and its executive director is Terri Matthews, a deputy-mayoral advisor.

The commission’s sole purpose, according to Fuchs, is “improving city government,” but in practice the commission has stuck with three rather narrow goals:

  • adding certain budget reporting rules to the charter,
  • possible charter changes in the city’s administrative judicial system
  • and new charter rules to increase agency efficiency, effectiveness, and accountability.

This is a somewhat esoteric agenda, which probably explains the sparse attendance at Commission hearings over the past ten months.

Expiring Safeguards From The 1970s Fiscal Crisis
The first priority stems from the fact that the state’s oversight of the city budget –- mandated by state law since the mid-1970s fiscal crisis forced the state to bail the city out -– ends in 2008, and many observers think it would be good to continue current reporting practices by requiring them through the city charter.

Last month, commission staff suggested four fiscal requirements be added to the charter:

  • the city should end the year with a balanced budget with no more than a $100 million operating deficit (as is the case now)
  • the four-year financial plan and quarterly modifications should also be continued
  • there should be stricter limits on short-term indebtedness;
  • updated actual vs. projected financial information should be published for public review.

This sounds good on the surface, but commission members and expert witnesses have raised questions about the depth of information that would be publicly available and whether the full access to information now enjoyed through state mandates will survive. At a March 23 hearing in Brooklyn, for instance, Independent Budget Office director Ronnie Lowenstein said that “it is vital to replicate on the local level [the] strong right of access to information” that the current state Financial Control Board enjoys. This access, she said, “enables [the Financial Control Board] and others to form a sound, independent judgment about the city’s financial condition.”

 

Promoting Efficiency, Or Keeping The Public In The Dark?
On the other budget-related priority of the commission – promoting efficiency, effectiveness, and accountability – the initial staff focus seemed based on an apparent perception that there are too many mandated reports that too few people read. The staff has proposed a commission be named that would review charter-mandated reports and recommend eliminations or other changes in those reports.

This might sound harmless, but the devil will be in details yet to be defined. The structure of the new commission, as outlined at a May 25 meeting, would be nine members: six ex officio (council speaker, public advocate, city comptroller, the mayor’s director of operations, the mayor’s budget director, and the mayor’s corporation counsel) and three appointed public members. The danger here, at least to one reader of many of these documents, is that such a commission –- dominated by elected officials and their appointees -- would be protective of the status quo, or under the guise of “efficiency,” be impelled to reduce rather than expand public information.

More Evisceration of Mayor's Management Report?

To take one example, the one report currently mandated by the city charter that is most relevant to “efficiency, effectiveness, and accountability” in city government is the mayor’s management report, a report that could be vastly more transparent and accountable, as this topic page has pointed out, especially in its mandate to link budget information with actual program performance. A new commission, at least as outlined in May, seems unlikely to be the mechanism of its reform.

"Do No Harm"
As Fuchs wisely said at one meeting, the commission “should do no harm.” But as an esoteric agenda flies under the city’s radar screen, there is as yet no certainty that budget transparency, public access to information, and measures of fiscal accountability will be improved by the commission’s work. The commission staff’s formal preliminary recommendations –- promised for early June -– bear close scrutiny. Several public meetings in Junewill permit public comment on the recommendations.

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

 

 

 

 

 

 

 

 

 

 



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