Gotham Gazette

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Restoring Balance to New York's Finances

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New York needs a five-year plan to address its structural budget imbalance.

Because the New York State budget crisis emerged during a national recession, people often think that the budget gaps are a result of the recession and that when the economy rebounds, the crisis will be over. However, the problems facing New York go far beyond the recession and require solutions that will last even after the present downturn is over. The state is facing a long-term structural budget gap.

The idea of a "structural gap" separates the deficits that occur because of economic ups and downs and extraordinary crises from the deficits that occur because state expenditures outpace state revenues year after year, in good and bad economic times. The distinction between deficits caused by economic downturns and structural deficits can be seen in the current New York budget crisis.


For 2010-2011, the state Executive Budget anticipates a deficit of around $8 billion (since the submission of the budget, the estimated gap has widened). However, the Executive Budget arrives at its $8 billion figure only after including almost $10 billion in temporary revenue items such as tax increases and federal stimulus money. Once the budget gap is adjusted to remove these temporary items, it totals around $18 billion. We estimate that approximately $5 billion to $5.5 billion of the $18 billion gap comes from revenue declines and spending increases related to the recent recession. However, that means we still must address a "structural gap estimated at more than $13 billion to address. Better economic times, in and of themselves, will not solve this $13 billion gap.

Addressing the structural imbalance

Many New Yorkers do not yet understand the severity of the structural imbalance, but it has placed New York in a fiscal position that is not sustainable. Recently I released a report titled,Five Year Plan to Address the New York State Budget Deficit. The report outlines changes in state budgeting that I believe are needed to achieve and maintain structural balance in the state budget. These proposals must be treated as an integrated whole, not a list of options. To work, they all must be adopted together. The figure below provides highlights of the report’s recommendations.

Five-Year Plan for Structural Balance: Key Recommendations

(1) Lock state into paying down its structural gap within five years.

(2) Require quarterly assessment of structural balance by an independent Financial Review Board.

(3) No balance triggers reductions: Authorize the governor to implement across-the- board reductions if the independent review board finds that the budget is not projected to be in balance at year's end and the governor and the legislature cannot agree on gap-closing actions within a limited time-frame.

(4) Permit borrowing with stringent limits. Allow the state to borrow within defined limits to close existing budget gaps, but only if the independent review board finds that strict new financial controls have been met.

(5) Adopt Generally Accepted Accounting Principles for accounting.

Essentially the report recommends that the state close its structural budget gaps within five years. To do so, the state should institute a five-year planning process that identifies the gaps, sets out initiatives every year to bring the state closer to its five-year goal and shows the budgetary consequences of these initiatives in the current year and following years.

The report also recommends that the budget balance achieved by the five-year plan should be measured not on a cash basis but under Generally Accepted Accounting Principles, or GAAP, as applied to governments, which requires that revenues be recognized when they are actually earned, as opposed to when the money happens to arrive, and that expenditures be recognized when the liabilities are incurred, rather than when the government decides to write the check. These principles have become the standard for accurate financial reporting in both the public and private sectors.

The report also suggests that the five-year plan be updated on a quarterly basis and reviewed by an independent review board. The board will make a finding on whether the plan, as updated, is making adequate progress toward structural budget balance. If there is not adequate progress, the governor and the legislature will be compelled to take corrective action to bring the budget back toward balance. If the governor and the legislature do not agree on corrective action within a limited time, the governor would be authorized to make across-the-board spending reductions.

Borrowing is permitted under the plan if, and only if, the board finds that the plan will be in balance under Generally Accepted Accounting Principles by the fifth year of the plan. If these conditions are satisfied, the state would be permitted to borrow small and declining short-term amounts over the shortest possible period to mitigate the pain of any spending cuts or revenue measures required to move towards balance.

Risks and Benefits

If we do nothing, the current budget system will continue to impose large and increasing risks on the state, including the erosion of vital services on which citizens depend and the state's capacity to invest in its future. In contrast, while the changes proposed in the plan will not be easy or painless to implement, the long-tem results will be far more beneficial to all New Yorkers.

In the 1970s, when New York City faced a grave fiscal crisis, the state instituted financial rules similar to those described in the plan. The new rules are one reason for the city’s remarkable recovery. In the city’s emergency, the state recognized what it takes to bring a government back from chronic fiscal incapacity. Today, I am confident that we are capable of doing no less for the state as a whole.

Richard Ravitch is lieutenant governor of New York state.

Sick Leave Back at the Council

Photo (cc) 2009 StevenBrisson

(For an update with more details on the new bill, see A Right to Be Sick in The Wonkster.)

Get ready to push replay on the debate over paid sick leave.

On the heels of the approval of health care reform in Washington, dozens of members of the City Council are introducing a bill today that would require paid sick leave at thousands of city businesses, supporters said.

The bill, sponsored by Councilmember Gale Brewer, was originally introduced in August 2009, but failed to come to the floor during the last session. Supporters, including the increasingly influential Working Families Party, now say they hope their work during last year's campaign season, electing a more "progressive" City Council, will pay off.

"We think there is real momentum here," said Donna Dolan, the chair of the New York State Paid Family Leave Coalition.

The latest version of the bill would require businesses with fewer than 20 employees to provide five paid sick days a year, said supporters. That threshold under the older version of the bill would have been 10 employees. Under the revised version, businesses with more than 20 employees would have to provide nine sick days per year per employee. Employees would accrue the paid time off over time, and businesses would be fined for not complying.

The changes, supporters said, came in response to criticism from small business advocates and the Bloomberg administration.

Brewer, who called the bill "great," declined to discuss the specifics of the legislation on Wednesday, holding off until its official introduction today.

But even with the revisions, supporters have an uphill battle.

At Odds

Even though about 34 council members have signed onto the bill, according to one estimate, the city's business leaders contend a sick leave requirement for every New York City employer would cost too much.

"We're certainly thankful that the council took into consideration some of the business community's concerns," said Carl Hum, president of the Brooklyn Chamber of Commerce -- one member of a business coalition fighting the paid sick time bill. "But there is still a fundamental principle that hasn't been addressed: How are we going to pay for this?"

According to the chamber's estimates, the proposal will cost at least $684 million to enact. Meanwhile, according to other opponents' estimates, the entire cost for businesses could be $8.8 billion annually.

But according to an estimate from 2009 by the Institute for Women's Policy Research, the sick leave policy would cost about $332 million annually -- just 4 percent of the opponents' estimate. Day to day costs for businesses are also defrayed from reduced employee turnover and the decreased spread of disease, according to the institute.

Supporters, who put the number of city workers without paid sick time at about 1.8 million, say it's safer and more cost effective to keep sick employees out of the workplace than in it.

"It doesn’t mean they are going to take all the paid sick days," said Julissa Bisono, the workplace justice organizer at advocacy group, Make the Road New York. "This is not only a privilege, it is a right," she added.

As drafted last year, the bill would also allow employees to take sick time if they were a victim of domestic violence and to care for a family member.

The Best Medicine?

The move to mandate paid sick leave in New York City was propelled last year by the fear of the spread of swine flu.

But New York is not the only city to consider the policy. San Francisco enacted a paid sick leave law in 2006, and Washington D.C. followed shortly thereafter. Milwaukee approved paid sick leave via referendum in 2008, though the matter has been contested and is currently before its state Supreme Court.

Hum of the Brooklyn Chamber of Commerce said if the council decided paid sick leave was a "moral imperative," the city should figure out how to pay for it. Hum, who said the coalition wants to work with the council, suggested employees chip in for their time off. Or, he added, the city could create a business tax credit to offset its cost.

"Businesses know how to create benefit packages," said Hum. "Businesses should be given the freedom or flexibility."

Neither the mayor nor the speaker of the City Council, Christine Quinn, have endorsed the proposal. A mayoral spokesperson said the Bloomberg administration is still discussing the bill with the council and therefore couldn't comment.

A spokesperson for Quinn said in an e-mail yesterday that the speaker would not take a position until the bill was formally introduced and referred to committee. Quinn never took a position on last year's legislation.

Even with the dissent, supporters say the City Council is different than last year. It has 13 new members, many of whom galloped into office thanks to the support of the Working Families Party -- one of the most vocal supporters of paid sick time.

"We are cautiously optimistic," said Dan Levitan, a spokesperson for the Working Families Party.

And just this week, the council established a progressive caucus, and one of its first priorities is getting the paid sick leave bill approved.

"It's exactly the kind of legislation that we hope to support," said Councilmember Brad Lander, who is one of the leaders of the new caucus.

What the Mayor's Management Report Does Not Say

The quiet release in February of the Preliminary Mayor's Management Report for FY 2010 -- a mandated report intended as a mid-year review and adjustment of mayoral budget plans -- comes amid increasing questions about how the Bloomberg administration manages data and addresses major social and economic crises. Rather than inform that debate, the new report simply ignores it. As a result, controversies surrounding school test scores, the rapid expansion of charter schools, and the role of parents in the schools are not addressed. Nor do we learn how the city might meet economic and social emergencies, such as the doubling of the unemployment rate in one year, to more than 10 percent, and a big escalation in homelessness.

The lack of substance in the management report is not a surprise since the mayor proposed -- unsuccessfully -- to eliminate the preliminary management report during the last mayoral charter revision commission in 2004-2005. Since that defeat the report has become an unfocused collection of old indicators, new indicators -- most of which serve to put the administration in a favorable light -- and random one-line "highlights."

The Department of Education

For instance, in the mayor's top priority area, education, the report provides little sense of how the department manages programs and does almost nothing to hold the department accountable. Of 64 academic performance statistics, only 17 have actual data for the first four months of this fiscal year. Only 21 set targets for the current fiscal year. Of 21 "critical" statistics among the 64, only one provides actual data for the current year, and only three offer a target for the year.


The first four months of this school year have seen repeated parent objections to school closings, lack of parental access to school decision-making and the placements of charter schools in public schools, but the management report gives no indication of any of that. All the reader learns about parent participation is that the school system received nearly 119,000 calls on the 311 system. The two most frequent questions (38 percent) were about the school calendar and finding a school.

Also, we learn that phone calls to school parent coordinators increased by 37 percent. The latter fact could have some value as a management indicator: Why the dramatic increase in calls? What happened as a result? No answer.

The report's education section blends questionable state test data and in-house school-grading standards. For more than a year, articles in the New York Times and the Daily News have challenged the accuracy of state math and reading test scores as well as the city Department of Education's own method of grading schools. The report simply ignores these questions and makes the presumed success of schools on their Progress Reports (or school report cards, a "critical indicator" crafted by the department) the first "Performance Highlight": 92 percent of schools received grades of A or B. The reason? "Significant increases" in test scores. The management report stresses the test scores even though education department officials have said they expect to change the system.

One useful education indicator in the report is class size -- key for many reformers -- where actual data exists for the current fiscal year. But here, too, the facts don't lead to any useful comment about management. Since fiscal year 2007 class size in the crucial grades kindergarten through three has gone up an average of one student per class , although the department’s budget during that time has risen from $15.8 billion to $18.4 billion (and by $536 million in the past year).

Acknowledging the increase, the management report explains cryptically: "With school budgets decreasing this year while teacher salaries increased, DOE has managed to avoid massive increases in class size by working with schools to avoid cuts to classroom staff where possible."

That's it for analysis on class size. There is no word at all about another controversial topic: charter schools. With 99 charter schools currently in place and 100 more proposed by the mayor, the lack of any mention of them, let alone data on achievement and enrollment, is bizarre. Similarly, the report says nothing about another innovation, the creation of new small public schools.

Homeless Services

The first "Performance Highlight" in the Department of Homeless Services section of the Preliminary Mayor's Management Report, like that in the education section, shows a 90 plus percent success: Some 94.3 percent of families with children who received preventive services in the first four months of the fiscal year 2010 did not enter the shelter system, an improvement over the previous year (92.6 percent).

But there is no reference to how many families received such aid. It is only in the third "highlight" that the report cites a 25 percent increase in the number of families with children entering shelter in those same four months. And one must turn two pages to an indicator table to find that the total number of entering families is 5,674, or 1,124 more than in the previous year. That same table shows a 34 percent increase (not addressed in the text) in families with children entering shelters in the previous full fiscal year (i.e., from fiscal 2008 to fiscal 2009).

How is the city responding to this extraordinary influx over the last year and a half? And why has homelessness increased so sharply when the administration undertook programs aiming at a substantial reduction in homeless families? No answers. All we learn is that the city is using federal money "to expand prevention and anti-eviction services in the community."

The report provides no indicators or comments about those who actually provide help to families and single adults in 201 privately run and 11 city-run shelters. The private agencies will spend over $700 million, or about 78 percent, of the department’s $915 million budget this fiscal year. But because reporting about contract agencies is handled by another mayoral agency, the Mayor's Office of Contract Services, the management report does not address the delivery of these services.

Human-Services Management

Details about nonprofit contracting, including management indicators such as performance ratings were, under former Mayor Rudolph Giuliani, included in preliminary and final management reports. Now, the mayor's contract office publishes only a single report every September, entitled Agency Procurement Indicators, which, like the management reports, is more a jumble of data than a management review.

It is the contracts office, rather than the city agencies, that monitors human services contract agencies. This is a huge assignment.

The most recent contracts report, issued in September 2009 notes that in fiscal 2009 the city worked with 1,463 nonprofit human services providers, representing $10.8 billion in contracts. Typical of the report's style, the only references to homeless services (whose $600 million in contracts last year made it the ninth biggest contract agency) are simple program descriptions of two small contracts in Brooklyn.

Less than two pages of the September report are devoted to non-profit human services "vendor compliance." The report notes, "While these vendors generally work tirelessly and effectively on behalf of New Yorkers in need, there are infrequent -- but serious -- cases of abuse that shake the public's confidence in the integrity of the nonprofit sector." In addition, some contract agencies "experience significant fiscal management challenges." The report does not offer any information on who those agencies might be or what challenges they might face.

As a result, eight years into its tenure, the Bloomberg administration has created what it calls "a relatively new addition to [its] vendor responsibility reviews," a Capacity Building and Oversight initiative. Of the 1,463 nonprofit human services providers, 673 (with 4,390 contracts) have contracts worth over a million dollars, the basic threshold for scrutiny by the initiative.

Apparently Capacity Building and Oversight does not yet have any results to share with the public. But the contracts report promises us, "About 98 percent of the total dollar volume" of human service contracting will ultimately be covered by this new review process.

Economic Development

The preliminary management report gives even shorter shrift to economic development, a key policy area. In its two pages the report on the city's Economic Development Corp.has only one reference to job loss in the city.

It appears as the last of six "Preliminary Performance Highlights": The unemployment rate in the first four months of this fiscal year was 10.1 percent, up from 5.9 percent during the same period a year ago.

The one-sentence response to this disturbing statistic: "The increase is principally the result of the large job losses associated with the recession that began in August 2008."

The highlights section does not discuss what the city can or might do about alleviating the unemployment problem. But it does include a 90 plus percent performance statistic: As of Oct. 31, 2009, nearly 92 percent of all property managed by the Economic Development Corp. was occupied.

The one big political battle that the Economic Development Corp. was engaged in this fiscal year, the plan to develop the Kingsbridge Armory in the Bronx, gets no mention. That plan, which promised the creation of 2,000 jobs, foundered on the mayor’s refusal to accept a requirement that all companies in the projects pay their employeees a living wage -- $10 an hour with benefits, $11.50 an hour without benefits.

The contracting office's September report puts the mayor's decision on the armory contract in an interesting context. The city has 176 contracts, worth $134 million, that the contracts office monitors to assure compliance with the city's own living wage law. These contracts apply to such services as day care, home care, Head Start, and food services -- but not to retail jobs in the Bronx.

But the management report is not about political controversy. Nor is it about management accountability. It has become a reluctant, bureaucratic exercise that avoids policy and political discussion.

If it has any coherent goal, it seems to be a search for, or creation of, positive indicators that show 90 plus percent performance success. The creation of a new charter revision commission, in theory, would be a welcome opportunity to review the current city charter mandate for management review. But there is a near-zero percent chance, given the administration's lack of interest in any public discussion of its management practices, that such a review will take place.

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

Labor Dispute Silences Spanish at E-ZPass Center

Last month, colleagues began telling Maria Rizera -- one of 16 Spanish-speaking workers at the Staten Island E-ZPass call center -- that, unless she began taking calls in English only, her job was going to get a lot tougher. To protest what they see as wage discrimination, Rizera's coworkers were walking away from the Spanish language line.

"People just kept quitting the Spanish queue, and I stuck on until, all of a sudden, I was the last one at the call center taking these calls," Rizera said. "And I looked at my paycheck that week, and said, 'I can’t keep doing this.'" So Rizera quit speaking Spanish on the job, and people seeking help from the call center can receive it only in English.

This reduction in service is the result not of a budget cut but of a dispute between 292 employees at the recently unionized call center, and the private company that operates the center, Texas based Affiliated Computer Systems, which merged with Xerox last month. In May, the call center workers voted to join a union. Within 24 hours of the vote, Affiliated Computer Services –- which handles all administrative aspects of the E-ZPass system under contract to public transportation agencies -- announced employees would no longer receive hourly wages. Instead they would be paid a piece rate, based on the number of calls they handled. After the pay-per-call system went into effect in August, paychecks of Spanish speaking workers quickly slid below that of their coworkers because Spanish calls take longer to complete.

Since August, union,CWA Local 1102, a branch of Communication Workers of America, says it has been pleading for the company to come to the bargaining table to settle this and other matters in a formal contract. But Affiliated Computer Services/Xerox refuses to recognize the union, an action CWA calls illegal.

Last week, all 14 workers in one of the call center's most pro-union sections, the tags department, were fired. The firing came only days after seven tag department employees stood up from their desks for 60 seconds while working to demonstrate their wish for the managers to recognize the call center’s union.

With allies in city and state government, Communications Workers are currently waging a campaign to encourage the Metropolitan Transportation Authority, Port Authority of New York and New Jersey, and the New York State Thruway Authority to drop their contracts with Xerox/ACS, a corporation the union says has gone "rogue."

Problems with Piece Work

For two centuries, per-unit pay has been an explosive subject between labor and management. Employers say it rationally ties pay to performance. Workers say the system degrades work quality and leads to confusing and inequitable pay systems.

So go the arguments on Staten Island today.

Under what management calls the ABC (Activity Based Compensation) system, a series of new stipulations affect weekly pay. These include the number of calls made, at 87 cents per completed call; call quality, based on management's listening in on random calls; and monitoring electronically how promptly the workers clock in and out of work.

"Our primary focus here is our customers -- customer experience is paramount," said Kevin Lightfoot, a spokesperson for ACS. "The new system gives our agents the capability of answering questions quickly and efficiently."

Lightfoot added that three quarters of the workers at the Staten Island call center now make more money than they did before the piece rate system.

The union disputes this number and accuses the system of leaving workers in the dark on how wages are determined, and causing the discrimination against Spanish-speaking workers and customers.

"For a year or so there was a lot of talk about the ABC system. Everyone was pretty scared for their wages," said Isaac Colinares, who has been working at the call center since 2007. "Then the management put it in place, and our pay became very inconsistent. My paychecks go up and down weekly. There are too many variables involved, so no one knows what's going on and the management can't explain it to anyone. It's a mess."

Workers also expressed exasperation over new automatically filed pay penalties.

"Now if I clock in two minutes late, or take my lunch break five minutes late because a customer call took longer to complete, they deduct from my paycheck," said Rizera. "I don’t think that’s really fair."

English Only

Then there is the Spanish language problem. Because the E-ZPass website is exclusively in English, many Spanish-speaking calls require translating the website into Spanish. These calls occupy over twice as much time as calls in English, making working the line a burden that several workers described as being financially untenable.

ACS does pay Spanish-speaking call center workers $25 every two weeks in compensation. Rizera said this additional pay did not come close to adjusting for the estimated weekly hundred-plus dollar deficiency in her paycheck that made her ultimately quit the line.

"Because ACS will not bargain with the union, the 16 Spanish-speaking workers have taken it upon themselves to improve their situation," said Tim Dubnau, the Communications Workers' organizer for District 1. "This is the definition of a labor dispute."

According to Lightfoot, ACS was not aware that workers were quitting the Spanish queue until the union's recent press conference on the issue.

"We have not heard any reports of Spanish-speaking callers having been denied help,” Lightfoot said. "Now we’re working with the government agencies to look at how to solve the problem."

Lightfoot added that, of all the customers E-ZPass deals with, 0.15 percent are Spanish-speaking.

"Regardless of their work, absolutely no one is getting paid less than $12.50 an hour," Lightfoot said, referring to the current "parachute period," which sets a floor for wages while management and workers get used to the ABC system.

Although ACS insists that it will not lower the $12.50 wage floor, workers are worried.

In 2005, ACS purchased a call center in Auburn, Wash. Soon after, the company instituted its ABC system and workers filed a complaint, claiming that, under the piece rate system "the plaintiffs have suffered lost wages and economic loss."

In a public statement released by CWA, Mary Sump, one of the plaintiffs in the Washington suit against ACS, said, "ABC meant minimum wage for me. There were also so many issues with my pay after ABC, and I could never get a straight answer from the company. About half or more of my coworkers were forced to quit because of the loss of wages under ABC."

Lightfoot said he has no knowledge of wages dropping or of employee discontent at the Washington State call center.

Linda Parsons, executive director of Utah Jobs With Justice, said that she knows of at least several customer service representatives making minimum wage at another Affiliated Computer piece-rate based call center, this one in Salt Lake City, Utah. Parsons added that 50 percent of workers at the call center make no more than a dollar over minimum wage, and called the conditions at the Utah call center "close to that of a sweatshop."

Workers at the non-unionized Salt Lake City call center refused to speak on record for fear of being fired.

Struggle for a Contract

Union organizers see the Spanish-line issue and last week's firing of the tag department workers as the most recent phases of a complicated effort to create an effective union at E-ZPass. During the union drive last year, the National Labor Relations Board filed complaints against Xerox/Affiliated Computer Systems for alleged intimidation of union supporters, and the unlawful firing of a union supporter. The Communications Workers claim also that overtime pay was taken away from a union-supporting department, and that the company intentionally disseminated misinformation to affect the outcome of the union election.

Affiliated Computer denies that it meddled in the election.

Lightfoot said that last week's firings simply represent part of an effort to make the call center more efficient by replacing the department’s human labor with a computerized system. "We automate. We make our systems more efficient," Lightfoot said. "That's just what we do."

Although the National Labor Relations Board has officially recognized the Staten Island call center's union, the company refuses to bargain, arguing that all E-ZPass workers in New York State should have been included in the vote. Xerox/ACS has taken this appeal to the National Labor Relations Board in Washington. To the union's consternation, Xerox/ACS says it will not come to the bargaining table as long as the appeal awaits its hearing -- a decision no one expects will come soon.

With only two of its five members currently serving -- a Democrat and a Republican, who generate mostly one-to-one deadlocks -- the National Labor Relations Board is debilitated. A two-year impasse over appointments has created an enormous backlog of labor disputes. There is no telling how long Affiliated Computer's appeal could wait for a verdict.

Arguing that the case has no legal foundation, the Communication Workers accuse the company of obstructionism in exploiting the currently non-functioning National Labor Relations Board as a pretext to defy labor laws.

The National Labor Relations Act requires companies to recognize and bargain with unions certified by the Labor Relations Board, like the call center union. The New York State Constitution, reiterating the National Labor Relations Act, also states employees "have the right to organize collectively through representatives of their own choosing."

The union now believes its last option is to convince the New York agencies to drop their contracts with the firm.

"The laws are not being enforced, so now we need the authorities to step in and resolve the situation," said Pete Sikora, director of special projects for CWA District 1. "This is as close as you can get to legal certainty without a verdict."

The city’s contract with Xerox/ACS does allow the city "suspend, postpone, abandon or terminate the contract at any time and for any reason,” as long as the private contractor is given 45 days notice." The contract, which is identical for all the different agencies involved with ACS/Xerox, does not, however, specify in what languages other than English E-ZPass must provide services.

None of the agencies involved seem poised for action. "The situation is between ACS and the call center,” said Joyce Mulvaney, spokeswoman for MTA Bridge and Tunnel. "There’s litigation pending so it’s not something we’re commenting on."

Pressure on the Company

Motivated by the Staten Island dispute, Assemblymember Jose Peralta introduced a bill yesterday that proposes to mandate Spanish language service in all privately operated customer service centers on contract with New York State and city agencies.

"The MTA and Port Authority did not appear to even notice when their contractor for E-ZPass cut Spanish language service entirely," said Peralta in an email. "We need a legislative guarantee of good customer service for all New Yorkers."

There currently are no laws ensuring that publicly contracted customer service centers serve Spanish-speaking customers.

Other elected officials have pledged their support to the Staten Island workers and expressed frustration at what they see as privatization run amok.

"It is a disgrace that a private company is exploiting a public franchise with no regard for a large segment of the population," said Queens City Councilmember Julissa Ferreras" in an email. "It is a shame and a scandal that the MTA, the Port Authority and the Thruway Authority have not brought pressure to bear on Xerox/ACS to negotiate with its workers, pay them fairly, and restore service to Spanish speakers."

Last Friday, in reaction to Xerox/ACS’s firing of the tag department workers, State Sen. Diane Savino and other Staten Island officials held a press conference outside the Staten Island call center.

"Xerox/ACS must immediately reverse its illegal firings and improve customer service at E-ZPass," said Savino. "Xerox/ACS's dismal record of treatment of their employees is compounded by their current pay-per-call scheme, which forces workers to rush through calls, causing customer service quality to suffer."

Xerox/ACS says that it is trying to place the 14 tag department workers in other departments, but there are no guarantees.

For now, although the call center's union remains very active, bargaining still takes place only between Xerox/ACS management and its individual employees. The high unemployment rate raises cost of job-loss, and call center workers feel the lack of bargaining power.

"I'm not sure what to expect next, but I'll go with the flow," said Colinares. "I don't think I really have a choice in the matter."

Richard Ravitch's Latest, Greatest Challenge

The din of lobbyists and legislators pressing flesh, asking for favors, making promises and issuing assurances floats into Lt. Gov. Richard Ravitch's office. The Monday after the week-long Presidents' Day break, things are bit busier, a bit louder than usual in the capitol as Senate session gets underway.

Ravitch's office has two doors. One dark, wood-paneled entrance stands at the end of a short hallway that functions as a senators' lounge. Right now -- and whenever the Senate is in session -- this space is home to gabbing lobbyists and legislators and to silent sergeants-at-arms who check for proper identification. The other of the two portals opens directly into the Senate chamber at the side where the Democratic caucus sits. Ravitch is tucked away amid the bustle but occasionally pops out one door or the other to quickly shake hands or confer with someone.

With New York facing a fiscal crisis of staggering proportions -- and with critics believing the state government is not up to dealing -- many hope that Ravitch comes to the rescue and takes a central role in budget negotiations. Almost universally respected, Ravitch, that line of thinking goes, could force the governor and legislative Republicans and Democrats to make the hard choices they need to confront right now. The question is whether his boss, Gov. David Paterson, will give him the opportunity -- and if he does, whether Ravitch can pull the rabbit out of the hat one more time.

Ravitch to the Rescue

There is no question that Ravitch is popular -- he is known as the man who saved New York, after all, not just once, but on multiple occasions.

In 1975 Ravitch resurrected the nearly insolvent New York State Urban Development Corp., as its chair.

In 1979 Gov. Hugh Carey gave Ravitch the chance to work his magic again as the chair of the Metropolitan Transportation Authority. Again Ravitch was credited with not only saving the authority's finances but expanding the system to include Metro North.

More recently, Ravitch was named to head a commission to find revenue streams for the Metropolitan Transportation Authority. His recommendations were hailed by advocates but largely dismissed by senators.

Finally, Ravitch was tapped again to save the day last summer when Paterson named him lieutenant governor in a controversial gambit to resolve the struggle for control of the Senate.

But now the state is facing even bigger problems -- the kind that could leave the entire state insolvent. The state Assembly thinks that the governor's revenue projections are short by $1.2 billion. The Senate estimates revenues to be about $743 million behind expectations.

So, Ravitch is again working to save the day. He has been holding meetings about his long-term fiscal plan for New York, a plan he is set to unveil in the coming weeks. Ravitch, though, isn't saying much publicly about that long-term plan. Right now, New York's finances need immediate saving, and not a whole lot seems to be getting done about it.

The Current Crisis

Today in his office Ravitch seems a bit worn down. The lieutenant governor has had a busy day. He addressed the conference of mayors in the morning, visited a new nanotechnology site and then had a meeting on the fiscal plan followed by a steady stream of less formal meetings in his Albany office.

Meanwhile, he's suffering from a head cold. He takes long, pregnant pauses between sentences, as if there are certain thoughts he needs to swallow back down before speaking.

"When my friends, who are mostly not in politics but in professional life, ask me if I'm having a good time, I tell them it's a fascinating time, intellectually. Is it a nice time? My interest in public service going back to UDC was saving things from catastrophe, making sure the government could continue to provide services essential for people who had no other alternative, who were dependent on government," Ravitch said.

But now he thinks government may no longer be able to provide those services, because of the economy.

"We are going to have to make very tough decisions, not just this year but the following year. Can you imagine being the governor, being David Paterson, my friend, or anyone else sitting there in January with a $15 billion deficit with 90 days to address it?"

Even when asked about the financial situation of the MTA, the organization he once saved, Ravitch treats it as just another casualty of the economy -- an unavoidable consequence of these harsh times. "I don't mean to belittle the situation and I do care a great deal about the MTA. I do believe (increased fares) would have a negative impact on a population already suffering a very high unemployment, but all of the possible actions have impacts that are negative. When people say lets find another solution, I say let's find out what it is."

Ravitch said he personally would not go ahead with Paterson's plan to raise the payroll tax in New York City from 0.34 percent to 0.54 percent, while dropping it from 0.34 percent to 0.17 percent in the suburbs. "At this point leave well enough alone," he said.

He recalled, "When I first got involved this summer, I shared David Paterson's view that we were in a serious economic bind, but there were a lot of people of good faith, friends of mine in the legislature, who said, 'Aww, Dick, we're in a recession and we'll be out of it in a year or so. So we just have to get through the next year or so.' To which I responded, 'Bullshit.' We've experienced a longer-term decline, and of course we’re going to come out of it, but we’re coming out of it much more slowly."

Ravitch said that federal stimulus funds will have only "built the cliff higher for us," when they finally run out.

The problems with the state's finances don't stem just from the recession but from long-standing, systemic problems. Ravitch points out that Medicaid costs are going up at four times the rate of inflation and health care costs at six times the inflation rate. "Medicaid costs are squeezing out education and infrastructure. We’re getting squeezed out, because the federal government decided, quite properly, that people should have access to good health care."

To make matters worse, according to Ravitch, the state has relied on one-shot injections of borrowing or cash transfers to balance the budget. "Eight out of ten years we were not structurally balanced. Our expenditures did not match our recurring revenues. We used over $20 billion in one-shots. It isn't sustainable," he said.

Bearer of Bad Tidings

Ravitch is very good at playing the role of a messenger of sobering, even damning economic news. His tone, conviction and no-nonsense sincerity, combined with the wealth of his experience as a businessman, make him a very effective doomsayer. And legislators say they would like to see him increase his role. They like dealing with Ravitch and see his knowledge of the economy as invaluable.

With the current huge rift between Paterson and the legislature, some legislators would simply rather deal with Ravitch than Paterson. Paterson has slammed legislators as incompetent and unwilling to make hard choices, while legislative leaders have questioned Paterson's ability to lead and snubbed him behind the scenes.

"I'm not sure that is a fair way of characterizing it," Ravitch says, referring to the reported lack of communication between his "friend David Paterson" and the legislature. "I will tell you this: The problem is so profound, so without precedent, there is not a single valid choice about the budget that could possibly get a single person elected to public office. Having said that, how does a group of people, many of whom went into public life because they thought and believed government could do good things for people, deal with this kind of reverse economics?"

A number of legislators say Ravitch could work to repair the bridge between the legislature and the governor. "If the governor let the lieutenant governor negotiate on his behalf, he would be very well served," said Sen. Neil Breslin.

"He has that kind of personality, that kind of charm, that's difficult for anyone to turn him down,' Assembly Speaker Sheldon Silver told the New York Times last year. "They may never agree with him but it’s very difficult not to sit with him and not hear his case."

Some legislators say privately that Ravitch is disillusioned and even angry at Paterson for the way the governor has handled the state's financial situation. Last fall the Post reported that Ravitch was dismayed that Paterson was not publicly proposing significant budget cuts for fear of public backlash.

Ravitch seems to bounce back and forth between his friendship with Paterson, his friendship with legislators and his desire to make significant headway to save the state from financial peril. Solving the problem, he said, "will take a degree of collegiality between the legislature and governor and Democrats and Republicans that hasn't existed before, and I hope it happens because the people will suffer if it doesn't. I mean, prolonging this agony and avoiding making unhappy decisions doesn't solve anybody's problem. Let me put it to you this way: I talk to the legislative leadership; obviously, I talk to the governor."

When asked if he sees himself functioning as a gateway between Paterson and the legislature, Ravitch bristles, but smiles a bit. "I'm fully prepared if it's useful to do that. I don't think that David Paterson has a problem communicating. I think the problem is, as I suggested, it's very, very difficult."

Reminded that some legislators have gone out of their way to snub Paterson, Ravitch responded, "And there have been times he's gone out of his way to characterize the legislature in ways they don't like. Right? That's why I refer to the fact that collegiality, not conflict, has got to be part of the solution here. But one of the things that is nice about politics is most ill feelings don't last long."

"Morgan is scowling," he said, referring to Morgan Hook, a Paterson spokesperson who is sitting in on the interview, "so he may not agree with me," laughs Ravitch.

Ravitch says legislative leaders are currently trying to solidify their estimate of the budget deficit. Public revenue discussions are set to begin later this week.

Legislators, though, will have to be rational about the state's financial situation, he said. "I had one distinguished legislator say to me, 'Dick, I'm not gonna vote for cuts or taxes.' To which I said, 'Where are you gonna find the fairy godmother?'"

On balance, Ravitch believes most legislators want to do a good job. "I think the general press' characterization of them as corrupt people is grossly inaccurate. It is not my sense at all. Yeah, there are some bad apples from time to time and altogether it's a hell of a life. A legislator makes $75 grand. I know a lot of them very well and they could make more money elsewhere. They are in this game because they want to make the world a better place. Sure, they have personal ambition, but they aren't in it to make money."

He is loath to make a prediction as to when a budget deal might actually be reached. "We could be making progress. We could get delayed. It's even conceivable we might not have one at all."

Ravitch also does not want to predict what he might do when his term is up at the end of year. "I haven't really decided what I'm gonna do, except probably do some teaching and some writing, for sure." Hook interjects, "And more golf!"

Ravitch agrees. "Once we get a budget done I hope to play some this summer. I have possible golf days with many members of the legislature. It’s my way of saying, 'OK, let's pass this goddamn budget!'"

The Living Wage After Kingsbridge

A fast food worker makes fries


First came Kingsbridge: A highly unusual vote at the City Council, which shattered an approximately $300 million proposal from the Related Companies to morph a Bronx armory into a mall.

Then came the Queens Center Mall: A call to beef up wages at one of the city's largest shopping centers.

Now, City Council members, armed with support from some of the largest unions, are eyeing an even bigger challenge: Requiring living wages at all developments, organizations or corporations that receive some sort of city subsidy or assistance.

"The way we've been doing business in the city of New York has at the end of the day not benefited people in low income communities," said Councilmember Annabel Palma, one of the main sponsors of the proposal, which will be introduced at the council soon. "The least we can do is make sure we can protect the workforce and make it viable for people to stay in their community."

But despite the recent "victory" in the Bronx and the momentum some officials say it brings, a poll by Gotham Gazette found only 21 council members are ready to officially sign onto such a sweeping proposal. In order for a bill to pass, it needs 26 votes. To override a veto, which looms for this legislation, the council would need 34 votes.

To see where your member stands, go here.

Even though the City Council overwhelmingly defeated the Kingsbridge Armory project, many members say any further movement on the living wage issue is far from a fait accompli.

Kingsbridge Revisited

In December, the council delivered an unprecedented defeat to the Bloomberg administration. The disapproval of the Kingsbridge Armory project, which supporters say would have brought 2,200 jobs to the northern Bronx, not only set the Bloomberg administration's economic development agenda back, but it also assured some of the city's progressive circles that the council was ready to take up a broader living wage policy.

In Kingsbridge, the council, developer and administration debated a requirement to compel mall tenants -- from Cinnabon to Lane Bryant -- to pay workers a living wage. In the Bronx, the average annual wage for a worker in clothing and accessories stores was $17,313 in 2008 -- or $8.32 an hour based on a 40 hour work week, according to the Drum Major Institute. A living wage in New York is $10 an hour plus benefits, according to the city. Without benefits, it's $11.50 an hour.

The project would have received at least $18 million in tax breaks if it had been approved, say supporters of a living wage. Those breaks were in addition to an approximately 75 percent discount the city agreed to give Related to purchase the armory. Given all this taxpayer money, opponents of the development argued the community and its workforce deserved some benefits.

And they convinced the City Council.

And now the council is preparing to deal with the wage issue again -- but on a much grander scale. The bill slated for introduction this session would require any company, organization or developer who receives more than $10,000 annually of "city assistance," which can cover tax breaks, financing, grants and energy cost allocations, to pay a living wage to all employees on the property. As originally drafted, the bill would apply to recipients of the council's discretionary dollars as well as developers getting million dollar tax breaks for gargantuan, mixed use developments.

The legislation could effectively catch the vast majority of those entities that contract with the city, including arts organizations, developers and social service providers. Most importantly, say supporters, the legislation would go beyond the workers employed by a developer to include all those who work for the developer's tenants.

Councilmember Oliver Koppell, the proposal's prime sponsor, said supporters are still studying which entities and what kind of city assistance would be included in the final version of the legislation. But, he said, he wants to ensure those that directly and indirectly benefit from city subsidies are included.

"There is no question we are going to introduce a bill that will go as far as we can possibly go," said Koppell.

In a supporter's view, if a group is willing to take assistance from the city, it should be willing to pay for it.

"We can no longer ignore the needs of low wage workers in this city," said Stuart Appelbaum, the president of the Retail, Wholesale and Department Store Union, the most vocal labor group on living wages. "What's important now is there be a real debate on whether or not development creates jobs that are good, or if it's going to create jobs that keep people in poverty."

Detractors point to a floundering economy and sickly job market, arguing it's the worst time to put more restrictions on economic development.

In this Economy?

Any job is a good job, say council members who oppose the proposal.

"There is a minimum wage for a reason," said Republican Councilmember Dan Halloran of Queens. "We have a free market economy for a reason... (The proposal) puts so much restrictions on our entrepreneurial spirit."

Even beyond the state of the economy, business leaders question whether the city should be meddling in private industries.

"What's not rational is suggesting somehow that every business tenant of a publicly subsidized project would be subject to an arbitrary wage requirement that they weren't party to negotiate. You would cripple the projects we are trying to do to stimulate the economy," said Kathryn Wylde, the president and chief executive officer of the Partnership for New York City. "I don't think the living wage requirement belongs in municipal legislation. Our focus should be picking projects we want to subsidize that bring good jobs."

During the Kingsbridge debate, Mayor Michael Bloomberg struck a similar note, saying it was best to let the market set wages. "I know the desire people have, but the reality is that the city is not in the business of guaranteeing people's wages, and in private development, we shouldn't be," the mayor said.

Back in 2002, Bloomberg signed legislation to require a living wage for all home health care and childcare workers that contract with the city. At the time, officials and organizations balked at expanding it to other city contractors -- the same ones this latest bill would affect -- because many nonprofit groups said they couldn't afford it.

Efforts to go further into the private marketplace are likely to erode more support among council members and the administration.

At least 19 council members remain undecided on the most recent proposal. Many of them said they support living wages in principle, but have yet to take a close look at the bill. Others are torn between creating good jobs or possibly stifling them altogether.

"I am kind of concerned that we will ultimately kill jobs," said Councilmember Lewis Fidler, who hasn't taken a position on the proposal. "Would you support jobs that may not be good paying, but that wouldn't exist otherwise?"

Experts differ on whether living wage laws stifle economic development. Kristen Eastlick, senior economic analyst at the Employment Policies Institute in Washington, D.C., said tax credit programs are more of an economic engine than living wage policies. Living wages, she said, only displace employees who have lower-wage jobs, which become more appealing for more qualified workers and, thus, more competitive.

Others, like Paul Sonn, the legal co-director of the National Employment Law Project, disagree. In New York City, Sonn said, it has become an industry standard to pay building service operators at large development projects a living wage.

"Is it more realistic for building services and not for retail? I think the answer is the city's living wage is set at a pretty moderate level," said Sonn. "You're going to have to pick and choose what sort of tenants you are bringing in. They understand that in L.A. That's what is expected of developers now."

Beyond New York

At the beginning of Bloomberg's tenure in City Hall, a living wage movement was sweeping across the country.

Now that he is in his final term (presumably) that movement is picking up again, but the more recent proposals are targeted specifically to economic development. In the last month, both Pittsburgh and Chicago have attempted to adopt some living wage law aimed at developers that receive city subsidies.

About 200 cities have adopted some sort of living wage ordinance. Many target certain workers, like home health care aides.

In Pittsburgh, the City Council approved a bill that would have guaranteed all hotel, cafeteria and building maintenance employees at city subsidized projects a prevailing wage -- the standard wage for the industry.

Pittsburgh's mayor vetoed that bill on New Years Eve.

Meanwhile, the Chicago City Council and its mayor are heatedly debating an ordinance that would require living wages for stores with more than 50 employees that receive city subsidies.

Elsewhere, some point to Los Angeles as a leader on setting wage standards in economic development. Alex Paxton, the special assistant to the deputy chief of operations at the Community Redevelopment Agency, the city's economic development arm, said Los Angeles requires any developer and its tenants on city owned property to pay a living wage.

Paxton said the agency has recently considered holding on to more of its land, so it can have more of a say on what wages are paid at what projects. Many California airports also have picked up living wage practices, said Sonn.

To some, New York is already behind other major metropolitan areas in setting higher wage standards. San Francisco and Santa Fe have gone beyond state limits and set their own minimum wage. Workers in San Francisco make $9.79 an hour no matter what work they do.

Correction: When first published this story said tenants of developers with projects on land owned by the Community Redevelopment Agency in Los Angeles did not have to pay a living wage. In fact, those tenants do have to pay a living wage. The text has been corrected.

Job Creation Bills to be on Washington's Agenda in 2010

Hopeful visitors at a university career fair. Graduates are facing the longest economic downturn since the Great Depression.

This month marks the second anniversary of the onset of the Great Recession -- the steepest and longest downturn since the Great Depression of the 1930s. Although the recession started later in New York City -- August 2008 was the peak employment month here -- the number of city residents unemployed has doubled since early last year to over 400,000, and the local unemployment rate in November was 10 percent (it declined from 10.3 percent in October only because 12,500 people dropped out of the labor force.)

Wall Street profits and bonuses may be recovering, thanks to the unprecedented financial bailout, but the local job market is about as comforting as a Lower East Side cold water flat in the dead of an 1890s winter. Job losses have hit hardest in the city’s minority and low-, moderate-, and middle-income neighborhoods. Long-term unemployment -- reflecting jobless spells lasting more than six months -- is even higher in New York City than the record-high national figure. Foreclosures and personal and business bankruptcies are all rising as the prospects for an economic rebound recede further into the distance.

The dire condition of the local unemployment crisis is repeated around the country. Nationally, 27 million Americans are unemployed, underemployed, discouraged or otherwise only marginally attached to the labor force. Fourteen states have double digit unemployment.

At the beginning of this year, great hope was placed in a big and bold federal stimulus program. The recovery act -- formally known as the American Recovery and Reinvestment Act -- succeeded in pulling the teetering economy back from the brink, but the headwinds were too fierce to keep the national unemployment rate from moving into double digits for the first time since the early 1980s. Technically, economic growth resumed in the second half of this year, but most economists fear that underlying conditions will prevent the act's stimulus from translating into a sustainable recovery.

To a degree never seen in the post-World War II era, the housing market remains paralyzed by the foreclosure epidemic, and households burdened by debt and worried about the bleak job outlook are holding back consumer spending. As long as consumer spending remains anemic, businesses won't hire back workers, not to mention invest in expansion. It now seems that while the recovery act was the right medicine for the ailing economy, the dosage was not sufficient to provide the cure.

The purpose of federal stimulus is to inject spending into the economy -- whether through state and local governments, brick and mortar infrastructure projects, or aid or tax cuts to individuals -- when the economy lacks necessary spending impulses of its own. To do that, the deficit must rise. Otherwise, overall spending remains too shallow for a self-reinforcing cycle of spending and job growth to get into gear.

As the recession begins its third year, Washington is again turning attention to measures to curtail job losses and boost job growth. Before adjourning for the holidays, the House of Representatives approved legislation that reprised three elements of the recovery act: state fiscal relief, aid to the unemployed, and infrastructure. Each of these three areas would receive roughly $50 billion.

State Fiscal Relief: Because the downturn was more severe than anticipated at the beginning of the year, many states, like New York, found themselves with mid-year budget problems when tax collections faltered. The Center on Budget and Policy Priorities reports that we are seeing the steepest decline in state tax receipts on record . Collections from New York’s personal income tax – the state’s largest tax source – are projected to fall by nearly 15 percent in 2009, before factoring in a temporary surcharge. Next year, combined state budget gaps are expected to exceed $180 billion. Economists at Goldman Sachs have projected that state government budget cuts and tax increases would reduce national economic growth by about two-thirds of a percent from mid-2009 through mid-2010.

Since it now appears that much of the recovery act's state fiscal relief will run out before state tax collections recover, there is concern that without further relief states will have to cut spending further, creating an even greater drag on any potential recovery. The new House measure provides $23.5 billion to continue a temporary increase in the federal share of Medicaid expenses, $23 billion to retain 250,000 teachers and repair school buildings, $1.2 billion to pay for 5,500 police officers, and $1.8 billion for fire fighters, AmeriCorps workers, summer youth jobs, and College Work Study jobs. Because New York's share of the recovery act's state fiscal relief was roughly 10 percent, the Empire State could receive $4 billion to $5 billion in new federal aid should the House bill become law.

Photo (cc) mjames1408

Aid to the Unemployed: Since state unemployment benefits run out after 26 weeks, the federal government usually steps in during severe downturns to pay for benefits when workers remain jobless for more than six months. To further extend federally funded long-term benefits and to continue for another six months providing health care subsidies for the jobless, the House package would provide $53.3 billion. New York received about 6.7 percent of similar aid under the recovery act, suggesting that the new authorization would provide about $3.5 billion to unemployed New Yorkers.

Infrastructure Spending: Construction has been one of the hardest hit sectors during the downturn, and there is interest in Washington in providing additional aid for government infrastructure that increases long-term productive capacity. Of the $37 billion in transportation and infrastructure funding in the House bill that would be allocated to states by formula, preliminary information indicates New York State could receive $1.2 billion for transit, $1.1 billion for highways and bridges, and $108 million for sewer treatment projects.

Spending to Create Jobs

Senate action is not expected until January, most likely following final action on health care reform. In addition to the areas covered in the House legislation, January might see consideration of two White House proposals, a tax credit aimed at creating jobs in small businesses and additional funding to promote job creation by making buildings more energy efficient.

In Washington, opposition to more jobs funding usually comes with an unmistakable partisan fervor. Opponents often argue that jobs funding will increase the federal deficit to unsustainable levels. Critics of more job recovery spending talk as if the recovery bill and President Barack Obama's budget policies are the main reason for the looming federal budget deficits. In fact, tax cuts enacted under President George W. Bush, the wars in Afghanistan and Iraq, and the economic downturn account for 85 percent of the federal deficit over the coming decade.

Obama appears to be undeterred. At the White House Jobs Summit in early December, he said: "The single most important thing we could do right now for deficit reduction is to spark strong economic growth, which means that people who've got jobs are paying taxes and businesses that are making profits are paying taxes."

Any additional funding for jobs is complicated by some public misunderstanding of the recovery act's impact. Critics have made the disingenuous argument that jobs retained by spending under the act don’t count. And in general, while it is impossible to specifically track the number of jobs created by the billions of dollars that has gone to individuals in the form of unemployment compensation, food assistance or tax cuts, simple logic suggests that such spending has helped businesses retain or hire additional workers. Most such assistance provided by the recovery act has gone to low- and moderate-income individuals and households that are very likely to spend every dollar they receive.

The Center on Budget and Policy Priorities has estimated that seven of the law's programs providing tax cuts to moderate- and middle-income families or direct assistance to the unemployed, food stamp recipients or the elderly and the disabled, will keep 6 million Americans from falling into poverty in 2009 and will reduce the severity of poverty for 33 million others . The American Recovery and Reinvestment Act will keep 258,000 New York City residents out of poverty this year and will help an additional 161,000 New York State residents outside of the city stay above the poverty line.

Gov. David Paterson's office estimates that over $31 billion will come to New York residents as a direct result of the act's spending. This estimate does not include the individual or business tax cuts that comprised over a third of the overall $787 billion package.

New York City and the nation face an immense job creation challenge. Nationally, to bring the unemployment rate back to pre-recession levels and allowing for population growth, we need to add 580,000 jobs each and every month over the next two years. We have yet to see a single month with any net job growth at all over the past two years. In the absence of further federal action to spark job growth, millions of Americans will be consigned to misery for years to come.

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.

Cutting Spending as Revenues Rise

Photo (cc) Samuel Huron
Wall Street gains are a chief reason for the surprise increase in this year's tax revenues.

Mayor Michael Bloomberg’s November modification of the city’s four-year financial plan -- very quietly released without a mayoral press release on Nov. 16 -- and his concurrent directive to agency heads demanding big budget cuts offer many surprises. Some, like the modification’s acknowledgment of a sudden spurt in tax revenues and its list of federal economic stimulus monies pouring into the city, are even pleasant.

The mayor’s demand for $1.75 billion in budget cuts, however, is puzzling given the positive revenue news and a reduction in next year’s budget deficit. Another surprise is the modification’s retreat into budget opaqueness, contradicting the Bloomberg administration claims to transparency in governance. Lastly, perhaps less of a surprise, the modification’s does not offer any consideration of revenue options to meet next year’s $4.1 billion deficit.

More Budget Cuts

The good news is that tax revenues in this fiscal year, less than five months after the budget's adoption in June, are nearly $800 million higher than anticipated, with the additional money coming equally from increases in personal and business income taxes. Even when offset by some lower revenues in projected real estate transactions ($74 million less) and unexpected bad news on the expense side of the budget -- someone misjudged the number of police officers who would retire, costing the city $120 million in anticipated savings -- the city suddenly has a mid-year $539 million surplus.

That surplus would seem to offer a good cushion for getting through this fiscal year without further cuts. But that’s not the plan at the mayor’s Office of Management and Budget. The modification takes the $539 million and, rather than using it as a reserve fund for the rest of this fiscal year, uses it as a prepayment of future debt service.

As the rather upbeat budget modification was being released, stories in the New York Post, the Daily News and Times reported that the mayor, in a memo to agency heads, had demanded further budget cuts, both for the current fiscal year and for fiscal 2011.The Post explained that the mayor is asking for $1.75 billion in agency cuts over the next 18 months. The $1.75 billion is in addition to a cumulative $3.2 billion in cuts that have been implemented in six earlier modifications.

Bloomberg would achieve this by reducing agencies' budgets by 4 percent in the second half of this fiscal year and 8 percent in the 2011 fiscal year beginning July 1, 2010.The Department of Education (a 1.5 percent cut this year, 4 percent in 2011) and the uniformed departments (2 percent this year, 4 percent next year) have smaller targets.

The dailies all saw the demand for cuts as a blunt threat to the city workforce to make concessions or expect layoffs. The Post quoted Deputy Mayor Ed Skyler, "So whether it’s attrition or layoffs, some sort of personnel savings is going to be necessary in order to close the $5 billion deficit." (Skyler’s comment ignored the fact that the modification reduces the deficit for 2011 to $4.1 billion).

The Times reported a few days later that mayoral aides "have quietly encouraged such job cuts through an internal budget maneuver" that, as Doug Turetsky, of the Independent Budget Office put it, "incentivizes layoffs." It gives agencies more credit toward meeting their budget-cut targets if they lay off workers rather than, say, cutting supplies or contracts.

The mayor’s financial plan for 2011 had included a projected $557 million savings from future concessions by the city unions -- $357 million from having city workers pay 10 percent of their health insurance premium and $200 million from pension cutbacks. The state financial control board called this goal "a risk" in its July report on the adopted budget. Cuts in the city workforce could help make up for the mayor's likely failure to meet the goal.

Retreat from Transparency

The Times article noted that an administration that "prides itself on transparency" did not disclose this budget-cutting maneuver to the public or to the unions affected by it. What is more disturbing, however, is that the format of the modification itself is a major retreat from the level of disclosure in last year’s November modification. The 423-page conglomeration of facts includes not a single sentence about what any of it means.

Last November's modification had a 55-page summary that included a two-page overview, an economic update, material on financial-market volatility and a list of possible revenue options to meet future deficits. This November's modification, in spite of continuing distress about economic and fiscal conditions nationally and locally, and a $4.1 billion deficit for 2011, has none of these features.

Among the unanswered questions: Why such an increase in personal and business income taxes? One assumes it has something to do with record Wall Street profits and bonuses that many have predicted. But all we have here is the $402 million increase in personal income taxes and $407 million in business income taxes. How likely are these increases in tax revenues to continue this year and for the following three years of the financial plan?

The document does not offer any discussion of alternatives to the agency cuts proposed in the directive to the agencies. Last year, for instance, the November modification offered two options. One, across-the-board increases in the personal income tax rates, was dropped later in the year. The other, various minor sales tax increases, were abandoned in the face of the huge 0.5 percent hike in the city sales tax rate included in June’s adopted budget.

The Stimulus Money

One useful -- if again, unexamined -- part of the November modification is a section on how the New York City government distributes the federal economic stimulus monies. The one big budget relief program is $850 million of new federal Medicaid funding, which replaces $850 million of city funding. In 2011, though, the Medicaid budget relief will drop to $295 million.

In addition, the federal plan puts $1.4 billion of new federal money into the fiscal 2010 expense budget. This money must be used for specific services defined by the federal government and so does not provide budget relief. The biggest part, $1.04 billion, goes to education, funding: 14,190 pedagogical positions that otherwise would need city and/or state money. Similar education funding, $1.03 billion, is set for fiscal 2011.

Other federal expense-budget distributions in 2010, totaling about $370 million, include $48 million for community development; $104 million for supplemental nutrition, child care, and TANF (welfare) programs; $28 million for homelessness prevention, $95 million for workforce investments, $16.5 million for criminal justice grants and $4 million for senior home food deliveries.

The city also gets $1.05 billion of capital funding for the Department of Education through school tax credit bonds in 2010 and an additional $995 million spread over three years, 2011 to 2013. Another $269 million of capital funding goes in 2010 to the departments of environmental protection and transportation for a variety of construction projects. Here, as in other sections, there is no analysis of the data, but presumably these billions of federal dollars have a significant impact on the city’s economy.

Next Steps

Earlier in November, the Daily News reported that Bloomberg, when asked if he would keep his promise not to raise taxes through the 2011 fiscal year, "more or less stuck to his campaign pledge ... but left himself some wiggle room by reiterating that a lot depends on how Albany decides to address its own budget woes." He also called the November modification a "minor mod," and said that he would offer more specifics about resolving the 2011 deficit in his January 2010 preliminary budget.

It seems odd that a modification that fails to examine a major (positive) shift in tax revenues at a time of deficit worries would be characterized as a "minor mod." The disconnect between the improved revenue news and demands for $1.75 billion in agency cuts over the next 18 months would appear to be worthy of discussion.

Perhaps the City Council can initiate such a debate, since it must approve the modification. Last year the council held several hearings on the modification because of controversy over property tax rate increases and homeowner rebates.

Should the mayor or council want to at least consider taxes in the face of the proposed service cuts, it might be useful to look at a study just released by the Fiscal Policy Institute and Institute on Taxation and Economic Policy. It shows that "middle-income families in New York pay a higher share of their income in state and local taxes (12.0 percent) than do the state's richest families (who pay only 9.4 percent of their income in state and local taxes)."

The same study reports that the top 1 percent of New York State residents, who in 2007 had an average annual incomes of $3.1 million, pay less than 1 percent of their income in sales and excise taxes while the 20 percent of New Yorkers with the lowest income (average income: $9,600) pay 7.3 percent of their income in sales and excise taxes.

The other question the council might raise is why the mayor and Office of Management and Budget continue to make major changes in mid-year. As recently as the end of fiscal year 2008, the city had a surplus of $6.5 billion. Yet since January 2008 there have been seven modifications featuring mostly across-the-board agency cuts. Mid-year expense cuts, in particular, are disruptive to agencies – to non-profit contract agencies as well as, if not more than, city agencies -- and individuals. Why can’t we have a budget that is stable for at least 12 months?

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

Cutting the Deficit Gets Ugly

Image by YH Huang, door photo (cc) ravages

Last week, at Gov. David Paterson's order, the state paid legislators thousands of dollars to hold a special session to cut the state budget. For two days rank and file members griped about wanting to return to their districts, while leaders negotiated without reaching a deal. On Tuesday, they passed two bills on unrelated issues, packed up and went home.

Paterson, however, still held out hope. He told a small group of reporters that after months of talk about cutting the budget, negotiations had finally gotten serious. Legislators have promised to return today (Nov. 16) to finally pass a deficit reduction plan. What shape that plan might take, though, remains very much in doubt.

Five Men on the Phone

With most members back home, negotiations in Albany continued behind closed doors.

On Thursday, during a call open to the press, Paterson and legislative leaders gave the public a peek behind the curtain, and what they saw wasn't pretty.

"We're talking to each of you separately," Paterson said to the leaders. "When we were meeting together, everybody was kind of hesitant to make the first cut, thinking they’d get blamed for it," he said. The point that leaders can't manage to work together was driven home as Senate Minority Leader Dean Skelos laced into Assembly Speaker Sheldon Silver.

"What cuts in spending does he support?" Skelos demanded. "Again, my question is, what real cuts are being supported by the speaker? And frankly we have the right to know this as we negotiate."

Silver was evasive. "Senator, I don't believe that the secretary of state swore you in as a district attorney or a prosecutor," he responded before Paterson broke up the exchange.

Paterson defended holding such compartmentalized negotiating sessions on the grounds that special interest groups' opposition to proposed cuts has scared legislative leaders from taking a public stand. He insisted that a deal to cut the deficit is about "three quarters" complete. He also admitted that he was becoming less committed to specific cuts, including those he proposed earlier this year, than to somehow reducing the state's huge gap.

"I am less and less ideological about deficit reduction," Paterson said. "We just have to do it."

So, for example, Paterson indicated his office was reviewing the possibility of refinancing the state's tobacco bonds to generate revenues. Senate Conference Leader John Sampson had pushed the idea weeks earlier, only to have Paterson tell him the idea was dead on arrival.

The state sold tobacco bonds to receive cash for a 1998 lawsuit with cigarette companies. The Senate has proposedrefinancing the bonds since tobacco bonds have been a popular form of investment this year. Doing so, they say, could produce up to $500 million. Paterson had earlier questioned that estimate, saying he thought it might only produce $25 million. Other states such as Wisconsin have refinanced their tobacco bonds to raise cash.

Where Do They Stand?

Exactly which leader stands for what cuts remains unclear.

Sampson reiterated that he opposes the nearly $700 million in cuts to education aid contained in Paterson's plan. Meanwhile, Assembly Democrats are said to be working with the governor to reduce his proposed $300 million in cuts to health care. They say the cuts will devastate the health care industry.

Assemblyman Jose Peralta of Queens said Paterson's plan will disproportionally affect his predominantly low-income district. "The package the governor put out is unacceptable to my district because there will be huge cuts in service, especially to health care and education," he said. "I am really against the governor's version; we need to find revenue enhancers." He did not specifically any measures he had in mind.

But Peralta said he and his Assembly colleagues are not as diametrically opposed to the governor's plan as the Senate Democrats appear to be. "I think the Senate does the opposite of what the governor is doing, perhaps for political reasons, but at the end of the day we will all sit down and realize we have a problem. We will run out of cash and we are not crying wolf. Even the most progressive of us realize that services will be cut," Peralta said.

Sen. Bill Perkins agreed. "No one says this is all nonsense. The legislature just has a different perspective than the governor. Our system of government is not designed for us to go in front of the governor and just sign off."

Although Perkins expressed fears about what Paterson's cuts might do to services in his Harlem district, he gave Paterson credit for the way he has handled the deficit problem and said he might still be in control of the situation.

"David has been here a long time, he was a legislator for years, so he knows the legislature better than most governors. From our point of view he knows us better than we know ourselves," Perkins said.

Painless Cuts?

So if legislators get their way and see the harshest cuts removed from the budget, how will the state patch its deficit hole? Senate Democrats have proposed a number of one-time ways to raise cash. They would raise $30 million by reducing the state's reliance on contractors, $500 million by refinancing tobacco bonds, and sweep cash from different state authorities into the state budget. Some of the proposed sweeps include $200 million from the Port Authority, $160 million from the New York State Health Insurance Plan and $40 million from the Workers Compensation disability fund.

They have also proposed increasing the Video Lottery Terminal parlor hours, a move they estimate will raise $39 million.

Senate leaders have also indicated that they agree with millions of dollars in cuts to state agencies that Paterson has proposed.

The Big Ugly

Just as this year's budget was negotiated in private and served up as a package with other legislation (such as reform of the Rockefeller drug laws), this deficit reduction package will likely will be negotiated and delivered in a similar manner.

"As a taxpayer I want them to fix the budget however they do it," said Blair Horner of the New York Public Interest Research Group. But he said if he had a "magic wand," the governor would have put his proposal forward earlier in the year to allow the legislature to counter with formal proposals and then work out the differences in conference committees. Instead, now the governor and legislature have little time to prevent the state from running out of cash, and, despite some public hearings, generally are negotiating in secret.

With the budget cutting process happening in closed-door negotiations, other legislative issues, including same-sex marriage and perhaps authority reform, may be getting mixed up in the deal.

Paterson demanded that the Senate take up a vote on legalizing same-sex marriage during the special session last week. Senate Democrats needed some Republican votes to pass the measure, but Republicans who had indicated they might lend their support were leery about voting for gay marriage without having completed a budget deal.

There has been talk around the capitol that Republican members are looking to trade votes on gay marriage for gains in budget negotiations.

Liz Benjamin reported on Friday that getting Republican votes for gay marriage "depends on what a [budget] deal looks like." Republicans are said to be looking for real cuts to the budget rather than just revenue enhancers. So the future of gay marriage in New York State may hinge on exactly how Assembly and Senate Democrats go about cutting the budget.

"It is much better to deal with one issue at a time," said Horner, "But it's been a historical fact that issues get wrapped up in one big deal. We call it the 'big ugly.'"

Avoiding the Inevitable?

Republicans and fiscally conservative groups like the Empire Center for New York State Policy insist that real cuts need to be made to ensure that the state's finances do not collapse. Next year legislators will face a deficit estimated to be around $7 billion. It is also is an election year so legislators will likely be even more reluctant to make real cuts then.

A number of Democratic legislators say they believe the economy is on the way up and the state will soon find itself in better financial waters. "The Dow is indicative of our future, and the Dow is improving," Peralta said.

He said that he has faith that Silver has a firm grasp of the state's economic situation. "Shelly's staff was months ahead warning us about the economy. So you have to give it to him. I have faith that Shelly knows how to handle this," Peralta said.

Representatives from Paterson's office and the comptroller's office say that it is too soon to rely on an economic upturn to save the state.

With little hope of Wall Street bouncing back to the rescue, Paterson has continued to insist that he sees no way to fill the state's $3.2 billion budget gap without serious cuts to education and health care. "I don't see how health care and education cuts could not be part of the plan, because they're 55 percent of the budget," Paterson said.

Paterson has called for special session for today and Tuesday. Legislators say they hope there will be a deal but will not make any promises.

"If there is a deal, will I vote for it?" asked Peralta rhetorically. "It depends on what's in it."

As Money Runs Out, Can Albany Avoid the 'Pain'?

Stock exchange photo (cc) nacaseven
Gov. David Paterson is proposing major cuts in education and health, but other in the capital hope a Wall Street rebound can stave off the state budget crisis.

New York is running out of cash. It is expected that the state's general fund will end the month of November in the red, forcing the government to borrow money from its short term investment pool in order to meet its scheduled payments.

And that isn't the biggest problem. The state faces an escalating deficit and Comptroller Thomas DiNapoli has estimated that New York could face a $38 billion dollar spending gap by 2013.

The message from Gov. David Paterson and his budget director, Robert Megna, has been clear: State spending has to be reigned in or New York will end up like California, a state that has had to issue IOUs and seen its credit rating cut to near junk bond status.

Paterson's way out of this mess, a deficit reduction package worth $5 billion, would make significant cuts to health care and education and provide for one-time influxes of cash into state coffers with a tax amnesty program and transfers from quasi-governmental public authorities.

This is not the first time Paterson has tried to reduce spending -- and indications are that he will, once again, meet opposition, Already representatives of education and health care groups have warned of disaster, and some senators have resisted the governor's call. Many, hoping to avoid slashing services, see salvation in reports from Wall Street promising bigger bonuses and higher profits in the finance industry in the months to come.

The Numbers

In December the state is scheduled to make $2.5 billion in payments for STAR, the property tax relief program, as well as $1.6 billion in School Aid Funding, $500 million in funding for city governments and $500 million in funding for county governments. According to current projections, it will have to borrow to meet those obligations.

Estimates of the state's long term fiscal crunch vary but they all paint a fairly dire picture. By the end of the year, the state's deficit is expected to reach anywhere from $3.2 billion to the $4.1 billion. The Paterson administration now predicts the state faces a deficit of $44.2 billion over the next two-and-a-half years.

A recent financial condition report issued by DiNapoli's office shows that state spending has increased by 21 percent over the last four years. Revenues have drastically decreased. And New York is the second most indebted state in the nation, behind only California.

Although DiNapoli's office warns the deficit will be $4.1 billion by the end of this year, the Department of Budget is proposing only $3 billion in cuts. Even so, when asked to preview his plan earlier this month Paterson said simply "Pain."

The Way Out?

For a number of sectors -- and for New York City -- pain is exactly what Paterson's plan delivers. More than two third of state spending goes to health care and education, so both sectors face hefty cuts.

Under Paterson's proposal, school aid would be reduced by $686 million this year. That translates into $223 million in cuts for the five boroughs. Paterson's plan also includes reductions in tuition assistance and cuts to the budgets of the city and state universities. CUNY tuition will increase from $4,000 a year for undergraduate students to $4,600. The state will reduce per-student aid to the college by around 10 percent.

The Metropolitan Transportation Authority would lose $113 million.

The health care sector, including Medicaid and health service providers, will be cut by $471 million. AIDS programs and home care providers are also scheduled to for reductions.

The city would lose $41 million in Aid and Incentives Payments -- state assistance funding for municipalities that was just added in the 2008-2009. The city will still receive a payment of $205 million for 2008 '09.

"It's not clear yet how the city will absorb the cuts," said Doug Turetsky of the city Independent Budget Office, adding, "The thing to keep in mind is that there is a hit directly to the city budget, and then cuts that don't flow through the city budget that hit non-profit organizations and cut services that we don't measure."

Others are more certain about how the plan will affect the city and the state.

James Parrot of the Fiscal Policy Institute said Paterson's plan is potentially disastrous for New York's economy. Parrot estimates that the state could lose 25,000 jobs if the cuts to education and health care funding go through. He said the job loss will not "prime" New York's economy, as Paterson has said his cuts will do, but hurt it.

E.J. McMahon, director of the fiscally conservative Empire Center for New York State Policy, sees things much differently. McMahon said that Paterson's cuts should only be the first of many. "He keeps talking about this December," said McMahon. "This is just the beginning."

Is There Another Way?

Most observers would like to see an alternative to cuts -- and some think there may very be one.

Parrot wants Paterson and the legislature to wait until the end of the fiscal year before making any drastic cuts to see if revenue collection improves. "The way to address the cash flow problem in December is to borrow short term 'til the end of the fiscal year," said Parrot, who further suggests the state tap into its rainy day funds to get through December.

Paterson, though, has insisted that he does not want to tap the state's rainy day funds or do anything that might downgrade the state's financial rating.

Parrot believes borrowing short term will not hurt the state's financial rating, and he notes that short-term interest rates are low. "It's foolish not to do it," he said. Parrot also expects the federal government to continue the stimulus program that has sent cash directly into the state budget.

McMahon disagrees. "It gets worse after this," McMahon said. He thinks those who expect Washington to extend the stimulus are dreaming and playing dangerous games with the state's finances. He said the state will see stimulus funding drop off and be left with even larger deficits.

Looking to Wall Street

The collapse on Wall Street helped get the state into its current mess. So can the improved situation in the finance industry save the state? Parrot said he expects tax collections to improve by January, spurred by expected bonuses on Wall Street. "There has been a quick recovery on Wall Street. It is clearly much better than it was last year. I would want to wait to see the collections," said Parrot.

Others agree. "I think it would be prudent to wait and see what happens at the end of the year with Wall Street," said Billy Easton of the Alliance for Quality Education. "You hear everyday about executives getting bonuses that could offset fiscal problems."

Mayor Michael Bloomberg has said that he expects Wall Street to help bolster the city budget.

State officials though, do not share that optimism.

Matt Anderson, spokesperson for the state budget office, said that early indications are that the bonuses and money from Wall Street will not be significant enough to dig the state out of its financial hole. "The rebound is a good thing, but we are tempering our enthusiasm when it comes to bonuses," said Anderson.

Anderson pointed out that a number of firms that paid bonuses last year no longer exist, At the same time many firms have been paying bonuses in stock, which does not send money into the state's coffers.

The budget office is expected to release a revenue update this week, and, Anderson said, "There isn't much sign for optimism for a rapid rebound."

"You'd need $20 billion in bonuses for it to make a difference," said McMahon, who warned that the state can't delay making significant budget cuts.

DiNapoli's office agrees.” Although we are seeing encouraging signs on Wall Street and there have been recent news reports suggesting a rebound in compensation, it is important to note that the securities industry is undergoing a fundamental transformation, which could result in reduced profits and therefore less tax revenue," said Robert Whalen, spokesman for the comptroller's office. "Simply put, New York cannot count on Wall Street to save the day. Further delay will only make matters worse."

"Through the lens of the city budget, Wall Street profitability certainly spells good news," said Turetsky," but he noted that Wall Street has been "extremely volatile."

Even some state senators who oppose Paterson's cuts remain skeptical about a rescue from Wall Street.

"We hope it will continue," Austin Shafran, spokesman for the Senate Democrats said of the rebound, "but it usually takes a while for the public sector to catch up with the private sector. It does not take away from the need to come up with a balanced budget."

The Political Picture

Paterson has staked his governorship on a fiscally responsible message. He has repeatedly mentioned how hard it is for him to cut education and health care but reiterated that the state's fiscal situation demands it.

It seems the majority of the New York Assembly would go along. The Assembly held hearings this month and then issued a report basically agreeing that the state's finances are in disarray. Sources say they are ready to act if they have assurances the Senate is on board.

Senate Democrats, who are concerned with retaining their majority in 2010, have seemed less ready to commit to Paterson's cuts. A number of senators have indicated that they would at least like to take their time before slashing the budget. Some have even indicated privately that they feel Paterson has blown the state's financial peril out of proportion. They defer to the message delivered by representatives of health care and education groups who would bear the cuts.

After overseeing two public hearings, Senate Finance Committee Chair Carl Kruger issued a statement attacking Paterson's plan. Kruger indicated that he agreed with Paterson's proposal to raise funds by cutting spending at state agencies and by transferring funds from authorities, but he slammed the reductions in health care and education.

"Dramatic reductions to higher education opportunity programs for low-income students and developmental disabilities services are poorly devised ideas passed off as solutions," he said in the statement. "Also, the governor’s Medicaid and healthcare cuts place disproportionate pain on hospitals and nursing homes given they have weathered a number of cuts already. We have to do better, and those who do not recognize that responsibility lack the imagination or inclination to come up with new answers to old problems."

Following a hearing on the cuts on Long Island, Sen. Bill Perkins said he was impressed that about half members of the audience stood up to protest cuts to education. Perkins said representatives from the hospitals in his upper Manhattan district have stressed what Paterson's proposed cuts would mean to health care services. "In that respect, service cuts are going to be very hard on the community," he said.

Perkins said that he had no doubt that it is important to make budget cuts in a timely fashion but said that he needed more information and time to decide how to go forward. "There is no question about the urgency, but it's most important that the cuts we make to fill our budget shortfall are done fairly," he said.

Shafran echoed Perkins' sentiment. "What is most important is for us to get it right," he said. "People have been critical in the past, and rightly so, that we were not open to the public with the scope of the deficit …. This deficit is not just for the legislature; it is for every man and woman in New York, and they must have their say."

Looking for Revenue

In the meantime, some senators and advocates from the healthcare and education sectors have urged the state to look for alternate short-term revenue until revenues improve.

A recent New York State United Teachers commercial against the cuts suggested that, to free up cash, the state reduce its Empire Zone program which gives funding and tax breaks to businesses to lure them to certain parts of the state, and tax soda and plastic bags.

Both sides also look to rainy day funds.

Paterson's office says that 95 percent of school districts have rainy day funds that could more than cover the cuts he has proposed. He has suggested that school districts offset cuts in state aid by tapping into those funds. Easton counters that a number of New York City districts do not have rainy day funds at all. Instead, he suggests the state tap into its own rainy day fund. Brian Conway, vice president of media relations for the Greater New York Hospital Association, said his industry understands the state's financial peril.

"We don't have our head in the sand at all as far as the state's fiscal situation goes," said Conway, "No one has sacrificed or given more."

He warned, though that if Paterson's cuts go into effect people can expect hospital care to deteriorate greatly. "We are not crying wolf. We are warning this will happen. Layoffs, reductions in service and possible closure." Conway said the recent closure of two Queens hospitals would look "tame" in comparison to the havoc Paterson's proposed new cuts will wreak on health care in New York City.

Moment of Truth

Paterson has pressed the legislature for months to come to a special session to propose their own cuts or to vote on his. Eventually, Paterson pushed back his requested dates to Nov. 10 to allow the Senate and Assembly to hold their hearings. "I think we will be there," one senator said, "The question is will we have an agreement."

Paterson plans to address both houses of the legislature on Nov. 9 to discuss the state's financial problems. That appears to some to be a last ditch effort to lead a group of legislators who have proven this year to be un-leadable.

At a leaders’ meeting in the governor's New York City office on Thursday, Paterson seemed to reach a breaking point. Senate Conference Leader John Sampson repeatedly expressed how important it was for his caucus to hold public meetings and hear from average New Yorkers.

Paterson reacted sharply. "In the state of California they heard from the people in that state. They had a referendum about what they would cut, and they got nothing -- except the legislators' salaries." Paterson then added, "Anybody who tries to, in any way, differentiate or confuse this issue is not serving the public."

An Innovator Takes a Fairly Conventional Approach

Photo (cc) Vincent J. Brown

A few years ago, when my colleague, David Dyssegaard Kallick, and I assessed Mayor Rudolph Guiliani's economic record, we concluded:

"Mayor Giuliani often took credit for New York’s booming economy in the 1990s, but the trick in managing New York’s volatile economy during boom times isn't keeping real estate prices up. The difficult job is making sure the benefits are widespread, diversifying the city's economic base, and preparing for the eventual crash. On all three measures, over time Mayor Giuliani's legacy is looking worse and worse."

Boom and bust still characterize the local economy, and despite many ways in which Mayor Michael Bloomberg's tenure has been an improvement over Guiliani's record, his economic leadership similarly has fallen short in ensuring that the benefits of growth are more broadly shared. He has refused to advocate for better wages, missed a major opportunity to curtail the use of property tax breaks and hasn't re-oriented the investment of city economic development resources away from real estate toward human capital.

What Mayors Can -- and Can't -- Do

Fundamentally, the twists and turns of New York City's economy depend on the national economy. Mayors aren't responsible for everything that happens on the local economic front, good or bad. Rather, their economic leadership should be evaluated based on how they respond to the challenges thrown up by broader changes in the economy. Have they done things to counter the negative trends and help New Yorkers better adapt to economic change? Have they worked with leaders in Albany and Washington to shape economic policies in a way that benefits the average New Yorker?

Bloomberg has continued the progress made during Giuliani's two terms in the fight against crime, helping to improve the city's quality of life and keeping the city attractive to domestic and foreign migrants. And there is no doubt that Bloomberg's fiscal stewardship is vastly better than his predecessor's. While Giuliani repeatedly reduced taxes and made them less progressive, paving the way for a severe fiscal crisis in the early years of Bloomberg's first term, Bloomberg held back some of the surplus revenues during the boom years, anticipating a cyclical downturn that would lower tax receipts. However, facing a significant revenue shortfall earlier this year, Bloomberg raised the regressive sales tax. He also supported business tax changes that likely will cost the city tax revenues five or six years down the road.

A Changing Economy

First, a few indicators of how the local economy has changed.

  • During the mayor's time in office, the city has seen a net gain of 107,000 private sector jobs. However, all of this net gain occurred in the not-for-profit sector (educational, health and social services).
  • The for-profit private sector lost a net of 2,600 jobs from the middle of the previous recession to the middle of the current one.
  • There has been a pronounced shift within the for-profit sector, with the city losing middle-wage jobs in information, manufacturing and wholesale trade, and gaining jobs in lower-paying industries such as food service, retail, and arts and entertainment.
  • In recent decades, inflation-adjusted family incomes at the peak of the cycle almost always exceeded those at the high point of the previous cycle. Not this time, and not in New York City: Family incomes in 2008 were no higher than in 2000, the peak of the previous cycle.
  • The typical worker in New York City saw a 5 percent drop in inflation-adjusted hourly pay from 2002 to 2008. Meanwhile, the bulk of income gains accrued to the wealthiest 5 percent of the city population.

The economy during the Bloomberg years was precarious one most New York workers and their families. The economic upswing, in New York City and nationally, was characterized by an unsustainable housing bubble, speculative financial frenzy, and excessive borrowing by households seeking to maintain living standards in the face of escalating housing prices and stagnant wages. Here in the city, the 2003-2008 "boom" created a local labor market with fewer well-paying jobs and more lower-paying ones, and stagnant wages and family incomes.

The Lure of the Deal

Despite these challenges and the mayor's hugely successful career as an innovative and entrepreneurial businessman, his management of New York City's economic fortunes has been pretty conventional. And given the mayor's background in the financial sector, it is a little puzzling that he seemed to be as caught as off guard as he was by the financial sector implosion, the forces that gave rise to it and the effects that were playing out in New York City as a result of the housing bubble. In fact, as recently as January 2007, the mayor released a city study that called for further financial deregulation.

Bloomberg, like many mayors before him, has focused the city's economic development resources on mega-real estate deals, re-zoning land for more intensive high-rise commercial and luxury residential development, and lavishing tax breaks and low-cost financing on large and profitable corporations (think Goldman Sachs, Bank of America, New York Yankees and New York Mets).

The economic vision behind the re-zoning of the 60-acre Hudson Yards area -- particularly after the prospects for erecting a professional football stadium on the Far West Side of Manhattan faded -- was of skyscrapers filled with enormous trading floors for an endlessly expanding financial sector. When the subject of jobs for New Yorkers was raised, officials usually pointed to the retail, restaurant and service jobs that the development would generate. Most of these jobs pay very low wages, often at or only slightly above the poverty level.

Wages for many New York workers do not have to be as low as they are. The city has considerable influence it can wield to require developers to pay decent wages and benefits. It can rezone land, creating an enormous windfall for developers, and it provides generous tax breaks. Under Bloomberg, the city generally has refused to use that leverage to establish wage and benefit standards despite the fact that job standards are the norm in many cities and states, including Los Angeles and New Jersey. Even Houston requires recipients of city subsidies to provide 100 percent employer-paid health insurance.

City economic development officials argue that businesses will raise wages when it is good for them so there is no need to compel them to do so. This ignores the history of labor standards in this country and the evidence of what happens when the wage floor is raised. Employers adopt more efficient ways of utilizing workers, turnover and recruitment costs decline, and productivity increases. Moreover, federal government data indicate that the worker productivity (value added per worker) of most sectors in New York City is well above national averages. In the hospitality sector, the productivity of a New York worker is 75 percent greater than the national average, and in retail, the New York workforce is 39 percent more productive. New York businesses can afford to pay workers better.

The city's continuing refusal to establish wage standards for subsidized development deals is evident in the Kingsbridge Armory case currently before the City Council. The Bloomberg administration has agreed to heavily subsidize the project by selling the property to the developer well below market value and providing $14 million in city tax breaks. A coalition has been pressing for the project to require a living wage, local hiring and community amenities. The mayor has rejected the coalition’s agenda in favor of giving the developer a freer hand.

The challenge of low wages and the city’s increasing working, but poor, population was highlighted by the Mayor's Commission for Economic Opportunity (aka the "Poverty Commission") in its 2006 report to the mayor. The commission pointed out that "for too many families, work is no longer a ticket out of poverty."

Developing Human Capital

One way to change that is to help workers train for more highly paying jobs. However, during the Bloomberg administration, the city has paid far less attention to improving the human capital of New York's workforce through skills training and career-related vocational education than to the steady stream of real estate deals and mega-projects. Since most companies rarely invest much in the skills of their workforce (partly out of concern that such "investments" can walk out the door), the city needs to make optimal use of the limited federal government workforce development funding and encourage more businesses and industries to develop career ladders that support and reward workers seeking to improve their skills.

While education is the key to success in the labor market, according to the latest 10-year occupational projections a disproportionate share of New York City's projected net job growth is expected to occur in jobs that require little formal education or skills training, and that are likely to pay wages insufficient to support a family. It is imperative for the city to do more to promote human capital investments, to increase skill requirements, and to foster the development and expansion of homegrown businesses that rely on more skilled workers. MIT labor economist Paul Osterman has argued that wage standards are an effective way to put pressure on businesses to make jobs more productive.

Getting Incentives Right

In 2006, the city’s Economic Development Corp. enlisted the assistance of outside economists to help evaluate the city's largest economic development tax break program, the Industrial and Commercial Incentive Program. In a surging real estate market, the cost of the program was rapidly increasing and recently reached an annual cost of $500 million. The evaluation concluded that a huge portion of program's breaks were unnecessary, since most companies probably would have made the investments without getting a tax break. The evaluation suggested that incentives could be curtailed entirely in midtown Manhattan and that retail projects should be sharply limited since retail investments typically follow market opportunities. Despite these findings, only relatively minor modifications were made to the tax subsidy program.

The real estate community argued that the tax incentives were necessary in midtown -- one of the most desirable and sought-after business locations in the world -- since the city had committed to providing generous commercial property tax breaks in the Hudson Yards district, west of midtown. Here was a case where City Hall's desire to engage in "creative," off-budget capital financing for one project had locked in decades of commercial property tax breaks. At the time, Sen, Charles Schumer merely stated the obvious when he remarked that massive public investment in the form of the number 7 subway line extension, parks and other amenities, should have been sufficient inducement to get developers to build along the Hudson River not far from Penn Station, the Javits Convention Center and the Theater District.

During the recent real estate boom, when demand for Manhattan office development was literally sky-high, the city had the opportunity to back away from granting costly commercial property tax breaks. It failed to do so.

Diversifying Opportunities, Not Just Industries

Particularly in the wake of seismic financial market shifts, everyone wants to see the local economy move away from its over-reliance on Wall Street. For example, there is justifiably a lot of interest in exploiting opportunities posed by a transition to a "greener" economy. It's a triple play -- reduced consumption of fossil fuels, a cleaner environment and new jobs to boot. But along with adding new industries, we should be concerned that the jobs created in them are good jobs, offering decent pay, benefits, training and advancement, and that they employ city residents. We should also seek to promote real minority entrepreneurial involvement in new and emerging industries.

The mayor's PlaNYC 2030 underscored the environmental benefits of a greener economy. The various green jobs components of the federal stimulus program (e.g. residential weatherization and public building retrofits) will add tremendous resources at an opportune moment, provided the city has the strategic vision to build a local "green jobs" sector.

The Unemployment Crisis

In this Great Recession, New York City’s unemployment rate has crossed into double digits and is likely to stay unacceptably high for several months, possibly years, to come. When discouraged workers and the under-employed are factored in, the city’s "real" unemployment rate is about 16 percent. For blacks and Hispanics, real unemployment is 20 to 25 percent. And New York has a lot of company -- 30 million Americans are either unemployed, under-employed or have dropped out of the labor market because jobs are so scarce.

For national economic policy, there is little recourse but an expansive job creation program. The mayor of New York City should be working closely with our elected officials in Washington to design a program that will help struggling small businesses, worried families, our distressed neighborhoods, and that will buttress the provision of critical public services.

James Parrott is deputy director and chief economist of the Fiscal Policy Institute.

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