Gotham Gazette

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Bloomberg Loses Budget Battle

Photo (cc) Kristen Artz. Mayor Michael Bloomberg and Senate Majority Leader Dean Skelos after the state of the state in January.

On Wednesday, hordes of protestors poured into the New York State Capitol in Albany chanting, "Hey ho, hey ho, these budget cuts have got to go!"

Simultaneously, legislators worked to pass the $132.5 billion fiscal plan -- most ignored the chanting as much as they could.

But it wasn't just the protesters who weren't being listened to.

Mayor Michael Bloomberg stamped his feet and gnashed his teeth about how the state budget hurts New York City. It wasn't enough to shake the will of the Cuomo administration. The newly minted governor convinced legislators to vote for almost the exact same budget the governor presented to them -- except for a few small restorations. All told, it looks like the city lost just under a half billion dollars in education aid.

Expecting cuts, Bloomberg didn't do the traditional lobbying in Albany. Rather than focusing on restorations, he pushed Albany to reduce state mandates and give the city more flexibility in negotiating public contracts.

Unfortunately for Bloomberg, and some would say the city, he didn't get any of it.

What He Wanted

Bloomberg's biggest request was for the state to do away with "last in, first out," or LIFO. Rescinding the policy would allow the city to lay off teachers based on performance, not seniority. He made his case in Albany during budget hearings, as did Schools Chancellor Cathie Black. The issue was pressed in editorial pages and through like minded legislators in the Capitol, but in the end Bloomberg struck out; LIFO is not part of the budget agreement.

There is a possibility that Senate Republicans and the governor will continue to work with Bloomberg to reach a deal on LIFO after the budget is voted on, but at the moment it just seems that Bloomberg's agenda utterly failed.

Bloomberg's other gripe was a cut out of millions of dollars in revenue sharing funds that the state gives to localities every year. New York City sends more money to the state than any other locality, yet for the past two years the state has proposed eliminating the local aid. The Cuomo administration argues it didn't zero out those funds -- the cut was made in budget extenders last year under Gov. David Paterson. Cuomo just didn't go out of his way to restore aid to the city. New York City was singled out by Albany and eliminated from the revenue sharing program, while other localities took no more than a three percent cut.

"We appreciate that some of the cuts in education aid were restored. But make no mistake: the final budget still cuts New York City more than ever before," Bloomberg wrote in a statement. "The restorations are merely a fraction of the $600 million necessary to avoid additional layoffs and cuts in the city's budget -- beyond what was announced in February -- for the upcoming fiscal year."

Cuomo's spokesman, Josh Vlasto, blasted Bloomberg, saying the budget "restores tens of millions of dollars in additional education aid, millions to keep senior centers open and millions to protect the homeless. AIM aid to the city was not cut 100 percent. AIM aid was eliminated last year, so it is a zero percent decrease for fiscal year 2011-2012. Prudent budgeting would not have counted that as an increase. In addition, the City Department of Education has a surplus of over $300 million and the City revenue position has improved, so they have much less pressure on their overall budget."

Bloomberg, however, sent out a mailer blaming Albany for cuts and painting himself as a champion for the working class. His literature read: "Albany budget cuts will hurt our families. That's why Mike Bloomberg is standing up for us." The flyer also says that Bloomberg is "protecting vital services like police and fire that keep our neighborhoods safe."

In response to the flyer, Councilmember Jimmy Oddo asked Bloomberg in a letter if his planned cuts to fire stations still stood. "Respectfully, I ask that the appropriate individual within your administration publicly state whether the aforementioned direct mail piece does, in fact, signal a change in administration policy eliminating the threat of closing any fire companies as part of the FY 2012 budget."

The council's progressive caucus made it clear that they think Bloomberg has been fighting the wrong battles in Albany. Rather than pushing for changes to last in, first out and other labor concessions, they say Bloomberg should have been focused on restoring cuts to education and Medicaid funding and joined them in calling for the renewal of the state's millionaire’s tax.

Since the state budget does not reauthorize the millionaire’s tax, the progressive caucus is calling on Bloomberg to support the creation of one on the city level. The odds of accomplishing that are extremely low; Bloomberg hasn't even supported the state version.

"We urge Mayor Bloomberg to keep the millionaire’s tax for New York City. If Albany won’t look out for the over 1.8 million New Yorkers who live below the poverty line, the one-third of city residents who rely on Medicaid, the 17,000 children who stand to lose daycare, and the one out of every four working New Yorkers who rely on food stamps -- then we must," wrote the Progressive Caucus in a statement.

Another major way the city lost out in the budget talks, according to a number of Democratic legislators, is rent regulations were not renewed as part of the package. The laws are set to expire in June. Cuomo and Senate Republicans have close ties to the real estate lobby that opposes stronger laws for tenants. At one point in negotiations it seemed that a deal might be made to include a property tax cap along with a renewal of the rent laws, but that fell apart.

Meanwhile good government groups, including Citizens Union, the sister organization to Gotham Gazette's publisher, are decrying the fact that the budget continues funding for the Legislative Task Force on Demographic Research and Reapportionment -- the group of legislators that decides district lines. Groups such as NY Uprising and Citizens Union have been pushing for legislators to pass independent redistricting to prevent gerrymandering. A majority of legislators pledged to support the move, but by continuing to fund the old system, it becomes less likely a new one will be instated before the redistricting process begins.

The Senate finished passing bills late on Wednesday night. The Assembly was still working past midnight--meaning Cuomo did not get an early budget, but likely one that will be on time.

New York Needs Real Reform, Not Higher Taxes

social service cuts
Photo by D'Arcy Norman

For the opposing point of view, see New York's Wealthiest Need to Sacrifice a Little Too by Kenneth Brynien of the New York State Public Employees Federation.

The Partnership for New York City is an organization of business leaders committed to promoting the economic interests of the city and state. We are not a knee-jerk opponent of tax increases.

On the contrary, the partnership was an early advocate of the Earned Income Tax Credit, which dramatically reduced the tax burden on New York’s working poor. We supported real estate tax increases to hire additional police and to raise teacher salaries. Most recently, we advocated for the imposition of the payroll tax on employers to help fund the Metropolitan Transportation Authority capital plan.


But the partnership opposes the "millionaires tax" as a solution to the state budget crisis for two primary reasons: first, this tax will do very little to address a budget shortfall that is projected to total $43 billion over the next three years if spending continues along historic trends; and, second, this tax is a poor substitute for the fundamental reforms that we all need to set our ship of state on a proper fiscal course.

It is also legitimate to worry about whether the millionaires tax will cause business owners, employers and investors to move out of the state, taking with them a lot of wealth and purchasing power that our local economies rely on. We already have seen this transpire in New York City, as more than 30 hedge funds have relocated to Connecticut.

Ninety percent of the taxpayers who would be captured by a millionaires tax reside in New York City, Long Island and Westchester. These communities carry the biggest portion of the state's tax burden, while simultaneously generating most of its new jobs and economic activity. Increasing taxes on the state's most prolific job generators so half-empty prisons and under-utilized health facilities in declining communities can remain open will not boost New York's revival.

The millionaires tax gives Albany an excuse to delay making the hard decisions required to reverse tax and spend policies that have resulted in an exodus from our state of 1.7 million people and 400,000 jobs over the past decade.

New York's two biggest areas of spending are Medicaid and education. Both are tough to scale back. But New York's Medicaid program has the most generous eligibility standards in the nation and provides patients with "Cadillac" health care plans. It also allows virtually any New Yorker to shelter income and assets in order to qualify for taxpayer-funded benefits during the last years of life. This is why our Medicaid costs are double the national average. It is not easy to cut spending on health care, but it is unfair to increase taxes on some New Yorkers so that others, who could well afford private health insurance, can shirk their responsibilities.

When it comes to education, 21 percent of the $52 billion state school budget goes for non-instructional purposes. The state has far too many local school districts, each insisting on running its own transportation system and maintaining a gaggle of administrative employees, consultants and turf prerogatives. New York's education spending is 67 percent higher than the national average, without a commensurate advantage in student outcomes. Districts resist consolidation, but their parochial concerns should not trump taxpayer interests.

New York's current deficit of $10 billion is not a short-term problem that was triggered by the recession. It is the result of government spending that has increased by 74 percent over the past decade, far outpacing the rate of economic or personal income growth.

Advocates for a millionaires tax argue that the state has a revenue problem, resulting from a financial crisis and global recession that depleted public coffers. But the current year's tax revenues are estimated to be only $100 million short of their all-time peak of $60.8 billion in 2007-08 and are projected to grow to $64.8 billion next year. In short, New York's fiscal crisis is a consequence of spending too much, not taxing too little.

Gov. Andrew Cuomo has called for fundamental reform of the programs and policies that have made New York the highest cost, highest taxed place to live and conduct business in America. He seems to have momentum to bring real change to Albany. He is trying to take the actions required to make our state competitive again. Adopting a millionaires tax at this time will only detract from those very promising efforts.

Kathryn Wylde is president and CEO of the Partnership for New York City.

New York's Wealthiest Need to Sacrifice a Little Too

Photo by Katie

For the opposing point of view, see New York Needs Real Reform, Not Higher Taxes by Kathryn Wylde of the Partnership for New York City.

New York is suffering a fiscal crisis as a direct result of greedy financial institutions. Billionaire financial wizards caused this mess, and it is not too much to ask for them to pitch in a few pennies on the dollar to help clean it up. That is why the Public Employees Federation, many other unions and advocates for education and social services, strongly support the extension of the so-called "millionaires tax."

In the mid-1990s New York, like the rest of the world was in the middle of a fantastic economic expansion. Some thought it would last forever and the revenues generated by Wall Street would never stop flowing. Based on this assumption New York commenced cutting taxes. What a time it was! You could cut taxes and still keep spending at the same level or even increase it.


This expansion, as it turned out, was not real. It was based on one financial scheme after another: first the tech bubble, then WorldCom and Enron and finally the housing bubble. Now we are finally dealing with the decisions made in the mid-1990s based on those faulty assumptions. New York gave away billions in tax revenues thinking the party would never end. According to the Fiscal Policy Institute, if we had the same tax structure now that we had in the mid-1990s, we would have an additional $13.5 billion in revenues. Instead of talking about our devastating fiscal crisis we would be asking, what can we do with the surplus?

New York's leaders have stated their plans for how to deal with this new reality. They talk a lot about "sharing the pain" in Albany these days. Unfortunately, there is a definitional problem because apparently sharing doesn’t mean what I thought it did. The governor has proposed a budgetthat cuts spending for state agencies by 10 percent. He has threatened my members with thousands of layoffs unless we make concessions worth hundreds of millions of dollars. Yet wealthy New Yorkers are going to realize a tax cut on Jan. 1. Either it pains the wealthy to get tax cuts or there is no sharing of the pain here.

While the leaders wrestle with how a tax cut equals pain the voters are not so confused. When asked if the tax on those making more than $200,000 should be allowed to expire at the end of the year almost 65 percent of voters said no.

Unfortunately, for some of our elected officials the will of the voters matters little. Gov. Andrew Cuomo has stated in no uncertain terms that he will not extend the surcharge on the wealthiest New Yorkers. The state Senate leadership has made similar statements. Only the Assembly has stood up against the moneyed interests in New York and passed a bill that, if enacted, would continue the surcharge on the wealthy. The Assembly's tax plan extends the surcharge for only one year and modifies the current surcharge by raising the income levels affected. Extending the existing surcharge would raise $1 billion this fiscal year and $4 billion next year. The Assembly proposal raises $750 million this fiscal year and $3.45 next fiscal year.

So the voters are being ignored. The unions, the students, the advocates for the poor and thousands of others who have protested in Albany are being ignored. Who is it that has the ear of the leaders in Albany? Those who "vote" with large amounts of cash are being heard loud and clear.

New York's wealthiest are joining forces and pitching in not for the betterment of New York but for the fattening of their wallets. Yes New York's greediest are putting up $10 million and more to fight against the rest of us so they can keep their millions and billions.

Well, it must be that New York’s wealthiest are being buried in taxes and need a break. As it turns out that is not the case. Right now, the wealthiest New Yorker’s, the top one percent whose households make more than $633,000 a year, pay 8.4 percent of their income in state and local property taxes. Gov. Cuomo and the State Senate want to cut the top one percent's tax burden to 7.2 percent by allowing New York's top two tax brackets to expire.

If the temporary tax rates were made permanent, New York would be able to balance its budget with a lot less damage to the economy. It would still be able to devote $1 billion a year, starting next year, to helping the people who really need tax relief -- those middle and lower income families being squeezed out of their homes by high property taxes.

New York is a great state and a great place to live and raise a family. Every New Yorker should be willing to do whatever it takes to help us keep New York great. I have said repeatedly that we, the members of the Public Employees Federation, are willing to make sacrifices but we are not willing to be sacrificed. We will do our part but we fully expect that all New Yorkers will do their part too.

Kenneth Brynien is president of the New York State Public Employees Federation.

Behind Bloomberg's Budget Surpluses

new york city budget
Photo (cc) Adelle & Justin

Given a 10th chance to continue his serial budget cuts, Mayor Michael Bloomberg, at least on the surface, pulled back. The mayor's preliminary budget for fiscal year 2012 and four-year financial plan, released Feb. 17, is something of a surprise. It is a remarkably cool, even complacent document. No big new cuts. Less anti-labor rhetoric. Little sense of crisis. What happened?

One answer is that the most severe cuts on the table -- eliminating over 6,000 teaching positions, cutting services to seniors, youth, libraries, etc. -- were already built into the ninth package of cuts, which came in the mayor's November budget modification. Absent any new action by the mayor or council, those cuts will take effect in 2012.

A second answer is that a huge increase in new (Wall Street-driven) tax revenue and other new budget-balancing resources since November makes the fiscal outlook -- at least for next year -- much more positive. In fact, the news is so good that the mayor -- given his serial insistence on cutbacks – may not, for once, want to stir the political waters. After all, one might ask, why not use those new resources to rescind the November cuts?

The mayor’s own interest seems to be to underscore the dramatic contrast of his fiscal plan with the budget hysteria and uncertainty at federal and state levels. As conservative leaders from both political parties in Congress and states across the nation outdo each other with daily doomsday scenarios, the mayor has an irresistible opportunity to remind the political world: "During the economic boom years, we did not spend all of our resources each and every year as many others did."

The Mayor's Power

The most fascinating and problematic aspect of the preliminary budget is the sheer scale of mayoral discretionary powers at play, powers that leave the City Council playing catch-up and squashing any sense of checks and balances in the city’s budget process. For instance, the mayor, who alone determines projected revenues, reports in the preliminary budget -- just three months after the November modification -- that the city will actually pull in over $2.1 billion more in tax revenues in the next 17 months than it anticipated in November. The Independent Budget Office had been closer to the mark than the mayor; it noted in mid December that tax revenues would be over $1.5 billion higher than the November plan suggested.

The lower revenue forecast in the November modification enabled the mayor to justify his budget cuts: $1.6 billion over the next 17 months. Also, moving the cuts into November, as he has done several times, gives the mayor a political advantage because in mid-year the council has less clout and the public less access to the budget process.

Another discretionary power in full display this fiscal year is the use of large, generally obscure reserve funds. The November modification included, for example, a $1.1 billion drawdown from the city's Retiree Health Benefits Trust Fund during 2011 and 2012, a reserve fund ostensibly set up to meet long-term liabilities.

Flash forward to the preliminary budget, which includes two more big drawdowns. As he did last year, the mayor takes $500 million from a "prior year payables fund," money set aside to pay bills from earlier years but no longer needed. He also uses $200 million from a general reserve fund that would otherwise be used for emergencies.

Other budget-balancing changes include refinancing of city debt and re-estimates of expenses. Re-financings in fiscal 2011 and 2012 will save over $600 million. Re-estimates of projected spending on Medicaid, health insurance and legal claims against the city add up to over $600 million in reduced spending.

In other words, in just three months, some $4 billion in new budget-balancing resources have surfaced. The new revenues more than offset new expenses of over $700 million during the next 17 months and some $1.4 billion in lost state aid. The net result is the November modification’s projected 2012 deficit of $2.4 billion is knocked down to $600 million in the preliminary budget.

Getting the state to solve city budget deficits is a common tactic in preliminary budgets, of course, but this year it seems an unusually small request: $200 million from an "equitable reduction" of state revenue sharing (usually about $300 million, but entirely eliminated in the governor’s budget); $200 million from additional state educational aid; and $200 million from "moderate reform" of existing police and firefighter pension benefits, targeting the annual $12,000 bonus given to retired police officers and firefighters that costs $600 million a year, according to the New York Post . The Post also pointed out that the mayor himself expanded the bonus benefit to some 6,900 current officers and firefighters as an incentive to defer retirements.

Budget Surpluses and Budget Cuts

One of the less recognized aims of such discretionary changes is building up the current-year budget surplus. In spite of all the gloom and doom in last June’s adopted budget and the November modification, the city is now on target to have a $3.2 billion surplus at the end of this fiscal year, ending June 30. With almost four months left -- if previous years are any indication -- that $3.2 billion will grow bigger. (Last year’s surplus was $3.6 billion.)

The teachers union and other opponents of the mayor's spending cuts have said he should use this surplus to avoid layoffs. However, the rollover of the surplus into the next fiscal year makes it the single biggest component of the 2012 balanced budget.

No question, this is the ultimate achievement of the mayor and his Office of Management and Budget. They do not simply balance a budget; they repeatedly do budgets with billion-dollar surpluses. Where else in local, state, and federal governments does such a thing happen?

This leaves one other question: Is it good for New Yorkers? Examining some of the detail in the preliminary budget suggests that the year-round focus on cutting services to build up surpluses does not work equitably or permit long-term planning. Worse yet, it has encouraged a kind of bloodless budget making. In spite of billion-dollar surpluses, recent budgets, like this preliminary budget, lack any sense of direction, any acknowledgment of distress in the city.

Take the $1.6 billion in 2011/2012 cuts now being implemented. The 2011 cuts in uniformed services average less than 1 percent (0.85 percent). Cuts in the four uniformed serves in 2012 average 2.3 percent, while the cuts in public education are 4 percent, with CUNY taking an 8 percent hit, and health and welfare agencies averaging 6.24 percent. Other mayoral agencies -- including housing, parks, libraries, cultural affairs, and transportation -- in 2012 will be cut, an average of 8.32 percent.

More specifically, the $4.25 billion police department has $43 million in projected budget savings in fiscal 2011, but largely because of big new overtime costs has added $162 million in new expenses in 2011 since the budget was adopted last June. Not one uniformed officer position will be cut. Yet if the mayor actually follows though on his proposal -- and is not just bluffing -- 6,166 teaching positions will be eliminated, 4,666 through layoffs.

The fire department finds $7.9 millions in new savings but adds over $50 million in new expenses, much of it from new overtime expenses. The corrections department makes about $5 million in savings in 2011, but adds $41 million in new 2011 expenses. The sanitation department, where 200 uniformed staff positions are eliminated in 2011 – and another 65 in 2012 – nevertheless has added $80 million in new expenses in 2011 and saved only $25,130 from planned spending during the year.

Reporting on Budget Cuts

On Feb. 25, the mayor released the preliminary mayor's management report on the first four months of the current 2011 fiscal year. Although Bloomberg has been trying for years to eliminate the charter-mandated preliminary report and provides no personal or agency overview, it occasionally surfaces important information.

For instance, the human services contract budget in the Department for the Aging during the first four months of fiscal 2011 was $65.6 million, or 16 percent lower than for the same period a year ago. That helps explain why the hours of home care services decreased by 29 percent, the number of meals served at senior centers declined by 7 percent and meals delivered to seniors at home fell by 3 percent.

In the Department of Youth and Community Development the four-month human services contract budget was $79.9 million, down 17 percent from the previous year. One program for adult basic education and English for speakers of other languages lost 31 percent of its participants. Summer job participants dropped by 32 percent in fiscal 2011 -- a decrease the city blamed on federal and state cuts -- from 52,255 to 35,612.

At the Administration for Children's Services, the number of children receiving contracted preventive services fell from 30,047 to 23,581 in the past year as the number of abuse/neglect reports and substantiated reports rose.

Budget impacts in education have proved hardest to document. Perhaps prompted by widespread criticism of both the mayor's education program and the $571 million education cut in the November plan's $1.6 billion deficit plan, the preliminary budget highlights the city’s 132 percent increase in city-funded education spending, from $5.9 billion in 2002 to a projected $13.6 billion in 2012.

It's as if the mayor is saying, I've spent a lot on education, so a loss of 6,000 teachers is no big thing. But the management report – however cryptically – suggests a system in trouble

One result of nine rounds of budget cuts, for instance, is increased class size. According to the new preliminary management report, class size in kindergarten through grade eight has increased from 24.1 per class last year on average to 24.9 this year. Class size in the lowest grades -- kindergarten through three -- rose from 22.1 on average to 23.0 during the same period.

Beyond that, on the key questions about educational achievement, the PMMR offers confusion. School reading and math scores, which the mayor has made his ultimate accountability measure, have become essentially useless. Shifts in both state and city testing standards make any comparison over time impossible. For instance, the percentage of students in grades three to eight meeting or exceeding standards in English language arts goes like this: 57.6 percent in 2008, 68.8 percent in 2009, and 42.4 percent in 2010.

The report's rather hapless answer to this apparent failure to provide better basic education is the state's "recalibration" of the scores, which "does not necessarily mean that student performance declined; rather, the students of New York City are now being held to a higher standard." That seems like a soft result for a $7.7 billion increase in city education spending over the past nine years.

Little New Revenue

The preliminary budget offers few new revenues produces and those it does provide are small, only 10 percent of the $1.6 billion in cuts.

It proposes no new taxes. The biggest revenue producers are increases in the cost of for parking at a meter -- slated to bring in $14 million in 2012 in upper Manhattan and the outer boroughs and $12 million from the rest of Manhattan. New hires in the Finance Department will add $27 million in new tax revenues in 2012 by collecting more money owed the city. The parks department will get $4 million from new and higher fees, and the building department about $4 million in 2011 and 2012 in new fees.

The mayor's overall emphasis on service cuts and no new taxes mirrors, of course, the general national politics. Neither the president, Congress, nor most state governors, want to look at new taxes, let alone progressive taxes.

Interestingly, just as President Barack Obama and both houses of Congress have ignored the budget-balancing recommendations of the president's deficit-reduction commission, Bloomberg and the City Council have ignored, among other options, the annual recommendations for new budget choices in the Independent Budget Office's excellent Budget Options report. It provides an array of money-saving management and progressive tax ideas that would provide hundreds of millions of dollars that, through shared sacrifices, would preclude the kinds of cuts the preliminary budget promotes.

What ultimately distinguishes the mayor from other budget-makers, however, is not simply his skill in balancing a year's budget, but his use of extraordinary discretionary powers to make budget-cutting a year-round goal, building surpluses each year in order to build new surpluses for the next year.

However well that goal plays in the mayor's national political conversations, he might also want to consider another Preliminary Mayor's Management Report finding: Some 1.8 million New Yorkers -- over 21 percent of city residents -- now receive federal food stamps, an increase of 44 percent in the past three years and 11 percent in the past year alone. The city seems to be suffering in ways not acknowledged in either the preliminary budget or the management report.

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

Quinn Takes on Spending, Pensions in State of the City

Photo (cc) William Alatriste

Setting herself apart from other 2013 mayoral contenders and with the current occupant of City Hall, Council Speaker Christine Quinn proposed cracking down on wasteful contracts and city debt in her sixth State of the City address Tuesday.

Before a crowd of at least 500 at the City University of New York's Graduate Center, the speaker hinted at what promises to be a likely 2013 mayoral campaign platform focused on problems both "big and small" -- from avoiding skyrocketing debt to making sure residents do not get unfair parking tickets.

In what could be her most ambitious and challenging proposal, Quinn suggested the city start paying for some of its capital expenditures -- normally financed through issuing bonds -- with cash up front. The process, which has been done before on a smaller scale during Bloomberg's tenure, would reduce the amount of debt while also ensuring the city invests in its infrastructure and creates jobs, Quinn said.

"Under my pay as you go proposal, we can keep these New Yorkers hard at work, while still reducing the debt we leave for future generations," said Quinn, while perched on raised stage with the flags from the five boroughs behind her.

According to a council spokesperson, Quinn hopes to kick off the program in 2013 with a $200 million up front payment for projects. The allocation would increase by $200 million every year thereafter, eventually rising to $1 billion, said the spokesperson.

Quinn's position puts her at odds with Mayor Michael Bloomberg's proposal to trim debt service by simply cutting the capital budget by 20 percent, which he ordered in December.

Quinn said yesterday: "That kind of across the board cut comes with serious consequences -- and I simply cannot support it."

In response to Quinn's proposal, Marc LaVorgna, a Bloomberg spokesperson, said in an e-mailed statement: "We understand the speaker’s position and agree that we need to reduce debt service costs. We work closely with the speaker and council, producing on-time, balanced and responsible budgets every year, and we will be discussing this as a part of the budget process."

The mayor is scheduled to release his preliminary budget on Thursday.

Getting Control of the Budget

In 2003, the city spent $2.4 billion on debt service to cover capital costs. It is projected to spend nearly $5.1 billion this fiscal year. Costs will climb to nearly $6.7 billion by fiscal year 2014.

Quinn said 12 cents of every tax dollar goes to debt service.

According to budget experts, paying for capital projects up front would also provide a buffer if the economy heads south again. The practice, said Ronnie Lowenstein, the head of the city's Independent Budget Office, is not unusual. But some question whether it is fiscally and politically feasible.

"This is nothing you would want to do in a downturn," said Lowenstein. "The question is are we enough out of the downturn to do it?"

The city faces a $2.4 billion deficit in the upcoming fiscal year. Paying for capital projects up front would force the city to cut back even more on programs.

"It's worthy of discussion," said Public Advocate Bill de Blasio -- also a potential 2013 contender. "It’s a tough environment to have that discussion in. We're about to get hit hard by Washington. We're about to get hit very hard by Albany. We already have our own deficit. It's hard to imagine we can find additional money for pay as you go capital."

Taking on Waste

The capital budget was not the only fiscal proposal Quinn touted.

Thrusting in the air a 1,500-page contract to clean up snow around bus shelters, the speaker said the city spends more than $10 billion each year on "contractual services." To make sure that money is spent appropriately, Quinn said the council would approve legislation to create a new Web site that would detail financial information in plain language on all of the city's 17,000 contracts. She also said keeping contract costs flat in the next budget year would save the city $100 million.

"I'm happy to hear the speaker talk about the need to rein in out of control contracts," said Comptroller John Liu, who has been criticizing bloated contracts for years. "It's something that the mayor doesn't even talk about."

Liu is another potential mayoral candidate in 2013.

Like the mayor, Quinn also called for pension reform in her address. She said unions and officials have to come to the table to negotiate. Quinn, however, did not offer specific proposals.

A Housing Advocate

Quinn got her start in politics as a housing advocate. In her speech Tuesday, it seemed like she was getting back to her roots.

In addition to the capital budget and contract proposals, Quinn honed in on affordable housing, calling for the repeal of vacancy decontrol in Albany -- a stance she has made clear before.

Quinn said she would streamline the application process for affordable housing by creating one online application. Currently, residents have to apply for an apartment via snail mail developer by developer. Partnering with New York University's Furman Center, the speaker said the council would for the first time track affordable apartments on the brink of going market rate. Knowing where they are and working with advocates in tandem could help keep these units affordable, said Quinn.

Quinn received the loudest round of applause when she said the council would approve a package of legislation to make parking regulations fairer. Part of the proposal would prohibit traffic agents from issuing a ticket if a driver is walking to a muni-meter. Quinn also said the council would reduce the amount of alternate side parking for streets that have had clean ratings for more than two years.

By taking up politically sensitive issues like affordable housing and alternate side parking, some observers said Quinn doesn't have 2011 in mind, but 2013.

'"It speaks to a constituency she needs to run for mayor," said Democratic political consultant Hank Sheinkopf of the speaker's address. "She has to impress outer borough people that she’s serious about this. … The things she is talking about are post-Bloomberg."

Is Wal-Mart Worse?

Photo (cc) Dystopos

It was a relatively quiet morning in front of Atlantic Center -- the usually buzzing Brooklyn shopping complex kitty-corner to the site of Atlantic Yards.

Mikey Richardson, 29, had a Target bag in one hand and a cigarette in the other. Richardson comes to Target -- the anchor store in the center -- once or twice a month for the occasional household item.

Last week it was a power tool set.

The 29-year-old Crown Heights resident has no problem unloading his wallet at this particular national retailer, which boasts more than 1,700 stores throughout the country.

But Richardson changed his tune when it came to its competitor, the world's number one retailer: Wal-Mart.

"It would hurt these small businesses, so I am going to say 'No,'" Richardson said of supporting a Big Apple Wal-Mart.

For the second time in a decade, Wal-Mart, which boasted $408.2 billion in revenue in its last fiscal year, is exploring a New York City location. In 2005, the corporation attempted to settle in Rego Park, but was driven away by a cacophony of community opposition.

This time around Wal-Mart is trying to appeal directly to New Yorkers. It has stuffed flyers into mailboxes and flooded the airwaves with calls for support. Wal-Mart plans on circumventing the City Council by landing a location that could be developed "as of right" -- with no need to go through the land use process.

It may have set its sights on Brooklyn.

Wal-Mart argues New York already has chain stores and national retailers. The skyline is dotted with Best Buy, Target, Bed Bath and Beyond and more.

So, why not Wal-Mart?

Wal-Mart Versus the Big Apple

Earlier this month, more than two dozen members of the City Council hosted a standing room only crowd in Lower Manhattan.

The topic: What effect Wal-Mart could have on the Big Apple's economy? Wal-Mart did not attend the hearing. By focusing exclusively on Wal-Mart, its executives argued, the meeting was unfairly targeting the company.

Council officials, however, say it should.

"Wal-Mart is in a category by itself," said Councilmember Karen Koslowitz, the chair of the council's Consumer Affairs Committee, at the hearing. "Wal-Mart's main competitors are Costco, Target, Sears and Kmart. Wal-Mart by itself exceeds the number of stores, employees, annual revenue and profits earned from each of these companies combined. Clearly Wal-Mart is different."

View Big Box NYC in a larger map

An inventory of national retailers in the five boroughs. Created by Alshawn Kelly Rushing.

Every one of those competitors -- and then some -- have New York City locations.

Target has seven. Costco has a location in every borough. There are at least five Kmarts in the Big Apple.

"The competitors do lower wages in order to compete when Wal-Mart comes in," said Ken Jacobs, the chair of UC Berkeley's Labor Center. "Target and Best Buy just aren’t big enough to have the same kind of effect."

In addition to the size of the company, Wal-Mart opponents cite the mega-corporation's so-called poor labor practices, including low wages and a failure to provide health care benefits.

But when it comes to average wages, Wal-Mart does not differ from other big box stores already rooted in New York City.

According to data provided by IBISWorld, an independent market research group, sales associates or cashiers at Target, Kmart, Barnes and Noble, Kohl's and BJ's Wholesale Club all make less on average than a Wal-Mart associate. At Target, according to IBISWorld, a cashier makes $7.96 an hour on average, while a Kmart cashier makes $7.59.

On average, a Wal-Mart associate, according to IBISWorld, makes $8.81 an hour. (Wal-Mart's New York City Web site contends a full-time associate makes $13.09 per hour).

The Wal-Mart wage is far less than what a cashier would make at Costco, which IBISWorld estimates pays an average of $15.50 per hour.

According to an analysis by the Fiscal Policy Institute, the average wage for a unionized retail employee in New York City is about $13.33 an hour.

At Costco, 90 percent of employees are covered by health insurance, according to IBIS. Kmart, Home Depot, Lowe's and Target also offer health insurance, but details of their plans were not made available. Target refused to answer questions from Gotham Gazette for this story.

Industry experts said all of these companies require employees to contribute to these health plans. Given their wages, Wal-Mart opponents said, many could not afford to participate.

Steve Restivo, Wal-Mart's director of community affairs, said 53 percent of Wal-Mart associates are enrolled in their health care plan, and many others are covered by their spouses or are first time employees still using their parents' insurance. Restivo said the company's lowest cost plan is $11 per pay period for an associate and $33 for a family.

While improvements in its health coverage have been recognized, Wal-Mart still makes appearances on lists of employers with large numbers of employees receiving state-subsidized health care.

On top of wages and benefits, criticism of Walmart has centered on the size of the corporation and its proven ability to shut down small businesses and competitors. Advocates and storeowners oppose a Big Apple store in hopes of holding onto New York's mom and pop shop character.

"Wal-Mart has more revenue than Austria's economy, sells more guns than anyone on the planet, and has lifetime history of pushing out mom and pop shops -- there is no comparison between Wal-Mart and anyone else. No matter how many times they use glitzy expensive PR campaigns to remake their image the truth always stays: Wal-Mart eliminates jobs, destroys small business and ruins neighborhoods," said Stephanie Yazgi, director of Walmart Free NYC.

Beyond Healthcare

When bashing Wal-Mart, officials also point to a 10-year-old gender discrimination lawsuit making its way to the Supreme Court, which accuses the corporation of failing to promote and provide equal wages to at least 500,000 women.

The City Council is holding an oversight hearing on Thursday on the lawsuit and the corporation's labor practices.

Both Target and Home Depot have had discrimination suits filed against them -- though not on the scale of Wal-Mart's. Home Depot has 21 stores in the five boroughs, according to a spokesperson.

To some, it appears there are more similarities than differences between these big box retailers.

"They all follow basically the same business model, which is based on preying on small businesses, paying low wages, squeezing suppliers, relying on overseas labor that is often exploited by building huge stores," said Stacy Mitchell, the senior researcher for the Institute for Local Self Reliance. "Target's marketing is we're hip, we’re urban. … It's worth looking at that with a skeptical eye and not assuming the companies are that different because Wal-Mart has a red state, country image."

Wal-Mart's Future In New York City

Restivo treads carefully when asked about Wal-Mart's plans in the five boroughs.

The corporation is reportedly eyeing a site in East New York -- part of a Related development called Gateway II. ShopRite, which is unionized, is also vying to locate there. In an interview with Gotham Gazette, Restivo would not name a single site Wal-Mart is seriously interested in.

"It's no secret we want to open stores in New York City," he said. "We are evaluating lots and lots of opportunities."

In contrast to its pursuit of New York City space in 2005, Wal-Mart is exploring a number of different size stores -- better suited for an urban setting, Restivo said. The typical Wal-Mart is about 80,000 square feet. It also has mid-sized stores, between 30,000 and 60,000 square feet, and plans on pilot testing smaller spaces under 30,000 square feet.

"We have made a lot of changes as a company. Quite frankly, we are a better company than we were five or six years ago," Restivo said. "In the last year especially we have gotten more flexible in our approach."

Wal-Mart isn't just looking at New York City, but it plans on opening stores in cities across the country. One of its first urban stores was built in Chicago in 2006. That location has 150,000 square feet. Restivo said Wal-Mart would eventually have dozens of stores in the Windy City.

He said Wal-Mart had no set number of stores they hoped to have in the five boroughs.

"Just because you live in a big city, it doesn’t mean you have to pay more for products, especially groceries," said Restivo. According to industry experts, Wal-Mart provides 25 percent of all the groceries in the country.

During this month's hearing, not a single council member expressed support for a New York City Wal-Mart. Wal-Mart is currently making its rounds with council members in an attempt to plead its case.

Although the company's support in the city's legislature is frigid, there are plenty of people in the five boroughs who want to see the corporation break ground. The city's construction unions struck a five-year deal with Wal-Mart earlier this month, guaranteeing any new construction or rehabilitation would be done by union workers.

Some residents want to see Wal-Mart because of low prices and the promise of jobs.

Back at Target, Joseph Quinlivan, a 50-year resident of Sheepshead Bay in Brooklyn, had no qualms about a Wal-Mart in his borough.

"Well, I think Wal-Mart should come," the 85-year-old said. "Their prices are cheaper, and it brings jobs."

Even Richardson, the 29-year-old Brooklynite who doesn't support Wal-Mart in his borough, said he would probably shop there if the corporation were successful.

"It's cheaper," he said.

When first published, this story incorrectly said the average Wal-Mart store is 800,000 square feet. An average store is 80,000 square feet. The story has been changed to reflect the correction.

Promoting Pain as a Cure, Cuomo Presents His Budget

Photo by the office of Gov. Andrew Cuomo
In presenting his budget, Gov. Amdrew Cuomo urged legislators to stand up to lobbyists and cut spending.

The snow and sleet that began blanketing Albany on Tuesday at the start of a pair of major storms were well matched to the main theme of Gov. Andrew Cuomo's first budget address. It seemed like he was saying, "Albany is in a financial hell that is about to freeze over."

"New York is functionally bankrupt," he declared as the same words appeared on the screen behind him as part of his Power Point presentation.

Cuomo's address was nothing if not doom and gloom. Before introducing Cuomo, Lt. Gov. Robert Duffy told the crowd that New York's business climate ranks number 50 among all states, dead last. Warning that the state is "bleeding people and jobs," Duffy added, "All I can say is it stops today."

"The lobbyists are going to be running around the hallways like their hair is on fire," Cuomo said, directly addressing legislators. "They are gonna be all over you, they are gonna be complaining. I understand that that is hard to take. I also understand this: The people get it, and the people are with you, and at the end of the day it is about the people. At the end of the day it is not about this town and this building; it is about the people that elected you."

True to Cuomo's predictions, many groups did begin assailing the spending plans even before the governor had finished speaking. Health care and educations advocates, as well as those representing the poor, said Cuomo's budget, if enacted, would exact huge human costs -- particularly in New York City. While conceding the state needs to address its fiscal problems, many criticized Cuomo for not looking at ways to increase taxes and for his plan to do away with a tax on the wealthiest New Yorkers.

Many in the business community and even the Tea Party applauded Cuomo. However painful, some said New York needed to cut spending so the state could attract the businesses and jobs it needs to return to economic health.

Cutting the Increases -- and More

Cuomo's strategy in presenting the budget was clear. In addition to the warning of doomsday, he launched an attack on the state budget process, particularly on the formulas for education and Medicaid, which he said built in substantial spending increases year after year. While the governor's claim that this shocked him did not convince many, the issue did underscore his argument that the state could no longer afford those automatic spending increases and so would change its ways.

"What the governor did today," said Sen. Diane Savino, "is expose that the way the state funds education makes no sense. The way the state funds health care makes no sense."

The governor's $132.9 billion budget would be the first budget in nearly a decade to actually reduce spending. It would reduce half of the projected $10 billion deficit by chopping $2.85 billion each in planned spending from both school aid and Medicaid.

The plan has few new revenue generators but does include $456 million in expected income from changes to gambling and gaming laws as well as better enforcement of tax laws. The customary $85 million in pork barrel money legislators get to dole out is gone from the budget. Cuomo claims he wants to completely do away with these projects. Not only would Cuomo let the tax on the wealthy expire but he wants a property tax cap. Critics say Cuomo is both cutting income and expenses, and the situation will become untenable for schools and other service providers.

The City's Sacrifice

All of this leaves the city facing major cuts; Cuomo proposes slashing $918.4 million in aid to the city. Half of that aid would have gone to schools. Funding to CUNY would be cut by by nearly $1 million.

Mayor Michael Bloomberg issued a statement sympathizing with Cuomo's budget troubles and agreeing with Cuomo's message of "shared sacrifice." But he said the city is being asked to bear an undue burden of cuts.

"Unfortunately, the budget does not treat New York City equitably; it eliminates 100 percent of New York City’s revenue sharing aid -- more than $300 million -- while cutting other localities by just 2 percent. The residents of our five counties pay a disproportionate amount of state taxes, and they deserve the same level of support," said Bloomberg in his statement.

Bloomberg also complained that the budget does not offer the city any relief on pensions, procurement, education and other issues. Bloomberg had, for example, wanted Cuomo, in the budget speech, to propose ending the requirement that the most recently hired teachers be laid off first. Cuomo did not mention that, or any of the changes in pension requirements Bloomberg wants.

In other areas, such as special education, the state expects the city to maintain the same level of services it has provided while drastically lowering the aid it contributes to help pay for them.

"We can’t only look at one side of the equation," said Bloomberg. "We need relief from unfunded state mandates, as well as changes in state law that would allow us to save money, particularly where we can find ways to save money that would not cost the state a dime. Without those changes, we will be looking at thousands of layoffs in our schools and across city agencies."

Bloomberg expressed hope that he still could get those changes. "This is just the beginning of the process," he said. "The governor will have another opportunity within 30 days to propose cost savings that will save thousands of city jobs and other reforms, and we look forward to working with him in the weeks ahead."

Other city officials focused more on the cuts themselves.

The City Council's Progressive Caucus released a statement warning the reductions could create "far more serious problems than the budget itself."

Council Finance Chair Domenic Recchia voiced some support for Cuomo's plan, but is concerned about what the cuts will mean to the city, particularly to its schools. "Our classrooms are already overcrowded and under funded," he said, "That being said, I believe this is a starting point."

Schools, Hospitals and Prisons

Cuomo's education cuts were particularly stinging to some advocates because the state has not made good on court ordered school aid increases to underprivileged school districts.

"New York still has a two-tier public education system that does not provide adequate resources for our neediest students to receive a quality education," said Gerry Palast, executive director of the Campaign for Fiscal Equity.

Despite that, she said, the state has not come through on the funds for needy students and now wants to cut education spending. As a result, she said, "another generation of school children will see their education sacrificed again on the altar of fiscal discipline when tax cuts to the wealthiest New Yorkers are on the table."

Cuomo did not announce specific reductions to Medicaid spending, as a taskforce he created has until next month to come up with a plan for the reductions. But the health care lobby is not happy.

Health care providers and workers say that planned state spending increases to Medicaid were based on more people signing up for the health program for low-income people. The Greater New York Hospital Association and SEIU 1199 issued a joint statement saying, "If levied across the board, the cuts would be the staggering equivalent of a 10 percent decrease in Medicaid payments to hospitals, nursing homes, and home care." According to the statement, the cuts would trigger a loss of $3 billion in federal funds for health care in resulting in a total loss for New Yorkers of $5.9 billion in Medicaid funding."

Cuomo has created another task force, this one to deal with the issue of underutilized prisons and which ones to close. To make the plan more palatable to legislators from the rural upstate districts where most of the prisons are located, he announced that the state would provides a fund of $100 million to cities where prisons are closed to help with job losses.

The budget also calls for cutting almost 400 beds from the state's juvenile detention system. In addition, it includes a 49 percent cut in state reimbursements to localities that run their own juvenile detention facilities. Although Bloomberg did not address this in his statement, this could irk him as well. The mayor has pressed the state to allow localities to oversee their own programs; the cut in funding will likely make that more difficult.

For and Against

Opposition to Cuomo's budget came swiftly, with critics charging that Cuomo is ignoring the human consequences of his proposed cuts.

A number of groups say Cuomo should renew the millionaire’s tax, which is set to expire, to lessen cuts to Medicaid and education.

"The only way New York can recover is to ask everyone to pay their fair share," said Robert Tolbert, a Bronx resident and board member of Voices of Community Activists and Leaders. "By not extending the millionaire's tax, Gov. Cuomo is giving up one of the best tools we have to fix our state's long-term revenue crisis." Tolbert accused the governor of protecting real estate, financial and other corporate interests -- despite his "rhetoric of shared sacrifice."

"The budget reflects policy choices. Cuomo is asking lawmakers to put the needs of Wall Street and the wealthy ahead of the needs of our students, the poor and the middle class," said Mark Dunlea of Hunger Action New York.

Who did like Cuomo's budget?

Both state comptroller Tom DiNapoli and city controller John Liu issued supportive statements that said they plan to further review the budget's details. Liu called Cuomo's budget "game changing." DiNapoli was a bit more cautious, saying, "There are two main concerns: achieving budget balance while continuing to provide essential services that millions of New Yorkers rely on.”

The New York State Tea Party is particularly fond of the plan; they issued a statement on Monday calling for all New Yorker's to back the plan.

But the most supportive statements came pouring in from the business community.

Heather Briccetti of the Business Council of New York State said, "Gov. Cuomo is proposing a budget that finally addresses the need to reduce government spending and put New York on the road to recovery. This budget proposal ends the business as usual in Albany that has led to a loss of jobs and population in our state."

The Partnership for New York agreed: "The executive budget released today by Gov. Cuomo is true to his campaign promises. He has made the tough choices that will insure that New York State once again can lead the nation in job creation and business investment. He has challenged Albany's tax and spend habits, reversing a pattern that has made New York unaffordable for residents and businesses alike."

The battle lines seem pretty clearly drawn. The New York Senate, led by Republicans and with the four Democrats who broke from the Democratic conference to form the Independent Democratic Caucus, will probably support much of the proposed budget, with the backing of the business community.

The Assembly, led by Speaker Sheldon Silver, is likely to fight to restore cuts, with the support of labor, health care and education interests. Meanwhile, Bloomberg and his staff will be lobbying Silver, who is from Manhattan, and the Senate Republicans, who have received significant donations from Bloomberg.

With Cuomo's popularity high, they may face a difficult task. As one legislator put it, "This is a different year, this is a different governor. I don't think Cuomo is going to cave."

Bloomberg Pension Plans Could Face a Big Obstacle: Albany

Sheldon Silver
Assembly Speaker Sheldon Silver and Mayor Michael Bloomberg at a meeting last June.

In his State of the City speech, Mayor Michael Bloomberg hoped to distract focus from his administration’s recent missteps by offering new initiatives. Whether or not that worked, the address earned Bloomberg the ire of unions and many of their members.

In his speech Bloomberg said he intends to do away with the requirement that the newest teachers will be the first laid off and to take away variable supplement fund payments (otherwise known as holiday bonuses) for uniformed city workers. Complaining that the city simply could no longer afford the cost of its pension, Bloomberg declared, "Today I will make this commitment. I will not sign a contract with salary increases unless they are accompanied by reforms in benefit packages that produce the savings we need to continue making investments in our future and protecting vital services."

The mayor, in his typically brash style, made his point and got his reaction, but as Bloomberg has learned before that doesn't mean he will get his way in Albany. If he wants that, legislators say, he will have to negotiate with the unions he has so angered.

The legislature has never been particularly kind to Bloomberg. He has had his victories -- winning and renewing mayoral control of schools, approval of Tier 5 pensions for teachers-- but he has also met with major defeats; congestion pricing and a bailout for the Metropolitan Transportation Authority are examples of the latter.

So what are the odds the mayor will get what he wants this time around?

A Tough Time for Unions

It certainly can't hurt that Gov. Andrew Cuomo -- the man with a 70 percent approval rating -- has made it his priority to get concessions from unions and harps on how union benefits drive up the state's $11 billion deficit. Cuomo issued a supportive statement after the State of the City.

"Mayor Bloomberg has laid out an innovative and realistic agenda to position his administration to aggressively address the critical challenges facing New Yorkers. He rightly recognizes that government has to do more with less and that during these difficult times, tough choices and sacrifice are required. I look forward to working with him to restore and revitalize the city's economy and put New Yorkers back to work," it said.

As Sen. Diane Savino puts it, "The mayor is getting a lot of help from Gov. Cuomo and the New York Post." He will also have the assistance of Mayor Ed Koch, who plans to use his group NY Uprising to lobby Albany for pension changes on the mayor's behalf.

The increasing tide of anti-union sentiment that is becoming quite popular also should bolster Bloomberg’s chances, as will the Republicans taking control of the Senate. In general, the GOP legislators favor reducing labor's influence of labor, and the party has received significant donations from Bloomberg. While Senate Republicans didn't do Bloomberg a lot of favors while they were the minority party -- they voted against a number of measures the mayor supported including microstamping for handguns and the MTA bailout -- But it seems likely that the labors issues are something Republican senators can get behind.

Senate Democrats may do what they can to block them. One, new Sen. Gustavo Rivera, said while he supports Bloomberg's comments on immigration during his speech, he didn't like what he heard regarding labor and pensions. "I wouldn't call what he was talking about pension reform. What I heard I would call pension erosion," Rivera said.

Rivera said that he thinks the approach by both Bloomberg and Cuomo is backward. "When we start by talking about cuts right away I think we have to stop and think about revenues. Like I said I am supportive of the mayor in a lot of his agenda but I didn't hear him talk about the financial divide in the city -- about pay equality," he said. "Wages for the middle class have been stagnant for a while and the rich keep getting richer."

Savino, one of four Democrats who have split from their party's Senate leadership and a former union organizer, said that while Democrats are traditionally more supportive of labor than Republicans, she doesn't think it will matter who is in the majority.

"Albany has been reluctant to get involved in the past when there isn't an agreement," Savino said. She thinks the mayor needs to do what he did to get Tier 5 approved for teachers last year: negotiate with the unions and make concessions.

And she thinks he might be able to do that. "I don't think unions are tone deaf," said Savino, "They are willing to negotiate."

Silver's Support

If labor opposes one of Bloomberg's measures they will almost certainly be able to jam it up in the Assembly, where they the enjoy great support from Assembly Speaker Sheldon Silver. "The labor unions are very visible in Albany and they have a lot of sway in my conference," said Assemblyman and former City Councilmember David Weprin.

Weprin echoed Savino's sentiments, saying that, for the mayor's ideas to gain traction in the capital, there would need to be union support and good faith negotiations.

"I think we would be much more willing to accept something as long as there have been negotiations, but if we go into this with the unions opposed and an adversarial situation with the unions saying, ‘This is unfair,’ I think the mayor will have a hard time getting what he wants from my conference," he said.

Rivera echoed the need for the mayor to talk with labor, saying said that he would not consider allowing the mayor to reduce pension benefits or giving him new negotiating rights without having Bloomberg come to an agreement with the unions. "If the unions reach a deal with the governor or the mayor then I would be supportive of that," he said, "but I think they need to start by negotiating because it was hard fought for working people to get these benefits in the first place."

Weprin said many of his colleagues believe that retirement and pension perks help drive people to public service. Cutting such benefits, they fear, would reduce the pool of talent available to the public sector. "Lots of my colleagues in my conference feel that people go into public service for these pay packages -- the pension and retirement -- and feel we need to keep them to be competitive with the private sector and attract people to public service." he said.

Bloomberg tried to acknowledge that in his speech. I've always believed city workers deserve a safe and secure retirement," Bloomberg said, "but right now, they receive retirement benefits that are far more generous than those received by most workers in the private sector."

The Labor Line

If Bloomberg needs union support to make his plans a reality, he may face a tough challenge. The reaction of union heads to the State of the City did not indicate that they are rushing to negotiate and make concessions to the mayor.

A number of union heads said that blaming unions for rising pension costs is unfair and it is Wall Street that should take the blame for mismanaging pensions "His friends on Wall Street created this problem, but the mayor won't join us in changing the law to let us sue to the people who lost the money," said United Federation of Teachers president Michael Mulgrew.

Mulgrew said he was "disgusted" with Bloomberg's reasoning for changing the first in last out provision, adding, "I have never heard a mayor say that people should be laid off on the basis of salary."

When asked if he supported anything the mayor said in his speech, Mulgrew said, "In terms of education, I support nothing, which he said today."

Patrick Lynch president of the New York City Patrolmen's Benevolent Association said that he doesn't plan on giving up what Bloomberg calls "holiday bonuses."

"The Variable Supplement Fund benefit -- what the mayor refers to as a holiday bonus -- was bought and paid for by New York City police officers, having been derived from a collective bargaining agreement that benefited both the city and our members," said Lynch in a statement. "Police officers gave over $75 million up front and in excess of a billion dollars of surplus pension earnings over the years to the city's coffers while a small portion was shared with our members in a defined benefit. Having realized billions in benefits, the city now wants to renege on the agreement. We intend to hold them to it."

If what legislators say is true, Bloomberg has a lot of work on his hands to mend fences and begin good faith negotiations with the unions -- otherwise his plans may be dead in the water.

"The mayor has said he wants to negotiate -- so I would suggest that he get out there and try to negotiate," said Savino. "He would have much easier time getting something through that way."

Bloomberg Targets Unions in State of the City

Photo (cc) Spencer T Tucker

Labor leaders, duck and cover.

Mayor Michael Bloomberg fired off some of his feistiest rhetoric at the city's unions Wednesday during his annual State of the City speech -- adding one more voice to a growing national cacophony that targets the cost of pensions and perks in municipal labor forces.

Beneath the gold embossed ceiling of Staten Island's St. George Theatre, Bloomberg outlined a state legislative strategy to cut down on the city's escalating pension costs -- which have increased by more than 360 percent under his tenure.

"If all consumer prices had gone up at the same rate as the price of our pensions, the subway fare would be $7.05 this year and $8.39 next year for the same service we're getting now," said Bloomberg. "New Yorkers can't afford those subway fares, and we certainly can't afford pension costs on that level either."

Pension reform has been a staple on the mayor's fiscal agenda for years, but some of the particular pieces he unveiled Wednesday appeared for the first time, including doing away with holiday bonuses.

His tactic did not sit well with the city's unions.

"Mayor Bloomberg chose to take the low road in his State of the City address; attacking city workers and the modest $17,000 per year pensions they’ve acquired after making contributions during decades of dedicated service and sacrifice," said Lillian Roberts, the executive director of DC 37, the city's largest municipal union. "The city’s budget crisis is not the fault of municipal workers and their benefits. Rather, the fault lies with the massive fraud and recklessness of Wall Street and the loss of municipal revenue as the financial sector nearly collapsed in 2008-2009."

With the exception of the mayor's pension and labor proposals, his address was light on major public policy overhauls. New initiatives the mayor did announce were on the smaller scale -- such as forgiving health code fines if a restaurant received a grade A on its inspections.

All in all, Bloomberg used the address -- his tenth -- to tick off his accomplishments as mayor, including planned development projects, like Willets Point and Hunters Point Southx, and maintaining a balanced budget without so-called severe cuts. He did so as the city becomes more critical of the third term executive, whose recent blizzard blunders sent his approval rating in a tailspin.

"His approach sounded classic Michael Bloomberg, contentious, a little less respectful of the other players than I think he's going to have to be," said Public Advocate Bill de Blasio. "He's only going to get this done with the labor movement, with Albany."

Taking on Labor and Albany

Nothing sparked more ire than the mayor's proposal to curtail union benefits and power.

Specifically, the mayor proposed to raise the retirement age for new hires in non-uniformed employee unions to 65. He called for ending holiday bonuses, approximately $12,000 for uniformed employees, and for the consolidation of the city's pension systems, which would save $8 million in administrative costs.

He indicated he meant what he said.

"Today I will make this commitment: I will not sign a contract with salary increases unless they are accompanied by reforms in benefit packages that produce the savings we need to continue making investments in our future and protecting vital services," the mayor said.

To get it done -- the proposals will need approval from the State Legislature -- the mayor solicited former Mayor Ed Koch as his messenger. Koch has been on a crusade in Albany to get legislators to commit to independent redistricting reform. He will employ a similar strategy on pensions.

Comptroller John Liu refused to take a stance on the mayor's proposals yesterday, but he said all of the stakeholders should be at the table to discuss lowering costs.

Council Speaker Christine Quinn said it was "irresponsible" to take a position on the reforms, but said she is willing to consider every one.

Others praised the mayor's proposals.

"I thought it was great he made pension reform such an important part of his agenda," said Carol Kellermann, president of the Citizens Budget Commission. "No one ever brings up the Christmas bonuses except CBC."

Beyond pension benefits, the mayor also reiterated his call to do away with the last in, first out rule for city teachers. State law requires the last teachers to be hired to be the first to be laid off.

The mayor also called for capping the amount of time a teacher can stay in the reserve pool, which keeps educators on the payroll as they wait for a new position. Most teachers land on the list due to low enrollment or school closings.

Both of these proposals would need approval in Albany.

Neither of them, however, settled well with Michael Mulgrew, the president of the United Federation of Teachers.

Asked if he supported anything the mayor said on education on Wednesday, Mulgrew tersely retorted, "In terms of education, I support nothing, which he said today."

A Renewed Focus?

Despite his floundering poll numbers, Bloomberg's reception at the St. George Theatre was warm. The audience, which included approximately 700 attendees, applauded when the mayor touted his budget management record and gave Hizzoner a standing ovation as he exited and entered the theater.

Bloomberg promised he wouldn't raise taxes, but would instead deal with an approximately $2.4 billion budget deficit by shrinking the size of government.

In addition to the budget, Bloomberg said he would create community forums for New Yorkers to submit ideas on how to simplify government.

The event, which was more subdued than in previous years, still had some fanfare, including a welcome video message from a cartoon replica of Staten Island's Chuck -- the groundhog who bit the mayor's hand in 2009.

And, as always, the mayor tried to inject some humor into the afternoon.

"At no time has it been more important for us to put aside rivalries and focus on what's truly important: winning the big game," said Bloomberg. "Of course, I'm talking about the Jets winning the AFC Championship game on Sunday."

As Incomes Gap Widens, New York Grows Apart

Madison Avenue
New York has the greatest disparities in income of any major U.S. city, with the top 1 percent of the population getting 44 percent of the income in the city.

That New York City has extreme wealth and extreme poverty, and lots of both, seems like a law of nature, older than the subway or the Brooklyn Bridge. While there is a lot of truth in that, the city has not always had the extremes to the extent it has them now. Today, the wealthiest 1 percent of city residents has 44 percent of all income in the city, a share nearly four times as great as 30 years ago.

Over the past three decades, the bulk of economic gains in the United States and New York has accrued to those at the very top of the income pyramid. The economy has grown significantly over this period, but those at the very top have taken a vastly disproportionate share of the gains, leaving very little for the rest.

The Big Change

The chart below, from a recent report on income concentration by the Fiscal Policy Institute, demonstrates that the first three decades after World War II -- from the mid 1940s to the late 1970s -- were a time when the share of total income going to the wealthiest 1 percent stayed remarkably steady. In 1947, the top 1 percent received 12 percent of the total, and three decades later, in 1978, that remained about the same -- actually slightly lower -- at 9 percent. The top 1 percent's share held at close to 10 percent throughout all three decades.

Gotham Gazette - Bar Chart

Click on the chart for a larger, clearer image.


The post-war era is widely seen as a golden age of the middle class, with an economy fueled in significant part by middle-class spending. The middle class flourished. Its numbers expanded, and its living standards rose steadily. The U.S. economy grew, and that growth lifted millions of families out of poverty and into the middle class. Parents could expect their children to do even better than they had done.

The top 1 percent gained as well -- executives and bankers enjoyed the success of the American economy as much as anyone. Their incomes grew steadily, but together with the rest of the country in a rising tide that lifted all boats, in New York and in the country as a whole. We grew together.

The picture since 1980 has changed dramatically . In 1980, the top 1 percent of households nationally held 10 percent of the total income. By 2007, that share had more than doubled, rising to 23.5 percent -- a high previously attained only in 1928, the eve of the 1929 stock market crash that ushered in the Great Depression.

The economy has grown considerably in the three decades since 1980, albeit not as fast as in the 1950s through the 1970s. But growth after 1980 looked different than it had in the preceding era. The incomes of the top 1 percent and the top 5 percent grew faster, much faster, than in the post-war period, while the incomes of everyone else, those with low incomes as well as the broad middle class, faltered and stagnated. We grew apart.

Growing Apart in New York

In New York City in 1980, the share of all incomes going to the top 1 percent was 12 percent -- more or less in line with the rest of the U.S. But by 1990 the top 1 percent's share in New York City had risen to almost 20 percent, and after a period of extreme concentration in the late 1990s reached nearly 35 percent in 2000. The 2001-2003 recession briefly pushed the top share down, but then it gained at its fastest pace over the past 30 years, climbing to 44 percent in 2007, almost double the historically high national level of 23.5 percent.

New York State is the most polarized among the 50 states, and New York City is the most polarized among the 25 largest cities in the United States.

Today, most experts expect the pace of the nascent recovery from the Great Recession of 2008-09 to remain subdued in large part because of high household debt burdens, stagnant or declining wages, and a bleak job outlook. The recession was triggered by the bursting of the housing bubble and a speculative, excess-prone financial system, but it occurred in an economy with an increasingly shaky foundation characterized by weak job growth, continued export of middle-income jobs and wage growth that failed to keep pace with inflation and the growth in the productivity of labor.

This shaky foundation has a lot to do with the post-1980 hyper-concentration of income. The expansion from 2004 to 2007 was the first in which family incomes and median wages adjusted for inflation did not rise over the cycle to reach the peak of the previous business cycle. Despite economic growth, many Americans never saw their income return to the levels they had reached in 2000. Faced with this, families turned to debt, using credit cards and home equity borrowing to sustain their living standards. The crash of the financial and housing bubbles destroyed trillions of dollars in retirement and college savings that had been accumulated by middle- and low-income Americans, and decimated the value of their homes.

Rebuilding that wealth and economic security and restoring a sense of optimism for the next generation will be doubly difficult given the current polarized system of economic rewards and the bleak outlook for job and economic growth. The broadly shared prosperity that prevailed in the three decades after World War II is a distant memory. Are we destined to grow further apart?

Growth at the Top

The concentration of income growth at the top does not necessarily mean that those below the top will not see living standards improve. Incomes could rise up and down the income scale even as gains are disproportionately concentrated at the top. That, though, is not what has happened recently.

Over the period from 1980 to 2007, when inflation-adjusted income in New York state grew an average of 2.1 percent a year after adjusting for population increase, incomes for those in the bottom half of the income spectrum (incomes below $33,000) generally declined. Incomes of people in the middle-range (incomes from $33,000 to $176,000) rose but at only a fraction of the pace of total income growth. Meanwhile, the real incomes of those in the top 1 percent (incomes over $580,000) grew 7 percent annually, over three times as fast as overall income growth. The rest of those in the top 5 percent (incomes from $176,000 to $580,000) saw their incomes rise a little faster than the pace of total income growth.

Most New York City workers and their families have experienced very little real income or wage growth over the past two decades. For example, as the table below shows, the inflation-adjusted median hourly wage fell by 8.6 percent from 1990 to 2007, and poverty came down very little during a period when the income share of the top 1 percent doubled from 21.5 percent to 44 percent.
Gotham Gazette - Bar Chart

Click on the table for a larger, clearer image.


New York's Stark Split

In New York City, there are about 34,500 households, representing about 90,000 people, in the top 1 percent. On average, these households have annual incomes of $3.7 million. At the same time, about 900,000 people in New York City -- about 10.5 percent of city residents -- live in deep poverty. Deep poverty is half of the federal poverty line; for a four-person family, that means an income of $10,500. An annual income of $3.7 million translates into a daily level of $10,137 -- more than the average annual family income of those living in deep poverty. According to state tax data, half of the households in New York City have annual incomes below $30,000, an amount that the top 1 percent receives over the course of a holiday weekend.

If New York City were a nation, its level of income concentration would rank 15th worst among 134 countries, between Chile and Honduras. Wall Street, with its stratospheric profits and bonuses, sits within 15 miles of the Bronx -- the nation's poorest urban county.

Behind the Income Concentration

It is often argued that skills-based technological change largely explains the trend toward greater income polarization. According to this reasoning, the steady advance of technological change raises skill requirements. As a result, those who pursue higher education and obtain the skills needed to master new technologies receive greater economic rewards. Those lacking higher education see the demand slacken for their limited skills and their wages fall accordingly.

There is a certain appeal to this explanation, but it does not account for the intensified degree of income concentration that has taken place. One third of New Yorkers aged 25 to 64 in the workforce now have a four-year college degree or better, a considerable increase since 1990. Despite that, income gains have been concentrated among a much smaller segment of the population. In New York City, inflation-adjusted annual earnings of college-educated young workers have fallen 6 percent from 1990 levels. In addition, among the well-educated those with the highest incomes do not have the best education.

Something else must be at work since education, however important on an individual level, simply cannot serve as a compelling explanation for increased income concentration.

Moreover, skills-based technological change -- and globalization for that matter -- has occurred throughout the developed world. Yet no other country has seen the heightened polarization of incomes that has taken place in the United States. In the early 1970s, the richest 1 percent in the U.S. had a share of total income that was roughly in line with several other developed economies, including Canada, France, Japan and the United Kingdom. By 2000, however, the top 1 percent's share had risen much higher in the U.S. than in any other country. In Germany, there was almost no change in the income share of the top 1 percent. France even saw a decline in the share going to the richest 1 percent, and by 2000 that share was half what it was in the United States. Japan’s top 1 percent received a slight gain in share, but that share also was only half that of the U.S. in 2000.

Jacob Hacker and Paul Pierson persuasively argue in their book, Winner-Take-All Politics, that incomes have risen so high at the top not because of education or other economic factors but because of national policy changes that have favored the wealthy and certain institutions, such as the largest financial companies. Hacker and Pierson point to several national policy changes involving labor markets and labor unions, financial deregulation and taxation that were largely unique to the U.S.

These changes -- such as financial deregulation and the failure to limit executive compensation -- have tremendously benefited large financial firms and corporate executives. Those developments have made a big difference in New York City. National policies that allowed the purchasing power of the minimum wage to seriously erode and that reduced the power of labor unions also have made a significant difference in depressing wages for middle- and low-income workers.

There is nothing inevitable in the operation of markets that generates extreme polarization in the distribution of economic rewards, but policy choices on how markets can operate and on taxes have everything to do with the distribution of economic rewards.

It has become increasingly understood that the many steps taken since the 1970s to deregulate financial markets played a key role in excessive speculation, poorly designed and unregulated financial innovations, and eventually, in the 2008 financial collapse. Deregulation gave financial institutions virtually a free hand to combine commercial and investment-banking, increase leverage and sell exotic financial instruments such as derivatives without regard for effective risk management. In financial bubble periods, such as the one based on commercial real estate lending in the 1980s and the boom of the late 1990s, financial firms reap enormous profits and pay their top bankers and traders huge bonuses. Nationally, in 2004, Hacker and Pierson point out, nearly 20 percent of America's super-wealthy (the top one-tenth of 1 percent) worked in finance; 40 percent were CEOs and other executives.

Federal tax policy also has contributed greatly . The moves to reduce top tax rates and capital gains tax rates -- as Presidents Ronald Reagan and George W. Bush did -- and to maintain glaring loopholes have all had a major effect. Hacker and Pierson found that the average effective federal income tax rate on the top 1 percent fell by one third from 1970 to 2004.

States have much more limited authority. Despite that, several tax policy changes enacted by New York State have eased the tax burden at the top. New Yorks top state personal income tax rate was 15 percent in the early 1970s and in several steps it was reduced to 6.85 percent by 2009, when the state enacted a temporary surcharge. While the management fees referred to as "carried interest" received by hedge fund managers is taxed at the lower capital gains tax rate at the federal level, New York City exempts it from taxation altogether under the city's unincorporated business tax.

Can We Grow Together?

The Great Recession dramatically worsened an already highly polarized economy. Policy changes are needed at the state and national level to stimulate more robust growth and to reverse excessive income polarization. Not all of these changes are politically possible in the immediate term, but it is hard to see how the economy can fundamentally improve in the absence of significant changes that move us toward more broadly shared prosperity.

The kinds of policies that would help include: increasing the minimum wage, strengthening the enforcement of labor standards, expanding living wage requirements, increasing labor union membership, making investments in economic growth rather than slashing government budgets, helping small businesses grow, provide real assistance on home foreclosures including keeping people in their homes as renters, and investing in public higher education.

At this moment, the most critical move to reverse extreme income polarization would be enacting progressive tax policies at all levels of government. In New York State, the top 1 percent pays a smaller share of their income in state and local taxes than all of those less well off, from the upper-middle, to the middle, to the poor. The story is similar in New York City. While the top one percent has 44 percent of city income and pay slightly over half of all local personal income taxes, they account for only one-third of total New York City tax revenue including personal income, city sales and residential property taxes.

At the national level, the income and estate tax changes agreed to by President Barack Obama and the Republican leadership will give 34 percent of the tax cuts going to all New Yorkers to the richest 1 percent. On average, the richest households will receive a tax cut averaging $124,000 in 2011. The middle fifth of New Yorkers will average a $1,500 tax cut, and the poorest 20 percent will get less than $300 on average.

There are many reasons to be concerned about New York's extreme income concentration. Among the most pressing is that the pronounced polarization in the distribution of the rewards of economic growth is holding back the nascent recovery. Growth is stalled because our system of rewarding economic effort is out of kilter. In the last three decades, the U.S. has become a country where average workers can no longer count on being paid for their productivity, while those at the top receive an income far out of proportion to what they contribute to our economy.

James Parrott is deputy director and chief economist of the Fiscal Policy Institute. He has been studying and writing about the New York economy since he landed in New York City a quarter century ago.

Beyond Resolutions: City Council Must Do More to Help Workers

Photo (cc) William Alatriste

In November, City Council Speaker Christine Quinn stood on the steps of City Hill and made an impassioned plea on behalf of working New Yorkers cheated by their employers out of wages they had earned. "When people work hard they get a paycheck, or they get the tips that are part of the job, that's money earned, and money they should get to take home to their family or to put into their bank account!" she declared.

Surrounded by victims of wage theft organized by community group Make the Road New York, Quinn called for state passage of the Wage Theft Prevention Act, which increases penalties and strengthens enforcement of wage laws, cracking down on violations estimated to cost New Yorkers as much as a billion dollars a year. Later that afternoon, the council passed an official resolution urging the state to enact the wage theft bill. Two other pro-worker resolutions also passed: calling on the Port Authority to adopt environmental and labor standards modeled on the successful Port of Los Angeles Clean Truck Program and exhorting Congress to pass the, Zadroga Act funding medical treatment for 9/11 first responders and clean-up workers.


Together, the council's three resolutions are a clarion call for greater workplace justice in New York: Truck drivers servicing the region's ports should not suffer exploitation, workers who responded to an attack on our nation deserve to have their health problems addressed, and no one should see their paycheck stolen from them. But unlike intros -- the Council's term for bills -- resolutions don’t have the force of law. Instead they are a formal statement of the Council’s position on an issue beyond their immediate jurisdiction. That does have some influence. With the City Council contributing to the chorus of voices in support of this legislation, the wage theft bill and Zadroga Act were subsequently signed into lawand the Port Authority has since met with a delegation of port truck drivers.

The bully pulpit has served the council - and workers -- well. Now, though, with the 2011 legislative session up and running, the city must go further and use its own legislative powers to advance the well-being of working New Yorkers. Several measures currently before the City Council would help the cause.

The city could start by heeding the voices of thousands of clergy members and parishioners from many faiths across the city who have signed postcards and marched in support of the Fair Wages for New Yorkers Act, making the case for a moral imperative to treat the poor justly. The bill would require that the estimated $2 billion in taxpayer money that New York City spends each year to subsidize economic development be used to foster jobs that pay a living wage. At a time of huge shortfalls in the city budget, the city that is already home to the greatest inequality in the nation cannot afford to continue doling out billions to companies in exchange for low-wage jobs that offer no benefits and keep workers and their families mired in poverty.

In a renewed effort to promote the bill, some council supporters have proposed that it exempt businesses with revenues of less than $1 million a year, nonprofit groups and some employers in developments primarily made up of affordable housing. The bill now has 29 sponsors -- nearing the 34 that would be needed to override a potential veto by Mayor Michael Bloomberg. Having that many sponsors, though, does not however guarantee passage, since a bill cannot come to a vote without support from Council Speaker Christine Quinn who has not yet taken a public stand on the measure.

New York should also reconsider legislation that would guarantee everyone working the city the right to earn paid sick leave. Polls indicate that 75 percent of New Yorkers support a law requiring employers to provide paid sick time, a benefit that 1.65 million city residents currently lack. A veto proof 35 members of the council have signed on in support of this. The bill, though, has been stalled since October, when Quinn decided not to schedule a vote on paid sick legislation, announcing that she would reassess the situation if the city’s economic climate for small business improved. Given that research from the Drum Major Institute for Public Policy finds guaranteeing paid sick leave does not damage employment or harm the growth of small businesses, this policy is due for reconsideration. [Full disclosure: I contributed to the design of this research.]

Finally, the city must take a stand for its own jobs, seeking new revenue to avoid the mass layoffs proposed by Bloomberg in his recent budget announcements. Preventing job cuts would not only help to preserve public services New Yorkers depend on but would strengthen the city’s overall economy. Research suggests that for every 100 public employees laid off, an additional 30 private sector workers also lose their jobs. Avoiding city layoffs is thus a way to hold onto both public and private sector employment.

Economists, including Nobel Prize Winner Joseph Stiglitz, have concluded that because well-off households tend to spend a lower proportion of their total income, raising taxes on the wealthy is economically preferable to cutting services and laying off public workers during a recession. The City Council’s Progressive Caucus proposes an elegant mechanismfor New York's best-off earners to contribute to their city: an income tax surcharge mirroring the tax break wealthy New Yorkers will receive from the recent extension of the Bush tax cuts. While the surcharge would ultimately need to be enacted by the state legislature, a city endorsement of the proposal would be the first step.

Resolutions on wage theft, clean trucks and health care for 9/11 first responders and clean-up workers sent a powerful message about New York's concern for workplace fairness. By enacting a living wage law for companies that receive city economic development subsidies, guaranteeing paid sick leave to all working New Yorkers, and acting to prevent city layoffs that will destroy jobs in the public and private sectors, New York can take the next logical step of using its own substantive law-making power to make the city a fairer place to work.

Amy Traub is director of research at the Drum Major Institute for Public Policy.

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