Gotham Gazette

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Economy

Tax Cuts and New York City


On a recent day at City Hall, Mayor Michael Bloomberg presented his annual $46 billion budget in the Blue Room on the west end of the building, while City Council Speaker Gifford Miller presented his budget in the Red Room at the east end of the building.

But when the two spoke about their rival tax cut plans, it seemed as if they had magically changed places.

The billionaire Republican Mayor Bloomberg sounded like a populist, accusing the City Council of catering to corporations and of neglecting the working people of the city.

"Somebody’s got to pay for the services," the mayor said, "and the truth of the matter is, the homeowners are less able than big business."

Meanwhile Democratic Speaker Miller sounded a lot like a Republican, arguing that a permanent, across-the-board tax cut for businesses and landlords would help stimulate the economy.

"They want a tax cut; they don’t want a check," said Miller. “They want to see their taxes go down.”

This year, New York’s budget battle has come down to tax cuts. Mayor Bloomberg wants to give $400 to each owner of a co-op, condo, and private house. Speaker Miller wants to reduce the property tax rate for all homeowners and businesses by two percent.

Despite their different approaches, the mayor and the speaker both start with the same basic assumptions about tax cuts:

  • The tax cuts will reward those who helped the city weather tough fiscal times
  • The tax cuts provide an incentive for residents to stay in New York
  • They can help spur economic growth

And -- though not stated explicitly -- both officials clearly assume that the tax cuts will help get them elected in 2005.

However, many budget watchdogs argue that neither plan is particularly good for the city.

Can the city afford a tax cut? And do they really produce what politicians promise - or are they just a way to get votes?

THE RATIONALE FOR TAX CUTS

The theory of how taxes affect the economy, simply put is: If government taxes an item, it adds to the cost. As the price rises, fewer consumers wish to purchase the good and the quantity produced also decreases. The government gets the revenue from the tax, but both the consumer and the producer of the product bear the increased cost, and demand for the product will fall as a result.

The tax is not just a transfer of wealth from consumers and producers to the government; it is a permanent loss of economic activity to the whole society. This is why most economists agree that taxes reduce some of the incentive to spend, save, and invest.

At the same time, though, taxes pay for essential services that citizens demand from their government, such as schools, police officers, fire departments, and libraries.

While federal taxes have been instituted and rescinded in America since the mid-1800's, the notion of using tax cuts to "fix" the economy, experts say, is a modern one.

President John F. Kennedy issued one of the first major tax cuts designed to stimulate the economy, which was passed by his successor Lyndon Johnson in 1964.

Kennedy's plan instituted a new standard deduction, increased deductions for childcare expenses, and lowered taxes, including for those in the top tax bracket. The idea was that each dollar a person spent instead of paying taxes would go to another person who would spend it again. The plan used the immediate boost in economic activity to justify a government deficit. And the initiative is one that many economists point to as an example of successful tax relief. For a time, the national economy rebounded.

In local economies like New York's, tax cuts are often used to make a city more competitive with the surrounding area, and with other cities. New York City depends on an array of property, income, sales, and business taxes for revenue, and some argue that they affect people's decisions about where they work and live.

“There is some evidence that higher property taxes - all else being the same - are a factor in where people choose to live,” said Sanders Korenman, an economics professor at Baruch College.

However, one must also consider what those taxes are paying for. If taxes are cut, government spending must be cut as well.

"I don't mind paying my taxes because they fund valuable services like education," said Korenman. "You must look at taxes and expenditures together as a whole.”

Many people in the city point to the repeal of the commuter tax in 1999 as one of the worst tax cuts for New York City. State legislators in Albany eliminated the tax on people who worked in the city but lived in the suburbs as part of a political battle between the two parties over one upstate legislative contest.

The loss of the commuter tax costs the city $500 million a year in today's dollars - or enough money to pay for all of the city's parks along with all of its programs for senior citizens and for youth.

ARGUING THE PROS AND CONS

Once the discussion gets beyond basic economic theory, experts have wide and divergent views on whether tax cuts actually benefit New York City.

E.J. McMahon, a fellow of the Manhattan Institute, for example produced a study in 2001 concluding that 80,000 jobs - or one in every four new jobs in the city - had been created by local tax cuts in the previous five years.

“The lesson is clear: Tax cuts work,” wrote McMahon. “And in the years ahead, the best way to continue building New York’s job base will be to continue reducing its still-heavy tax burden – and by all means, avoiding adding to it.”

However, others, like James Parrott of the Fiscal Policy Institute see the same Giuliani era tax cuts as mistakes that helped create huge deficits for the future.

“I can’t think of any [recent] local tax cut that has made sense,” said Parrott.

Parrott argues that the way for government to create jobs and make the city more attractive is to invest in education, housing, and new development projects. “In general, what the city can do to stimulate the economy," he says, "is most often on the spending side."

Most voters, however, want it both ways. They want their taxes to go down. And they want good schools, roads without potholes, and a police force to keep them safe.

"There is a core belief in the American political culture that government should be small, but we also want services," said Doug Muzzio, a political science professor at Baruch College. "The public wants a free lunch."

POLITICAL PARTIES AND TAX CUTS

Today, the Republican Party presents itself as advocates for smaller government and lower taxes, while the Democratic Party emphasizes vital services like education and social services for citizens.

But this was not always the case.

The first federal income tax was issued by a Republican administration, during the Civil War. For decades, it was the Democrats who painted the Republicans as a high taxing, big spending party.

It was not until the 1980’s that the Republican Party made tax cuts a fundamental part of the party’s ideology.

President Ronald Reagan argued then that tax cuts could not only stimulate the economy, they could also shrink government while creating greater wealth for the nation. Economists still debate whether the Reagan cuts really led to boom times, or just created huge deficits.

Today, tax cuts are once again the rule of Washington, where Republicans control the presidency and both houses of Congress. President George W. Bush has continued the tax-cutting legacy, issuing plans for $330 billion in tax cuts over the next decade. Even growing deficits and the Iraq war have not deterred officials.

“Nothing is more important in the face of war,” House Majority Leader Tom DeLay said last year, “than cutting taxes.”

The national trend has even had a profound effect on New York City, a town where Democrats outnumber Republicans five to one -- and where just six years ago, there was another apparent ideological switcheroo in a fight over a tax cut: In 1998, Miller's predecessor, Democratic Council Speaker Peter Vallone, Jr., called for the elimination of a 12.5 percent surcharge on the personal income tax, which cost the city roughly $500 million a year. Bloomberg's predecessor, Republican Mayor Rudolph Giuliani, said the city could not afford it. The reasoning behind the plan was no secret: Vallone's aides said that the speaker needed a tax cut to attract votes in his race for governor. The tax cut went through, but it did not translate into a win for Vallone.

“Since the late 1970’s and 1980’s, the political notion that tax cuts can help the economy has become more prevalent,” said Marcia Van Wagner of the Citizens Budget Commission, a group that has advocated reducing taxes in New York. “It’s become the political theme everywhere.”

THE MAYOR’S AND COUNCIL’S RIVAL PLANS

Both Mayor Bloomberg and City Council Speaker Miller argue that their tax cut proposals will help stimulate the economy and return some of New Yorkers’ well-earned money.

Mayor Bloomberg wants the city to write a $400 check to all homeowners who had to pay the 18.5 percent property tax increase imposed in 2002. Business owners and landlords of large buildings would not be eligible.

City Council Speaker Gifford Miller wants to roll back property taxes two percent across the board, including for commercial property owners. A single-family homeowner with a $400,000 house would get about $50, and the owner of a condo of the same value would get about $125. In addition, Miller would eliminate the entire 18.5 percent property tax increase for senior citizens on fixed incomes.

But under Speaker Miller’s plan, the mayor charged, the average homeowner in Queens would get just $49, while Con Edison would get an $8 million tax cut. Miller responded with charges of his own, calling Bloomberg's plan a "Bush-style gimmick."

The mayor’s plan would cost about $250 million a year and would have to be approved by the State Legislature in Albany. The speaker's plan would cost $297 million, and the council could enact it with a simple majority of its own members, or 26 votes.

However, many budget watchdogs argue that neither plan is particularly good for the city.

While the city government has a surplus this year, it is expected to have a $3.7 billion deficit in the fiscal year that begins in July of 2005. Even the mayor admitted that if the economy and tax revenues returned to their highest levels in history – which is unlikely – the city would still not be able to close the budget gap in future years if costs continue as expected.

More fiscally conservative groups like the Citizens Budget Commission say officials should use the money to pay down some of the city's debt. In a letter to the mayor, the group said that although it supports reducing taxes in the city, that his plan was a "mistake" that "distributes the money in a way that is largely ineffective in promoting economic competitiveness."

Left-leaning groups like City Project want the money spent on education and social programs. "Any tax cuts at this point in time - whether proposed by the mayor or the council - are premature and fiscally irresponsible,” said City Project's Bonnie Brower.

NOT ALL TAX CUTS ARE EQUAL

While the political rhetoric often oversimplifies the debate over whether taxes are good or bad, budget experts warn that the public must carefully consider various issues when evaluating any tax proposal.

“It very much matters which tax you cut or raise, and how you do it,” said George Sweeting of the Independent Budget Office.

Who Gets the Tax Cut?
One consideration is whether a tax affects all people equally.

In the case of the city’s property taxes, many agree that the elected officials would do better to reform the current system than to issue pre-election tax cuts. In 1993, Mayor David Dinkins did an assessment of the property taxes and found that the system was "inordinately complex” and “poorly understood by taxpayers." Commercial real estate owners, multiple apartment landlords, and utilities pay much more than single-family homeowners.

“I have friends who own brownstones in Park Slope who pay next to nothing in property taxes,” said Van Wagner.

Who Needs A Tax Cut?
Another issue is who is most able to afford a tax increase.

Last year, for example, the mayor and City Council imposed a surcharge on personal income taxes for residents who make more than $100,000 a year and couples who make more than $150,000 a year based in part on the argument that they are more able to afford it. However, it could be argued that the sales tax – which also rose in both the state and city to a total of 8.625 percent in 2003 – is tougher on lower-income people.

“With any tax cut one must ask if this is being done to improve efficiencies, or if one party wants to appear to give money to one group or another,” said Korenman.

Does It Make the City More Attractive?
Also, various taxes may have the ability to make the city more or less competitive with surrounding areas.

The city, for example, has lower property taxes for individual homeowners compared with those in the suburbs, but the city also has several business taxes that make it more costly for companies to have their offices in New York.

Can the City Afford It? The most important measure is if the government can really afford a tax cut. And that is when the arguments circle back to the beginning.

Some would argue that if the city government cut spending and lowered taxes, that the whole economy and government would fare better. Others argue that tax cuts will starve essential services, making the city dirtier, more dangerous, and in general a less desirable place, inducing people to leave.

“No economist will argue that taxes do not affect an economy,” said McMahon. “The argument is over how much it affects the economy, and how that is offset by other spending.”

Whether or not Mayor Bloomberg’s or Speaker Miller's tax cut is approved this year, some warn that the city’s situation is growing more tenuous. Budget experts on all sides agree that the city’s long term budget situation – with growing debt, increased costs for health care, and increased labor costs – is troubling.

And a recent report by the Federal Reserve Bank of New York concluded that the city’s tax revenues are less reliable than they were 30 years ago because they rely heavily on income and business taxes, which are less predictable than property taxes. As the city’s economy rises and falls, the report argues, so will the government’s finances.

As in the past, that means that today's tax cut may soon be replaced by tomorrow's tax hike.

Related Links:

Citizens Budget Commission
City Project
Independent Budget Office
Federal Reserve Bank of New York
Fiscal Policy Institute
Manhattan Institute

In Big Projects, Where Do The Jobs Go?


If Ikea has its way, the old maritime community of Red Hook will soon be home to the chain's largest store in the country. The massive furniture and housewares store could bring 9,000 cars a day to the area near the Gowanus Canal and will certainly change the character of the neighborhood. So as part of its pitch to sell throw pillows with Swedish names, meatballs in lingonberry sauce and birch veneer storage units on the Brooklyn waterfront, Ikea has promised jobs. On its Web site, Ikea pledges to create 500 to 600 new jobs, many filled by community residents. And the company says these are not dead-end, low-paying jobs but positions offering competitive salaries, health benefits and tuition reimbursements as well as training and growth opportunities.

The pitch has apparently convinced Dorothy Shields, a community activist and retired teacher's aide. "Hundreds of people need jobs," she told Newsday. "It will stop a lot of people doing things that are against the law."

The controversy over Ikea is being echoed throughout the city. With every new project put forth -- the West Side stadium for the Jets, waterfront development in Long Island City for the 2012 Olympics, the Nets arena in downtown Brooklyn -- the developers and the politicians that back them promise jobs. This is as it has always been, and, as in the past, it is an enticing prospect in a city with a current unemployment rate of 8 percent, more than two percentage points higher than the national level.

Such new projects are a linchpin of the Bloomberg administration's strategy to improve the city's economy and put its residents to work. Rather than focus on manufacturing or new industries such as biotechnology, the city has zeroed in on big events, such as the forthcoming Republican convention, and big projects. But do such projects really create jobs? If so, are local residents the ones who get them? And just how good are the jobs?

NEIGHBORHOODS TRANSFORMED, OR NEGLECTED IN A NEW WAY?

Seen from one perspective, East New York, the neighborhood in Brooklyn once called the murder capital of the city, was transformed into a kind of urban fairy tale, when 50 acres of rubbled wasteland became the site in 2000 of the Gateway Center, a new mall.

Related Companies and Blackacre Capital Partners spent $192 million to create the mall, which offers 640,000 square feet of stores, including Target, Old Navy, BJ's Wholesale Club and Babies R Us, as well as a new exit ramp off of the Belt Parkway. The mall, developers claimed, created 1,700 permanent jobs.

Supporters of this project and others like it say that they create revenue and provide a magnet that can lure potential customers to a neighborhood where they will patronize older businesses along with the new mall.

"It's a no-brainer. The city gets net new jobs without thinking twice about it," says Patty Noonan of the Partnership for New York City, a research and advocacy group composed of business leaders. While construction brings noise, dust, dirt and closed sidewalks, such inconveniences are "all signs that people want to live and work in these places. They're generally positive economic indicators," Noonan says. And she says some new projects can create prized office jobs as well as retail and food service position. They "provide the cutting-edge space that companies want," she says.

For others, however, the signs do not bode so well. Corporations get huge tax breaks, but do not always create all the jobs they claim they will. And while a new project might generate revenues, the money goes straight to the city, not necessarily to the neighborhood most affected. Many new big box stores and malls are occupied by out-of-town business that may offer the best jobs to suburbanites and give the poverty-wage work to city dwellers. All this can leave some residents feeling trampled.

New York City Councilmember Charles Barron, whose East New York district includes the new Gateway Center shopping mall, says the jobs created have hardly been worth the hype and inconvenience for area residents. "The jobs offered are entry-level, minimum-wage jobs," he says. "The management positions go to people outside of our community, to white people."

DO BUSINESSES DELIVER ON THE JOBS THEY PROMISED?

Statistics from other projects provide reason for skepticism about some of the businesses' claims. State Comptroller Alan Hevesi released an audit in March that showed businesses do not always deliver the jobs they say they will. The audit, which did not cover New York City, examined the effectiveness of the Empire Zone program, the state's plan to foster economic development in poor areas by giving businesses special tax breaks and other incentives. Hevesi's staff examined 375 businesses and found that they had created a total of 2,380 fewer jobs than they estimated they would when they applied for the program. In fact, almost a quarter of the businesses surveyed had actually cut workers. And in many cases, the companies received tax breaks that far exceeded the benefits, including new jobs, that they provided for their communities. In fact, the report said, 34 businesses that cut workers "apparently improperly claimed certain tax breaks totaling approximately $2.4 million."

Administrators of the Empire Zone program say that Hevesi's office ignores that fact that the size of the tax breaks is usually determined by the actual number of jobs created, not the projected figures. But some businesses made up numbers or did not report at all, and the state does not always check the figures, a 1995 state comptroller's report found. This means that numbers of estimated new jobs, as well as some accounts of actual jobs created, are as diaphanous as a spider's web before a raging rhino.

To address similar problems in New York City, the City Council in 1993 enacted a law that requires the Economic Development Corporation to report on the tax abatements, low-cost loans, and other financial incentives it gives businesses. Aimed more at companies that get benefits from the city for retaining, rather than creating, jobs, the law directed the development corporation to issue a report every year on deals that are worth over $250,000 or that cover preservation of at least 25 jobs.

In a 2001 analysis of seven such reports, the Independent Budget Office found that the reporting law had not accomplished what it set out to do. In fact, the annual reports regularly understated the cost to the city of job retention arrangements and exaggerated the positive effects. Although it did not mention specific companies, the budget office also found that some data was unreliable because it does not have to be verified. "Firms appear to be under no obligation to live up to their jobs created' projections in order to maintain the benefit received," the budget office found.

WHO GETS HIRED?

Development projects spawn temporary construction jobs as well as permanent positions. Rebuilding Lower Manhattan, for example, is expected to generate 10,000 construction jobs each year for the next 13 years. World Trade Center leaseholder Larry Silverstein has pledged to make sure that construction contracts go to minority- and women-owned businesses, which have long been underrepresented in their contracts with the city.

But not everyone takes special steps to ensure that those who need jobs wind up getting them. National chains often bring in outside workers for construction jobs and some management positions, says Perry Winston, architectural director at Pratt Institute Center for Community and Environmental Development. "National firms have national constituencies, or regional firms have regional constituencies, for hiring retail as well as construction. It's hard for them to come in and determine who is a good local contractor," explains Winston.

And many of the businesses at Gateway are from outside the area. The center had three spaces for family-style restaurants. But owners of the local 280-seat Lindenwood Diner (where John Gotti used to confab) felt left out. "All of these big restaurants are going in and we were never offered anything," owner Nick Tsakonas told the Daily News. "We've been in this community 32 years. We have over 60 employees. Everybody knows us. We're very upset. We've been trying to contact them, but we can't seem to get anywhere." Instead, the restaurants in the mall, such as Olive Garden and Red Lobster, are nationally owned chains that can fork out high rents of $30 per square foot.

LOCAL JOBS FOR LOCAL PEOPLE

But even when national chains operate the businesses, local residents can get the jobs. In 2002, the construction of the Time Warner Center, a glass and steel behemoth on Columbus Circle, was wreaking havoc with 3,000 construction workers raising noise and dust.

So New York City Councilmember Gale Brewer thought her constituents should get some jobs in return. Every week for six months, city and state officials, as well as general contractors, building management and shop owners met regularly to coordinate outreach and hiring procedures.

As chair of the City Council's technology committee, Brewer helped put together a web site that job-seekers could use to find jobs in the building. Time Warner Center's managers, Related Management Companies (subsidiary of Related Companies, developers of both the Time Warner Center and the Gateway Center), footed the bill for the web site.

The businesses were hesitant at first. "They were scared," Brewer says. "The private sector doesn't trust the government. . . They thought, "Why should we work with them?'"

One reason was that the city offers consulting services on regulations mandated by Equal Employment Opportunity, the Disability Act and other laws. The luxury Mandarin Oriental Hotel, for example, canceled its contract with a private company that advised them on these issues, says Brewer, "when they found out the city could do it for free."

Much of the effort focused on the Mandarin Oriental Hotel, which had been bombarded with job seekers. The city Department of Small Business Services narrowed down the 6,000 applications to about four for each open position and passed them on to the hotel's human resources department, which did the hiring.

In the end, nearly 70 percent of the 389 new hires at the five-star hotel were from New York City: 90 Manhattanites got jobs. Brewer estimates that her constituents from the West Side made up 20 percent of all those hired. Mandarin also brought on hotel and restaurant workers, including former Windows on the World staff, who had been displaced by the September 11 terrorist attacks.

The entire process was a first for the city, and the city hopes to replicate it in all five boroughs. With the Fulton Fish Market slated to relocate to Hunt's Point by the end of the year, the Department of Small Business Services is working with the area's economic development corporation, community-based organizations and other parties on outreach, hiring and training of new employees.

THE QUALITY OF JOBS

The lowest paying hotel job at the Mandarin pulls in about $16 per hour, plus benefits. That is because in New York's hotel industry, workers are unionized.

Early on, Mandarin signed a neutrality agreement with the Hotel Trades Council, an umbrella group for the city's nine hotel workers' unions. "Management was very cooperative. It is an agreement, and they kept their end," says union spokesperson John Turchiano. "Rather than getting into any types of fights, they said it's smart business." In return, workers got full medical coverage, pension plans, family benefits, access to scholarships and a legal fund, and salaries ranging from $30,000 to over $100,000 a year.

Not all the jobs at the Time Warner Center are as good. Whole Foods, for example, opposes having a union represent its employees.

And whatever the success of the effort at the Time Warner Center, other communities have had a more difficult time. In 2002, for example, residents of Canarsie, another neighborhood near Gateway, complained that they were not being notified of job openings at the center. "My impression is that Canarsie is being left out and shut out again," Reverend Matteo Rizzo of the Informed Voices Civic Association said at a community meeting.

And Barron says that what happened on the West Side of Manhattan, he says, is "not what happens in communities of color. We do meet with everybody, we make those demands," but still do not get good jobs. “I’m not demeaning anybody’s labor, but these are entry-level jobs,” says Barron. It might be more tolerable if at least the store was owned by a local entrepreneur. But when the owners are out of state millionaires, it raises his ire.

"There's a difference between economic development and economic exploitation," he continues. "When you give a corporation a tax break to hire us on a minimum wage basis, that's straight up exploitation."

Workers in some Home Depots have complained of salaries of only $10 to $12 an hour and say they do not get overtime pay that they are entitled to.

Whatever their failings, the big corporations may offer better salaries and benefits than small neighborhood businesses. One assistant manager at the Home Depot in Gateway Center told the New York Times, "It's a good thing to be able to get a job right here in the neighborhood, a job with benefits, not some mom and pop place way off in the city." His boss told the Times that of the 248 jobs filled at Home Depot, 200 hailed from around East New York.

But the question is whether government and business can do more to create better opportunities for the residents. "Of course [the new projects] are going to create jobs," says Bettina Damiani, project director of Good Jobs New York, which tracks corporations receiving tax breaks. "The real issue is what's the quality of those jobs. Do you create job ladders and training? There's not a citywide policy that would guarantee those things would happen."

The City Council's Alternative Budget Choices


The New York City Council's responseto Mayor Michael Bloomberg's preliminary budget offers a refreshing display of alternative budget choices. After releasing his cryptic, status-quo plan in January, the mayor has mostly left the budget stage to the council. And since both the council and the Independent Budget Office's March report say there are substantially more revenues available for next year than the mayor indicated, the council has taken the initiative to find new ways to spend the money.

The council also adds a broader vision, to address the city's always fragile revenue base, though their proposal is politically naĂŻve.

$1 Billion More To Spend, Council Says

The core of the council's alternative plan stems from its projection that tax revenues this year and next are much higher -- $900 million higher -- than the mayor's projection. (The IBO report projects $667 million in higher tax revenues over the two years.) For fiscal year 2005, the council comes up with over $1 billion in anticipated new revenues ( the added tax revenues, plus some new agency cuts and rejection of the mayor's $250 million property tax rebate to homeowners). The council proposes spending the bulk of this new money this way:

· $97 million: New spending initiatives, mostly to reduce class size and increase library hours
· $292 million: Restorations of mayor's cuts and enhancements
· $145 million: Funding private bus franchises
· $344 million: Tax cuts, primarily $236 million for a two percent property tax cut

Rainy Day and Surplus
The council, like the mayor, is taking a generally conservative fiscal position, promoting budget reserves and budget surpluses. For instance, the council would take another $100 million to create a "Rainy Day Fund," an emergency fund for tougher times. And it would support a $374 million surplus for 2005, on top of the mayor's projected $650 million surplus, creating more than a $1 billion surplus at the end of fiscal 2005. (The IBO estimates this fiscal year will end up with a $1.6 billion surplus.)

Reducing Class Size, Increasing Library Hours
Two plans make up most of the council's $97 million in initiatives. Reducing class size in kindergarten to third grade (from an average of more than 21 to 20) takes $38 million, and restoring at least 6-day service for all libraries (and 7-day for some) would cost $30 million.

Restoring Cuts
The $292 million of restorations are primarily a response to the "hidden cuts" that the mayor failed to acknowledge in the preliminary budget. These are mostly ongoing programs supported by the council that the mayor does not "baseline," (i.e., he drops them out of the budget) for subsequent years. This obfuscation constrains the council and confuses the public.

Among the council's major "restorations/enhancements" are:
$20 million in aging,
$11 million for youth employment,
$34 million for youth services,
$12.5 million for cultural affairs,
$2.75 million for legal services,
$59 million for child care (including $10 million for child care slots and nearly $9 million for preventive services), and $5.3 million for housing.

Tax Cuts
The council's $344 million tax cut plan sets up a challenge to the mayor's proposed one-shot property tax rebate for homeowners, but given the reality of the $3 billion tax increases in this year's budget, the overall fiscal impact of either plan will be minimal.

What does distinguish the council's plan is its targeting of tax relief to lower-income seniors and working families. Some 140,000 senior homeowners would see their 18.5 percent property tax increase wiped out. And 40,000 senior renters would get some relief through a tax abatement for small-building landlords. Moreover, the council once again proposes a small city-funded earned-income-tax credit for working families (costing only $11 million), 75 percent of which would go to families earning under $20,000.

The most expensive ($236 million) part of the council tax-cut plan, however, is its "permanent" across-the-board two percent cut in the property tax rate. Unlike the mayor's plan, and assuming that renters would get some kind of pass-through savings from their landlords, everybody would get at least a nominal benefit.

Both the mayor and council's property tax-cut proposals illustrate how such marginal changes only add complexities and inequities to the city's property tax system. The IBO's March report, for instance, shows the mayor's stated purpose - relieving 420,000 house owners and 180,000 co-op/condo owners of their 18.5 percent property tax increase - doesn't work equally, given the bizarre nature of assessment practices. Most house owners would get a rebate of about $50 more than their 18.5 percent increase, while most co-op and condo owners' rebate would be significantly less than their 18.5 percent increase.

The council adds a couple of other marginal wrinkles to this dysfunctional property tax system. It proposes an $11 million "deepening" of the property tax abatement currently enjoyed by co-op and condo owners, a council attempt (ongoing since the mid-1990s) to equalize tax burdens among homeowners. This would benefit some 65,000 lower-valued co-op and condo units by raising their abatement from 17.5 percent to 25 percent of their property tax.

The other wrinkle flirts with the council's old reputation for comic irrelevancies: $5 million for a property tax credit for homeowners who prune city-owned trees in their neighborhood.

Commuter/Reverse Commuter Tax
The council has a more visionary, if politically unlikely, plan in its other revenue proposal, what it calls a Commuter/Reverse Commuter program. This would be a 1.1 percent tax on the income of 800,000 commuters to pay for services provided to them. (Until repealed by the state legislature in 1999, a 0.45 percent commuter income tax raised about $500 million a year.) Since there are 140,000 city residents who work in suburban New York counties, the "reverse" part is that the city would reimburse those counties for their services to those commuters at an equivalent 1.1 percent of their suburban salaries.

The city would use the net proceeds of such a commuter tax - about $1 billion a year - to pay for the debt service on bonds that would be issued for capital expenditures in the schools and for affordable housing. This money would leverage about $6 billion of education capital and $5 billion of housing capital. The council thinks 40,000 units of housing could be built, half of which (new and preserved) they would target to households earning less than $25,000 a year. The other 20,000 units would be new and targeted to households earning between $25,000 and $104,000.

But such a program would need to pass the state legislature, which has already rejected similar legislation in the past.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

New York's Sports Economy



For more on sports figures in NYC see the chart below

Also, two articles debating the west side stadium in New York City:

The Jets Stadium: Another Sad West Side Story
Joe Restuccia
Bringing the Jets Home
by Jay Cross

And in Community Gazettes, how sports play out in Staten Island and Brooklyn:
Reviving Coney Island
(Coney Island, Dist. 47)
St. George: Waiting for the Ferry Terminal
(Staten Island, Dist. 49)

NY Player Salaries NY Sports Costs
Yankees Alex Rodriguez: 10-year $252 Million contract

$80 million for minor league baseball stadiums in Coney Island and Staten
Island

Knicks Stephon Marbury: 6-year $104 Million contract

$178 million in tax breaks and infrastructure for new Brooklyn Nets arena
(projected)

New York Jets Curtis Martin: 5-year $30 million contract $600 million from city and state for new New York Jets stadium (projected)
Rangers Mark Messier: 1-year $3.9 million contract $200 million in tax breaks for Madison Square Garden since 1982
2003 Female U.S. Open Tennis Tournament winner Justine Henin Hardenne: $1
million paycheck
$1.8 billion for extension of 7 train for Jets and Olympics (projected)

Yankee third baseman Alex Rodriguez has yet to swing a bat in the stadium known as "the house that Ruth built," but already many in the city believe that the highest paid baseball player in the world is worth every penny of his $252 million contract.

The Yankees have already surpassed their record for annual ticket sales. Modell's Sporting Goods can't keep Rodriguez's number 13 jerseys in stock. And television ratings and cable and advertising rates for Yankee games are expected to skyrocket.

But it isn't just Yankee owner George Steinbrenner who is seeing dollar signs.

When A-Rod made a visit to City Hall, even Mayor Michael Bloomberg began calculating what the city's newest millionaire resident might mean for New York.

"It is true that Alex's salary, the taxes on that, are going to balance the budget for the next seven years," joked Bloomberg.

Sports are big business in New York. A city comptroller's report estimated that the sports industry is worth as much as the entire construction industry. There is even a city agency dedicated to sports and a commissioner charged with growing "a healthy environment for professional, amateur, and scholastic sports activities."

Sports are also driving some of New York's biggest plans for the future.

City officials are already working to build a professional basketball arena for the Nets in Brooklyn. Last week, Mayor Bloomberg put his full support behind a controversial plan for a $1.4 billion football stadium on the west side of Manhattan for the New York Jets - that would also be a key part of a bid for the 2012 Summer Olympic Games. (Read articles by Jets President Jay Cross arguing for the stadium and Joe Restuccia against the stadium.)

Politicians claim that these enormous projects will bring tens of thousands of jobs and billions of dollars to the city.

But critics counter that such economic predictions are wildly inflated. Much of the money goes to developers, player salaries, and media tycoons. Stadiums cost taxpayers millions of dollars. And those authentic A-Rod jerseys that cost $199 are not even made in the U.S., let alone New York.

Sports, they say, can make us cheer or jeer, but they don't do anything for the bottom line.

NEW YORK CITY - A SPORTS TOWN

While New York is often called the financial capital of the world and the media capital, the city can also make a case for being the sporting capital.

The city claims five professional sports teams within its borders:

Two minor league baseball teams:

And that is not including the teams associated with New York that play in New Jersey and on Long Island:

Each major professional league has its world headquarters in New York. The city is home to huge annual events like U.S. Open tennis tournament and New York City Marathon. And every year, the city plays host to dozens of smaller events, like the Millrose Games track and field competition, the Big East college basketball tournament, professional cycling, and even "Man vs. Machine" chess, which featured a match between the top player Garry Kasparov and a computer.

City Hall officials estimate that the sports industry generates $11.5 billion a year, or 2.5 percent of the city's total annual economy.

"It is just a fact that sports play a significant part in the city's economy," said city Sports Commissioner Kenneth Podziba. "The reason we can host so many successful events is that we have an international fan base. New Yorkers are the most passionate and knowledgeable fans."

The New York Yankees - with their 26 World Championships - are the most lucrative sports franchise in the city, and arguably the most recognized sports team in the world. On any game day, the Yankees employ about 2,000 people.

In the past, the city comptroller's office has estimated that each time the Yankees make it to the World Series, it generates between $60 and $90 million for the economy, based on ticket and concession sales, media payments, and other money spent on restaurants and merchandise. The Yankees have made it to the World Series six times in the last eight years.

This week, the Yankees will try to expand their international appeal and boost tourism by opening their 2004 season in Japan, which is the most lucrative foreign tourism market for New York, sending more than 300,000 visitors a year to the city.

BOOING THE BOOSTERS

However, some budget watchdogs and experts say that the economics of sports often don't add up.

The biggest expense for most professional sports teams is player and owner salaries. (The New York Yankees have the highest payroll in baseball at $156 million a year, or three times the payroll of the Florida Marlins, who beat the Yankees in the World Series last year.) But most players do not live in the city - with rare exceptions like Mets first baseman Mike Piazza - and so they do not spend that much of their salaries in the city or pay local taxes.

"When the commuter tax was abolished [in 1999], we even lost our ability to tax players from the suburbs and from visiting teams," said Doug Tureskey of the Independent Budget Office, who estimated that, when the commuter tax was still in place, the city earned $500,000 in annual tax revenue from Mets and Yankee players and their opponents.

 

Also when the average Yankee fan pays $45 for a ticket, it is not really additional money being spent in the city, economists say. That money would likely have been spent at a restaurant, clothing store, or Broadway play anyway.

 

Sports often cost taxpayers and the city government long after stadiums and arenas are built.

For the last 20 years, Madison Square Garden has received a property tax exemption worth $12 million a year. Under city tax law, the tax break is given because major league hockey and basketball teams play there, and without it, the law reads, the "loss of the teams is likely."

Since it was implemented in 1982, it has cost the city more than $200 million.

Critics argue that such taxpayer subsidies are a waste of money, given that Madison Square Garden, L.P. - , which owns the Knicks, Rangers, the MSG and Fox Sports New York television networks, and Radio City Music Hall is a profitable company that did more than $772 million worth of business last year.

When one adds up the billions of dollars in taxpayers' money that goes to fund stadiums and arenas, the cost of police and sanitation, and delays from traffic congestion, economists say, sports has little or no effect on the local economy.

"By having a sports team or a new stadium or arena, you don't increase the level of per capita income, and you don't increase the level of employment," said Andrew Zimbalist, a professor of sports and economics. "There's no direct economic development of communities."

STADIUM POLITICS

Six dozen new ball parks, stadiums and arenas have been built in the U.S. in last 10 years. In many cases, the argument for funding the projects with public money was that they would help grow the economy, revive neighborhoods, and produce jobs.

But what often convinces the public and officials to spend the millions is the fear - one of the worst fears a sports fan can have - that their teams would repeat what happened in New York half a century ago.

In 1957, both the Brooklyn Dodgers and the New York Giants baseball teams left for California. Mayor Robert Wagner and other elected officials tried in vain to keep the teams in New York, even offering to build new ballparks. Many New Yorkers still mourn that day.

"When I was 12 years old I cried like a baby when the Dodgers left for la-la land," said Brooklyn Borough President Marty Markowitz.

In the 1990's, Mayor Rudolph Giuliani, a die-hard Yankees fan, pushed for a new Yankee stadium on the west side of Manhattan when owner George Steinbrenner said he might leave for New Jersey. Political opposition eventually killed the plan and the Yankees stayed anyway.

But Giuliani did not give up on his stadium quest, and he led the effort to build two minor league baseball stadiums, which opened in 2001. While the teams have been successful - the Brooklyn Cyclones have sold out 106 consecutive games - some in the neighborhood say they are still waiting to see the benefits on the local economy. (Read articles about the Coney Island and Staten Island stadiums.)

When asked why he did not put the minor league stadiums up for a public vote, Giuliani replied, "Because people would have voted it down. That's why you need a leader. Somebody who has some vision."

BLOOMBERG'S SPORTS AGENDA

Mayor Bloomberg - who wrote in his autobiography that he didn't care much for sports - has continued Giuliani's stadium vision, but in a different way.

Bloomberg hired Daniel Doctoroff, founder of the Olympic 2012 bid and part owner of the New York Islander's hockey team, as his deputy mayor of economic development. He also appointed former Yankee executive Joseph Perello as the city's official marketing director.

In January, the mayor quickly backed real estate developer Bruce Ratner, who placed the winning $300 million bid for the New Jersey Nets basketball and has plans to build a new basketball arena in downtown Brooklyn on Atlantic and Flatbush Avenues. (Read articles for and against the Brooklyn arena.)

And last week, Mayor Bloomberg and Governor George Pataki officially announced a $2.8 billion development proposal for the far west side of Manhattan that would nearly double the size of the Jacob Javits Convention Center and include a 75,000-seat stadium for the New York Jets. Officials said the expanded convention center and new stadium would help create more than 15,000 jobs for the city and provide more than 500,000 days of additional hotel stays per year.

"We are bringing the New York Jets home where they belong, and capturing millions of dollars a year and thousands of jobs now lost across the river," said Bloomberg, "[It will] make all of New York more vibrant and economically sound for generations to come."

If the stadium helps lure the 2012 Summer Olympic Games to New York, organizers estimate that the New York-New Jersey region could expect tens of thousands of new jobs and a local economic impact approaching $11 billion. (Read more about the Olympic bid.)

But the plan has steep costs.

The stadium would be financed with $600 million from the city and state, which would pay for the retractable roof and the platform over the rail yards. The Javits expansion would be financed by $600 million from the city and the state, and $500 million from a $1.50-per-night hotel tax. The extension of the number 7-subway line from Times Square to the far west side would cost $2 billion.

Response to the west side stadium plan has been mixed.

Many business groups support the plan, in part because they have long wanted more convention space, which Kathryn Wylde of the Partnership of New York, called the "single most important public investment that the city and state can make."

Several union leaders have endorsed the plan because it means jobs for construction workers and others.

Some elected officials like City Comptroller William Thompson are still examining the proposal, while some area business and neighborhood groups like the Hell's Kitchen/Hudson Yards Alliance vehemently oppose the plan. (See links to websites of groups for and against these projects.)

A New York Times editorial argued that while extending the subway line, creating parks, and expanding the convention center are all good ideas, the west side plan could also "leave the city with nothing but a football team playing on the river, more traffic congestion and a pile of new debt."

SOMETHING TO CHEER FOR

While the economic affects of sports on the city may be debatable, some say that debate misses the point -- how can you price a beautiful jump-shot? Sports offer intangible benefits that tangibly add to the allure of New York.

 

"To say that it doesn't benefit an economy is different from saying it doesn't have any value," said Zimbalist. "It's a form of social and cultural enrichment."

 

And political enrichment too -- embattled Mayor John Lindsay is said to have won reelection in 1969 in some large measure because that was the year that the "Miracle Mets" won the World Series against very long odds.

Sports can offer a sense of community, instill civic and hometown pride, and even inspire historians, artists, and writers who contribute to the cultural life of the city.

When poet Walt Whitman saw children playing baseball in the streets of Brooklyn he urged New Yorkers: "Let us go forth awhile and get better air in our lungs. Let us leave our close rooms... the game of ball is glorious."

Gotham Gazette's Related Articles:
Stadium Fever
Olympics 2012 and New York
West Side Stadium
Netting the Nets by Marty Markowitz
Field of Schemes by Letitia James

Related Links:
New York City Sports Commission
New York City Department of Economic Development
2012 Olympic Bid
Websites for organizations advocating and fighting for new stadium plans in New York

Professional Sports Franchises Located in New York City:
Yankees
Mets
Rangers
Knicks
Liberty

Other Sports and NYC links:
U.S. Open Tennis
NYC Marathon
National Track and Field Hall of Fame
Brooklyn Cyclones
Staten Island Yankees

Bringing the Jets Home


The opposing view on the proposed west side stadium:

Related article on New York's sports economy:
• The Jets Stadium: Another Sad West Side Story
by Joe Restuccia
• New York's Sports Economy
by Mark Berkey-Gerard

And in Community Gazettes, how sports play out in Staten Island and Brooklyn:
Reviving Coney Island
(Coney Island, Dist. 47)
St. George: Waiting for the Ferry Terminal
(Staten Island, Dist. 49)

Ever since the New York Jets temporarily relocated across the Hudson River in 1984, we have been trying to come back. It's been a long and difficult road. We will soon finish our journey home to where we belong, right here in New York City.

The New York Sports and Convention Center will be unlike any other facility in the world. And more importantly, it is not only good for the Jets. It is great for New York.

Some people argue - with almost religious fervor - that stadiums are uniformly bad investments for municipalities. But just like any other public/private partnership, every stadium is different, with several factors influencing whether it represents a sound investment:†the uses the facility will serve beyond sports, the amount of economic activity those uses will generate and the ratio of public to private investment.

A BETTER CONVENTION CENTER

Unlike facilities that are used solely for sports, the New York Sports and Convention Center is designed to be truly multi-purpose. It will only be used 15 to 20 days a year for stadium events. But it will be used another 100 plus days a year for conventions, trade shows and expositions, and at least one week for super events, like the Final Four, the Super Bowl and political conventions.

With its new, expanded convention corridor, New York City will finally have a first-class mid-size convention center of 200,000 square feet. It will work in tandem with Javits Convention Center, offering existing shows ancillary space to expand south, a major plenary hall and corporate hospitality facilities.

Let us also be clear: This stadium is not the long-awaited expansion of the Javits center; it is part of the long overlooked expansion of the convention business.

Javits is fully booked. But because the nationwide average size of a show is about 200,000 square feet, the sports and convention center is ideally suited to go after this mid-size market. There are approximately 1,600 of these mid-size events throughout the nation that could be accommodated in this facility, let alone thousands more in Europe. Right now, those shows are simply lost to other cities.

Being ultra-conservative, can't we assume that New York City can attract just 35 of those 1,600 events annually?

A MODEL PROVEN TO WORK

Although the New York Sports and Convention Center will be a revolutionary facility, it is not a revolutionary concept. There is precedent for the stadium/convention model, most notably the Americas center in St. Louis. Along with the Rams, it serves as host to 45 expo events a year, with the key to its success being the fact that it was conceived as both a stadium and a convention center.

Some people remain skeptical about whether the stadium can double as a viable convention center, but all of the leading show producers in New York have lined up in support of the sports and convention center. When taken together, these endorsements represent more than 30 events on the calendar - and we haven't even printed a single brochure.

The convention center component is critical because it generates so much economic activity around the city through booked hotel rooms, restaurant reservations - and even Broadway shows. Altogether, the New York Sports and Convention Center will generate $75 million a year in new tax revenue to the city and state. One Super Bowl alone would generate an additional $27 million.

A GOOD INVESTMENT

As with any public/private partnership, the question remains the same: Does the increase in tax revenue, coupled with the private investment, justify the public investment?

City Council finance committee chair David Weprin answered that question in an analysis of the economic impact the sports and convention center would have. His conclusion was unmistakable: The sports and convention center is a great investment in New York's future. It will more than pay for itself, just like the Javits center does today.

The reason why this project is so different from others is twofold: the broad mix of uses the facility can accommodate, and the unprecedented $800 million private investment that the Jets are making. In order to take advantage of that private investment, a platform must be built. And in order for the facility to double as a convention center, a retractable roof must be incorporated, both of which are appropriate public investments in infrastructure.

So as Councilmember Weprin's analysis confirmed, for a $600 million city and state investment, the sports and convention center will generate a $1.3 billion return in tax revenue.†It will also create 18,000 construction jobs, and 6,800 permanent jobs.

MORE THAN MONEY

Many of the benefits to the city cannot be measured in dollars alone. The New York Sports and Convention Center will stand as a new architectural icon for Manhattan's west side, its steel frame evocative of the George Washington Bridge. With its 34 wind turbines and solar collectors, it will set a new benchmark in sustainable design.

It will be an active, neighborhood-friendly facility, incorporating a museum, a community theater, several of the city's signature restaurants and more than 10,000 square feet of retail space along the avenues. It will breathe new life into the High Line as a pedestrian walkway and double the size of Hudson River Park between 30th and 33rd streets. And, it will serve as a bridge between the west side and the waterfront - over the highway that now divides them.

And should we realize the Olympic dream of playing host to the games in 2012, it will serve as an Olympic stadium, the envy of the world. The Olympics is not the sole reason to build the stadium, and none of the economic activity I have cited depends on what may happen in 2012. But our nation's bid to secure the Olympics does depend on whether we build the stadium - and if we don't build it, they will not come.

Jay Cross is the president of the New York Jets. This article was adapted from a speech given at the Crain's Breakfast Forum on March 16.

Budget Surplus Obscures Uncertainties


So many people are so optimistic about budget surpluses in the city’s budget both this year and next – the Independent Budget Office projects a $1.6 billion surplus for the current fiscal year, ending in June, and more than a $500 million surplus next year – that the mayor and the city council are bickering over not whether but how to cut taxes.

But in terms of basic city services, the budget prospect is far less comforting. City expenditures in the mayor’s current plan grow from $46.5 billion in 2004 to $52.3 billion, according to projections by the Independent Budget Office, which represents three percent a year. This, however, is misleading: Most city programs and services average only 0.4 percent growth per year. Several are actually losing funding over the next four years, among them youth services, aging, cultural affairs, children’s services, parks, and housing. Most of the growth in spending comes from mandated expenses for debt service, pensions, Medicaid, and fringe benefits.

This problem of flat or declining city-service funding is compounded by the persistence of longer-term budget deficits, an average of more than $2.2 billion a year from 2006 to 2008, according to the Independent Budget Office. One major cause of these shifting priorities and future deficits is the city’s roller-coaster approach to tax policy.

BUDGET UNCERTAINTIES

At the council’s preliminary budget hearing earlier this month, Ronnie Lowenstein, director of the Independent Budget Office, listed four uncertainties in the mayor’s four-year plan:

  • the absence of any money for wage increases (each one percent increase in wages costs about $200 million)
  • the dependence on new federal and state aid
  • accelerating pension costs (perhaps $300 million more than the mayor’s projected $600 million increase in 2005)
  • and (“a huge uncertainty”) the possibility that the city will have to bear a share of the anticipated new schools funding stemming from the Campaign for Fiscal Equity’s successful suit against the state’s education funding system.

School Aid

The campaign’s March 1 proposal for funding the schools(which they call a “work-in-progress”) suggests a statewide, fully-implemented plan to provide a sound basic education to all students would cost $9.5 billion more than is currently being spent, 49 percent of which ($4.7 billion) would go to New York City. The big unknown is how much of that $4.7 billion would come from increased city, not state, funding. The campaign’s own estimate (see page 27 of their proposal) would represent a 35 percent increase in city-funded per capita funding from the 2001-2002 year ($4,362 per pupil) to the fully-implemented year ($5,878).

State Takeover Of City’s Debt In Doubt

Several other uncertainties revolve around Governor George Pataki, his many public authorities, and the state legislature. The good news in early March was the decision of the state appellate division to approve the legislature’ s $2.5 billion five-year takeover of the city’s Municipal Assistance Corporation debt, a move the Governor has blocked. ($500 million of that deal is still part of this fiscal year’s budget.) The bad news was a state authority’s appeal of the decision to the state’s highest court.

State Aid, State Authorities

On another front, the projected $400 million in new state aid is, as always, a question mark at this point. The City Comptroller says half of the $400 million is at risk. But still another major uncertainty is how Governor George Pataki will help or hinder the city in a number of economic development and governance issues that, at least tangentially, can affect the city’s budget. A highly critical report on public authoritiesfrom the office of the state comptroller, Alan G. Hevesi, is a reminder of how secretive, self-serving, and unaccountable state authorities can be: “A culture of arrogance,” he says, “pervades these entities.”

Through one or another such authority, the governor controls the future of the World Trade Center site, the Javits Center expansion, Governors Island, and the Olympics/Jets/commercial West Side project. The style of such authorities was illustrated at a recent Baruch College Newman Institute seminar about the “Lessons of Battery Park City.” A founder and one of three current board members of the Battery Park City Authority proposed to fill in another 25 acres of the Hudson River at its north end and suggested the Authority take over all development in downtown Manhattan, including Governors Island.

BUDGET BALANCING

The mayor’s bold fiscal strokes last year have had a very positive effect on the current plan. The large budget surplus for this year and the smaller anticipated surplus for next year stem in large part from the property, personal income, and sales tax increases that the mayor proposed and, with modest changes, the council enacted in the last budget cycle. On the other hand, the mayor and council made the increases temporary, ignoring the chance to achieve structural budget balance, i.e., a long-term balance between revenues and expenditures.

Losing $1 Billion In Tax Revenues

As the new tax rates are phased out, the city will lose over $1 billion a year in tax revenues, most of it from the progressive personal income tax, where the cancellation of two top rates (4.25% and 4.45%, for couples making over $150,000 and $500,000, respectively) will sharply narrow the gap between rates for lower- and higher-income New Yorkers. The 4.45 percent top rate, incidentally, was the prevailing top rate for most of the 1990s, through both bad and good economic times.

The balanced-budget news has prompted competing tax relief programs between the mayor and council. The mayor wants to give up $250 million in property tax revenues through a rebate of $400 for co-op, condo, and house owners’ property taxes. That leaves out any relief for renters and business owners.

Council Speaker Gifford Miller announced a $300 million tax-cut package in his February 25 State of the City speech, including property tax relief for low-income seniors and the two percent across-the-board property tax rate decrease. The relief for seniors is progressive, and the inclusion of renters in the plan is more broad-based than the mayor’s plan.

But the council rate decrease is only two percent, and therefore the bulk of the property tax relief will go to larger commercial owners. And neither the mayor nor speaker’s plan addresses the existing complexities and inequities in the property tax system. House owners on average have a better tax deal than co-op owners, and co-op owners have a lower burden than condo owners. Worse, the average renter, who earns less than the average owner, carries a much higher burden than the average owner.

SHIFTING AWAY FROM SERVICE PRIORITIES

The financial plan’s comfort with technical budget balancing and the lack of any vision in the 2004-2008 financial plan means that the increasingly smaller share of city funding devoted to basic services goes unattended. Beyond the bickering over a tax-relief package, the mayor and council will apparently spend the spring fighting, as usual, over “hidden service cuts” – the hundreds of programs funded by council and borough president initiatives that are simply left out of any four-year plan because the mayor calls them one-year-only programs.

So while the mayor and council bicker into June over perhaps $400 million of tax relief and budget restorations, the longer-term shift in budget priorities unfolds as if inevitable. Most service spending is flat or declining, while overall expenditures grow from $46.5 billion to $52.3 billion. IBO figures show Medicaid and pension costs skyrocket in dollars and as a share of the budget:

• In 2004, Medicaid costs $3.4 billion, or 7.4 percent of the total budget
• In 2008, Medicaid costs $4.5 billion, or 8.5 percent of the total budget

• In 2004, pension costs are $2.4 billion, or 5.2 percent of the total budget
• In 2008, pension costs are $4.2 billion, or 8.1 percent of the total budget

In contrast, basic services lose dollars and/or shares of the budget:

• In 2004, education spending is $12.7 billion, or 27.4 percent of the budget
• In 2008, education spending is $13.5 billion, or 25.8 percent of the budget

• In 2004, police spending is $3.5 billion, or 7.5 percent of the budget
• In 2008, police spending is $3.5 billion, or 6.6 percent of the budget

• In 2004, children’s services spending is $2.6 billion, 4.9 percent of the budget
• In 2008, children’s services spending is $2.2 billion, 4.1 percent of the budget

• In 2004, aging spending is $224 million, or 0.48 percent of the budget
• In 2008, aging spending is $199 million, or 0.38 percent of the budget

All in all, it would be good if the mayor and council could temper their bickering and publicly address some of the larger uncertainties that their own budget and their own governor pose for them in coming months.

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

A Minimum Wage Increase Will Hurt Small Business and the Working Poor


The issue of increasing New York State's minimum wage is again receiving considerable attention in the state capitol in Albany. And at first blush, a lot of New Yorkers stopped on the street would probably agree with the general idea of putting more money into the pockets of the working poor. Even small-business owners may well think that putting more money into the hands of their poorer customers is a good idea. But raising the minimum wage is not the same as delivering more income into the hands of people with low-skill jobs.

In fact, it is a complicated issue with many potentially serious implications for the future of our state as well as our lowest-skilled workers. So, when something like a hike in the minimum wage is proposed -- something that sounds simple, intuitive and benevolent -- responsible citizens should still take a step back and ask: Who really pays for the increase? The answers may surprise you.

In 1999, New York hiked the state minimum wage to $5.15 per hour and permanently tied it to the federal rate. This placed New York State on par with every other state that links its minimum wage to the federal wage and eliminated the problems caused when competing states have differing wage laws. It leveled the playing field and placed the issue of a minimum wage where it belongs -- with the federal government.

Nevertheless, organized labor is now pushing hard for a $1.60 -- or 31 percent -- increase in the state's minimum wage, notwithstanding the competitive disadvantages for business that would come from leapfrogging the federal rate.

A higher minimum wage puts strong upward pressure on the entire wage structure, which is the real reason that unions support it. But as any first-year economics major will tell you, if you tax something (in this case, jobs) or increase its cost, you end up with less demand for that thing. Can a state with one of the most expensive business climates in the nation, that has 300,000 unemployed and has lost 100 manufacturing jobs a day for the past five years, afford a new round of generalized wage inflation? The unions ought to think this through more thoroughly.

Perhaps most surprising, though, is big labor's indifference to the question of whether or not a hike in the minimum wage would really help the working poor and whether we can afford its wider social and economic impacts. Research from Michigan State University, for example, found that increases in the minimum wage encourage more teenagers to leave school and enter the workplace, displacing lower-skilled workers from their jobs.

Raising the minimum wage will work to deprive the working poor of job opportunities. Those most affected will be single parents, developmentally disabled persons, school dropouts and recent immigrants with poor language and reading skills. If you price entry-level labor higher than its real value, jobs will not be available for people whose skills are limited.

Then there is the impact on small businesses, considered by many to be the engine of growth and opportunity in the American economy. A small increase of $1.60 per hour would cost a bake shop with ten clerks and bakers over $30,000 per year, not counting the increases that a higher payroll brings in the costs of workers compensation insurance, unemployment insurance, Social Security taxes, Medicare taxes and even liability insurance in some cases. This is money that most small employers simply do not have. So, what will they do? Lay off workers, increase prices, or both.

When you consider that businesses with fewer than 100 employees create the majority of new jobs in New York, and that small business has created about two-thirds of the net new jobs in the United States since 1970, the proposal to hike the minimum begins to look less attractive.

Small businesses in New York are struggling against a tide of steadily rising costs. To reverse this trend and stimulate growth and jobs we must work to reduce the costs of doing business. Increasing the minimum wage at a time when we can least afford it just adds to the problem.

Now, is the sky going to fall if New York increased its minimum wage? Would we see dramatic layoffs and skyrocketing unemployment overnight? Probably not. But given that state spending, debt and taxes are already too high, the increase would hurt.

The final reason for opposing an increase is that it is not necessary. New York offers a wide array of generous programs, like the Earned Income Tax Credit, that provide cash assistance to encourage people to work without the negative impacts of a hike in the minimum wage. Other assistance comes from the Child and Dependent Care Credit, the federal Child Tax Credit, the Home Energy Assistance Program, and the Real Property Tax Circuit Breaker. Health benefits are provided through programs like Child Health Plus, Family Health Plus, Healthy NY and Medicaid. Nutritional assistance comes from Food Stamps, the Special Supplemental Nutrition Program for Women, Infants, and Children (popularly known as WIC) program, and school breakfast and lunch programs. A college tuition tax credit also aids low-income families.

In 2003, the state and federal earned income tax credit was worth $5,465 per year for New York families making no more than twice the poverty level, providing over $700 million to the state's working families and individuals. With the tax credit counted, the effective hourly wage for a single parent with two children is $7.77 per hour (well above the wage rate sought by the Working Families Party). Add in the value of food stamps, free school meals and health insurance and the effective value of a minimum wage job tops $14 per hour.

New York today generously helps its most needy residents -- and in ways that do not damage small businesses or destroy job opportunities for teens and low-skilled people. Goodwill toward those who are less fortunate than us is natural -- but it should not cause us to turn off our minds and end up spreading far more ill than good.

Mark Alesse and Matthew Guilbault are with the New York chapter of the National Federation of Independent Business, a nonprofit, nonpartisan group representing 20,000 small businesses in New York.

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Related Story

New York Workers Need A Raise
by Andrew Friedman and Fernando Ferrer

The City Budget and Labor Unions


When Mayor Michael Bloomberg announced last month that New York City's fiscal crisis was beginning to subside, he hailed the "heroes of this crisis" and said it was time to reward those who helped "get us through the last two years."

But the "heroes" the mayor was talking about were not the police who saw their ranks decline by 4,000 officers nor the firefighters who worked to cover more neighborhoods after six firehouses closed - but taxpayers who own their own homes.

In his $45 billion budget, Mayor Bloomberg proposed a $400 property tax rebate for condo, co-op, and homeowners, but he said there was no money for pay increases for city employees.

"People will look and say there's lots of money in there for raises," the mayor said. "There isn't."

Every city labor union contract has expired, but Mayor Bloomberg says there can be no salary increases without concessions on work rules, benefit packages, and overtime and vacation policy. So far, the City Council, which has traditionally championed city workers, agrees with the mayor, and even offered to give out larger tax breaks rather than advocate for raises.

Labor leaders accuse officials of playing political games with the budget and ignoring the workforce that keeps the city running.

"Now is the time to invest in our public employees who have not let us down," said Brian McLaughlin of the New York City Central Labor Council. "Years of privatization and productivity schemes from City Hall have gotten us nowhere."

The outcome of these contentious negotiations between city government and labor have an impact not only on the city's fiscal health, but also on how the schools run, how clean the streets are, if crime goes up or down, and how long it takes to put out a fire.

THE CITY'S WORKFORCE AND COSTS

New York City employs about 286,000 full- and part-time workers. The full-time workforce is often divided into three categories:

  • 96,000 teachers
  • 64,000 uniformed employees - police, firefighters, corrections officers, and sanitation workers
  • 80,000 "civilian" employees - all of the workers that do not fit into other categories.

In the last three years, in an effort to streamline government and cut costs, the city's workforce has decreased by 5 percent or 14,000 full-time positions.

But despite cuts, the city's overall labor costs have risen 20 percent.

The reason, say fiscal watchdogs, is that New York's overtime, benefit and pension packages are more expensive than elsewhere in the country and the costs continue to rise.

In 2003, New York City paid out $870 million in overtime, nearly double the total a decade ago. The average cost of a New York City worker is now more than $82,000 a year, including pay and benefits, according to one report (in pdf format).

"A significant part of the city's budget problem is caused by growing personnel costs," said Diana Fortuna of the Citizens Budget Commission. "The city will be continually forced to cut services if these costs are not curtailed."

In addition to the city's active workforce, New York also supports 180,000 people who have already retired.

Pension costs are the fastest rising share of the budget. According to the mayor's office, pension and fringe benefit costs rise 5 percent each year; by the year 2008, the city will pay $10 billion a year in pensions or about 20 percent of the annual budget.

WHAT CITY HALL WANTS

Since he took office in January 2002, Mayor Bloomberg has taken a fairly tough approach toward unions.

The mayor reduced the city's workforce. He threatened to jail MTA workers if they went on strike in December of 2002. And last year, he demanded $600 million in concessions from unions to help balance the budget, when they did not produce what he wanted, he blamed union leaders for tax hikes and service cuts.

"When you do something and help us, then afterward, you can get it back," the mayor told labor leaders.

The mayor's latest budget also proposes a new pension level for city employees that would apply to new employees. It would reduce cost of living adjustments, increase the age and service requirements, and require 10 years of work for city workers to become fully vested in the program. Such a program could produce a total of $10 billion in savings for the city between now and the year 2025, according to City Hall.

The New York City Council, which has no direct role in collective bargaining agreements, but must still approve the budget, generally agrees with the mayor, and has made tax cuts a priority.

"All city employees could use a raise, but unfortunately we are still in some financially difficult times," said Councilmember Joseph Addabbo, Jr., chair of the council's civil service and labor committee.

The City Council also has the power to bring certain labor issues into public view and help shape the negotiations - either by raising workers complaints or uncovering inefficient work rules.

Last fall, Councilmember Eva Moskowitz, who chairs the education committee, held a series of hearings on school employee work rules and helped bring to light how difficult it is to get rid of poorly performing teachers, a process that can sometimes take up to two years.

The union was angered by the council hearings, especially since the overwhelmingly Democratic members usually side with unions in disputes with the mayor. Still shortly after the hearings, the United Federation of Teachers released a plan to overhaul the disciplinary system for teachers, including calling for a task force of pro bono lawyers to clear the backlog of 200 teachers who still receive full pay while awaiting dismissal.

WHAT THE UNIONS WANT

While the mayor can point to rising costs and budget problems, city workers say new contracts and pay raises are long overdue.

Every city union contract - for teachers, police, firefighters, sanitation, corrections, and other workers - has expired. While this is not unusual and new contracts are agreed to retroactively, many workers feel abandoned by the city at a time when taxes, subway fares, and housing costs continue to rise.

Teachers

In June 2002, Mayor Bloomberg negotiated a new contract with teachers that his predecessor Rudolph Giuliani had put off. It included raises of between 16 and 22 percent depending on experience in exchange for working 100 extra minutes a week.

However, since then, relations between City Hall and the United Federation of Teachers have turned contentious.

Recently, the mayor proposed replacing the current 42-year-old, 200-page teachers' contract with an 8-page document that gives the city unprecedented control over educators and the classroom. Bloomberg's teachers contract would:

  • Add more days to the school year.
  • Bar teachers from doing union work during the school day.
  • Eliminate sabbaticals teachers.
  • Cut the number of unused sick days that can be cashed in by retirees.
  • Give bonuses to teachers to work in low performing schools.

United Federation of Teachers President Randi Weingarten rejected the proposal and called it a "kick in the teeth."

However, teachers say it is not just about the details of work rules, but giving teachers the respect they deserve. The mayor, they argue, is making it more difficult to recruit and retain quality teachers.

Forty-five percent of all New York City teachers either quit the profession in their first five years or leave for a teaching position outside the city, according to the union. Currently, New York is having an especially difficult time recruiting math and science teachers. The poorest schools have the highest teacher turnover rates, which means those students are put at a further disadvantage.

Uniformed Workers

Contracts with uniformed services - police, firefighters, corrections, and sanitation worker - often follow a pattern; if one union gets a new contract, the others get agreements on a similar scale.

New York police officers, whose contract expired in July 2001, have long been seeking pay that is equal to officers in other places. The starting salary for a New York City police officer is $36,878, compared to $47,853 in Yonkers.

Like teachers, police officers say it is difficult to recruit and retain officers who can make much more in the suburbs. Police officers also stress the danger of their work - risking death while working for the city. In January, the Patrolmen's Benevolent Association unveiled a massive billboard near Times Square that read: "NYC Cops, ranked #1 in the nation in fighting crime - ranked #145 in the nation in salary: It's time to fix the injustice."

Last year, the city tried to broker a deal with correction officers union and its 9,000 members by creating longer shifts, but the deal fell apart when the city wouldn't put the money saved into pay increases. Like the police, correction officers point to the stressful and dangerous nature of their work.

"You want me to turn this entire municipal work force into a slave organization," said Norman Seabrook, president of the Corrections Officers Benevolent Association. "I don't think so."

In many ways the New York City Fire Department is still trying to rebuild the department after they lost 343 firefighters and a combined 4,000 years of experience on September 11, 2001. Last year, the city closed six firehouses in an effort to save money in the budget. Last week, the mayor agreed to increase the number of firefighters from four to five on additional engines. Union officials maintain that increased staffing is critical for ensuring the safety of firefighters and city residents.

"The difference between a five-man engine and a four-man engine is dramatic," said Stephen Cassidy of the union. "It actually takes twice as much time for a four-man engine to get water on a fire."

And the sanitation workers were angered when 217 workers were laid off for budget cuts. Those workers have now all been rehired and workers say they deserve raises and a new contract, which expired in October 2002.

Civilian Workers

City workers represented by District Council 37, which is the city's and the nation's largest union with over 125,000 members, feel particularly abandoned by the city.

The union includes many lower paying jobs like city lifeguards, traffic employees, museum employees, custodians, social workers, and health care workers. The average District Council 37 member makes $29,000 a year, according to a union spokesperson.

"Many are raising families on this salary and having trouble making ends meet," said Lillian Roberts of District Council 37. "With transit hikes and higher taxes, everything has been raised but their salaries. We urgently need a fair contract now."

Union leaders also point out that when the mayor praises city government as being more efficient, it is the everyday workers that are making it happen.

COMPROMISES AND CHALLENGES

There have been some agreements that demonstrate that the mayor and the unions can negotiate when they want to.

In December, both sides reached an agreement on health benefits. City workers and retirees will now pay on average $200 more in out-of-pocket health expenses each year. In return, the city agreed to increase its contribution to a fund for cancer, asthma, and drugs.

Both sides called it a "win-win" agreement: the city saved $100 million and union members preserved their benefit packages. Labor leaders also said that it might be a major step in moving toward new contracts.

But as workers go longer without new contracts and raises, the tension between city government and unions grows.

In New York City, city workers are not legally able to strike, so protests, work slowdowns, and sick outs are options for disgruntled workers. These actions can translate into poorer performing schools, dirty streets, and eventually less money for city services.

It is often an election that gets the city and unions to sit down and negotiate.

Right now, many union leaders are faced with a dilemma: negotiate with the mayor or try to oust him in hopes of getting someone more sympathetic.

In a recent letter to members, Weingarten said that there was a "window of opportunity" to negotiate a new contract before Bloomberg's 2005 reelection campaign, but she said she has grown more pessimistic in recent weeks.

Mayor Bloomberg, who was elected without union support in 2001, has told labor leaders that he plans on being around for a while.

"Anybody that wants to bet that I'm not going to be around in two years and they'll wait it out, that's a pretty stupid bet, if you think about it," the mayor has said. "I'm going to get re-elected."

#####

RELATED ARTICLES

School Contracts: Do They Serve Students? (January 2003)
Police Pay: What Is Fair? (September 2002)
Labor and the New Workplace (June 2002)
Labor's Bill Comes Due(January 2001)

LINKS

City Office of Labor Relations
United Federation of Teachers
District Council 37
New York City Central Labor Council
New York City Police Benevolent Association
Uniformed Firefighters Association

New York Workers Need a Raise


All New Yorkers have had to brave record low temperatures, wind, snow, sleet and rain this winter. But for Joaquim Gonzalez and thousands of other delivery people throughout New York City the past several weeks have been particularly harsh. They have had to battle the cold, slush and ice for between seven and ten hours a day, six or seven days each week. And no matter how much Gonzalez works, he still cannot get ahead.

He earns the minimum wage for tipped workers: $3.30 an hour. (Workers who do not have the opportunity for tips must be paid at least $5.15.) That means eight hours of biking around snowy, crowded Manhattan streets guarantees him a mere $26.40. Sometimes he lucks out and gets a few good tips. Other times he doesn't. Last month, Gonzalez rode his bicycle more than 70 blocks in the snow for a 50-cent tip. After paying for rent, food, subway, clothes, medicine, and maintenance of his bicycle, Gonzalez is left with almost nothing.

Gonzalez, like other minimum wage workers throughout New York State, is getting a raw deal. Unlike a growing number of states, New York has failed to take action to fix the problem of a stagnant and inadequate federal minimum wage by increasing the state minimum wage.

Since 1968, the purchasing power of the federal minimum wage has fallen by 40 percent. Throughout the 1960s and 70s, a full-time, year-round worker earning minimum wage could keep a family of three above the poverty line. Today, a full-time, year-round worker earning minimum wage can barely get his or her family three quarters of the way out of poverty.

Inflation has eroded the value of the dollar, and the minimum wage has failed to keep up. In the end, the New York State government is not all that different from the woman who tipped Gonzalez 50 cents. It is undervaluing its workers and doing the very least it can get away with.

Nationally, low-wage workers' real wages (taking inflation into account) increased by 5.5 percent between 1989 and 1999, but New York State's low-wage workers saw their real wages fall by 5.5 percent over the same period. Similarly, poverty declined in the United States during the 1990s, but it increased in New York State, as the income gap between rich and poor New Yorkers grew dramatically.

Governor George Pataki's proposed 2004-2005 executive budget does nothing to fix the problems of low-wage workers. In fact, Pataki's proposals would make the situation worse. The governor has proposed reducing food and living allowances for long-term welfare recipients, even though inflation continues to decimate the value of New York State's welfare grant.

Scapegoating the poorest of the poor, though, is nothing new. What is remarkable is that Governor Pataki's budget fails to reward work in any meaningful way. In fact, he has proposed a reduction in the amount of earned income that working welfare recipients can keep before losing benefits, thereby creating a disincentive to work. Additionally, his continued failure to increase New York State's minimum wage to keep up with inflation, and keep it pegged to inflation in the future, punishes hard-working New Yorkers.

New York is full of people who face rough labor conditions and the daily indignity of struggling to survive. Their treatment affects all of us. Poverty wages for workers translates into fewer consumers for business. When under-paid workers get sick, the government -- in other words, the taxpayer -- gets stuck with the bill.

New York's neighbors in Connecticut and Massachusetts have already raised their minimum wages to $6.90 and $6.75 per hour respectively, and neither state has experienced job losses as a result. Moreover, research done in California suggests that a higher minimum wage has important secondary benefits, such as improved health for low-wage workers and a greater likelihood that their children will graduate from high school.

It is high time for New York to join the growing number of states and the District of Columbia that have raised the minimum wage above the federal minimum of $5.15 per hour. Governor Pataki should support legislation currently pending in the State Assembly that would strengthen enforcement of minimum wage violations and raise the minimum wage by almost $2. This legislation would directly benefit more than 500,000 New Yorkers, and indirectly benefit many more, while saving the state money and giving the economy a boost. Joaquim Gonzalez, like all of New York State's minimum wage workers, deserves a raise.

Andrew Friedman is a senior fellow of the Drum Major Institute for Public Policy; Fernando Ferrer, former Bronx borough president and candidate for mayor, is president of the institute.

#####

Related Story:

A Minimum Wage Increase Will Hurt Small Business and the Working Poor
by Mark Alesse and Matthew Guilbault

A Budget With No Soul


Mayor Michael Bloomberg’s $45.7 billion preliminary budget(in pdf format) for fiscal year 2005 is a bland document, with few surprises and no soul. It lays out a generally optimistic budget-balancing scenario, but lacks any vision or sense of priorities. Revenues are up more than anticipated, enough so that there should be a $1.4 billion surplus by the end of the current 2004 fiscal year in June. This is a far cry from the emergency measures — mostly much higher taxes — that marked the mayor’s November 2002 and January 2003 budget plans. Last year’s bold policies worked and created an opportunity to make a personal mark this year.

But all we get is politics. A proposed $400 property tax rebate for each of the next three years for homeowners has already improved the mayor’s popularity in polls. Yet the mayor is oblivious to the new inequities the rebate would create in an already bizarre, unfair property tax system, particularly for renters and small businesses. And there is also a political slap at the City Council: The preliminary budget has no mention of over $200 million in cuts of essential service programs created by the council and borough presidents. It’s an old Rudy Giuliani trick — keeping the council busy restoring the missing dollars — that deflects council and public attention from new and more substantive options.

The budget has no soul because it has no message. Hundreds of pages of budget documents are now easily accessible in the office of management and budget’s vastly improved Web site. But the information has no overall policy or program context. Yes, the 311-system is up and running, and, yes, there is self-congratulation in changes in education, but mostly the documents simply add up to a lot of numbers. (The release two weeks after the budget plan of the preliminary mayor’s management report(in pdf format) -- the mandated report the mayor wanted voters to eliminate through last fall’s charter-revision ballot -- repeats the pattern; lots of data and no message.)

Gains in 2004 and 2005

The city financial plan for the next four years that accompanies the preliminary budget looks a lot better today than it did last June. Some improvement in the economy (but not in new jobs) has added $765 million to projected tax revenues for this fiscal year, and other revenues pushed the total new revenues over $1 billion. This helped increase the projected surplus for this year to $1.4 billion, which the new plan uses to ease budget gaps in 2005 and 2006. The 2005 plan also includes anticipated new state actions worth $400 million and federal actions worth $300 million.

 

The result of the revenue enhancements and the assumed state/federal actions is that there is little need to cut services next year. The mayor in this sense continues to keep his promise to maintain service levels. In fact, the annual exercise to save money, the Program to Eliminate the Gap (PEG), is only $324 million for 2005, or about one percent of total city revenues of $30.7 billion. (Whatever happened to productivity initiatives?) And most of the $324 million in savings comes not from service cuts, but from such actions as re-estimates of federal and state revenues (higher) and of anticipated needs and expenses (lower), shifting of costs from city to other government sources, and one-time revenues.

In this positive economic and fiscal context it is unfortunate that the mayor did not acknowledge his hidden budget cuts. The council, as reported in the January 22 Daily News, has found over $200 million in cuts that are not reported in the preliminary budget. They include:

  • · $12 million in library cuts
  • · $11 million in cultural affairs cuts
  • · $11 million in senior service cuts
  • · $9 million in child care service cuts
  • · $8.5 million in mental health service cuts

In addition, city funding of youth services in the 2005 budget plan totals approximately $100 million, or some $40 million less than was adopted last June for the current fiscal year. The mayor disingenuously claims that all these reductions are not “cuts” because the programs initiated by the council and borough presidents are only one-year priorities, so that they were never in the 2005 plan to begin with. Mayor Bloomberg did not invent this petty political tactic, but he has certainly made it his own.

New Jobs

Although the mayor has little interest in expressing substantive goals in the budget, there are some interesting details buried in technical sections. For instance, job-creation prospects for the next four years are modestly positive: an estimated 40,000 new jobs in 2004, 51,000 in 2005, and an average 35,000 in the subsequent three years. The good news is that, unlike previous years, the city’s job recovery is not expected to lag behind the nation’s.

 

The recent recession had different effects on different job sectors. In a little more than two years after 2000, for instance, the high-salary securities industry went from 200,000 to 160,000 jobs. Finance-dependent services lost 70,000 jobs in roughly the same period. But there are growth areas in health, social, and education services, which collectively added 15,000 jobs in calendar 2003, and which are projected to add 15,000 more jobs each year through 2008. The securities and finance-dependent sectors are projected to have a much more modest recovery.

Empty Office Space

The budget plan also inadvertently raises some serious questions about the mayor’s sports-stadium plans. For instance, given the strong mayoral support for the New York Jets/office development on the West Side of Manhattan and the New Jersey/Brooklyn Nets basketball arena/office space in downtown Brooklyn --projects dependent on more than 30 million square feet of new office space -- it is interesting to note that two million (of nearly five million) square feet of recently completed office space in midtown Manhattan has yet to be leased. In addition, there is an unknown quantity of “shadow space,” office space currently leased but empty, so subject to future sub-leasing and therefore further depressing the market.

Prime market vacancy rates are projected to go over 13 percent in early 2004 and remain above 10 percent through 2006. Re-building the World Trade Center office space (15 million square feet lost) adds another warning sign. How do these utopian real estate goals justify any public budget support for sports stadium plans dependent on new office space for financing?

Rebates in Cigarette and Property Taxes

The budget’s casual approach to the equity implications of bold revenue plans is evident in two areas of the new budget. One is the latest report on the results of raising the cigarette tax from eight cents to $1.50 a pack. Big success! Sales in New York City have dropped by 47 percent, to 182 million packs in 2003, but revenues have grown from $27 million to $158 million in one year, an increase of $131 million, or almost 500 percent! Of course, the cigarette tax, like the sales tax in general, is a very regressive tax.

 

The proposed $400 rebate to owners of 1-, 2-, and 3-family houses, condos, and co-ops will cost the city about $250 million a year in lost revenues each of the next three years (a little more than the hidden service cuts). This will for the average owner apparently wipe out the 18.5 percent property tax rate increase imposed in November 2002 (which was compounded by increased assessments). This will help hundreds of thousands of owners, but it is a crude instrument.

The Independent Budget Office has over the years issued a series of reports that underscore the inequities in the city’s property tax system. One major problem is that renters’ tax burden is in effect five times that of house owners. Another is that co-op and condo owners have a higher property tax burden than house owners.

The council has narrowed the property tax inequities between house and coop/condo owners, but as in the mayor’s rebate plan, it has not tackled the larger problem of equalizing owner and renter inequities (beyond some marginal relief for seniors). Renters, who on average earn considerably less than owners, often do not recognize they are the big losers in such narrow and inequitable “reform,” and thus apparently pose little political danger to policymakers.

The re-constituting of the city’s tax revenue base by the cigarette tax and the property tax rebate should also be seen in the context of the budget plan’s phase-out of the one major progressive tax change during the Bloomberg administration. The revenue package adopted last June included two new, progressive personal income tax brackets for (joint) households earning over $150 thousand (4.25 percent) and $500 thousand (4.45 percent). But the plan also “sunsets” those progressive rates, reducing the 4.25 percent rate in the 2004 tax year, and eliminating both rates at the end of calendar 2005.

The City Council will hold hearings on the preliminary budget shortly (see the schedule) and will presumably hold separate hearings on the preliminary mayor’s management report, which the Speaker of the Council successfully urged voters to retain in the recent charter-revision vote. Perhaps there the public will get a chance to hear what message or vision the budget really carries. For the moment, the preliminary budget reflects silence and obfuscation.

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

A Field of Schemes


brooklyn nets

In This Series:
• Field of Schemes by Letitia James
• Netting the Nets by Marty Markowitz
• Cheerleaders for Real Estate? by Tom Angotti

Recently New York developer Bruce Ratner announced plans to build a 20,000 seat basketball stadium and 17 skyscrapers in Brooklyn's Prospect Heights. This project depends on Ratner placing the winning bid for the New Jersey Nets. However, it also depends on the condemnation of over 1,000 homes and businesses in Prospect Heights and a risky financing system that is full of false hope.

While bringing the Nets to Brooklyn may sound like an intriguing idea, it has troubling fiscal, social, and economic implications for New York City as a whole.

THE MYTH OF JOBS, RECREATION, AND HOUSING

Typically, backers of a new stadium promise it will bring jobs, jobs and more, jobs.

Supporters of this stadium project have been hypnotized by similar claims. The reality is that Yankee stadium at 57,000 seats, which is double the size of the proposed stadium in Brooklyn, only offers 65 full-time positions. Any claim that this proposed stadium would provide for significant and permanent employment is a pipe dream.

Other supporters argue that local schools and other not-for-profit organizations will use the proposed stadium for their recreational events. I respond that there are a number of proposed capital projects to renovate armories and other buildings in Brooklyn into recreational facilities. These facilities, however, do not involve the condemnation of homes and or divert public dollars for private purposes.

The developer also claims that the 17 skyscrapers in his second phase will create 4,500 to 5,500 new apartments. That claim is the biggest joke of all.

Organizations involved with affordable housing do not build high-rise apartment buildings anymore. They realize that people want housing on a human scale where children can play in a yard and neighbors can look out for each other. Furthermore, the total cost for the purchase and construction of this project will in all likelihood make housing so costly, that most working families will not be in a position to afford to live there.

DISPLACING PEOPLE, CREATING TRAFFIC

The developer also plans to use eminent domain - the power to take private property for public use - to evict entire families and businesses for his project.

Approximately 1,000 men, women and children would be displaced if the stadium plans go through (we know the number because we counted - door to door). In addition to families being removed, blocks may be closed to accommodate the stadium separating Fort Greene and Clinton Hill from the Prospect Heights community.

The junction of Flatbush and Atlantic avenues is currently congested with traffic, and adding a stadium and 17 skyscrapers would only serve to worsen traffic conditions in a dense residential community. The massive influx of automobile traffic would tie up a main artery and create the biggest parking lot in the heart of downtown Brooklyn.

Imagine 23,000 more cars - that's nearly 1,000 more an hour - and many more children with asthma.

FINANCING THE FUTURE AWAY

The biggest gamble in all of this is the method of financing the stadium.

Recently, Ratner claimed that all he wanted in exchange for this project is for New York City to kick back some of the sales and income taxes to pay off loans that he had to borrow for the project. It was reported that the total bill for the stadium and surrounding commercial, office and residential development is being estimated at $2.5 billion (not including the $300 million that he would pay for the Nets).

This project will rely upon the use of Tax Increment Financing (TIF). Tax Increment Financing is one of the fastest growing development subsidies in the country, and it diverts future property, sales and income taxes in a designated district until a developer can pay off the costs of the project. It is just another name for corporate welfare.

Bruce Ratner's past is prologue to his future. His Atlantic Center Mall, which is directly across the street from the proposed stadium, is shrouded in a cloud of controversy. It has not resulted in any appreciable benefits to the community and has a 23-year property tax abatement with a disastrous private commercial rental history.

Not only will this be bad for Brooklyn, but for all of New York.

An Independent Budget Office report on the public financing of professional stadiums concluded that dedicating taxes for huge construction projects like this ties up a significant portion of the city's revenues, and often competes with funding for other city needs like schools, police, housing, playgrounds, and sanitation.

I was elected to protect and preserve working families, to create more affordable housing and employment opportunities, and to devise economic plans that involve and respect the character of local communities. I support development of this site, but development that make sense. We need projects that will generate revenue for the area and leave the Prospect Heights community intact.

We do not need to look like an imitation of Manhattan. We stand uniquely and proudly as Brooklynites.

Letitia James represents the district 35 neighborhoods of Prospect Heights, Fort Greene, Clinton Hill and North Crown Heights in the New York City Council.

#####

In This Series:

• Field of Schemes by Letitia James
• Netting the Nets by Marty Markowitz
• Cheerleaders for Real Estate? by Tom Angotti



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