The day after Mayor Bloomberg presented his budget plan for the forthcoming fiscal year, newspaper headlines screamed the bad news: More fire houses could closeâ€¦ zoos could be shutâ€¦mountains of trash could go uncollected for days.
But turn the page past the headlines and take a step back.
The $44.5 billion executive budget released last week shared many similarities with the preliminary budget issued in January. The January plan had few portents of doom, but it did feature a heavy dependence on Albany for help, including a commuter tax proposal for which both the governor and senate majority leader have expressed little enthusiasm. To bridge the city's $3.8 billion budget gap for fiscal year 2004, the mayor's new budget counts on $2.7 billion in help from Albany – roughly 70 percent of the entire gap-closing plan.
What has changed between January and April is time. The clock is ticking rapidly towards July 1, when the new fiscal year begins and the city must have a budget in place. The mayor's most recent budget presentation emphasized the amount of cuts the city already had made and the increasing effects on services that will come with the $620 million in cuts. The $1 billion "contingency plan," to be implemented if the needed help does not materialize, painted an even starker picture of reduced services.
The approach is borne of political tactics and fiscal reality.
Tactically, the mayor is seeking to increase the pressure on Albany, and to do that some of the proposed cuts are designed for maximum impact. Take the plan to close the Brooklyn and Queens zoos to save $5.8 million. It grabbed headlines – and howls of protest from constituents whose voices could quickly echo up the Hudson River Valley. But similar savings could be gained from other, considerably less provocative, cuts. For example, $5 million could be saved if the sanitation department stopped collecting grass clippings.
Fiscally, the city already has taken steps to reduce spending. Most service providing agencies have had their city-funded spending reduced. So far, the city has been able to cut this spending without a significant effect on the provision of existing services. As the budget illustrates, that will become harder to do as the spending reductions mount in the programs and services areas the city can control.
But even under the mayor's proposal to cut an additional $695 million in agency spending, total city spending would continue to grow. That is because some of the key components of the budget are effectively out of the city's control.
One of these out-of-the-city's control components is Medicaid. Based on the Independent Budget Office's most recent estimate, the city's share of Medicaid spending will rise by $330 million in 2004 and total $4.2 billion. Debt service – the interest and principal the city must repay on the money it borrows to build schools, fix roads, buy fire trucks, and other capital expenditures – is another example. Pension and fringe benefit costs for municipal workers also are rapidly growing expenses. Bloomberg's budget estimates that such "nondiscretionary expenditures" will rise 24 percent next year and total $16.8 billion.
That means Albany and the labor unions have to be part of the answer.
How much the city has to spend on Medicaid is determined by policy decisions made in Albany. And in recent years, including the governor's most recent budget proposal, Albany has been adding to rather than reducing the city's Medicaid costs. The state also added substantially to the city's annual pension costs by requiring that pensioners receive cost-of-living adjustments. The mayor's budget estimates that change will cost the city $480 million in the coming fiscal year. Additionally, other changes in the city's contribution to pensions as well as for fringe benefits for its workers must be negotiated with the unions – negotiations that have not yet proved fruitful despite the mayor's plan to lay off roughly 4,000 workers, and the contingency plan of 10,000 more.
Given these circumstances, the options directly under the city's control are limited. If the mayor wants to soften the effect of budget cuts on services – and a significant deterioration in basic services can be as damaging to the city's competitiveness as a place to live or run a business as a spate of tax hikes – then he has to look for outside help.
The most recent budget plan certainly looks for considerable help, but the particulars of much of that help seem ill-defined and increasingly uncertain.
The single biggest portion of that help—a new commuter tax proposal—came with a $1.4 billion figure for how much revenue it would generate but few details on how it would work. Nor did the mayor offer any reasons why the legislators who did not show much interest in his prior proposal would be willing to accept one that seeks even more tax dollars.
This is the third time the mayor has floated a commuter tax plan along with other substantial requests of assistance from Albany – so far without much success. Some might say the third time is the charm. But baseball fans like the mayor also know that on the third strike you are out.
Last February, the Independent Budget Office published a list of nearly 60 ways (available in PDF format) the city could save money or increase revenue. For example: Now that talk of raising the state sales tax is coming from the statehouse, it may be an opportune time to reconsider the idea of swapping part of the local Medicaid burden for a share of local sales tax receipts. This could gain $2 billion for the city. Another option would be to extend the mortgage recording tax to sales of co-op apartments, which could generate $73 million in revenue in 2004.
With the deadline for enacting the city budget fast approaching, it may be time for the mayor to shift his lineup of Albany requests for closing the city's budget gap.
Doug Turetsky is on the staff of the Independent Budget Office.
|•||Mayor Bloomberg's 2004 Budget|
|•||The Mayor Is Right to Go After Commuters, Albany, and Labor Unions by Douglas Offerman|
|•||Stop the Rhetoric – Raise the Income Tax by Glenn Pasanen|
The mayor's plan for addressing the $3.8 billion gap responds admirably to the city's fiscal challenges. He asks for assistance from three groups who thus far have offered little help — commuters who work in New York City but live elsewhere, New York State's leadership, and the city's municipal labor unions.
The mayor is right to press for fiscal assistance from these groups to close the city's gap. The contingency plan released with his budget spells out the dire consequences should they refuse the city's requests for help.
Over the last few months, the mayor has asked all New Yorkers to share the sacrifice required to respond to the deepening fiscal crisis. Many New Yorkers have. Property owners absorbed an 18.5 percent increase in real property taxes, passed last November to raise $1.7 billion. Almost half of this increase was borne by commercial property owners, rather than single family homeowners. Ordinary citizens and businesses are coping with an array of higher fees and diminished services. The federal government has contributed Federal Emergency Management Funds to assist the city's budget crisis.
Even future New Yorkers are sacrificing in the form of debt service they will need to pay in order to cover the cost of borrowing $2 billion in operating expenditures to close this year's gap. The mayor has wisely chosen to reject additional borrowing as a solution. We are still paying for services consumed in New York City during the fiscal crisis of the 1970s.
Commuters account for about one-quarter of the city's workforce, and on average, hold higher-paying jobs than city residents. Since 1999, their income has been exempted from the city's personal income tax despite the fact that they benefit from a wide range of city services. In virtually every other jurisdiction in the country that levies a personal income tax, all those earning income pay a tax, regardless of where they live. New York State, neighboring states, and even our neighbors in the City of Yonkers levy a tax on this basis. New York City's commuters also should help shoulder the cost of services that they consume.
The mayor is asking for another $1.3 billion in gap-closing assistance from the state.
Some of this assistance involves approval of actions that offer budget relief to New York City at no cost to the State. For example, the mayor would like the MTA to take over the private bus lines currently subsidized by New York City. Among the other state actions the mayor has identified, Medicaid cost containment is critical to assist not only New York City, but all other county governments in the state. Services to the indigent could be protected by limiting payments to hospitals and nursing homes and by restricting eligibility for long-term care to those most in need.
It is a possibility that Albany will fail to provide the city with the help it needs. The mayor's budget spells out the consequences of such an outcome, including $1 billion in painful contingency cuts and $600 million in labor productivity actions.
The Citizens Budget Commission strongly supported the mayor's efforts to negotiate $600 million in productivity and other cost savings with the municipal workers' unions earlier this year. The mayor's proposals included cost-sharing on health insurance, a more reasonable pension contribution system for future workers, a 40-hour workweek, and other measures that would bring municipal worker benefits more into line with typical benefits offered to state and local government workers elsewhere.
The failure of municipal labor unions thus far to contribute to solving the city's fiscal crisis is a tremendous disappointment and a departure from their history of constructive engagement during previous fiscal crises. Labor leaders have rejected any changes to current benefits, instead offering one-time savings through pension stretch-outs and other mechanisms.
The mayor was right to reject such assistance, because it would have provided short-term budget relief while leaving the underlying generous and unaffordable union contracts untouched. Generous wage settlements and fringe benefit expenses, particularly pension contributions, are responsible for much of the city's fiscal difficulty.
The narrow interests of the unions have contributed to the announcement of the largest number of layoffs in city government since 1991. We hope that the unions will negotiate more realistically.
Last year the Citizens Budget Commission released five studies (available in PDF format) that identified $1.2 billion in possible savings. While some of these proposals, such as increasing the civilian workweek and police staffing improvements, would involve agreements with the unions, others can be achieved through better management. These include procurement reform, special education reform, and energy conservation. The mayor and the City Council are pursuing some of these ideas. However, many other opportunities to achieve productivity savings exist in city government.
Douglas Offerman is a Senior Research Associate for the Citizens Budget Commission.
|•||Mayor Bloomberg's 2004 Budget|
|•||Evicting Bears Won't Balance the Budgetby Doug Turetsky|
|•||Stop the Rhetoric – Raise the Income Tax by Glenn Pasanen|
Mayor Michael Bloomberg continues to think big. His executive budget for fiscal year 2004 offers dozens of sweeping changes, frightening millions of New Yorkers. The mayor would be well advised to follow the lead of City Council, which has offered a more realistic revenue plan. But the budget proposals and political pleadings by both the mayor and the council ignore a practical and equitable solution to the city's budget crunch.
Faced with a $3.8 billion deficit and the Byzantine politics of Albany, the mayor has made two sets of cuts. Each seems more designed at scoring political points than offering real solutions.
One list details $600 million in budget cuts, many of which are already being made. This is intended to place blame on leaders of the city's municipal labor unions. In case anyone misses the point, one page of the mayor's presentation is devoted to a list, under the sarcastic headline "Expressions Of Support Of $600 Million In Savings By Leading Labor Leaders" (see ninth item, Section IV), of three comments by labor leaders. One quote reads, "If the mayor thinks I'm going to bail the city out, he's nuts..."
The other list of cuts — the so-called contingency plan with $1 billion in reductions — is designed as a special pleading to the Albany trio of Governor George Pataki, State Senate Majority Leader Joe Bruno, and Assembly Speaker Sheldon Silver. It is a blunt instrument — eliminate homecare for seniors, do away with after-school programs, close all summer pools, lay off another 10,000 city workers, etc.
In proposing this, the mayor makes two appeals: one for more expenditures, the other one for more revenues. In the case of expenditures, the mayor presents a powerful case that the governor's proposed cuts in state aid to the city must be restored, especially the $753 million public education reduction. Since other state school districts also fear the loss of aid from Albany, there is obviously a deal to be struck here, particularly with Bruno, whose Republican constituents worry about the higher local property taxes that would be needed to make up for the shortfall in state help for education.
But the mayor's other plea â€“ for revenues — is muddled. He again asks for state authorization of a new commuter income tax. The commuter tax Bloomberg proposed in November would have had commuters pay the same personal income tax rate as city residents. But the top rate would have been lowered by nearly 40 percent over three years. In other words, commuters would pay for a substantial tax cut for city residents. And in revenue terms, the city would be worse off over time.
This idea met prompt and nearly universal rejection in Albany. Despite that, the mayor's budget released last week calls for a much bigger commuter tax, although Bloomberg provides no details on it in his publicly released budget documents. The three-year $1.8 billion tax plan has become a three-year $4.6 billion tax plan â€“ still requiring Albany's approval and still having commuters paying for a tax cut for residents. This is an idea that Albany will almost certainly reject.
The mayor must realize this. The fact that he continues to make his commuter tax proposal with only seven weeks until the budget is due makes the budget negotiations highly uncertain.
In its recent response to the mayor's preliminary budget, the City Council has introduced some revenue plans that could provide a clue to what happens next.
The council suggests a much smaller commuter tax than the mayor's. It would bring in nearly $1 billion. Unlike the mayor's plan, the council provides no tax break for city residents. And its proposal includes a clever $69 million "reverse-commuter" reimbursement to New York State suburban communities where city residents work.
To bring in more money, the council and the mayor agree on increasing the tax on absentee landlords of one-, two- and three-family homes. An estimated 75,000 such landlords enjoy the low property tax rates of owner-occupied houses, but use the homes as commercial properties. The council would impose a 150 percent surcharge on the absentees, raising $263 million in 2004; the mayor is proposing a much lower surcharge that would raise $44 million.
The council would use some of the revenues from its tax to provide property tax relief to low-income seniors who own their homes. A second program would indirectly assist low-income seniors who rent apartments in buildings not covered by rent regulation.
But the council, like the mayor, continues to ignore the elephant in the room - an increase in the personal income tax.
Any equitable program to bring in more revenues would start with the personal income tax, a modestly progressive tax that puts more of the tax burden on high-income New Yorkers than less affluent ones. The current top rate - 3.65 percent - is well below the top rate from 1991 to 1998 of 4.46 percent. This cut has helped reduce the city tax burden â€“ the total city taxes paid divided by total city personal income â€“ to 6.5 percent in 2002 from a high of 10.4 percent in 1977.
Adding 10 percent to each resident's New York City personal income tax bill would raise more than $500 million. Increasing the top personal income tax rate to 4.65 percent would bring in almost $600 million. Together with the council's modest commuter tax and $200 million from its absentee landlord surcharge, either of these two measures would bring in an additional $1.7 billion to $1.8 billion. That would make both the $600 million in cuts and the $1 billion "doomsday plan" unnecessary.
Any increase in the city income tax requires approval from Albany. But the legislature and governor are far more likely to approve a request for a hike in the personal income tax for city residents than a commuter-funded tax cut for residents. Until city officials seriously consider this solution to the city's difficult financial problems, they will only compound the anxiety and confusion now rampant in our city.
Glenn Pasanen, Gotham Gazette's finance columnist, teaches political science at Lehman College of the City University.
|â€˘||Mayor Bloomberg's 2004 Budget|
|â€˘||Evicting Bears Won't Balance the Budgetby Doug Turetsky|
|â€˘||The Mayor Is Right to Go After Commuters, Albany, and Labor Unions by Douglas Offerman|
After several months of defending a very shaky budget plan for fiscal year 2004, Mayor Michael Bloomberg will likely consider an alternative tax package before the 2004 budget is adopted in early June. One large constituency he and the City Council should keep in mind in raising new taxes is the average New York City renter.
Although homeowners have certainly felt the impact of November’s18.5 percent property tax increase, the impact on renters has been far less clear. Because they earn substantially less than owners, however, and because rental properties are taxed at a higher rate than private homes, renters may over time get hit harder than owners. Thus any increase in taxes, such as raising the city’s personal income tax rate, should be structured to protect the average renter.
Renters, who represent two-thirds of all New Yorkers, pay â€“ often unknowingly -- a share of their landlord’s property tax through their rent. Estimates of their share range from 50 percent or less to 75 percent or more. Many renters will become acutely aware of their share in the next few weeks as the Rent Guidelines Board determines one- and two-year rate increases for the million rent-regulated apartments in New York City. Property taxes represent about 25 percent of a landlord’s expenses, so the new taxes will no doubt force overall costs up dramatically. Non-regulated apartments face a similar, if less predictable, fate.
Renter Property Tax Burdens
Renter household incomes in New York City are substantially lower than owners’. (Median rental household income numbers â€“ which would be lower than average numbers because of the skewed effect of the city’s many high-income renters on average income â€“ are not yet available from the 2000 census.) According to unpublished data from the Independent Budget Office, representing a five percent 2000 Census sample:
Outside higher-income Manhattan (where owner household income averages over $173,000 and average renter household income is nearly $66,000) owner income in the other four boroughs is nearly double that of renters:
Yet, despite the sharp difference in the income of renters and owners, the increases in their property tax levy will be very close — the estimated increase is an average of $282 for renters (to $1,800), and $330 for owners (to $2,100).
In the Bronx, Brooklyn and Queens, the average renter in buildings with five or more units seems to have a significantly higher property tax burden than the average owner in those boroughs.
According to some calculations based on as-yet unpublished data from the Independent Budget Office, the average renter in the city faces a property tax burden of 3.0 percent of the renter’s total income, while the average owner would pay 2.7 percent. The actual disparity is much larger because an owner can deduct the property taxes from state and federal income taxes, while a renter cannot.
To offset the new burdens of the big property tax increases, the mayor’s November 2002 budget modification promised both renters and owners a huge personal income tax cut for 2004 â€“ nearly 40 percent over a few years -- premised on commuters paying the same tax rates as residents. That dream has shattered. Several fiscal monitors’ reports, most recently the State Financial Control Board’s March report, have dismissed the Bloomberg commuter tax proposal as politically unrealistic.
Recent press coverage has focused on the so-far failed negotiations between the mayor and the city’s unions over $600 million in concessions. But a bigger problem is replacing the revenues anticipated in the commuter tax dream -- over $900 million, as pointed out in the March 31, 2003 Independent Budget Office report, “Analysis of the Mayor’s Preliminary Budget for 2004.” So, with an increase in residents’ personal income tax rates now much more likely than a big cut, the structure of such an increase should, in fairness, protect lower-income renters.
The mayor and the council can protect renters in two ways. One, they can choose a personal-income tax increase that exempts lower-income New Yorkers from any rate increase. One of the options listed in the Independent Budget Office’s recent “Budget Options” report raises $600 million from a new top rate that would affect only those with an income over $250,000 a year. Another option is exempting lower-income households from any personal income surcharge â€“ a progressive strategy the City Council has used in the past.
Another protection for lower-income renters would be an extension of a tax-increase exemption program like the Senior Citizen Rent Increase Exemption (SCRIE) program — which the council has also supported in the past, but which is reaching only 44,000 seniors now because of the low ceiling on eligibility (a household income of $20,000). The program could expand senior eligibility and also be extended to lower-income non-seniors.
The city desperately needs new tax revenues, but the average renter has already made her sacrifice
Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.
Three new reports underscore the multi-billion dollar uncertainties facing Mayor Michael Bloomberg and the New York City Council in the next few weeks as they try to craft a balanced budget for fiscal year 2004 by early June. The reports — from the New York State and New York City comptrollers and the city's Independent Budget Office — share the concern that the mayor's budget plan is based primarily on the actions of others. He assumes that actions by the governor, the State Legislature, and the city workforce will fill next year's budget gaps, but the monitors say that's risky. They estimate risks ranging from $2.2 billion (IBO) to $3.9 billion (city comptroller). Governor George Pataki's proposed state budget adds to the problem. It not only rejects the mayor's requests for assistance, but actually widens the city's budget gap by $844 million, according to the city comptroller.
The reports provide a number of budget insights, including more detail on Rudy Giuliani's many contributions to the current budget gap. They show how budget priorities continue to shift, as mandated costs increase and agency spending drops. In spite of the fiscal crisis, city spending continues to rise overall under the mayor's plan. But the city agencies actually lose funding at the same time as other spending — on pensions, debt service, Medicaid, and fringe benefits — grows dramatically. The new Department of Education, in the throes of major administrative and policy changes, gets hit hard by both the city's and the state's proposed cuts. On the more positive side, two of the reports point out that the actual cuts in city services thus far have been modest, given the depth of the fiscal crisis.
The huge risks to the city flow mostly from the bizarre, dysfunctional nature of New York State politics and government. The "three man government" in Albany — Pataki, Assembly Speaker Sheldon Silver, and Senate Majority Leader Joe Bruno — has spawned a New York City subtext. Mayor Bloomberg, who has not considered for four months, at least publicly, any alternative to his Dead-On-Arrival-in-Albany budget plan, is now seemingly at the mercy of the three Albany leaders. As much as $2.4 billion of the mayor's budget-gap plan rests on his ability to convince the troika to rescue him one way or another. The only alternatives thus far are further layoffs and service reductions, a route the mayor has made a good case for avoiding.
The State Comptroller's March report says the Bloomberg plan has $3.4 billion of risks, $3.2 billion on which are outside the city's direct control. Worse, a projected $962 million personal income tax increase, featuring a new commuter tax five times the value of the commuter tax repealed in 1998, has been dismissed out of hand by Pataki and Bruno. The mayor's request for $275 million to renew state funding of the 20-minute extension of the school day was denied in Pataki's proposed budget, and there has been no acceptance of the city's requests for authority to raise $200 million in new transportation revenues, including the first phase of tolling the city's bridges. Nor is there any guarantee that the $690 million in back and current city airport rent requested of the Port Authority (controlled by the governors of New York and New Jersey) will be forthcoming.
The Independent Budget Office sees $2.6 billion in uncertainties in the Bloomberg plan, including the personal income tax proposal and $400 million of other proposed state actions. The IBO does assume that the city will get $500 million (promised by the governor in his budget release) of the $690 million airport rent request. And their projection of $440 million in revenues over and above the mayor's projections (offset in part by a projection of $125 million in higher expenditures) adds up to $2.2 billion in risks. The City Comptroller's March reportdefines a potential 2004 budget deficit of $3.9 billion, $500 million above the mayor's projection, because of the impact of several Pataki budget proposals. For instance, the comptroller notes the proposed state education aid cut of $478 million, the elimination of state funding for the $275 million increase for teachers initiated last year, $255 million in new Medicaid costs, and $61 million in increased welfare costs. (Restoration of some of the sales tax on clothing and increased fees would offset $225 million of these cuts.) Of the overall plan, the report concludes, "[I]t is unclear as to whether the city can achieve its ambitious gap-closing program."
The Independent Budget Office spells out the major shifts in spending at the heart of the Bloomberg plan. City-funded expenditures increase by $1.6 billion in 2004, to $32.8 billion, primarily because of more than $1.7 billion in escalating pension ($827 million more than in 2003), Medicaid ($212 million), debt service ($550 million), and fringe benefit ($146 million) costs. Pension costs, according to the State Comptroller, will continue to rise because of the stock market plunge, which lowers the value of pension funds and forces the city to increase its contributions. City pension costs will jump from four percent of city-funded revenues in FY 2002 to 14.4 percent in FY 2007. This mandated increase will force further cuts in discretionary areas or the use of new revenues.
The IBO points out that the city's agency budgets will be reduced by more than $1.3 billion. Compared to 2003, the uniformed services lose nearly five percent in funding; health and social services agencies lose a little over one percent.
The State Comptroller report shows that city-funded workforce may be reduced by 5,419 by June 2004, down to a total of 203,873. Most of the cuts are in the uniformed services, where 4,405 jobs will be eliminated in Fiscal Years 2003 and 2004, including 656 in the fire department, 807 in the corrections department, and 877 in the sanitation department. The police department will lose over 2,000 officers, and, after an October 2000 peak of 40,754, be down to 34,774 officers by June 2004. Although little noticed, there have been 548 layoffs in recent weeks, in the education, police (civilians), and sanitation departments. The service cuts in the preliminary budget are very modest, considering the $5 billion gap going into the current fiscal year. The Independent Budget Office says of the mayor's $1.3 billion agency cuts that only about half, or $650 million, represent actual or possible service reductions. The State Comptroller's report suggests the service cuts are only $450 million.
GIULIANI'S CONTRIBUTION TO CURRENT CRISIS
The current squeeze on spending has other roots. The City Comptroller and the State Comptroller, Alan Hevesi, cite some of the lesser-known Rudy Giuliani actions that contributed to the city's current budget crisis. It is now widely accepted that Giuliani's tax cuts ($2.5 billion a year) and repeated rollover of $2 to $3 billion surpluses both contributed to and delayed the crisis (until he was gone).
But there were other dubious actions in the Giuliani years. The City Comptroller notes that overtime costs increased by almost $350 million, or 78 percent, between 1997 and 2002 (from $449 million to nearly $797 million). Hevesi shows how part-time workers increased by 125 percent from FY 1996 to FY 2002, with costs rising from $947 million to more than $2.1 billion. (Because part-timers were not considered in workforce counts, the mayor could in effect hide workforce expansion.) Hevesi also points out that Giuliani made a technical adjustment in pension payments that saved the city $800 million in payments in FYs 2000 and 2001 (adding to the surplus and paying for tax breaks). But, "It also had the effect of removing a cushion against future earnings" — a cushion that Bloomberg could have used this year.
The City Council will soon offer its annual response to the mayor's preliminary budget, but since November there has been no progress on the budget actions outside the mayor's direct control. And just as he waited until the last minute to announce his blockbuster property tax in November, the mayor seems willing to wait until the last minute for a big new step. The State Comptroller who, like many observers, thinks that the mayor's billion dollar personal income tax plan is dead in Albany, surmises that restoration of the old commuter tax (which was 0.45 percent) and a new personal income tax surcharge for residents "may be more palatable." He adds that Senate Majority Leader Joe Bruno, while opposing the old commuter tax restoration, supports the surcharge and tolling the city's bridges — a major long-term piece of the mayor's financial plan.
Given the high stakes of the decisions to be made, the likely political process is troubling. In the short run, it looks as if five men (Pataki, Silver, Bruno, Bloomberg, and Council Speaker Gifford Miller) will be privately negotiating a host of significant changes. Yet the public has little or no understanding of what the actual changes might be. The mayor will release his executive budget on April 15th, but the state budget debate may well be as confused then as it is in March, so there may be uncertainty and more private negotiating into May and June.
The governor's slap at the city is particularly vexing. Beyond his devastating education and Medicaid cuts, he has suggested a number of actions that have unknown fiscal, economic, and social impacts and are unlikely to get a full airing in a short budget process. For instance, the governor has offered to use the Battery Park City Authority to produce $200 million for the city through re-funding of its bonds. There is also the possible swap of city airport land for the Port Authority's World Trade Center land. These are important issues that need more sunlight and time.
Public authority deals are always worth a red flag. In 1989, for instance, the city made a deal with the Battery Park City Authority, to use $600 million in surplus authority revenues for the original public purpose of the authority — to fund affordable housing. Rudy Giuliani never lived up to that deal between Ed Koch and the authority. The authority did its part, and now has almost completed the $600 million in annual payments. But not one unit of housing has been built with the money. Further, in 1990, the authority did what the governor is suggesting now. It used bonding authority (also intended for housing) to make a one-time cash payment to the city of $150 million to help then-Mayor David Dinkins solve an earlier budget crisis. Thus, there may be precedents for deals like the governor's, but they recall bad faith more than fiscal relief.
With his budget hopes pinned to others, Mayor Bloomberg is in a lonely spot, and his reticence thus far to build a case for alternative scenarios will make for many surprises before the council's June adoption of a budget. Perhaps the City Council can do the reality check here and begin to develop a more democratic and politically viable process.
Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.
Last November, Mayor Michael Bloomberg waited until the last minute and after the general election to announce a blockbuster 18.5 percent property tax increase. The property-tax hike solved almost half of the then-$6.4 billion gap, but there was no City Council or public debate about the inequitable effect of increased dependence on the property tax.
This year, it seems the mayor will wait until the last minute again.
On January 28, the mayor released his preliminary $44 billion budget for fiscal year 2004 and left the city's billion dollar questions unanswered — at least until the executive budget is released in April.
The good news for most New Yorkers is that the preliminary 2004 budget proposal focuses almost exclusively on revenues, not spending.
The mayor rejected the conventional weapons of his predecessors, such as Rudy Giuliani, and did not offered contingency plans that threaten the poor, the ill and the elderly. The plan has less than $500 million in agency actions for 2004, and most of those are revenue shifts and productivity savings, not service cuts. It also includes nearly $1 billion in proposed new tax revenues, nearly $700 million more in airport rents, $600 million in savings from labor, nearly $500 million from new state and federal aid, and $200 million from transportation revenues, including bridge tolls.
On the down side, not one of these proposals is a sure thing. Given the slumping city economy and the unfriendly budget signals from Albany and Washington, the preliminary plan to fill the $3.4 billion budget gap for 2004, is mostly dead on arrival.
The next draft the executive budget will not come out until April.
The mayor's nearly $3 billion revenue plan proposed for next year is, at one level, absurd.
Its key component, a billion-dollar commuter tax, has been rejected by Governor Pataki and State Senator Majority Leader Joseph Bruno.
The plan expects to find $600 million in labor savings next year -- but acknowledges the city will not even get $223 million in labor savings expected this year. Airport revenues are tied up in complex legal and political tangles, and the Bush and Pataki regimes seem more likely to cut than increase aid to the city.
But the mayor has generated some serious discussions about alternative revenue sources. His proposal for "personal income tax reform" would raise nearly $1 billion by taxing commuters at the same rate as city residents and lower the rate by nearly 40 percent by 2007. Not only would this decrease revenues over time, but it would force a 2.75 percent tax rate on commuters who now pay nothing to New York City.
The proposal spurred others to offer their ideas for raising $1 billion, including reinstatement of the 0.45 percent commuter tax.
The Independent Budget Office published a new "Budget Options" booklet that says that going back to that commuter tax would produce $459 million in 2004. The office says that an alternative, more progressive commuter tax with rates one-third that paid by residents would produce nearly $1 billion. Another option is a temporary increase in personal income tax rates. A 10 percent across-the-board surcharge would raise $533 million. Alternatively, hiking the tax rate by 1 percentage point for people earning over $250,000 would generate $595 million.
As in years past, the debate over revenue assumptions about labor savings and federal and state aid will go on for months.
The mayor has said that if he gets no concessions, he will lay off 12,000 employees. Further complicating things this year is the uncertainty about if and when the city will get federal funds from the World Trade Center. The New York Times reported on February 7 that a tentative agreement would give the city $630 million in federal funds to fill its budget gap. This would be a one-time payment only.
An increase in airport rents is a more realistic target only because the interests of Governor George Pataki and Bloomberg may coincide this year. For years the city has complained that the Port Authority shortchanges the city on the annual rent it pays on city-owned LaGuardia and Kennedy airports. Rents that reached $100 million a year a decade ago sank to $3 million a year in the 1990s, and more recently have ranged from $25 million to $31 million. The city has been trying to re-capture the higher rents. But with many questions on the table about long-term control of the airports and the World Trade Center site, and with the governor already offering a $500 million settlement for the city’s airport claim, this just might be the year for a substantial payment.
In general, the mayor deserves praise for having rejected non-recurring, one-shot revenues in his plans for next year. This represents something of a turnaround from 2003, when, according to the State Financial Control Board, the city budget included $3.2 billion in one-shot revenue sources. Aside from federal aid, next year's budget seems to have no significant one-shots. Yet even the very conservative Financial Control Board has said a few hundred million dollars of one-shots are acceptable in a budget the size of New York's. So some may be on the way help cushion the blow if any of the mayor's other revenue ideas fail to come to fruition.
In his January budget, Bloomberg mostly lived up to his December statement at a Citizens Budget Commission's conference: "The fact of the matter is we have cut as much as I believe we can. More cuts risk adversely affecting New York City's quality of life and reducing the ability to grow our way out of this problem." And so there are very few of the ritualized cuts in youth, senior, legal, health, and other services that Giuliani (and Bloomberg last year) threw out in winter for the council to mostly restore in the late spring.
In his $3.4 billion gap-filling package, savings in agency spending -- technically called PEGs (Program to Eliminate the Gap) -- total only $357 million, little more than t10 percent of the total budget actions. The Department of Education will produce by far the biggest savings -- $130 million. The mayor says these will not affect classroom services, but it is hard to determine the real impact on students.
Two other big cuts are in libraries and cultural affairs - areas where the mayor seems to think the private sector can pick up the slack. The libraries are cut another 3 percent for next year, a total of nearly $7 million. With the November cuts, this adds up to a 12 percent cut in less than a year. The Department of Cultural Affairs takes another 6.2 percent cut for 2004, about $6.5 million. With the November cuts, the department will have taken a 15.6 percent cut for 2004.
Cuts in a fourth agency -- the Department of Youth and Community Development -- are reminiscent of the old days -- large cuts in council-sponsored after school programs. These cuts would no doubt cause significant damage to existing programs. As in previous years, the intent here seems to keep the council busy fighting for restorations - a curiously small target for a mayor who mostly thinks big.
The most positive detail in the plan may be the restorations in the Department of Aging. By transferring some federal funds into the agency to replace city funds, the mayor was able to restore seven contracts for senior retirement communities, keep senior centers open five days a week, cancel center consolidations and rescind plans to charge seniors more for meals.
Otherwise, the service cuts are nominal. That does not mean that the loss of staff in many agencies through attrition, early retirements and severance packages -- will not indirectly affect services, but it is good to see contracted human services apparently held harmless for the near future, in spite of the city's hard times.
Politics and Equity
The mayor's commitment to revenues and maintaining basic services is bold and optimistic. But how his reluctant partners -- George Pataki and George W. Bush -- will respond is the big political unknown. In a good cop/bad cop pairing, the mayor and Council Speaker Gifford Miller are playing different political games with the governor and the legislature â€“ the mayor more conciliatory, the speaker tough. Who can predict how such an act will play out?
The mayor and the speaker need the commuter tax. They need Pataki to pull back from nearly $500 million in education cuts and to enhance, not cut Medicaid funding. They need authority from the state to increase city taxes. But with that authority, they also need to take a more progressive approach in structuring those inevitable new taxes. While the focus on revenues is wise for the long term, what is really missing in the January preliminary budget is any definition of sacrifice, any sense that tax burdens will be distributed fairly among renters and owners, among high-income and middle-income New Yorkers.
Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.
One year into his mayoralty, Michael Bloomberg has resolved his first major budget crisis. But his success so far raises as many questions as it answers about how he will handle the next budget crisis. The next one is in late January, when he releases his preliminary budget for the next fiscal year. On the one hand, Mayor Bloomberg has proved to be bold and pragmatic. The 18.5 percent increase in the city's property tax rate and approximately a billion dollars in other budget savings has reduced a previously projected $6.4 billion deficit for next year by more than half. On the other hand, the details of his November budget modification, now examined by several fiscal monitors, raise billion dollar questions about next year.
There are questions about revenue â€“ about the mayor's tax revenue estimates for next year, and the source of new tax revenues. The Independent Budget Office projects tax revenues for 2004 that are about $1.2 billion higher than the mayor's November estimate, suggesting a smaller deficit problem for next year than the mayor projects. And several monitors are dubious about the political prospects of the mayor's plan to raise about $1.1 billion in new personal income tax revenues next year by expanding that tax to commuters who work in the city.
On the expenditure side, the mayor's dramatic service cuts proposed for next year raise big questions about his priorities in two broad areas: uniformed and human services. In the police department, for instance, postponement of a new police class of 1,900 member and attrition will lower the number of police officers to the 1993 level. And in contrast to the mayor's brave rhetoric recently about the need to maintain services for economic as well as social reasons, proposed cuts in education, libraries, cultural affairs, health, and social services are considerable.
Another big question is one the mayor has sidestepped for a year: How broadly will budget burdens be shared, on both the revenue and expenditure sides? In terms of new taxes, Bloomberg promised that the huge increase in property taxes would be off-set by a reduction in personal income taxes. That argument has been widely attacked both as inaccurate and politically naĂŻve. The best information available at the moment suggests that the mayor's preliminary plans for next year disproportionately burden lower- and middle-income New Yorkers through higher taxes and lower services.
At this point there is over a billion-dollar difference between the most optimistic and most pessimistic projections of next yearÂ´s deficit, primarily because of different tax revenue projections. For example, in its fiscal outlook report, "Despite Property Tax Increase, Large 2004 Budget Gap Remains," the Independent Budget Office now projects next year's deficit at $2.3 billion, about $800 million less than the mayor's projection. Yet the State Financial Control Board, in its December report, projects next yearÂ´s deficit at $3.5 billion, about $400 million more than the mayor.
Such a disparity in tax revenue projections is unusual at this stage of the budget process.
The other billion-dollar question is about the single biggest element in the mayor's budget-gap plan for 2004, raising $1.1 billion in additional personal income tax revenues by broadening its tax base through taxing commuters at the same rates as residents. This proposal is odd in at least three ways. First, no one thinks it has any chance of gaining support from the state legislature nor the governor. Second, as a revenue producer, it is a nonrecurring, one-shot -- or, more specifically, the first of a series of declining one-shots, since the proposal lowers rates over time. By 2006, according to the Independent Budget Office, the city would actually lose $232 million. Lastly, the budget office points out in its December report that the proposal "would shift the combined burden of the two taxes from higher income households towards those with lower incomesâ€¦.[M]ost households with incomes over $200,000 would see net savingsâ€¦."
One year into his mayoralty, Bloomberg has yet to express a budget vision. Budget decisions have been bold and pragmatic, but they also look ad hoc. There have been many contradictions. Education has ostensibly been a top priority, yet the new Department of Education took a $200 million cut in November, a cut which recurs in subsequent years. Libraries and cultural affairs took major cuts, while senior, youth, and homeless services took relatively minor cuts. Next year may determine what the mayor's priorities really are.
The November modification has some clues. The uniformed services, often protected and expanded during the Giuliani terms, are now projected to be significantly reduced. According to the December 2002 report of the Office of the State Deputy Comptroller for NYC, uniformed staffing levels will be reduced by 4,443 employees during Fiscal Years 2003 and 2004. Police officers would number 34,774 by the end of 2004, nearly 6,000 fewer than the peak force in October 2000. Given the fact that crime numbers continue to fall almost across the board, the mayor's timing here could be very effective. (Some may quibble that a full commitment to police productivity savings requires more initiatives in overtime savings and more civilianization in the department -- not less as the State Deputy Comptroller reports is now projecting.)
If projected uniformed savings are ambitious and justified, the projected savings in a variety of human services are another story. Savings here will come after huge cuts in several agencies during the Giuliani years. The State Deputy Comptroller's report adds historical perspective: Between Fiscal Years 1991 and 2002, staff in parks, health and welfare agencies were reduced by 16,350 employees, or 43 percent. Put another way, these agencies, which represented 17 percent of the City workforce in 1991, were only 10 percent of the workforce by 2002. Yet parks staffing will be reduced by another 213 -- more than 12 percent -- in Fiscal Year 2003, to 1,509. And health and welfare agencies will lose nearly 1,800 employees -- or nine percent -- more by the end of 2003. The impacts of the cuts in these agencies need to be measured quickly, to ensure these moves do not compound the human-service failures of the Giuliani administration.
Beyond these projected workforce reductions is the not so subtle threat implicit in the mayor's plan to get $600 million in unspecified "productivity" savings from the same workforce. The implied alternative is the reduction -- through further attrition and layoffs -- of an additional 12,000 employees. Since the mayor has more than once suggested that further cuts in services are not smart economically, there is another contradiction here, especially if such cuts emerge without sufficient debate at the last moments of the budget process in May and June.
Bloomberg bought time with his November modification. The monitors are comfortable that the budget problems that developed for this fiscal year are solved. In fact, the Independent Budget Office points out that the property tax increase generated an estimated $500 million surplus for this year, that will help prepay some of next year's expenses. But the outlook for Fiscal Year 2004 remains full of uncertainties about billion dollar decisions, particularly about what priorities are driving the decision-making.
Because the mayor has been slow and contradictory in defining priorities, and because he has been disingenuous in defining who carries the current and future burdens of his budget decisions, the most important question may be whether a comprehensive vision emerges in the January preliminary budget for next year. Given the high stakes surrounding the big budget deficit, it is a good time for a powerful vision. It is also a good time to identify those who will need to sacrifice -- in higher taxes and/or lower services -- in order to realize any bold vision.
Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.
Remarks made at the Economic Club of Chicago on January 8, 2003.
|The Bucks Start Where?|
|Who is going to solve New York's fiscal crisis Â Washington, Albany, or the city itself?|
|Transcript of President George W. Bush's Economic Proposal|
|Governor George Pataki's State of the State Address|
|Mayor Michael Bloomberg's remarks at the Citizens Budget Commission|
|City Council Speaker Gifford Miller's Reaction to the Bush Proposal|
Too many Americans today are wondering about our economy; they're asking, how is the economy really doing? Well, the American economy is the strongest and most resilient economy in the world. In spite of the terrible shocks that our nation has received, our economy is growing, and the entrepreneurial spirit in America is strong.
We've made great progress these past two years, remembering the summer of 2000, during the presidential campaign, the market had started on a steady decline. Job growth started to dwindle. The economy had begun to slow. When I took office, the signs of recession were real. So, I worked with the United States Congress to reduce income taxes for everyone who pays them. More than 100 million individuals, families and sole proprietorships received tax relief.
This tax relief was the largest in a generation, and it gave the economy a boost just at the right time, ensuring that the recession was one of the shortest and shallowest in modern American history.
Americans should be able to count on those tax cuts as they plan their financial futures. So I will continue to press the Congress to make these tax cuts, including the end of the death tax, permanent. We know that the tax cuts work, and Americans deserve to know their tax cuts will not be taken away.
We faced a second test with the attacks of September the 11th, 2001. These attacks caused terrible suffering and a massive disruption of the economy. Flights were cancelled. Many hotels and stores were empty. Stock trading was halted for nearly a week. So we acted. We reopened the markets. We helped the people of New York City recover. We assisted the airlines. We provided tax incentives for business investment. And we passed terrorism insurance so building and real estate projects could go forward.
And then our economy was tested a third time when Americans discovered serious abuses of trust by some corporate leaders. So we passed historic reforms to assure corporate integrity; to punish wrongdoers, and defend the interests of workers and investors. Corporate greed and malfeasance caused innocent people to lose their jobs, their savings, and, often, their confidence in the American system. For the sake of justice, and for the sake of every honest business in America, I have made this commitment: Corporate misdeeds will be investigated, they will be prosecuted, and they will be punished.
We have met the tests before us because the American people have worked hard through difficult times. And now our country has entered its second year of economic growth. Our trade with other nations is expanding, bringing lower prices that come from imports, and better jobs that come from exports.
More Americans are buying and building houses -- a central part of the American dream. The homeownership rate is now 68 percent -- close to the highest ever. Low interest rates have allowed Americans to tap the rising value of their homes.
And those obstacles are clear: Many jobs are lost in America because government imposes unreasonable regulations and many jobs are lost because the law suit culture of this country imposes unreasonable costs.
I will continue to press for legal and regulatory reform, but today -- today I want to talk about these concerns: Americans carry a heavy burden of taxes and debt that could slow consumer spending. I'm troubled by that. I'm also troubled by the fact that our tax system unfairly penalizes some productive investments. And I worry about people who are out of work; they need our help, both in short-term benefits and long-term opportunity. By directly confronting each of these challenges, we can preserve the hard-won gains our economy has made and advance toward greater prosperity.
Our first challenge is to allow Americans to keep more of their money so they can spend, and save and invest. The millions of individual decisions that support the market, support business and help create jobs. Consumer spending accounts for about 70 percent of our economy; it has been the driving force of our recovery. Yet, there are warning signs I won't ignore, and I hope the Congress doesn't ignore either.
Many Americans live in constant and increasing personal debt, with credit card bills so heavy they often cannot pay much more than the monthly minimum. Millions of citizens spend their entire adult lives living paycheck to paycheck, never getting a chance to save for their children's education or their own retirement. Americans today are paying about a third of their income in taxes. All of this puts pressure on family budget, and therefore clouds our economic future.
Americans facing these struggles are due to receive additional tax relief in 2004, and again in 2006. Republicans and Democrats in Congress already approved these tax rate reductions, and the time to deliver the tax rate reductions is now, when they can do the most good for the American people. For the sake of economic vitality, I'm asking Congress to make all the tax rate reductions effective this year.
And the tax cuts should be retroactive to January 1st. Upon passage, I'll order the Treasury Department to immediately adjust the amount of money withheld for income taxes so that Americans will keep more of their paychecks right away.
By speeding up the income tax cuts, we will speed up economic recovery and the pace of job creation. If tax relief is good enough for Americans three years from now, it is good enough for Americans today.
An additional beneficiary of this tax cut will be small businesses. About 30 million Americans include small-business income when they file their individual tax returns with the IRS. Faster tax relief will help these businesses to expand sooner, to hire new people faster, and to build a stronger foundation for the recovery.
We also know that middle-income families need additional relief. So today I'm asking Congress to speed up three other tax reductions promised in 2001, tax reductions that will help our middle-income families. Instead of slowly reducing the marriage penalty until 2009, we should do it now, to help 35 million married couples. Instead of waiting until 2008 to move more taxpayers from the 15 percent bracket to the lowest bracket of 10 percent, we should make that change now and help 2 million working Americans.
And instead of gradually raising the child tax credit from $600 to a thousand dollars per child by the year of 2010, for the benefit of 26 million families, we should raise it now.
These tax reductions will bring real and immediate benefits to middle-income Americans. Ninety-two million Americans will keep an average of $1,083 more of their own money. A family of four, with two earners and $39,000 in income, will receive more than $1,100 in tax relief. Real money to help pay the bills and push the economy forward. And the sooner Congress acts, the sooner the help will come.
Taken together, these income tax cuts will put an additional $70 billion to work in the private economy over the next 18 months. And there's no better way to help our economy to grow than to leave more money in the hands of the men and women who earned it.
Our second challenge is to encourage greater investment by individuals and small businesses, the kind of investing that builds personal wealth and helps a company expand and creates new jobs.
We are increasingly a nation of owners who invest for retirement and the other financial challenges of life. One-half of American households own stock, either directly or through pension funds. And we have an obligation to make sure, now more than ever, that American investors are treated fairly. We can begin by treating investors fairly and equally in our tax laws. As it is now, many investments are taxed not once, but twice. First the IRS taxes a company on its profit, then it taxes the investors who receive the profits as dividends. The result of this double taxation is that for all the profit a company earns, shareholders who receive dividends keep as little as 40 cents on the dollar.
Double taxation is bad for our economy. Double taxation is wrong. Double taxation falls especially hard on retired people. About half of all dividend income goes to America's seniors, and they often rely on those checks for a steady source of income in their retirement. It's fair to tax a company's profits. It's not fair to double tax by taxing the shareholder on the same profits.
So today, for the good of our senior citizens, and to support capital formation across the land, I'm asking the United States Congress to abolish the double taxation of dividends.
The benefits of this tax relief will be felt throughout the economy. Abolishing double taxation dividends will leave nearly 35 million Americans with more of their own money to spend and invest. This will promote savings, and return as much as $20 billion this year to the private economy.
By ending this investment penalty, we will strengthen investor confidence. See, by ending double taxation of dividends, we will increase the return on investing, which will draw more money into the markets to provide capital to build factories, to buy equipment, hire more people.
We must also encourage the investments that help turn small businesses into larger ones. Small businesses create the majority of new jobs in America, and they account for half the output of the economy. Currently, tax law permits small firms to write off as expenses up to $25,000 worth of equipment, might -- computers or machinery that they need. I'm asking the Congress to raise that limit to $75,000 and index that number for inflation. This change, together with the faster rate reductions, will benefit more than 23 million small-business owners. My view is this economy can thrive only if our small businesses thrive, and we will provide them every incentive to grow and create more jobs.
A third challenge facing our country is the need to help unemployed workers and prepare them for the new jobs of a growing economy. The unemployment rate today is 6 percent. It's low for an economy coming out of a recession. It's higher than it should be. And the unemployment rate is projected to rise even further in the short run.
This hardship is concentrated in certain regions and in certain industries. Manufacturing jobs have declined for 28 months in a row. You know what I'm talking about here in the Midwest. You're showing signs of recovery here, yet many people here and across this country are still looking for work.
A woman in Arkansas tells a typical story. She talked about the fact that her husband was laid off from his job at a local steel mill, and both she and her husband have been looking for a job for quite a while. Here's what she said: ``There's just nothing for me to find. We're trying to save up what little money we have and move to another community and look for jobs there.''
You've got to be worried about those kinds of stories here in America. As we encourage long-term growth, we will not forget the men and women who are struggling today. Close to 70,000 workers each week exhaust their unemployment benefits, and we have an obligation to help our fellow citizens. So I'm asking this new Congress to extend unemployment benefits that expired on December the 28th. And the benefits Congress approves should be retroactive, like the Fitzgerald bill, so that people who lost their benefits last month can receive their benefits in full. Helping America's unemployed workers should be a first order of business in this new Congress, and it looks like it's going to be.
We must be more creative when we help those who have the hardest time finding work. To encourage innovation and more choices and to help those who are out of work find the dignity of a new job, today I'm unveiling a new approach to helping unemployed Americans through personal re-employment accounts. Under this new program, Americans will face -- who face the greatest difficulties in finding work will receive up to $3,000 to use in their job search. They will have great flexibility in how they use that money. A person with a reemployment account will be able to decide whether to use the funds for job training, or child care, or transportation or even to cover the costs of relocating to another city for a new job. If a job is obtained quickly, within 13 weeks, the worker will be able to keep the cash balance as a reemployment bonus.
As we seek new economic growth, we will need well-trained workers to fill new jobs. So I'm going to ask the Congress to provide $3.6 billion to the states to pay for the reemployment accounts, enough money to help more than a million unemployed men and women across America.
In order to strengthen this economy in the future we must help these Americans today. The job and growth proposals I've outlined today are a focused plan to encourage consumer spending, to promote small business growth, to boost confidence in our markets and to give critical help to unemployed citizens. Overall, this growth package will reduce the tax burden of Americans by $98 billion this year, and $670 billion over the next decade. I proposed a bold plan because the need for this plan is urgent. And I urge the Congress to act swiftly and pass this bill.
Our nation has seen two years of serious and steady challenges. The recession and the decline in the stock market slowed earnings and cut into tax revenues and created a budget deficit. And in this time of war, I can assure you, this government is spending what is necessary to win the war.
But the Congress must also understand this. The American people deserve and expect spending discipline in Washington, D.C. (Applause.) With spending and discipline and with pro-growth policies, we will expand the economy and help bring down this deficit.
This growth and jobs package is essential in the short run. It's an immediate boost to the economy. And these proposals will help stimulate investment and put more people back to work -- is what we want to have happen. They're essential for the long run as well, to lay the groundwork for future growth and future prosperity. That growth will bring the added benefit of higher revenues for the government, revenues that will keep tax rates low while fulfilling key obligations and protecting programs such as Medicare and Social Security.
We're meeting the challenges to America. We're strengthening our economy, and we're taking a battle to our enemies. And we're not going to leave our work half-finished. In the months ahead, we will confront every threat to the safety and security of the American people. We'll press on. We'll turn our recovery into lasting growth and opportunity that reaches every corner of America. By the courage and by the enterprise of the American people, this great nation will prosper, and there's no doubt in my mind this great nation will prevail.
With the state elections over, Mayor Michael Bloomberg and City Council Speaker Gifford Miller can no longer evade the tough choices they face in filling an immediate $1 billion budget gap, as well as the $5 billion or more gap projected for next year. And suddenly, after months of vague promises from both sides of City Hall that "everything is on the table," the mayor has produced a bold property tax proposal.
If history repeats itself, the mayor's plan will be countered or supplemented by City Council ideas on the city's other major tax resource, the personal income tax.
The new-tax debate -- the first in more than a decade -- will make the news in the next few weeks as a mandated November budget modification and a January 2003 preliminary budget for next year force decision-making.
The mayor has tossed the biggest tax idea in at least a generation at the City Council: a property tax increase up to 25 percent that would produce as much as $2.5 billion! This increase would follow 11 years in which the city's average property tax rate has been frozen and property tax revenues generally flat. The lively debate that this proposal should prompt will be somewhat muffled, however, by the mayor's clever timing. Using all the executive powers at his disposal, the mayor apparently wants to include the property tax increase in the November modification. Since the council can only accept or reject that modification, the public debate and council powers will be unfortunately constrained.
Nevertheless, the mayoral/council negotiations and limited public debate will be enriched if the City Council adds its best thinking on how to use the city personal income tax, which is more progressive (i.e., puts a greater burden on the taxpayers who can best afford it. The tax burdens that accompany changes in the property and personal income taxes are quite different, so it is important to determine who pays and who doesn't in these big-ticket choices.
The mayor's timing is not only politically expedient in terms of his enhanced mid-term budget powers, but in the fact that the property tax rate is the one tax the city can do on its own, without state approval. A 25 percent January 2003 property tax increase - half-way through the current fiscal year - would raise over $1 billion this fiscal year, and $2.5 billion next year. That would solve a lot of fiscal problems.
Selling it to New Yorkers is another matter. There are several reasonable arguments the mayor can use to justify the increase, but the fact that the tax is basically regressive is a roadblock.
The inequities in the property tax are clear in the distribution of 25 percent increases, which must be across-the-board and would, on average, have the following residential impacts, based on Independent Budget Office data:
The average renter would pay a total of over $2,000 a year in property taxes, payments that - unlike owners' payments Ă are not deductible from personal income tax. This is true even though renters' average household income was $33,000 in 1998, compared to average house-owners' household income of $60,000 and coop-condo owners' $177,000.
One of the most reasonable arguments for a property tax increase - questions of equity aside - is the inclusion of commercial properties. Commercial properties have benefited from the city's property tax system in recent years. The five-year phase-in of commercial assessment increases means businesses have been spared paying hundreds of millions of dollars in property taxes during the prosperous late 1990s.
The property tax has the advantages of raising a lot of money quickly and spreading the tax burden very broadly to commercial properties as well as relatively-low-taxed homeowners. But it is regressive, which suggests that the personal income tax should be addressed concurrently. Rate increases here require state approval, but changes in the tax were quite common in the 1990s, so there are political precedents for quick state action.
The council's spring 2002 plan to raise $400 million from a permanent pe rsonal income tax surcharge illustrates how a tax can be made progressive:
The mayor rejected the council's plan.
A focus in the next few weeks on personal income tax increases as a counter to - or supplement to - the mayor's sudden focus on property taxes, would help sharpen public understanding of just what the mayor is proposing here. A complete dependence on the property tax would, on one hand, protect "average" millionaires, whose taxes would generally be far lower with a property tax increase than with the progressive personal-income tax options listed above. For example, the property tax on a $1 million coop is, c onservatively, about $12,000 today. A 25 percent increase amounts to only about $3,000
On the other hand, complete dependence on the property tax would be a severe burden on renters. Additional exemptions from increases for lowest-income renters would be one way to ease that burden. Innovative thinking -- such as making renters' property tax expenditures deductible just like owners' - would find more ways.
Best Opportunity For Balance
Mayor Bloomberg's remarkable property tax proposal is actually his second bold revenue plan. He included a plan to toll the city's bridges in his first four-year plan last year, which would generate as much as $800 million a year in the near future.
If the mayor's ambitious bridge tolls and property tax plan are combined with the City Council's interest in the city's personal income tax, that would mean over $4 billion in new revenue on the table. The city would have its best opportunity in at least a decade to craft a structurally balanced budget plan. No longer would the city need to depend on the multi-billion dollar one-shot financing that characterized the second-term Giuliani budgets and the first Bloomberg budget, which helped create the current crisis.
Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.
Just before the opening of Lincoln Center's Mostly Mozart Festival, in August, the 42 members of the Festival Orchestra went on strike over an issue that had nothing to do with wages or benefits. Instead, it boiled down to a struggle over job security and artistic control-issues that underlie most cultural endeavor but only occasionally make it into the public eye.
The conflict was framed by Lincoln Center's search for a new music director to replace Gerard Schwarz, the director from 1982 to 2001 and the man widely credited with building the festival into what it is today-an extremely popular, generally acclaimed, consistent moneymaker. This summer, 60,000 patrons were expected to attend. Twenty of the festival's 31 concerts were cancelled as a result of the strike.
The orchestra players rehearse and perform for four to six weeks each summer and take freelance engagements for the rest of the year; the festival is thus an important and stable source of revenue for them. After settling on an 18-percent pay raise over three years, negotiations broke down over the issue of job security. Bill Moriarty, president of Local 802, the professional musician's union for the New York City area and the largest such union in the world, says that problems arose when Lincoln Center's management suggested amending a longtime provision regarding contract renewal for a tenured musician. (Players go through a period of probation, generally one to two years, before getting tenure. Just as it is hard to fire a tenured professor, it's hard to fire a tenured musician, and the issue has only been brought to arbitration once in the festival's history.)
Past contracts named a professional arbitrator to resolve disputes over the firing, or non-reengagement, of a player. According to Moriarty, management suggested doing away with this process and giving the music director control of such disputes. This set off alarm bells for the musicians, who worried that a new music director might want to "clean house" upon arrival. Many of the players had been with the festival for well over a decade, some since its beginning 36 years ago. "One of the sources of tension in this negotiation was the longevity of most of the orchestra members and their proprietary feelings about their place in the orchestra and the concern that they have for its quality," Moriarty says.
Jane Moss, vice president of programming for Lincoln Center, tells a different version of events. According to Moss, the union first brought up the contract provision, suggesting that disputes over hiring and firing be settled by a committee of the musician's peers. Management countered that such a group would not be disinterested enough, and Lincoln Center's president, Reynold Levy, told The Times that "first-class conductors wouldn't accept those terms." The compromise decision that emerged after a few days of the strike, about which both sides claimed victory, holds that future arbitrations will be settled by a three-person panel: one representative from the union, one from management, and a third party, agreed upon by management and the union. This third party-who may well carry a swing vote-potentially could be a musician.
Typically, labor arbitrators are squeamish about making artistic judgments, and tend to defer to the opinions of management. By bringing a musician to the table, arbitration will take into account the opinion of a peer. "At the very least," Moriarty says of the result, "we will stand more of a chance that the third arbitrator . . . will understand better what should go into an artistic decision and where the line is drawn for arbitrary and capricious action. Because that's what you're looking for; nobody is looking to keep people in an orchestra who cannot play well enough to be in that orchestra. You're dealing here with art. While [players] value their labor rights they also value their art."
The details of the dispute were perhaps too obscure for the Mozart-deprived public to understand; even in the press, the most-often repeated phrase was that the players belonged to "the highest-paid freelance orchestra in the country." Moriarty disputes the term "freelance," though not that the players are well paid. "We got a fairly decent economic package in this negotiation," he says. "We got that far more easily than we could get this non-renewal provision, which is a matter of power. To wrest some kind of decision-making power from management is always far more difficult than squeezing money out of them."
Clearly, the life of a classical musician has improved in past decades, thanks to the strength of music unions. "I worked part time in the St. Louis Symphony in the early 1960s," Moriarty recalls. "Basically, then, you were the same as a factory workers-you were an ad hoc employee, they could fire you at will, and in fact one of the things that often happened in those days, when a new music director would come in, he would change about a quarter of the orchestra, just to show the power he had." And there are precedents for power-sharing at Lincoln Center. The players of the New York Philharmonic have, over the years, won a measure of artistic control, electing an artistic committee, which gets involved in the hiring of new musicians and the evaluation of guest conductors. Jane Moss declined to comment on the issue of power-sharing among the new music director and Festival Orchestra players.
Conflicts over power-sharing arise in most artistic fields. Actors in a resident theater company or members of a corps de ballet often complain that they have no role in their institutions' decision-making. Most arts institutions are fairly hierarchical, with directors generally calling the shots in conjunction with managers and boards. This kind of hierarchy may to some extent be necessary: any kind of artistic collaboration requires discipline and boundaries, as a quick viewing of tapes of the less successful experiments of the 1960s shows.
And yet, it's useful to remember that directors-in music, theater, and visual arts-are relative latecomers to the arts scene. Theater directors began working in the early nineteenth century, when massive spectacles required coordination apart from the actors. Formal music conductors were not commonly used until the Baroque period, when music became increasingly complex and the number of performers expanded. It's probably inevitable for directors and those being directed to clash; but it's also true that sometimes this push-and-pull is what makes for great art.
Martha Hostetter writes for American Theatre magazine.
As New York's budget gap grows larger, calls for a renewed tax on the city's roughly 1 million daily commuters are growing louder and more insistent than ever in some quarters -- especially in the City Council.
Reinstating the tax repealed by the state Legislature in 1999 would close about one-tenth of a budget gap estimated to be well over $4 billion for fiscal 2004. Proponents insist it isn't just a matter of revenues, but of basic fairness.
The Daily News recently editorialized, "Every day that they come here, commuters avail themselves of city services, utilize the infrastructure, know that, if necessary, city hospitals are there to treat them, and depend on the security afforded by New York's Finest and Bravest. It's only fair that they help pay for some of what the city spends on all this."
The notion that non-resident workers are a bunch of well-paid freeloaders has long been treated as the truest of truisms in New York and other financially strapped cities. There's just one problem: it's a fallacy.
Many of the middle- and upper-echelon jobs in corporate offices, brokerage houses and law firms in lower Manhattan are held by people who live in the suburbs. Ask yourself: If these jobs are so costly to New York, why does everyone get so worked up about the possibility of losing them to New Jersey?
Would the city be better off with no commuters? Of course not.
That is because the workers who flow into New York every day from surrounding suburbs are an indispensable source of economic prosperity for the entire city. (If you want to get an idea of what happens to small service businesses when thousands of commuters suddenly vanish, talk to a coffee-and-sandwich vendor in Lower Manhattan.)
As for budget revenues, everyone who works in New York contributes to the city treasury -- both directly, through sales taxes on purchases in the city, and indirectly, through an exceptionally wide array of heavy city corporate and property taxes paid by the firms that employ commuters and profit from their productivity. To the very limited extent that commuters actually "avail themselves of city services" (to use the News' phrase), the cost is easily covered by the tax revenues they generate.
Moreover, commuters from neighboring states already pay a tax premium to work in Manhattan -- because they are subject to the New York State income tax, no matter where they live.
In recent years, New Jersey and Connecticut residents who work in New York have generated nearly 10 percent of the Empire State's total income tax collections, equal to $2.5 billion this year. And at least a third of that money (plus a similar share of state taxes on business income attributable to their labor) flows back to the city in the form of state aid or direct spending.
Unlike the regular income tax (with its graduated rate schedule for different income brackets), the commuter tax was a flat rate applied to a worker's entire city income. This meant it could raise a commuter's New York income tax bill by 10 percent or more, depending on his or her level of income. As a result, the commuter tax represented a proportionately bigger add-on for lower-income workers than for high-income workers.
Many supporters of the reinstatement argue that the commuter-tax rates are too small to affect the number of jobs created or retained in the city. But this overlooks what might be called the final-straw factor, especially post-9/11.
Suppose you are a junior investment adviser with a Manhattan-based securities firm, earning $100,000 a year. Married, with two kids and a house in the North Jersey suburbs, you are already effectively paying a $2,000 commuter tax -- the difference between what you would owe on the same salary in New York and New Jersey state income tax. Assuming your employer will not make up the difference, an added city commuter tax at the former rate would cost you another $450 a year.
That $450 might not look like much. But combined with other factors -- such as commutes two to four times as long as before 9/11, and general anxiety about returning to an area stigmatized by death and destruction -- a few hundred more dollars in taxes per commuting employee certainly will not strengthen the case for staying in New York. That is especially true at a time when many firms are pondering relocation decisions.
To be sure, the 1999 repeal of the commuter tax was not Albany's finest hour.
By all accounts, it had nothing to do with the substance of tax policy and everything to do with the politics of a hotly contested special state Senate election in Rockland County, with leaders of both parties eager to pose as champions of suburban interests. The move was angrily condemned by Mayor Rudolph Giuliani, Council Speaker Peter Vallone and the editorial pages of the city's newspapers, all to no avail.
Nonetheless, it is safe to say that the repeal of the commuter tax made virtually no difference in New York City's bottom-line. That's because Giuliani and the City Council were already planning a different set of tax cuts and spending hikes for the same amount of money before the commuter tax was repealed. When the commuter tax disappeared, those other programs were pushed aside.
The loss of commuter tax revenue is not the reason New York finds itself in a new fiscal crisis. However, the restoration of the tax would pose a very real threat to the city's recovery.
In this shaky economy, the city desperately needs to attract and retain more commuters -- a goal that will not be served by slapping them with what amounts to a wage toll.
E.J. McMahon is a senior fellow for tax and budget studies at the Manhattan Institute's Center for Civic Innovation.
For the opposite view, see "Bringing Back The Commuter Tax," by Glenn Pasanen