Gotham Gazette

The Place for New York Policy and politics

Changing the Way the City Does Business

photo of David Yassky

New York City is facing some tough economic times.

Everyone knows the basics by now: Foreclosures are way up; Wall Street has already begun layoffs, with more to come; and the debt crisis is not only roiling the financial markets, but is starting to affect the city's cost of borrowing. Virtually all economic analysts agree that in the near and medium-term, current forecasts for growth and revenue are likely to prove optimistic -- all the risk is on the downside.

Mayor Michael Bloomberg's preliminary budget issued in January reflects these realities and prudently begins to adjust for the slump. But the real task for those of us who lead the city government is to take our current difficulties as an opportunity for much deeper rethinking of our budget policies.

There are many avenues to pursue, but I want to highlight five priorities: rooting out wasteful spending, eliminating corporate welfare, reforming the budget process, diversifying the city's economy and making our tax code fairer.

Cracking Down on Spending

We must be far more aggressive in reducing spending on programs that don't achieve their stated goals or that do so inefficiently. For example, I recently went after a poorly designed affordable housing program called "HomeWorks/StoreWorks," which cost the city more than $500,000 per apartment. After publicity exposed this boondoggle, the department of housing preservation and development terminated the program.

Sometimes government costs are inflated not just by inefficiency, but by actual fraud. To crack down on this, the City Council in 2005 passed a bill I authored called the "False Claims Act" that allows whistleblowers to initiate suits against contractors who have been ripping off the government. The bill was modeled on a successful federal statute that has been used to recoup funds from fraudulent defense contractors and health maintenance organizations. Unfortunately, the city's Law Department insisted on watering down the bill with a provision allowing the department to block the whistle blower suits-and the department has abused this authority by blocking every single suit initiated so far. The City Council's Finance Division estimates that, if properly implemented, the bill would save taxpayers $30 million a year. We should go back and reinstate the original, stronger bill.

Ending Corporate Tax Loopholes

We should also eliminate corporate welfare. Last year, I joined with Councilmembers Annabel Palma, Letitia James and others to repeal a loophole that allowed developers to put up new luxury buildings and pay no property taxes on them - the so called "421-a" law. That reform will bring in at least $500 million dollars over the next five years. The next step is to reform the Industrial and Commercial Incentive Program, a similar loophole for commercial development.

Of course, the single biggest example of corporate welfare is the proposed Atlantic Yards development. The Bloomberg administration has agreed to give the project's developer at least $100 million in direct subsidies, plus another $400 million to $500 million in tax breaks. In the current financial climate, this handout is impossible to justify.

Reforming the Budget Process

Beyond tightening spending and eliminating unnecessary tax handouts, we should also reform the budget process itself. City Council Speaker Christine Quinn has made great strides toward a more transparent budget, and we can build on her accomplishments.

We must break down the budget into specific spending items for each individual program, rather than grouping things in big lump sums, called initiatives. We should also end the practice of negotiating budgets behind the scenes and then simply holding an up-or-down-vote at the end of the day. Instead, each City Council committee should vote on the budget for the agency in its jurisdiction-and the committees should be permitted to add new spending only if they find offsetting cuts.

A More Varied Economy

We need to renew our focus on diversifying the city's economy. Turmoil in the financial markets only underscores how dependent we are on banks and investment firms. The financial sector will and should remain the heart of our economy, but city policy should be directed at helping other sectors grow as well. Our highly successful film production tax credit is a good example of an initiative that has created good-paying jobs for skilled and semi-skilled workers outside of Wall Street.

Another, similar opportunity is shipping. Instead of trying to squeeze out the city's remaining container ports, as the Port Authority of New York and New Jersey has misguidedly done, we should help them expand.

Taxing Income

Another urgent priority is to make the city's income tax fairer. The current downturn is hitting low-income families the hardest, and our first impulse should be to ease the pain. One concrete and immensely useful step would be to give tax relief to the city's working poor.

Astonishingly, more than 600,000 New Yorkers live in households that are too poor to pay any federal or state income taxes - but are nonetheless required to pay the New York City income tax. This is mostly due to the fact that the federal and state tax laws provide a far more robust Earned Income Tax Credit than does the city tax code. The Earned Income Tax Credit is one of the best innovations of progressive government - it rewards those who, in President Bill Clinton's words, "work hard and play by the rules." We should beef up the city's tax credit to put much-needed dollars into the hands of the city's working families.

The boom of the past few years has been good for the city, and we all wish it had continued. But it also allowed us to defer some difficult choices. In this, more challenging period we will have no option but to confront our structural budget problems.

With innovative and decisive leadership, we cannot just slog through the fiscal slump, but we can thrive despite it.

David Yassky, a Brooklyn Democrat, has served on City Council since 2002 and chairs the Small Business Committee.


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