Gotham Gazette

The Place for New York Policy and politics


Three Actions By Governor Pataki That Dim City Budget Prospects

If anyone needed reminding that cities are creatures of the state, Governor George Pataki has done the job. In a series of late-summer actions and inactions, the governor has added problems to the city’s financial plan adopted in June. First, by going to state court to stop Mayor Michael Bloomberg from refinancing $2.5 billion in city debt, the governor has, at least temporarily, taken $500 million a year in revenues out of the city budget over five years. Second, by delaying or misdirecting action in several public authorities that he controls, Governor Pataki threatens the loss or misuse of additional billions of city tax-revenue and economic dollars. And lastly, his new 16-member school-finance commission is so full of Pataki supporters that even the mild-mannered mayor was outraged, calling it “a cruel hoax,” presumably because its makeup makes the prospect of substantial new state education funding more difficult.

Of course one governor is not necessarily the state. The governor’s court challenge to the city’s bond issue may lose — or lead to some kind of compromise. And the governor’s school finance commission will hardly be the last word in designing a more equitable and sound educational financing system. But the pattern of blocking — or ignoring — city policy decisions is an unsettling pattern as the city continues to experience economic and budget uncertainty. In addition, the tools the governor is using — court challenges, state public authorities, and an insular advisory group – make it hard for the general public to understand or participate in decisions that will affect them.

The Immediate Problem

The New York State Legislature’s budget for the state’s current fiscal year (the legislature overrode the governor’s veto) authorized a state takeover of the $2.5 billion remaining city debt service owed the Municipal Assistance Corporation. The city would refinance the $2.5 billion debt now and stretch out the re-payment schedule. This would save the city $500 million a year, for five years. The state would pay approximately $170 million a year for 30 years to pay off this debt. One explanation for the deal was that it was the legislature’s way of making up (at least for five years) for the elimination of the city’s $500 million-a-year commuter tax a few years ago.

Of course there are excellent fiscal-policy arguments against this deal. For instance, the Democratic State Comptroller, Alan Hevesi, opposes the refinancing, pointing out that it extends for another 30 years debt that was prompted by the city’s 1970s’ fiscal crisis. It will cost state (including New York City) residents $5.1 billion over 30 years. And this is long-term borrowing for one-shot, operational budget purposes, generally a fiscal sin.

But these are peculiar times. The governor himself proposed borrowing $4.2 billion to help balance the state budget (an idea accepted in the legislature’s state budget for this year), using tobacco-settlement revenues to pay off the debt over a similar long term. And the governor and state legislature two years ago authorized $2.5 billion of borrowing by the city as an emergency resource after September 11. (The city used $2 billion of that authorization for budget-balancing in fiscal years 2002 and 2003, but Mayor Bloomberg decided not to use the remaining $500 million authorization.)

The governor’s court challenge is based on arguments that the legislature’s 2003 authorization was constitutionally and legally flawed. Supporters say the authorization, while perhaps technically flawed because of a rushed drafting process, was done in a conventional fashion. The governor’s timing – several weeks after the city budget was adopted – is another odd element. City budget direct Mark Page has said the city has already lost $25 million, because of higher interest rates since the court challenge.

This Pataki challenge is apparently an extension, in part, of issues in two other court cases currently before two state appellate division courts, in which the budget powers of the governor and state legislature are in question. One, Pataki v. Assembly and Senate, stems from the 2001 state budget fight, and the other, Silver v. Pataki, challenges the governor’s use of his line item veto on non-appropriation bills in 1998. (John Caher’s article in the September 2 New York Law Journal explains both cases.)

The Governor and Public Authorities

The governor already had a dubious role in another substantial piece of the new city budget – revenues anticipated over four years from new and retroactive rent payments from the Port Authority for use of the city’s two airports. The state comptroller’s July report (in pdf format) on the adopted budget, for instance, says $978 million of that anticipated revenue is at risk, because negotiations over such payments have gone on for years with no resolution. Since Governor Pataki single-handedly controls all New York State issues on the bi-state Port Authority, he bears substantial responsibility for the near-billion dollar risk in the city’s current financial plan.

Two new studies -- the Independent Budget Office’s “World Trade Center Assistance: Aid Received, Aid to Come,” and the New York City Comptroller’s September study, “9/11: Two Years Later, An Analysis of Federal Aid” (in pdf format) -- also illustrate the governor’s many roles through other public authorities in the downtown federal assistance program.

The Independent Budget Office study notes that the Lower Manhattan Development Corporation – largely controlled by the governor – currently has no plans for $1.16 billion in available Community Development Block Grant disaster-related funding. (The Labor Community Advocacy Network to Rebuild New York – LCAN -- is actively promoting a billion-dollar job-creation and job-development plan using this money.) And among existing Lower Manhattan Development Corporation proposals for Community Development Block Grant funding is capital money for another of the governor ’ s public authorities, the Hudson River Park Trust.

Then there is the federal authorization of $8 billion in tax-exempt Liberty Bonds, for commercial and residential development. The state and city have approved only $1.2 billion in bonds thus far, according to the city comptroller. Good Jobs New York, among other advocacy organizations, has highlighted the failure of the governor to produce affordable units of housing thus far with the Liberty Bonds – and attacked the closed-door fashion in which spending decisions are made by the state finance authorities.

The city comptroller, William Thompson, concludes that “the remaining $1.2 billion of the total $3.5 billion [Community Development Block Grant] allocation still lacks well developed action plans, and are therefore considered at risk.” Since these federal dollars would have a substantial economic impact, the risk is a further loss of city tax revenues as well as unrealized jobs. The comptroller anticipates full use of the $1.6 billion in Liberty Bonds set aside for housing development in the downtown area, but sees as much as $4 billion of the $4.4 billion allocated for commercial development downtown going unused.

The Governor and School Financing

In this financial and economic context, the governor’s 16-member school finance commission serves as a kind of metaphor for his insular and anti-city political style over the past several months. While there are several well-known members of the commission, including its designated chairman, Frank Zarb, Floyd Flake, and city teachers’ head, Randi Weingarten, the commission reflects little political outreach. As the New York Times’ September 4 story indicated, “not one member of the group that brought the suit [against the state], the Campaign for Fiscal Equity, was named to the panel, nor was anyone from the Bloomberg administration, the state or city education departments, the State Legislature or the New York State Board of Regents, which oversees educational standards.”

The governor lost the suit to the Campaign for Fiscal Equity and therefore must come up with a financing plan that satisfies the court. Everybody assumes the state will have to contribute substantially more money to the city schools than it does now. But the governor’s finance commission thus far (nine additional seats are anticipated) looks like yet another heavy-handed Pataki tool that promises only more roadblocks for the city’s long-term financial plans.

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



Fire Fight
A recent meeting of activists fighting the closing of Engine Company 212 in Williamsburg, Brooklyn.
. . . . . . . . . . . . . . . . . .

Engine Company 204
A Struggle for Real
Estate in Cobble Hill
Engine Company 212
Another Fight in Williams-
burg -- 30 Years Later
Engine Company 209
A Muted Response
in Bed-Stuy
Engine Company 261
A Small Victory in
Long Island City
Engine Company 278
A Temporary Reprieve
in Sunset Park
Engine Company 36
Refusing to Give
Up in Harlem

A first-term mayor, facing a budget crunch, shuts a firehouse, assuring neighboring residents that their community will remain safe. But, within days of the closing, a blaze sweeps through a home near the shuttered company. Two men die.

Two years later, the closing becomes a key issue in the mayoral campaign with the challenger assailing the mayor's decision. The challenger wins and soon after reopens the firehouse.

This nightmare scenario happened when Mayor David Dinkins closed Engine Company 294 in Richmond Hill, Queens in January 1991.

Mayor Michael Bloomberg, or at least his aides, must surely know this story. Yet in June of this year, Mayor Bloomberg shut down six engine companies - four in Brooklyn and one each in Manhattan and Queens (see articles on each one on our Community Gazettes.) He had promised to do so in his proposed budget, and he stuck to the decision even as he and the City Council agreed to restore many other slashed programs, such as funding to cultural institutions and senior citizen programs.

Last week, the fire department announced that the average response times - the time it takes for the first fire truck to arrive at the scene - have increased in five of the six communities where the fire companies were closed last May.

The news produced an intense reaction, as there was in May - as there has been ever since the city started closing firehouses in the 1970's The arguments against the closings have been loud and well publicized. Shutting a fire station, activists have argued, puts lives at risk and threatens a cherished community institution. Further, some say, it is a "slap in the face" to the 343 firefighters who died at the World Trade Center on September 11, 2001.

On the day in May when the six companies were ordered to cease responding to radio calls, actor Steve Buscemi and hundreds of other protesters demonstrated in front of Engine Company 204 in Cobble Hill, Brooklyn (see story). That same morning at Engine Company 212 in Williamsburg, Brooklyn, Paul Veneski chained himself to the fire truck - as his father had done 30 years earlier to save the exact same firehouse. (see story). In East Harlem, an angry group of people stood outside Engine Company 36 holding banners that read, "They go, We die." (see story).

But supporters of the closings say that, despite all the local protests, the firehouses are not needed. The average city firehouse was built at least 75 years ago, when many neighborhoods had more people; when buildings burned more often; and when fire-fighting equipment was nowhere near as effective. Refusing to change an outmoded system, some argue, is an exercise in nostalgia that a financially strapped city simply cannot afford.

Whatever the validity of such arguments, they lack the emotional appeal of the entreaties of the anti-closing forces, leaving many people, even Bloomberg's supporters, wondering why he would risk his political future to save several million dollars in a $44 billion budget.

Are firehouses today's equivalent of the five-cent transit fare, something city officials and residents fought to preserve for decades, even though it bankrupted a basic city service? Or is the shutting down of the firehouses more analogous to the demolition of the original Pennsylvania Station in the 1960s, when the government destroyed a beloved building without much thought or reason?


The New York City Fire Department today has 340 fire companies, staffed by more than 11,000 uniformed officers and firefighters. To members of the Bloomberg administration, that is simply more than is necessary.

Deputy Mayor Marc Shaw said this bluntly at a conference in December. The department was particularly "ripe for finding productivity savings... Firefighters," he said, "only fight fires five percent of the time;they're sitting around doing nothing the other 95 percent of the time."

The comment provoked outrage and made the news. But it helps explain why the administration proposed that a few of the firehouses be closed, and why a budget watchdog group like the Citizens Budget Commission approved.

"It was a great decision," says Douglas Offerman, senior research associate with the budget commission. "They should have done it a long time ago."

In the years since many firehouses were built, fire safety has improved dramatically, with the installation of such measures as metal stairs and sprinkler systems. The city now is far safer than it was even 30 years ago, a tribute, Offerman says, to "good fire fighting and a tribute to good building regulations."

After peaking at more than 300 civilian fire fatalities in the early 1970s, such deaths dropped to around 100 in the late 1990s. Between 1980 and 1990, a Citizens Budget Commission report found, the number of structural fires (fires in buildings) dropped by 13 percent.

Mayor Rudolph Giuliani tried to solve the fire department's declining workload in the mid 1990s when he merged the department with the Emergency Medical Service. At that time EMS was responding to four times as many calls as the fire department.

Mayor Bloomberg's supporters would argue that he too has been trying to adjust the fire department to present-day reality -- but they also concede he was less than politically astute in making his case.

If much of the fire department is outmoded, wrote Newsday columnist Joseph Dolman, "why not do a total citywide remake?...A mayor might actually build a constituency for this idea."

Instead, the administration relied on a technical argument about response time. A fire department analysis predicted that, after the companies closed, response times in all of the affected communities except one -- the area served by Engine Company 261 -- would remain below the city average of four minutes and 46 seconds. In determining which fire houses to close, the department also reportedly considered how long it would take for a second engine company to reach a fire in the affected area as well as the company's total number of runs.

Last week, the fire department released statistics that showed that response times in June and July did increase in five of the six neighborhoods where fire companies were closed, but emphasized that the increase was minimal. In all but two communities, officials said, the response times were below the citywide average of 4 minutes 50 seconds

"The changes we have seen during the past two months are, for the most part, below our estimated increases, or in line with what we expected," said Fire Police Commissioner Nicholas Scoppetta.


Those who want the firehouse reopened say that the city's response time statistics are not reassuring and in fact they are misleading. They reflect only the time it takes the first engine company to get to a scene, while the department typically requires at least two engine companies and one ladder company at the scene of a blazing fire.

"They're still a long way from putting out the fire," said Stephen Cassidy, president of the Uniformed Firefighters Union.

In the communities affected, the debate has done little to counter the fear of causing fatalities and the sorrow at losing community heroes.

Closing a fire station is "like Russian roulette," says Tom Butler, spokesman for the firefighters' union, the United Firefighters Association ( "You don't want to be the one instance where a life is lost. But, inevitably, these things happen."

The closing would not even be cost effective, the union said. The six closings are expected to save only about $8 million, since all the affected firefighters kept their jobs; they were simply transferred to other companies. In a $44 billion budget, the union said, that's "like a nickel found in your couch."

They disputed the arguments about response time. A study by the International Association of Fire Fighters said that the closings could increase response times by 30 seconds and by a minute if a second emergency occurred in the area simultaneously.

Some of the critics noted that response time only measures the time for the first fire truck to reach the scene and does not reflect how much time it takes for all the vehicles actually needed to put out the blaze to reach the emergency.

The numbers, they say, simply do not tell the whole story. "All the firehouses are connected," says Debora Jackson of, which tracks the firehouse closings. "Envision a balloon; every time you push on one area the other side gets stretched out. That's how the fire department works ...Fewer firehouses mean longer response times."

But to those who feel most passionate about the firehouses, the arguments about response time, staffing levels and demographics ignore the popular appeal of the firefighters. New Yorkers recount not only how they put out flames but also how they come when someone falls sick; how they befriended newly-arrived immigrants near one of the closed firehouses, in Sunset Park, going so far as to fix the plumbing in their homes (see story); how they calm children by rescuing toys stuck in trees.

Throughout the city, residents "have some sort of friendship or relation with the men in the firehouse that they probably don't have with the police," according to Terry Golway, the author of a history of the fire department, "So Others Might Live."


Closing firehouses has been a nearly bizarre pendulum swing between savings and safety, fiscal prudence and political reality, ever since Mayor Abe Beame, facing a frightening fiscal crisis, was the first to close them in the mid-1970's. Thirty-two were shut down in all; Beame served one term in office. His successor, Ed Koch, reopened a Brooklyn firehouse that Beame had closed. But then, citing a decline in fires, Koch closed some firehouses himself. Dinkins reversed Koch's closing of a South Bronx company, then saw his own closing of the Richmond Hill firehouse overturned by Giuliani.

So far, Mayor Bloomberg cannot be accused of such vacillation. As budget discussions continued throughout this winter and spring, the mayor held firm to his closing plan. He rejected proposals that private corporations and individuals contribute funds to keep the stations open.

In February, the mayor and Council Speaker Gifford Miller announced the formation of a seven-member panel to review the closings. The commission voted to approve the closings, with the five members appointed by the mayor and fire department voting yes and the two named by Miller voting no. Neither the mayor nor the commission detailed the findings.

Unwilling to accept what seemed to be inevitable, some opponents took to the streets, and others to the courts. A group of politicians filed suit charging that the city did not conduct a formal environmental review and did not follow required city procedures such as notifying affected community boards. State Supreme Court Justice James Starkey largely rejected the complaint, although he did rule that the city should have notified the Roosevelt Island Community Board of the closing of Engine Company 261 in Long Island City, which serves the island. Starkey did not, however, demand that 261 remain open, and it has in fact closed (see story).

At the same time the court was hearing arguments, the mayor and City Council were hammering out a budget deal. While the accord restored many programs, the final budget did not call for keeping the companies open.

"Not everyone gets everything they want but that's democracy," said Jordan Barowitz, a spokesman for the mayor.

But others say the mayor's staff was adamant about keeping the six companies closed. Councilmember Bill deBlasio, an opponent of the closings, said the mayor had indicated that, even if the money were put back in the budget, he might not spend it.

The firehouses have closed, but local protests continue, with plans to appeal the court ruling and institute legal action. If Mayor Bloomberg has recently started sounding optimistic about the city's financial recovery, the protesters are sounding optimistic too -- the improved financial picture is yet another reason, they say, why their firehouses should be saved.

From Gotham Gazette's Community Gazettes, a look
at each of the six firehouses closed in May 2003:
Engine Company 204
A Struggle for Real
Estate in Cobble Hill
Engine Company 212
Another Fight in Williams-
burg -- 30 Years Later
Engine Company 209
A Muted Response
in Bed-Stuy
Engine Company 261
A Small Victory
in Long Island City
Engine Company 278
A Temporary Reprieve
in Sunset Park
Engine Company 36
Refusing to Give
Up in Harlem
from Gotham Gazette's NYC Books:
FDNY Bookshelf
A list of books about the Fire Department of New York

The Fiscal Monitors Assess The Budget

Three official fiscal monitors have given New York City’s adopted budget for fiscal year 2004 generally favorable reviews, but two private budget groups are rather harsh, giving the Mayor and City Council grades ranging from “B” to “F“. City Comptroller William C. Thompson in a July report (pdf format) says the budget “charts a reasonable course toward current-year balance.” The State Financial Control Board’s July 24 staff report calls the budget “an achievement of no little note,” and State Comptroller Alan G. Hevesi says in his July report on the city’s finances that “the city has demonstrated its ability to manage the budget during difficult times.”

On the other hand, the Citizens Budget Commission, a conservative nonpartisan civic organization, and City Project, a progressive nonpartisan public policy organization, attack several elements of the adopted budget, if from quite different perspectives. The commission’s City Budget Report Card gives a “B” for the budget’s transparency and timeliness, “C” for productivity, “D” for budgeting responsibly (i.e., too much spending), and “F” for tax policy (a high city tax burden “grows even higher”). City Project gives the adopted expenditure budget a “B”, for saving essential services, and the revenue budget a “D-“, for the “temporary and largely regressive nature of its revenues, and its over reliance on debt refinancing and funding shifts.”

Looking ahead, the five new reports highlight several interconnected issues that will be crucial to budget discussions over the next year – issues such as future budget gaps, a squeeze on human service spending, and city tax burdens. The official monitors, for instance, worry about the large deficits beginning in fiscal year 2005 – approaching $3 billion in 2005 and $4 billion in 2006 and 2007. Although those gaps are significantly less than the $7+ billion deficit the adopted budget filled, Thompson says the “city’s options going forward are limited.” The monitors cite problems like increasing mandated costs in non-service areas (pension, health insurance, and debt service in particular) and the Financial Control Board worries about the economic impact of increasing tax burdens.

Notable Cuts In The Adopted Budget

The city’s new $43.9 billion budget for 2004 includes about $3.2 billion in new taxes and fees and nearly $900 million in cuts in basic municipal services. (Another $1.2 billion includes new revenues, re-estimates in spending, staff reductions where the service impact is unclear, and cost-shifting to non-city sources). The budget also reflects a final surplus in fiscal year 2003 of $1.3 billion (largely the result of the November 2002 increase in property taxes), which was used to pre-pay 2004 expenses.

Several cuts are notable. Hevesi points out that city funding for the Department of Education has been reduced by $495 million (“nearly the lowest level permitted under state law”) just as the new department faces higher state and federal educational standards.

The uniformed agencies’ budgets (police, fire, corrections, sanitation) are reduced by $505 million, with the police force to be reduced by 2,100 in 2004.

Libraries take a big hit, with most now open only five days a week instead of six. The Administration for Children’s Services is also hit hard. Hevesi says that since fiscal year 2002, the agency has experienced the most cuts among social service agencies – both in percentage and absolute dollars: “Between July 2001 and April 2003, the city reduced planned funding in FY 2004 for child welfare services by $54 million, and for child care by $107 million…partially offset by an increase of $19 million in community development block grant funds.” The results, among others, include cuts in child welfare contract agency payments, fewer beds, fewer child care slots, higher child care costs for parents, and cuts in crisis services. The mayoral/City Council negotiations in June restored only $11.6 million in city funding for child welfare and $10.9 million for child care.

Future Spending

In the face of such substantial cuts in schools, libraries, and child welfare, it is sobering to see the projected spending priorities in the monitors’ reports. For example, the Hevesi report notes that although spending in 2004 actually grows by 8.2 percent, far above the rate of inflation, the great bulk of the increase is in areas such as pension, health insurance, and debt service costs. Pension costs are projected to grow by $927 million (61 percent) in 2004 alone, and debt service by $663 million (20 percent).

The pressure of such non-discretionary spending only increases over the longer term. The City Comptroller’s report shows how these expenditures (including Medicaid and legal claims on the city) are projected to grow by 51 percent ($5.9 billion) over the next four years. Over the same four-year period, salaries and wages of the city’s workforce are projected to fall by 4.6 percent. City funding of public assistance is estimated to fall by 11.6 percent. And the city’s remaining $11 billion OTPS (other-than-personal-service) budget – over half of which represents the city’s huge contracted-services budget – is projected to fall by just over one percent over the next four years.

The four-year projections in the adopted budget, according to the Thompson report, add up to a fiscal year 2007 city budget that looks like this:

· 2007 Expenditures $49.5 billion
· 2007 Revenues 46.2 billion
· 2007 Budget Gap ($3.2 billion)

However, the City Comptroller (like the other monitors) sees a lot of risks in the projections, and says the 2007 deficit could approach $4 billion.

Tax Burdens

The conventional political wisdom at the moment is that the large tax increases in the 2004 budget preclude any new taxes as the city begins to fill these out-year budget gaps. If this view persists, especially in the face of the huge non-discretionary spending increases, the pressures to cut core city services are likely to be severe. In this context, it is interesting that both the City and State Comptrollers at least begin analyses of the actual tax burdens now facing individuals and businesses. The results of these studies – and two others -- provide initial important data.

The new personal income tax surcharge is a three-year tax increase, in effect from January 1, 2003 to December 30, 2005. According to the State Comptroller, it will produce $644 million in 2004. Who pays? Only singles with adjusted gross income of $100,000 and couples with income over $150,000. For those earning over $500,000, their effective city income tax rate (taxes paid divided by income) rises from 3.65 percent to 4.45 percent. This is a progressive change in tax rates. But the State Comptroller report puts the increase in the larger context of recent federal tax reductions. Those paying the new city surcharge are net winners:

· Couples earning $200,000 will net $3,066: They will pay $1,252 more in city income taxes, but $4,318 less in federal taxes.
· Couples earning $600,000 will net $14,937: They will pay $4,418 more in city income taxes, but $19,355 less in federal taxes.

Incidentally, those couples that make $100,000 and $150,000 – who won’t pay the surcharge – are getting $1,442 and $2,534 reductions in federal taxes, respectively. The State Financial Control Board’s July report ignores this larger context and warns that if the three-year income tax surcharge is not allowed to expire in 2005, it “could well have counterproductive consequences for the economy and for the city’s ability to balance its budget in the long run.”

The tax burden imposed by the new property tax rate increase is much harder to determine. In broad terms, according to the State Comptroller, half of the $1.7 billion increase is paid by commercial and utility properties, 35 percent by condo, coop and rental properties, and the balance by one-, two-, and three-family homeowners (so-called class 1). Factoring in the November 2002 18.5 percent rate increase and assessment increases, the State Comptroller says, “the average real property tax bill for class 1 homeowners has increased to $2,490, which is $591 (or 31.1 percent) higher than in FY 2002.” Since class 1 homeowners have long been protected by a number of technical details in the property tax law – resulting in lower effective tax rates than in surrounding counties – and since the November increase was the first average rate increase in 11 years, further analysis is necessary to understand the full consequences of this hefty homeowner tax increase.

The City Comptroller’s report is interesting also for an ambitious attempt to measure tax burdens in New York City. One dense chart (p. 19) shows four measures of actual and projected tax burden over the 1992 to 2007 period. The measures:

· Taxes per capita
· Taxes per worker
· Taxes as a fraction of gross city product
· Taxes as a fraction of personal income

The report notes that from 1992 to 2001, all four measures grew slowly or declined, “very likely due to the tax cuts in the 1990’s.” In 2002 they all fell, because of the recession and 9/11. Not surprisingly, they all show rises in 2003 and especially in 2004.

To take only the most common measure – taxes as a fraction of personal income, the measure which Rudy Giuliani used regularly to mark his success in reducing taxes – city residents paid an average of 10 cents for every dollar earned during the early 1980s, then 8.5 cents in city taxes for every dollar earned in 1991 and 7.5 cents in 2001, an average annual decline of 1.3 percent. The new taxes will increase this rate by six percent in 2003 and seven percent in 2004.

So what to make of this? On this most common measure, it looks as if in 2004 city residents will have roughly the same tax burden they had from 1991 to 1993, another period suffering from recession and big budget gaps.

What may be different now is the effect of the property tax increase. After 11 years of a frozen average property tax rate, the sudden 18.5 percent increase has exposed how incredibly complex and inequitable the city’s property tax system is. The Citizens Budget Commission report card, for instance, says that the property tax burden on commercial properties is three times that on single-family homeowners. A new report from the New York Public Interest Research Group illustrates the inequitable impact of assessment practices on class 1 homeowners. Another new study, by the Independent Budget Office (in pdf format) , shows how the new tax on absentee landlords will have an unfair impact on poorer neighborhoods. Renters and certain coop and condo owners also get a bad deal, as shown in earlier Independent Budget Office reports and an earlier Gotham Gazette finance column.

The official monitors suggest that at least in the short run the city is in reasonable budget shape. That gives decision-makers some time to examine more closely charges from the political right and the political left that the new taxes are excessive and/or unfair. A comprehensive look at the property tax is the natural place to begin. Budget balance also gives them some time to determine more accurately how several substantial budget cuts affect children in schools, libraries, and the various human service agencies designed to serve them.

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

Summing Up the 2004 Budget; Looking Ahead in Education

After several weeks of negotiations with Mayor Michael Bloomberg, the City Council adopted a $43.7 billion budget for fiscal year 2004 on June 27. The final changes were relatively minor, as the mayor agreed to restore $115 million in cuts, on top of the $90 million he restored earlier in June. The New York Times' front-page news story on the agreement on June 26 reported that the new city budget "was remarkable not for how many services were cut, but how few." (The Times' story also quoted Gotham Gazette's June finance column, when I praised the mayor for a bold $3 billion tax revenue package that minimized the cuts and "avoided a fiscal meltdown.")

Commentators were quick to point to likely future problems: the adopted budget itself says the city faces a $1.8 billion deficit for fiscal year 2005, and the City Comptroller's May report and State Comptroller's June report on the mayor's executive budget projected a possible 2005 deficit of about $3 billion. The comptrollers and other monitors will fine tune those projections in coming weeks, but the general fiscal outlook at the moment seems much more positive than a year ago, when the 2003 budget unraveled almost immediately after its adoption.

Looking ahead, however, one area -- city and state support for public education -- deserves special monitoring. The 2004 education-budget cuts, sold as modest and focusing on management changes, raise a number of questions about fairness and actual impact. Governor George Pataki's repeated attacks on state aid to schools and higher education, foiled in part by the state legislature, continue. For instance, in June the City University board of trustees, controlled by the governor, increased tuition by 25 percent in the city's four-year colleges. On the brighter side, there is good news for the city in the Campaign for Fiscal Equity's victory in the state-court decision that finds the state's education funding system unconstitutional. How the governor responds to the remedial order in that case will be the big education budget story in the next year.


Budget 2004


The mayor's restoration of $90 million in services and the council's additional $115 million led to general relief among human service advocates.

The zoos were saved, 2,300 day-care slots were restored, and 11 child health clinics were saved. Current recycling was not only saved but will be expanded. Council favorites like the Vallone CUNY scholarship and infant mortality programs were restored. Libraries and cultural institutions and programs got substantial, but not full, restorations.

A full accounting of restorations and remaining cuts awaits analysis by the various monitors. What everybody knows now is that six firehouses closed by the mayor will not be re-opened -- a long-running story that apparently had more to do with bureaucratic and political positioning than saving money. What got much less publicity was the layoff of about 4,000 city workers, most of them paraprofessionals and school aides in the department of education. In addition, the extensive use of attrition will cost the city thousands of additional jobs. The New York Times' Eric Lipton pointed out that the police force will dip to 37,500 officers in the new fiscal year, down more than 3,000 from its peak three years ago.


Looking Ahead: Education


While there is already concern about the next fiscal year's (2005) budget deficit -- officially set at $1.8 billion by the mayor and likely to rise quickly as various risks, especially new labor costs, are factored in -- there seems to be breathing room for the mayor and his agencies, at least to maintain existing services. If there is a major question mark about the impact of the new budget, it may be in public education. Not only did the department of education take an inequitable share of staff layoffs, its total dollar "savings" will be by far the largest among city agencies.

With the huge education budget now under the direct control of the mayor, there is some hope that its traditional bureaucratic walls will crack a bit and improve public understanding and influence. According to April's executive budget, education will represent approximately $12 billion of the city's budget in 2004, about $5 billion of it city money. (State aid is about $5.8 billion and federal about $1.3 billion.) The executive budget claimed that cumulative education savings for fiscal year 2004 from actions since January 1, 2002 could total $983 million. Although reduced somewhat in the adopted budget, the original reduction plan represented nearly 20 percent of the city's share of education funding.

Trying to figure out how school services will be affected by nearly $900 million in reduced city funding will be a huge challenge. The plan itself provides little detail. According to the April executive budget, decisions made before February 1, 2003, will produce such savings in 2004 as:

• $66 million from administration reductions
• $64 million from cost shifting to federal and state agencies
• $96 million from cutting low-priority programs
• $60 million from re-estimating salaries and enrollment
• $35 million from better purchasing
• $180 million from a per capita reduction to the schools

The post-February actions for 2004 -- part of the $600 million contingency plan the mayor blamed the city labor unions for -- included cutting nearly 2,400 staff, most by layoffs, to save $83 million. Other actions included cutting teacher sabbaticals ($35 million) and more summer school cuts ($13 million). (Another $120 million in education cuts, part of the mayor's draconian $1 billion contingency plan for 2004, were abandoned in the adopted budget.)

The dry language of these budget statements begs the issue in several cases about the actual impact of the actions. The loss of teacher aides, elimination of "low-priority" programs (teacher mentoring, summer school, summer camp), cuts in per capita spending, and the loss of professional development that goes with dropping teacher sabbaticals all seem to be potentially damaging.

Beyond doubts about the impacts of these budget actions is the larger question of the adequacy of current city spending. Certainly, there is little new spending in the 2004 education budget. The new required curriculum will cost $20 million, a new system for disruptive students nearly $6 million, and a class-reduction effort in the middle schools $14 million, according to the Independent Budget Office's March 2003 report on the preliminary budget for 2004.

Looking further ahead, the Independent Budget Office's May analysis of the executive budget shows education spending almost flat between 2003 and 2007, averaging only 0.2 percent annual growth, well below anticipated rates of inflation. This is alarming in the context of the 1990s: a January 2001 IBO study of education spending in the 1990s showed that real (adjusted for inflation) spending per pupil declined steadily throughout the Dinkins and first Giuliani terms (1990-1997), and had only regained the 1990 level in the 2000 fiscal year.


A New $3.3 Billion Question


Given the current cuts in education spending and anticipated flat spending for years ahead, the June decision of New York State's highest court in the 10-year-old Campaign for Fiscal Equity case is especially timely.The campaign argued that the state's education-funding system was unconstitutional and that it under-funded New York City schools. The court agreed.

As reported by in Gotham Gazette's education topic page, the court's remedial order requires the state by July 30, 2004 to 1) determine the actual cost of providing a sound basic education, 2) reform the state funding system to ensure adequate funds for every city school, and 3) establish an effective accountability system to make sure the reform works. This is obviously a tall order and one that no doubt will affect many other, if not all, state school districts in any implementation plan. (For an excellent essay on this likelihood, see William Hammond's column in the New York Sun, June 30, 2003.)

The Independent Budget Office, at the request of Councilmember David Yassky, has twice done an analysis of what a resolution of the Campaign for Fiscal Equity case might cost, using a State Education Department model (from an unreleased Department study) to determine educational adequacy. As IBO deputy director George Sweeting testified on their most recent analysis, on September 23, 2002 before the City Council, with adjustments for higher costs and greater needs in New York City, the spending difference between the city's public schools and those in the [state's] high-performing districts [is] $3,029 per pupil. With the city system's enrollment of 1.1 million students, IBO concludes that equalizing the city's spending with the level in [those] districts would require $3.3 billion.

The scope of a $3.3 billion equity goal underscores the marginal, patchwork actions in the city's current education budget. Until the state comes up with funding at this kind of scale, the city will be playing catch-up in education budgeting. (There is at least some chance that the city itself may be required to increase its efforts as well.)


The CUNY Case


Offsetting the good news in the Campaign for Fiscal Equity case, the CUNY board of trustees on June 23 raised tuition for students in the four-year colleges of CUNY by $800, or 25 percent. The move followed Governor Pataki's huge cut in state aid to the state and city universities and the state legislatures' decision not to restore the cuts.

This is significant, first, because it threatens to push many lower-income, minority students out of CUNY. (Full-time students who are income-eligible can receive Tuition Assistance Program grants, but the protections for tens of thousands of part-timers are much less. See testimony by the Professional Staff Congress for more detail) It is also significant because it shows again how little the governor believes in public education, an ominous sign in terms of the Campaign for Fiscal Equity case. (The recent restoration of most of the governor's proposed major cuts to city elementary and high schools was done by the state legislature, not the governor.)

The City University of New York decision is also another reminder of the conflicts in the Pataki-Bloomberg relationship. The university's board of trustees, for instance, is not, as one might expect, city run. The board is made up of 17 members, two of them ex-officio, representing students and faculty, respectively. Of the 15 appointed members, the chairperson and nine other members are appointed by the governor. The mayor appoints the other five members. Currently three of the five mayoral members are left-over Rudy Giuliani appointees (including former deputy mayors Joe Lohta and Randy Mastro). The mayor seems powerless in this context.

So as the new fiscal year begins, there is, first, a good chance that the mayor';s strong stand on promoting tax revenues to minimize service cuts will stabilize the city's fiscal condition, at least for the near future. And secondly, there is now, with the state court's decision on state education funding, an opportunity for the mayor to show similar strength -- by pushing the governor and state legislature to do the right thing for public education in New York City.

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

Dedicated Taxes

NYC Taxes Annual Revenue for City *
Real Property $9.9 billion
Personal Income $3.9 billion
Sale and Use $3.6 billion
General Corporation $1.1 billion
Unincorporated Business $779 million
Real Property Transfer $509 million
Mortgage Recording $482 million
Commercial Rent $398 million
Utility $292 million
Banking Corporation $181 million
Cigarette Tax $156 million
Other $516 million
*Estimated from Mayor Michael Bloomberg's Executive Budget, Independent Budget Office, and City Comptroller's reports, and includes tax increase approved for fiscal year 2004
Like many New Yorkers, Forest Hills resident John Romanski has been frustrated by the recent budget battles at City Hall.

Romanski's property taxes went up more than a hundred dollars a year when Mayor Michael Bloomberg and the City Council raised them by 18.5 percent last fall. Then this spring, the mayor has closed firehouses, cut teacher's aides, threatened to reduce trash pickups in his neighborhood, and even proposed closing the Queens zoo. (For more on the final budget agreement see Breaking Down the Budget Game)

If his property tax increase was not going pay for all of these services, Romanski wondered, how was it being spent?

"I thought that if my real estate tax was divided up for essential services like police, fire, and sanitation, and the city was cutting back, then I might be in line for some kind of rebate," he said.

If Romanski lived in Nassau County, he would have had a little better idea of how his property tax money was being spent. In Jericho, for example, residents get a bill that includes not only a county and town tax, but also a tax to support libraries, and a separate levy to fund schools.

However, New York City operates with a highly consolidated government and budget process. Every year, $20 billion in taxes are collected and put into a general fund and then distributed to various agencies according to a budget decided by the mayor and the City Council.

Some argue that this kind of budget process means that things like education, parks, libraries, and cultural institutions routinely get shortchanged.

One way to relieve this problem - and citizens' confusion about where their money is going - is to institute dedicated taxes that go to specific purposes.

In April, Manhattan District Attorney Robert Morgenthau called for a "public safety tax" on commuters who earn a living in New York City to boost funding for the city's police, firefighters, hospital employees and other public safety workers.

Last year, the New York City Council proposed a personal income tax surcharge that would cost the average New Yorker $25 a year and would generate $400 million a year for school construction.

And for years, some parks advocates have been lobbying for a dedicated funding stream to pay for green space, such as is done in such cities as Chicago, Seattle, Denver, and Minneapolis. (See sidebar on Minneapolis parks.)

But in New York, which already has the highest taxes of any city in the country, would dedicated taxes provide reliable sources of funding or make it even harder to balance a $44 billion budget?


Most large cities, like Los Angeles, Chicago, and Houston, rely on just two taxes - the property tax and sales tax. But New York City has more than two dozen taxes including property, general sales, personal income, and business income taxes. (See chart for local taxes.)

Part of the reason that New York City must get its revenue from a wider range of sources is it also spends its money on a wider range of services. Most cities do not have the large municipal workforce, the extensive police and fire departments, and social service programs that New York does.

"In New York State half of Medicaid and welfare are borne by local governments," said George Sweeting, deputy director of the Independent Budget Office, who notes that in many cities the state and federal government pay the entire bill for these programs. "That forces the city to look at a range of revenue."


The idea of a dedicated tax may seem alien in New York City, but it has been used in the past.

In 1989, the City Council and then Mayor David Dinkins approved the "Safe Streets-Safe City" surcharge on the property tax and persuaded the State Legislature to approve an income tax surcharge as well. In allowing the tax hike, the state required the city to have at least 38,310 officers, an increase of more than 6,000. The additional funding has been credited with dramatically reducing crime in the city.

In 1996, when the tax expired, City Council Speaker Peter Vallone proposed extending the surcharge for three years to renovate and build schools, but Mayor Rudolph Giuliani rejected the idea.

And although most New Yorkers are not aware of it, they already pay taxes that go to specific purposes.

A quarter percent of the local city sales tax as well as a portion of mortgage recording tax goes to the Metropolitan Transportation Authority to help fund subway, bus, and commuter rail service. And there is a $1 a month tax on every New Yorker's phone bill that goes to 911 emergency phone service.

And there are also designated fees that residents and businesses in certain areas pay.

In the city's 44 Business Improvement Districts, the property owners in a defined area vote to pay a special assessment on the property tax for security, street cleaning, park improvement, and other services above and beyond what the city provides.

In Battery Park City, which an independent state authority operates, more than a third of the $5.9 million spent annually in the parks on horticulture, maintenance, and programming comes from "civic facility fees" paid by residents and developers.

The Department of Environmental Protection, which oversees the city's water and sewers, is the one city agency that has its own revenue stream. Funding for maintaining and upgrading these systems comes from water and sewer fees levied and collected by the independent New York City Water Board. These fees are used to back bonds issued by the New York City Municipal Water Finance Authority for capital improvements. The State Legislature established the two independent agencies in 1984 because of a concern that the city was not adequately funding the modernization of the essential systems that supply and safeguard drinking water and collect and clean wastewater.

"We have dedicated funding for water and sewer because long ago it was realized that a good water and sewer system requires a long term view [and] should not be left up to the annual political shenanigans," said John Rooney, an advocate for funding parks in a similar manner.



Most school districts in New York State are required to win voter approval for any substantial increases in their school budgets. That rule, however, does not apply to New York City, Yonkers, Rochester, Syracuse and Buffalo - often labeled the "Big Five" - in which school spending is subsumed by the larger, municipal budget process.

New York City schools get their funding from the state and the city budgets and must compete with other services like the fire department or sanitation for funding. The governor and State Legislature in Albany negotiate state education funding as part of the state budget package. Money is distributed to the various school districts through 40 different complicated aid formulas.

Some argue that means that New York students do not get their fair share. In 1999, New York City spent $9,623 per-pupil - $694 less than the state average of $10,317. The average downstate suburb, including Westchester, Rockland, Orange, and Nassau counties, spent $12,520 per student. Last week, the Court of Appeals, the state's highest court, agreed that the funding for education has been inequitable, and ordered the state to find a new formula so that schoolchildren in New York City are no longer at a disadvantage.

A personal income tax surcharge proposed by the City Council in 2002 would have generated $400 million a year for school construction. But Mayor Bloomberg never pursued the idea and it was abandoned when the mayor and the City Council chose to increase property taxes 18.5 percent to raise $1.7 billion for the general budget.

This year, the idea of a dedicated tax for education was never part of the budget process as the mayor gained approval from Albany to increase the sales and income taxes.

Some feel that if New Yorkers were given more say over how their tax money is spent - in particular on education - that city residents would support the idea.

"In my opinion, the majority of people would say `yes' to increasing the amount of money going to education if they knew the money was being well spent," said Councilmember Robert Jackson, who serves on the education committee. With the court's ruling last week, Jackson's opinion may soon be tested.


A dedicated real estate tax is the major source of funding for some of the country's s best park systems - including Seattle, Chicago, and Minneapolis. (See side bar on Minneapolis parks.)

"By and large, the systems that have dedicated funds are in better shape and do a better job," said Peter Harnik, author of Inside City Parks.

Minneapolis "may come closer to urban park nirvana than any other metropolis in the United States," urban parks expert Peter Harnik wrote in Inside City Parks, his in-depth look at 25 city park systems in the United States.

The Twin City is known for its 53-mile-long Grand Rounds parkway system of scenic roadways, trails, and paths linking many of the city's lakes, parks, gardens, and natural areas. There are miles of pedestrian and cycling paths and ski trails, all well maintained. Minneapolis has almost half as many sports fields and more recreation centers than New York City, even though it has one-twentieth the population. According Harnik's most recent data, in 2001 Minneapolis spent $164 per resident in parks operating and capital expenses, the third highest of 48 major U.S. cities. In comparison, that year New York City spent $54 per capita on parks.

A major reason Minneapolis has been able to create and maintain its extensive park system is that the parks are owned and operated by the semi-autonomous Minneapolis Parks and Recreation District, governed by an elected board of commissioners. The district determines its own budget and has the authority to levy taxes and issue bonds. It also keeps the fees and concession revenues from specialized recreation areas like golf courses and water parks.

In 2002, the park district received 9.6 percent of a resident's property tax bill, which would be $227 on a median value house. The other significant source of funding is state local government aid, which provided about 20 percent of the district's budget until recent cuts due to the economic downturn.

Having an elected park board has made the Minneapolis park district more accountable and responsive to residents. When the board had to cut the 2003 budget this spring, it went to the community for feedback on where the cuts should be made.

-Anne Schwartz

One argument often made for a dedicated tax for parks is that they require the long-term planning made possible by a consistent level of funding. A predictable revenue flow allows regularly scheduled maintenance of buildings and grounds that would otherwise deteriorate to the point where they need costly capital renovations.

From 1991 to 2002, for example, the city spent $1.9 billion in capital funding on parks - borrowed money on which the city pays interest - much of which went to restore things that had fallen into disrepair.

The Independent Budget Office has calculated that a dedicated property tax of 1.5 percent of assessed value could raise about $100 million for parks, roughly half of recent park budgets but far less than park advocates believe is needed. A dedicated tax of that size would raise property taxes $48 for the average coop, $29 for a rental apartment in a large building, and $34 for a single-family house.

David Lutz, the director of the Neighborhood Open Space Coalition, has been calling for a dedicated funding source for parks, favoring a tax on plastic grocery bags, beverage bottles and takeout containers. It would be similar to Ireland's year-old 15-cent plastic bag tax, which is earmarked for the environment - although that tax has been so successful in reducing supermarket bag use and litter that it has raised a fraction of the money expected.


Many library systems across the nation are funded by local taxes. Homeowners on the North Shore of Long Island, for example, pay about $70 a year to fund their own library system.

New York has a system of libraries - the New York Public Library, Brooklyn Public Library, and Queens Borough Public Library, as well as the New York Research Libraries - that operate on a mix of city, state, and federal revenue as well as private contributions.

If the city were to dedicate part of the property tax for libraries, property owners would see a rise in assessed value from more than a third of a percent to almost one percent, depending on the borough, according to an Independent Budget Office estimate. To fund the New York Public Library, which serves the Bronx, Manhattan, and Staten Island, the average single-family home owner would pay about $58 more a year and the average condo owner would pay about $174 a year.

The idea of a library tax has not caught on and the alternative during the recent budget crisis has been to seek private funding. Recently the Carnegie Corporation donated $4.5 million and the Starr Foundation gave $1.5 million in an effort to raise additional money for library operation.

Cultural Centers

Recently, the Brooklyn Museum of Art announced that it would be forced to close for two weeks in August because of budget cuts. It is one of 34 institutions owned by the city or on city property that make up the Cultural Institutions Group, whose budget would be reduced to $77 million from $105 million under the mayor's proposed budget.

As with libraries, Mayor Michael Bloomberg's solution has been to encourage private donations.

"What I would suggest is that you write a check, get all of your friends to write checks, and if every one of your friends gets another person to write checks, with six degrees of separation, pretty soon everybody will be supporting the culturals," Bloomberg said.

Another idea, which was never discussed in this year's budget process, is to issue a hotel tax to help fund the Department of Cultural Affairs.

Under a scenario analyzed by the Independent Budget Office, increasing the hotel tax by 1 percent could raise additional $39 million for museums, theatres, zoos and botanical gardens. On the downside, the extra tax might reduce hotel stays, decreasing the city's total receipts from the hotel tax and the sales tax.


While advocates argue that dedicating taxes would generate a stable revenue and help protect schools, parks, libraries and museums from cuts, many budget experts consider dedicating taxes to specific services an unwise public policy.

"From a fiscal perspective, it is less attractive because it can skew priorities, particularly in a downturn like we're in at the moment, when competition for tax funding is very intense," said Ronnie Lowenstein, director of the Independent Budget Office. "At times like these, if you lock in a certain piece for parks or tourism or libraries, it limits the city's options."

The kind of dedicated tax that would be worth exploring, according to Edmund J. McMahon, of the Manhattan Institute, is one going to very local districts organized around neighborhood services, following the model of a Business Improvement District.

For example, if a park adds value to the surrounding area, those residents might be willing to pay for it. "If a neighborhood park is well kept up, if it's nice and clean and has a full array of services, it obviously helps keep up the property value," said McMahon.

However, in the last eight months, New Yorkers have seen hikes property tax, sales tax, income taxes, and cigarette taxes, so the chance that politicians or the public would go for more seems unlikely.

"I think most people feel we've had enough already," said Marcia Van Wagner of the Citizens Budget Commission.

The City Budget: Avoiding Fiscal Meltdown

Mayor Michael Bloomberg has pulled it off. With only some last-minute negotiations with the City Council left before the city budget is adopted (as of this writing), the mayor has marshaled support to fill an $8 billion budget gap for fiscal year 2004 -- the biggest gap since the mid-1970s’ fiscal crisis. He has done so with relatively few major service reductions because of an emphasis on new revenues. New property, personal income, and sales tax increases alone will total over $3 billion in 2004. The personal income tax increase – worth $784 million in 2004 – is quite progressive. In fact, the depth and the character of the tax increases suggest a “Nixon-to-China” analogy -- that is, a radical shift in policy that only a Republican could get away with!

Problems remain. The 2004 budget for the new Department of Education is likely to be almost $400 million less than the 2003 budget, the first time since 1996 that funding has been reduced. The heavy property tax burden on lower-income New Yorkers – renters as well as owners – has yet to be addressed. The mayor’s service and workforce reductions – some of which will be restored by the council – seem targeted disproportionately at vulnerable individuals and communities. The elimination of the sales tax exemption on clothing and the sales tax increase are regressive. And the personal income and sales tax increases were – like last November’s property tax increase – stealth measures, introduced and enacted at the last minute, with no chance for public debate.

But the mayor’s overall plan has worked brilliantly. The Independent Budget Office says he got as much as $210 million more than the $2.7 billion from the state that he asked for, if in different forms. (Governor George Pataki has threatened to use the courts to try to overturn some of the State Legislature’s budget actions.) He got more than the $200 million he asked for from the federal government. He will end fiscal year 2003 with a billion dollar surplus. He has worked productively with the City Council, which has contributed its own ideas and generally supported the major elements of the mayor’s plan. Above all, the mayor has smartly averted a fiscal meltdown.

How to Find $8 Billion

The City Comptroller’s May report on the mayor’s executive budget for 2004, the State Comptroller’s June executive budget report, and the Independent Budget Office’s June report on the Albany aid package give the big picture of how Mayor Bloomberg found $8 billion in savings and new revenues to fill the awesome budget gap.

The largest components include:
· $3.2 billion in reduced agency spending
· $3.0 billion in new taxes
· $1.0 billion in surplus from fiscal year 2003
· $530 million in savings from the state taking over city debt
· $350 million from bond refinancing, taxi medallions, and state revenue sharing

The $3.2 billion in agency savings includes attrition, layoffs, funding shifts (state and federal dollars replace city dollars), re-estimates of needs, service contract cuts, and other service reductions and eliminations. Final service and workforce reductions will depend on the City Council/mayoral negotiations in June before the 2004 budget is adopted.

The $3.0 billion in taxes includes, most dramatically, the full-year effect of last November’s 18.5 percent property tax increase ($1.7 billion). The Independent Budget Office’s June study of the Albany aid package lists the gains from the brand new taxes: a personal income tax surcharge for individuals making over $100,000 a year, and couples making over $150,000 ($784 million), a city sales tax increase of 0.125 percent ($123 million), elimination of the sales tax exemption for clothing ($277 million), and a 25 percent surcharge on the property taxes of absentee homeowner landlords, a smaller version of an idea first proposed by the Council ($70 million).

The property tax increase remains a mixed bag: fair in the sense that nearly everybody, renters as well as owners, participates, and businesses pay a substantial part of it, but unfair in the lack of tax relief for most who need it. The loss of the sales tax clothing exemption – which translates into paying $86 more on $1,000 worth of clothing purchases – is especially regressive. The one clearly progressive new tax is the (temporary) personal income tax surcharge, which adds two new tax rates for high earners (affecting only 4.1 percent of taxpayers, says the Independent Budget Office).

The property tax increase in November, additional federal aid, and other actions means that the city will end the current fiscal year (June 30) with a billion dollar surplus, which will be used to pay next year’s bills. The $530 million savings in debt service was a last-minute deal with the State Legislature: The city owes $2.5 billion in debt service left over from the Municipal Assistance Corporation (MAC) bonds issued to resolve the mid-1970s fiscal crisis, and the city was going to pay it off over the next five years. Now the debt will be re-structured and the $2.5 billion will be paid off over 30 years -- $170 million a year – by the state (at a total cost of $5.1 billion, according to the State Comptroller).

Among smaller parts of the new revenue package are: $165 million from the re-financing of Battery Park City Authority bonds, $65 million from the sale of taxi medallions, and $73 million from some accelerated state revenue payments. The Independent Budget Office report shows how $2.3 billion of the $2.9 billion in state aid represents gap-filling, and the rest restoration of services that the city would not have provided itself. The restorations of health, education, and social services were made possible by the State Legislature’s own progressive enactment of state personal income tax surcharges for high earners – an idea pushed effectively by a statewide coalition of community, labor, and human service advocates.

The Politics of State Aid

From a fiscal and political perspective, the “state aid package” is a misnomer. After all, more than $1.2 billion of the package – the city’s new personal income and sales taxes – is simply the state giving the city authority to tax itself. And the state’s assumption of $2.5 billion in city MAC debt adds another dubious instance of borrowing money to pay for current operations (the state budget includes $4.2 billion in tobacco bond revenues to be used for state budget balancing).

The politics of the state package are especially interesting. As the city comptroller’s report points out, its “components…are significantly different than those assumed in the [mayor’s] executive budget.” The mayor’s revenue request to the state, beginning in November 2002, was for a commuter tax, and the city council’s alternative revenue proposal in April also focused on a (different) commuter tax. But those commuter taxes never had a chance in Albany politics. The proposed commuter tax thus worked only as a revenue “placeholder.” The last-minute shift to city taxes had political advantages: the authorship of the taxes was shrouded and any need to have a public debate was minimized. A clever if disingenuous strategy.

The Downside of the FY 2004 Budget

The state comptroller’s June report on the executive budget (and state and federal actions subsequent to its release) says, “the change in the city’s short-term fiscal outlook is dramatic and fiscal year 2004 budget balance would be achieved without draconian cuts to core municipal services – although the current plan does entail layoffs and painful service reductions.” The pain level will likely be eased somewhat by last-minute council/mayoral negotiations – also shrouded in secrecy – over several hundred million dollars of council demands.

The state comptroller also notes that the city will get some additional help from Washington from provisions in the recent federal tax cut law. States will get $20 billion from two new programs: higher federal Medicaid payments to the states and a new federal revenue sharing program. The city could receive as much as $290 million in new Medicaid funding over 15 months ending June 30, 2004. In addition, New York State will get about $650 million from the revenue sharing program, but it is not clear if the city and other localities will share in that new money.

But if the 2004 budget looks solidly balanced, it is not clear what its real impact will be.

The city comptroller’s report points out the new Department of Education’s $12.2 billion budget is nearly $400 million less than projected 2003 spending. This three percent decline is the first reduction since fiscal year 1996 and occurs as new state and federal mandates on school standards unfold. City funding is $4.9 billion, which represents only the minimum required by the June 2002 education law that gave the mayor authority over public education.

The impact of workforce reductions on services is also not clear (and also subject to last-minute adjustments before adoption). Currently, it is clear that over 50 percent of the layoffs hit two of the largest agencies working with children. The city comptroller says that 4,483 city employees will lose their jobs by June 30, 2003. Forty percent of them (1,813) are education employees. Another 12 percent (528) are children’s services workers.

Moreover, the workforce cuts are a reflection of a major shift in city spending priorities. Although the executive budget anticipates a no-growth 2004 budget of $44.7 billion --only $70 million higher than 2003’s -- the city comptroller points out that this masks dramatic changes. The 2004 budget will actually see over 23 percent growth -- $2.7 billion -- in just five non-service areas: pensions, health insurance, Medicaid, debt service, and judgments and claims. At the same time, all other city spending will decline by nearly $3 billion, or 8.7 percent. That is a worrisome sign for future city services.

The city comptroller is also more pessimistic about the city economy than the mayor. He sees job losses of 63,500 in 2003 and a gain of only 5,100 jobs in 2004, whereas the mayor sees losses of 75,000 jobs in 2003 but a gain of 20,000 jobs in 2004. The comptroller sees gross city product rising only 0.8 percent in 2004; the mayor projects it rising 2.9 percent. And the state comptroller projects that the three years beginning with fiscal year 2005 will face budget deficits ranging from $3.5 billion to $4.0 billion a year.

In other words, there is plenty to worry about in the future. But in the meantime – and absent any surprises from the governor or from the adopted-budget negotiations – it may be time to commend the mayor for a bold and successful budget strategy that stabilizes the city’s fiscal condition and maintains most city services.

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

The New Newcomers


When Emily Arsenault moved to New York from Minneapolis in March to try to break into the theater, she knew that getting auditions and landing a part would be tough. What the 25-year-old didn't realize was that it would be almost as hard to find a job waiting tables so that she could support herself while pursuing her acting career.

"People actually advised me to lie on my resume or they said I'd never get a waitressing job, that's how competitive it is," said Arsenault, who was eventually hired by a Manhattan restaurant. "They told me that if you're going to wait tables in New York, you'd better know how to wait tables like a professional."

More than half a century ago, in his famous essay “Here Is New York,” E.B. White wrote that New Yorkers born elsewhere who move here “in quest of something” are what give the city its passion – as well as its “high-strung disposition, its poetical deportment, its dedication to the arts, and its incomparable achievements.” No matter what these newcomers are seeking, he said, “each embraces New York with the intense excitement of first love, each absorbs New York with the fresh eyes of an adventurer, each generates heat and light to dwarf the Consolidated Edison Company.”

But what if each can no longer afford to pay the electricity bill?

The promise of the big city seems to have dimmed since September 11, 2001, with a slumping economy that has caused a surge in unemployment and an increase in costs. All this raises uncomfortable reminders of the problems that scared people away from New York in the 1970s – and are frightening even those people most intent on becoming New Yorkers.

“I stare at my walls worrying about the future,” writes Maria Luisa Tucker in Gotham Gazette’s new Newcomers Weblog. Now living in New Mexico, she is moving to New York City later this month. “The economy has soured and jobs are scarce. I have yet to figure out how I will make rent once my meager savings run out. I have only two acquaintances in the city, no job, and I’m beginning to freak out.”


The mix of worry, confusion, hopefulness and excitement with which newcomers arrive in the city is a very old story that keeps on being retold. A new musical that is scheduled to open on Broadway this summer imagines a kind of “Sesame Street” for recent college graduates who have braved their way to the big city. It is entitled “Avenue Q,” named after the (imaginary) street in the outer boroughs cheap enough for a young person to afford.

Characters from Avenue Q
(Photos courtesy Rick Lyon)

One puppet-character sings:
“I wish I could go back to college
Life was so simple back then…
I need an academic advisor to point the way.”

Another sings:
“I can’t pay the bills yet
‘Cause I have no skills yet
The world is a big scary place.
But somehow I can’t shake
The feeling I might make
A difference to the human race.”

But newcomers do seem more worried than usual, and they are joined by other New Yorkers. Saskia Sassen understands why.

"There does hang over New York the horror of September 11 and a gloomy picture for the global economy, etc.," says Sassen, a University of Chicago sociologist who is the author of the book, The Global City. “People are constantly asking, have we really reached the point where this old magnet function of a city like New York is dying?"

Jobs that newcomers covet are in fact getting scarcer. “It’s the industries on life support—music, publishing, the Internet, take your pick—that cloud much of the optimism for the young and unemployed in New York,” Ethan Brown wrote in New York Magazine.“These are the jobs that shape our sense of possibility, our sense that what we’re doing can be done here and only here. And they’re fast disappearing from the city’s landscape.”

"I've been discouraging inexperienced people from coming here," says Laurel Touby, the founder of Mediabistro, an online community for people in journalism and other media-related fields. "There are a lot of people who are coming here even if there is no work for them and they are just scraping by."

New York counts on an influx of newcomers because, as cities from Detroit to Philadelphia to St. Louis have learned firsthand, a stagnant or falling population destabilizes neighborhoods and school systems, drives away employers seeking large pools of labor, and leads to reductions in the tax base. It also means smaller allocations of federal dollars.

"The growth and development of great cities come from their ability to harness diversity and welcome newcomers' energy and wealth," the Pennsylvania Economy League says in a report that was in part the basis for a plan to attract people to Philadelphia.

In addition, the American Planning Association has noted, newcomers often bring with them an entrepreneurial spirit that lead to the establishment of thriving businesses and more jobs.

Over the years, New York has thrived thanks to its willingness to embrace wave after wave of newcomers, whether immigrants revitalizing neighborhoods from Brighton Beach to Belmont in the Bronx, or young people from elsewhere in the United States helping to create new industries and elevate the city's cultural life.

That seemed to change in the 1970s, when the fiscal crisis gripped New York, accelerating the flight of corporations and residents. From 1970 to 1980, the city lost 824,000 residents.

Today, the city has gained its population back. The 2000 Census counted about eight million residents, and, since then, according to Census Bureau estimates, foreign immigrants have continued to flock here -- net migration from abroad was 251,000 from April 1, 2000 to July 1, 2002 -- though among people moving within the United States, the city lost 319,000 more people than it gained.

But some sense a creep back to past troubles. As the New York City Partnership pointed out in a report (in pdf format) last fall on the anniversary of the World Trade Center attack, incomes in New York have been depressed by a total of $4.5 billion since 9/11 and the slump has destroyed as many as 32,000 jobs and $1.2 billion in income at hotels, airlines, restaurants, performing arts venues and sports organizations. In addition, there has been a dramatic reduction in the number of tourists visiting the city, especially big-spenders from abroad.

And despite some signs of economic recovery, the state Department of Labor says total private sector employment fell 1.7 percent in the city from March 2002 to March 2003. Looking at the sectors that tend to attract many newcomers, the picture is at best mixed. Jobs in the arts are actually up slightly, 0.7 percent, but media jobs are off eight percent and food service jobs have slipped as well.

For people such as Arsenault, that means there are obstacles wherever they turn. Reduced tourism and higher unemployment cut into support for arts and theater. Less support for the arts means fewer jobs and more people turning to stopgaps, such as waiting tables. Meanwhile, the demand for restaurant jobs has heated up just as the recession began cutting into business at bars and eateries, reducing the need for waiters and bartenders. The city's smoking ban, some contend, has made the situation worse.

"I'm finding that all these theaters and places that I could be auditioning are canceling shows," Arsenault noted. "People are needing to work more and they are enjoying theater and movies less because they're worried about their finances."


Over the past decade media jobs enticed many young people to move to the city but lately, those positions have disappeared at a rapid clip.

Television and radio employment is actually up in the past 12 months but the number of jobs in print periodicals fell by about 6,000 in the past two years as magazines and newspapers slashed costs to cope with a severe advertising drought and some titles folded. The end of the dot-com bubble also meant the demise of several publications that covered Silicon Alley.

Touby, of Mediabistro, says the entry-level media jobs that still exist are being filled by experienced people who cannot find better opportunities.

"I have three interns coming in here to Mediabistro who have masters and other advanced degrees," says Touby, whose Web site brings together media professionals interested in improving their skills, socializing and finding out about job opportunities. "I've got a lawyer here interning for me."

Still, people keep coming, if only because the situation for media professionals in other cities, such as San Francisco, is even worse. "People are coming back to New York from other cities because they have no other options," Touby says. "They're coming here even if there is no work and scraping by."


Gerard Hammink, a 34-year-old television news producer from Minneapolis, came to New York last year and spent two or three months job-hunting before finally landing a gig with CNBC. He is happy with the job, but it is a temporary freelance position that doesn't include benefits. Permanent work that pays well is still scarce.

"I'm working but I feel like I'm still looking for a job in a way," says Hammink. "I'm not really financially secure or anything like that."

With so many New Yorkers and would-be New Yorkers competing for jobs in media-related fields, publishers are starting to look at the city as a good source of cheap labor.

Inc. magazine, which covers small business, moved to Manhattan from Boston in January, in part because of the talent pool, and the publication's owner, Gruner + Jahr USA Publishing, plans to move another of its titles, Fast Company, to New York later this year.

"It's not more expensive right now to operate an editorial staff out of New York than it is out of Chicago or Boston because there are so many talented people looking for work," John Koten, the editor of Inc., recently told Newsday.


If there was any good news during the slump, it was word that Manhattan rents had begun to fall. Several recent studies indicated that since the housing market peaked in March 2001, rents have slipped 20 percent. Many new buildings are now offering incentives, such as a month or two rent-free and complimentary gym memberships.

Still, prices are high. In late April, the Daily News reported that the average one-bedroom Manhattan apartment below 100th Street was renting for $2,260 a month, down from $2,412 six months earlier.

"I found out that if you don't mind living in what would be considered a crack house anywhere else but Manhattan, finding an apartment in this horrible economy is easy," Patrick Richardson, a recent graduate of Louisiana State University in Baton Rouge, writes in his first entry in Gotham Gazette’s Newcomers Weblog, before moving to New York last week. "It's finding a job to pay for it that's difficult."

In some areas, rents are rebounding even though the job market doesn't seem to be, according to the News, which obtained its figures from the brokerage CitiHabitats. On the upper West Side, the average one-bedroom rents for $2,229 a month, up from $2,197 in October. Areas such as Chelsea and Murray Hill have also seen rents increase.

Outside Manhattan, rents have either stabilized or continued to fall and apartments are remaining on the market longer before they are leased.

For someone on a tight budget, even reduced rents remain too high. Arsenault, for one, resorted to a solution that many new New Yorkers adopt: tripling up in a two-bedroom apartment, in her case, in Washington Heights.


Despite all the problems the city faces, Sassen the sociologist says the doom-and-gloom is misplaced, at least over the long term. New York has weathered crises in the past and shown a remarkable capacity to reinvent itself in ways that are virtually impossible to foresee.

In the 1970s, even as people declared the city dead and major corporations and insurance companies fled, seeds were being planted for new businesses, such as specialized financial companies and media concerns, that would help carry New York back to prosperity.

She notes that although the city's traditional magnets, the arts and financial services, are battered, they remain in place and the city is full of young, innovative companies such as software firms and other technology businesses that will thrive in the coming years.

"I'm an optimist," Sassen says. "It's far more difficult to kill a complex city like New York than it is to keep it going and reinventing itself."

Mitchell Moss agrees. "It's a place that people come to for all sorts of reasons," said Moss, who heads NYU’s Taub Urban Research Center. "If you want to make a name for yourself in the arts, a fortune in finance or to make a difference in the non-profit world, you have to come to New York. And if you are poor from other parts of the world, New York is still the most open economy, the most accessible."

People, in other words, still feel compelled to become New Yorkers.

“I have wanted to move to the city since I wrote a short story about it in eighth grade that made my teacher nervous,” Maria Luisa Tucker writes in her weblog. “I had never been to New York…More than a decade later, after traveling five of the seven continents [and] visiting NYC three times…I still crave a life in New York.”

A New Way of Doing Business in Albany

Facing a spectacular budget deficit, the New York State legislature has produced a good budget that will help New York City avoid Mayor Michael Bloomberg’s “doomsday” scenario of massive cuts in programs. New Yorkers certainly have a right to be disappointed that the State Legislature this year relied on the regressive sales tax to boost revenue instead of enacting the commuter tax that most city officials had wanted. But, on balance, the agreement will benefit New York City.

The legislature restored many of the cuts to school aid, the largest attempted education reductions in New York’s history. We also restored more than hundreds of millions in state funds for Medicaid, public health and Health Care Reform Act programs, as well as to higher education.

What is most unusual about the events in Albany is that they have inadvertently accomplished what good government and legislative reformers have been pushing unsuccessfully for years: the end of the fabled “three men in a room.”

This year, by necessity, individual members of the legislature became part of the budget process. And for the first time in memory, the budget battle took place in the light of day.

Because Senate Majority Leader Joseph Bruno and Assembly Speaker Sheldon Silver had to keep the members of their respective conferences united, daily briefings were given to legislators who were going to be asked to vote not once, but twice on the budget. (The first vote was the budget and the second vote will be on an anticipated override of Governor George Pataki’s threatened veto.) Speaker Silver, in particular, provided members with updates and actively involved them in strategy decisions.

For decades, the Democrats in the Assembly have enjoyed a controlling majority, and Republicans have been increasing their majority in the Senate. The huge majorities allowed leaders of both houses to confidently push through the budget deals they negotiated with the governor. This year, legislators in both chambers made it clear that there was no way they could go back to their constituents with the large scale cuts to social services that Pataki put forth in his budget plan. As the legislature struggled to create a balanced budget, Pataki walked out of the process, creating a unique opportunity for bipartisan cooperation. In an override vote, every legislator counts. There are 103 Democrats in the Assembly, and 100 votes are needed for the override. In the Senate, there are 38 Republicans and 42 votes are needed for the override. Therefore, four Democratic senators must join with the Republican majority to override the governor’s veto.

Suddenly, individual members who have long complained about being shut out of the budget process are being courted by their leaders. And important programs such as health care and education spending have been restored as a result of both Democrats and Republicans responding to the needs of their districts and the demands of their constituents. The more the public knew, the better the budget became. Without anyone planning it, the process has improved.

This year the governor did not speed along the budget process by handing down a message of necessity, an order that allows a bill to skip the customary three days waiting period before the legislature can vote on it. Expedited voting is such a common practice that long-time observers of the state legislature cannot remember the last time the budget was put to bed without a message of necessity. Without it, this year, legislators were actually able to read the budget bills before voting on them.

As favorable as many of this year’s developments have been, the real question is: What happens after the override vote? Will this trend toward reform last?

Real conference committees, which bring together the Senate and the Assembly, would be a natural outgrowth of this year’s conferences. Conference committees have been used sporadically in recent years. For example, in 1998, Assembly Democrats worked in a conference committee with Senate Republicans under the impression they were reaching compromises to pass the budget. Yet, after the budget passed the legislature, Pataki line-item vetoed all of the Democratic pieces of the budget while the Republicans made out like bandits. The system worked better last year when the Health and Wellness Act passed the legislature, partly because of the efforts of a conference committee. I view this year’s budget as a product of compromise and cooperation, much like the work of a conference committee.

Other reforms that must be implemented include a mandatory cooling-off period to allow legislators to read bills before voting on them. Real public hearings must be conducted to give the public the opportunity to speak on important legislation, encouraging more thoughtful debate among legislators, and freeing individual legislators to vote outside their party as well as to hire their own committee staff. This is an excellent time for reform and to build on the foundation of what has already taken place this year.

There has been a shift away from the “three men in a room” negotiations to two leaders who brought all 211 legislators into the room with them. While we are still far away from reforming the culture of business as usual in Albany, this is the first time in recent memory that members have walked away at the end of the day more hopeful than discouraged.

For more details about the effects of the budget, play Gotham Gazette’s budget game and read the city budget update by Glenn Pasanen.

Scott Stringer, a Democrat, represents the Upper West Side of Manhattan in the New York State Assembly.














Albany and the City's Budget

With the June deadline for an adopted city budget fast approaching, the State Legislature in early May – independent of Governor George Pataki — cobbled together a $2.7 billion plan that will fill much of the city’s $3.8 billion budget gap for 2004.

In an Albany scenario even more bizarre than usual, Senate Majority Leader Joe Bruno and Assembly Speaker Sheldon Silver have agreed to increase state taxes - which makes it possible to restore many of the governor’s education, healthcare, and other cuts to New York City - and give the city permission to raise a variety of tax and non-tax revenues. If the governor persists in opposing this plan, the legislature will have to override his veto. (For more on how the legislature reached its agreement, see related articleby Assemblyman Scott Stringer)

However, balancing the city’s budget for 2004 depends not only on the governor and legislature’s actions, but also on current negotiations between the Mayor Michael Bloomberg and the City Council.

The state legislative package, for instance, seems to eliminate any need for the mayor’s “doomsday budget” that would have cut $1 billion. However, it has re-opened the question of whether some of the mayor’s earlier $600 million preliminary-budget cuts should be restored.

On the city revenue side, the State Legislature has, as expected, rejected the mayor’s proposed $1.4 billion commuter tax, but replaced it with several new ideas.

The biggest is an increase in the personal income tax on individuals earning more than $100,000 a year and couples making more than $150,000 a year. This will be worth more than $400 million in 2004. Also the state plans to take over the city’s remaining $2.5 billion Municipal Assistance Corporation debt (stemming from the city’s 1970s’ near-bankruptcy) – which will apparently produce $500 million a year for the city in each of the next five years.

Mimicking the legislature’s increase in the state sales tax (0.25 percent), the mayor and the council have approved a smaller city sales-tax increase (0.125 percent) as part of the package (adding up to a new total sales tax of 8.625 percent), along with a modest surcharge on landlords who rent out small properties.

If these actions go through, the mayor and the council must still find a way to fill a $1 billion hole in the city budget.

The remaining weeks before the city budget is adopted will feature more familiar fights between the mayor and council over still substantial cuts to education, youth, senior, health, library, cultural, and other human services.

Play Gotham Gazette’s Interactive Budget Game
Read A New Way of Doing Business in Albany by Assemblyman Scott Stringer










The MTA's Funny Numbers And Smug Attitude

At the same time that recent reports by the State and City Comptroller add immeasurably to our understanding of the funny numbers the Metropolitan Transportation Authority used to justify the new fare increase, they also illustrate how unaccountable public authorities actually function, exposing the insular, smug attitude that MTA officials exude, even under the gun.

Representing a public corporation controlled by Governor George Pataki, these officials are blunt. They ignore public mandates, deny simple facts, and apparently think the average citizen is a fool.


State Comptroller Alan Hevesi's April budget report, "An Examination of the Finances of the MTA", (in pdf format) charges that the MTA hid more than $500 million of its surplus in 2002, which "foreclosed any consideration of [other] fare options." The result was that the public hearing process was a "sham."

The state comptroller found that the MTA kept two sets of financial plans, one public and one internal, and that its budget officials "cultivated an insular budget system," creating a "culture of secrecy." Officials "deflect requests by parsing language, invoking technicalities, and providing evasive responses to direct questions." When the comptroller's staff asked whether certain resources could have been used in 2003, Gary G. Kaplan, the MTA's Director of Budgets and Financial Management, "responded on three occasions that the answer depended on what 'could' means."


The state comptroller's report identifies the impact of the fare increases imposed through this flawed public process on subway, bus and commuter-train riders -- a full-year (2004) increase of $542 million overall, $430 million of which falls on Transit Authority riders; $430 million, ironically enough, is roughly what the old, repealed commuter tax generated for the city budget.

The report also showed how the state's share of capital spending is declining dramatically. The state share of the MTA's first two capital plans was 18 percent, but in the 1995-1999 plan declined to seven percent. (The state's share of the $19 billion 2000-2004 plan is not yet clear, but beyond some dedicated taxes, it is not expected to make any direct contribution)

The MTA recently restructured $13.5 billion in outstanding debt. This helped pay for current capital expenses and helped balance the operating budget. It also in the short run lowered annual debt service, but at the cost of higher future costs. In fact, the restructuring will mean a net increase of $5.8 billion in debt service costs between 2003 and 2032.

Debt service costs (which the MTA has now detailed only because the comptroller subpoenaed the figures) become more important as the MTA increasingly resorts to borrowing money. Nearly two-thirds of the 2000-2004 program will come from debt, far higher a share than the roughly 25 to 40 percent share in the four previous plans, going back to 1982. (The city share has been minimal - about $105 million a year - and Mayor Bloomberg has proposed a 30 percent reduction in that.)

The MTA's debt service has increased from 13.4 percent of revenues in 2000 to 19.7 percent in 2004 (before factoring in the fare hikes). One recent analysis projected an increase to 25.5 percent by 2020. All of these increases will impose new burdens on transit riders.


City Comptroller William Thompson's April "Audit Report on the Financial Practices of the NYC Transit Authority," (in pdf format) tells a similar story. His report finds that the Transit Authority's "financial statements and budget documents were incomplete, misleading, and obfuscating." The key charge is that the TA "improperly included capital costs and interest expenses on long-term debt as operating expenses on its financial statements." The effect was to make it "impossible" for the public to judge whether a fare increase was necessary.

The numbers in question are huge: The report says that in 2001 financial statements, operating expenses were overstated by approximately $859 million, and in draft 2002 financial statements by approximately $853 million. The Transit Authority has subsequently revised its 2002 statements.

On public process, the city comptroller found that the TA "did not provide the public with complete, clear, and accurate information about its current and future financial position." The MTA did release on March 27, 2003 - three weeks after the fare increase was approved -- a revised budget with a more comprehensive version of the Transit Authority's financial condition. In response to the auditor's question about this timing, the MTA and Transit Authority answered:

"The finances of the MTA are complicated, which is why the case was set forth in what we believed were 'digestible' pieces that would make it easier for the public to understand MTA's finances." They also claimed the MTA budget process "is one of the most open of all governmental budget processes."

The auditor's comment rejected the notion of 'digestible pieces,' and suggested that "presenting bits and pieces of information at various times in various documents with changing numbers and assumptions makes it even more difficult to digest and evaluate the MTA's financial situation."


In addition to its lively exchange on digestive processes and a democratic budget process, the Thompson audit report makes another important point, that city transit riders pay a "significantly higher percentage of TA operating expenses when compared to the percentage of operating expenses paid for by the ridership of the commuter railroads and Long Island Bus":

" TA riders will pay 53.87 percent of operating expenses in 2003
" Long Island RR riders will pay 38.83 percent
" Metro-North RR riders will pay 45.26 percent
" Long Island Bus riders will pay 35.03 percent

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




















Budget Battles In The Arts

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

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

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

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

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

Department of Cultural Affairs

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

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

Cultural Affairs Advisory Commission

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

State Council on the Arts

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

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

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

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

Martha Hostetter writes for American Theatre magazine.

Print Friendly and PDF

Editor's Choice

Gotham Gazette: New York Voters Approve $4.2 Billion Environmental Bond Act
New York Voters Approve $4.2 Billion Environmental Bond Act
Gotham Gazette: 
New York City Voters Approve Racial Justice Ballot Measures
New York City Voters Approve Racial Justice Ballot Measures
Gotham Gazette: Max Politics Podcast: A Winning Formula for Democrats in Tough New York Races
Max Politics Podcast: A Winning Formula for Democrats in Tough New York Races
Gotham Gazette: Max Politics Podcast Max Politics Podcast