Stimulating the Economy
Plummeting financial markets have increased the urgency of calls for a federal fiscal stimulus package to provide a temporary boost to consumer and business spending. This comes as the collapse of the housing market, weaker than expected holiday retail sales and declining employment have combined with turmoil in the financial markets to heighten the likelihood of a recession.
On the "monetary policy" side, the Federal Reserve has been taking unprecedented actions, notably dropping a key interest rate last week following stock market swoons around the world as fears spread regarding the global effects of a slowing U.S. economy. On January 24, the White House and the leadership of the House of Representatives said they had reached tentative agreement on "fiscal policy" action by the federal government, hoping to to jump-start the economy. It would feature a package of individual and business tax cuts costing $150 billion - an amount equal to roughly 1 percent of gross domestic product. Since the announcement, though, Bush-House proposal has come under criticism, and some senators have proposed various modifications that should come up for a vote within the next week. There will be intense pressure for the House and the Senate to then quickly reconcile their differences in order to speed passage of a plan in the hopes of moderating the sinking economy.
What's in the Bush-House stimulus package and how might it be modified in the Senate? Will it "work" in turning the economy around? How will it affect New York's economy?
The Bush-House Stimulus Plan
The plan announced on January 24 by House Speaker Nancy Pelosi and Treasury Secretary Henry Paulson would provide tax rebates to households and tax breaks to businesses. Bowing to widespread pressures, President George W. Bush backed away from his earlier plan to link any stimulus to extension of his signature tax cuts, now set to expire after 2010. Under the plan, married couples with incomes up to $150,000 would receive a rebate equal to 10 percent of taxable income up to $1,200; the rebates would then phase out so that very high-income households would not receive anything. For single people with incomes up to $75,000, the rebate would be a maximum of $600.
In a concession to House Democrats, the president agreed to include a rebate for low-income households who owed no federal income tax in 2007 but who had at least $3,000 in wage or self-employment earnings. For these wage-earning couples, the rebate would be a minimum of $600 ($300 for singles). In addition, any household with at least $1 of income tax rebate would receive $300 for each child.
The Treasury Department indicates that rebate checks would not be sent out until late spring at the earliest.
The Bush-House plan to stimulate business investment includes "bonus" depreciation and a doubling of the amount that small businesses can claim as an "expense" and so deduct from annual income. Both measures would lower business' 2008 tax payments by a total of $43 billion. The Congressional Budget Office concluded that such business investment incentives have modest effects at best. The Center on Budget and Policy Priorities has noted that 35 states, including New York, would likely lose revenue from state corporate income taxes if these business investment incentives were enacted since these states base their taxes on the federal definition of income.
What the Critics Say
While there is broad support for quick action to stimulate the economy, many economists and fiscal analysts have criticized the Bush-House plan on the grounds that it is poorly targeted and will not provide the maximum economic boost given its cost to the federal treasury. Senators are being lobbied furiously to make improvements. New York Times columnist Paul Krugman notes that the Bush-House plan would send "the bulk of the money to those who are doing OK financially." Indeed, the Tax Policy Center estimates that 58 percent of the individual rebates would go to the upper and upper-middle class (the top 40 percent) while the poorest 40 percent would get less than 21 percent of the total. (The middle 20 percent of households would get a roughly proportionate 21 percent of the benefit.)
Most economists agree that a stimulus directed to low-income households will generate a bigger spending impact than one aimed at higher-income households since affluent people are more likely to save the money, rather than plow it back into the economy. In assessing the relative merits of various stimulus approaches, the Congressional Budget Office recently gave high marks for cost-effectiveness for a tax rebate "focused on people who are likely to spend it." And none other than Federal Reserve Chairman Ben Bernanke urged that any fiscal package should be "efficient, in the sense of maximizing the amount of near-term stimulus per dollar of increased federal expenditure."
With the widest income gap in the nation, New York State has large shares of both rich and poor households. A tax rebate that reaches low-income people is more likely to stimulate New York's economy than one aimed at the rich for the simple reason that low-income households are more likely to spend all or most of their rebates than households at the high end of the income spectrum. One important caveat, though: To boost the economy, the money has to be spent on goods and services produced in the United States. If it goes toward the purchase of imported products, the economic benefit largely will "leak" out of our economy.
Ideas from the Senate
Any plan will have to win approval from the Senate, some of whose members have other thoughts on how to stimulate the economy. New York Sen. Charles Schumer, chairman of the Joint Economic Committee, said over the weekend that the Senate was likely to add an increase in unemployment benefits to the Bush-House stimulus plan. Greater spending on unemployment benefits would generate "more bang for the buck," said Schumer.
Unemployment insurance is a major "automatic stabilizer," providing partial income replacement for workers who lose their jobs. Most proposals for increasing unemployment benefits involve having the federal government fund benefits beyond the 26 weeks of payments financed through state unemployment funds. This would help New York State since 85,000 New Yorkers will exhaust their state unemployment benefits in the first six months of 2008, according to the National Employment Law Project.
An increase in food stamps to boost spending by low-income households is also actively being considered in the Senate, according to Schumer. Food stamp benefits go almost entirely to households subsisting below the federal poverty line. With rising food prices and reports that many low-income households run out of food by month's end, increasing the monthly allotment would both help low-income households and the economy. Over 1.8 million New Yorkers receive food stamps, including 1.1 million in New York City.
Support for increased unemployment and food stamp benefits crosses the aisle as Republican Senators Susan Collins and Olympia Snowe of Main have pledged to add funds for these benefits, and a bipartisan coalition of Northeastern and Midwestern senators will push for additional heating assistance for the poor. At a Senate hearing January 24, Peter Orszag, director of the Congressional Budget Office, testified that increases in unemployment benefits and food stamps would have a more immediate impact on the economy than tax rebates. "Food stamps and unemployment benefits can affect spending in two months, (while) rebates would affect spending at the end of 2008," he said.
Republican Governors Want Relief
The sagging economy, particularly the housing slump, has already started to be a serious drag on state and local government budgets in many parts of the country. If state and local governments, facing a decline in tax revenues, cut spending or increase taxes, that could further contract the economy. Columbia University's Joseph Stiglitz, winner of the 2001 Nobel Prize in Economics, has urged that any federal stimulus include fiscal relief to state governments. States don't have the luxury the federal government has in that states have to balance their budgets. The housing crash and economic slowdown are already forcing states to "respond by cutting spending, and this acts as an automatic destablilizer," Stiglitz wrote. Federal help could forestall those cuts.
Among others, Republican governors from California, Florida and Minnesota, have called for a temporary increase in the federal share of Medicaid expenditures to help them deal with yawning budget gaps. (Federal and state governments share the cost of providing health care to low-income Americans.)
To counter the prolonged economic weakness coming out of the 2001 recession and the accompanying fiscal pressures on states, Washington enacted $20 billion state fiscal relief stimulus package in early 2003. Half was used to increase the federal matching rate for Medicaid, and half was provided in the form of flexible grants to the states. Given the size of New York's Medicaid program, the increase in the federal Medicaid matching rate was particularly beneficial to New York. Every dollar of federal aid keeps a dollar of spending in the economy rather than forcing cutbacks or tax increases to maintain services and spending.
Adding Infrastructure?
Increasing spending on public works like roads, schools and other facilities is often considered a way to prime the economic pump. In their $140 billion federal stimulus proposal released earlier this month, the Economic Policy Institute recommended $40 billion to accelerate public infrastructure repairs. Because infrastructure spending would speed up needed investments that support long-term economic growth and are less likely than other kinds of expenditures to “leak” out of the U.S. economy through the purchase of imports, many economists -- and some senators from both parties -- argue that a significant infrastructure spending plan warrants inclusion in any stimulus package.
Mortgage Foreclosure Relief
The depressed state of the housing market could retard the economy's ability to recover. Normally, sharply declining interest rates induce first-time homebuyers to take out mortgages and then spend money on furniture and appliances for their new homes. This time, though, the decline in interest rates might not have that effect. After years of over-heated expansion, the housing slump is likely to continue for some time. Plus, tens of thousands of homeowners saddled with unaffordable sub-prime mortgages will lose their homes through foreclosure, keeping prices and expectations down, slowing any rebound in the real-estate market.
Housing plays a key role in the national economy and shapes consumer expectations, making it essential that the government take action to stave off an epidemic of foreclosures and help the housing market recover. Government actions proposed so far, though, do not appear sufficient to turn around the market.
Just because New York City has not yet seen real estate values plummet does not mean that mortgage foreclosures are not a huge problem. Reckless and unregulated sub-prime lending has been widespread, particularly in neighborhoods of color in Brooklyn and Queens. Data from the Federal Reserve Bank of New York indicate that 20 percent of adjustable rate sub-prime mortgages made in New York City are already in foreclosure with more on the way. The economics consulting firm Global Insight predicts that there will be 50,000 foreclosures statewide in 2008 and that home values in New York will fall by $63 billion this year.
Turning the Economy Around
By itself, a federal stimulus package, even if modified in the Senate to provide more immediate and better distributed relief, probably will not resurrect economic growth. But a timely and targeted stimulus package is essential to significantly moderate some of the current downward economic pressures. The economy nationally and in New York will benefit to some degree. A smart fiscal stimulus package that boosts spending could provide an important complement to the aggressive monetary policy moves taken by the Federal Reserve over the past two months to ameliorate the credit squeeze and the decline in the housing market.
Fiscal stimulus would remove some of the burden on the Federal Reserve to bring down interest rates. Former Treasury Secretary Lawrence Summers notes the risks inherent in a policy of "excessively" low interest rates: downward pressure on the dollar likely to fuel inflation and another speculation-induced bubble.
As the home of Wall Street with its out-sized economic role, New York's long-run economic fate also depends on a new regulatory regime that will restrain Wall Street's bubble-making tendencies. Long-time financial market sage Henry Kaufman recently called for a thorough-going regulatory review of what went wrong on Wall Street. The current financial turmoil underlies once again, the need for New York City and the state to develop a set of policies to diversify the local and state economies and need to create more sustainable, good-paying jobs.
James Parrott is deputy director and chief economist of the Fiscal Policy Institute (www.fiscalpolicy.org). He has been studying and writing about the New York economy since he landed in New York City a quarter century ago.Â
A Bad News Budget
New York City should get ready to lose some weight. This time, though, the target is not New Yorkers binging on transfat-laden fries or sugary soft drinks. No, now it's government that has to slim down.
For the first time since 2004, the city faces, not a surplus, but a deficit, forcing all departments and agencies to cut back or suggest innovative revenue producing proposals. No agency goes untouched. No department has immunity.
Calling recent economic trends "disturbing," Mayor Michael Bloomberg calmly went through financial indicators on Thursday, reminding New Yorkers that the city faces the effects of the national economic slowdown. "It's going to hurt us," warned the mayor, while ticking through a fairly pessimistic Power Point presentation at City Hall.
The question is, how much?
Five months before the City Council must approve a balanced budget, the mayor's preliminary proposal provides some indication of what some New Yorkers might have to do without next year and additional fees they might pay.
Photo (cc) 2007, kebella/ Nicole.
Bloomberg contends that essential services will not be cut, but he needs to trim a total of $1.5 billion over the next two years. He plans to cut funding for individual schools and close some homeless shelters among other reductions. He hopes to boost the tax on cigarettes once again. But he still intends to keep the $400 tax rebate and 7 percent property tax cut implemented last year -- though some advocates cautioned against that.
The administration needs to fill in many of the details. City Council members, advocates and others are just beginning to mull over what is and what is not included for fiscal '09. And budget watchers wonder whether the mayor has planned for the future or simply offered a quick fix.
A Foggy Forecast
The http://www.nyc.gov/html/om/html/2008a/pr029-08.html&;cc=unused1978&rc=1194&ndi=1">budget, an increase of 3.7 percent from fiscal year 2008, tops $58.5 billion. Much of the increase is due to contract agreements with city employees, debt services and pensions. The figures announced Thursday incorporate the mayor's departmental directives from last fall, when he required every city department to cut spending by 2.5 percent this fiscal year and about 5 percent in fiscal year 2009. (Bloomberg said last week that agencies had cut a total of 4.3 percent for this upcoming fiscal year - slightly less than he requested.) Unlike in some previous years, schools and police will be forced to cut back along with everyone else.
The city's expenditures are pretty predictable, said Bloomberg, but revenues are not. Almost every expert, though, predicts a downturn from the mortgage meltdown, credit crunch and Wall Street's seesawing.
New York Stock Exchange firms saw their largest losses ever in the third quarter of 2007, said Bloomberg, and the news for the fourth quarter is shaping up to be even worse. Unemployment claims are up nationwide, and housing sales have steadily dropped. Politicians in Washington are so worried that they seem to have put their partisan differences aside to reach agreement on a $150 billion economic stimulus package.
Budget officials estimate the city will receive $660 million less than anticipated in revenue based on the decline in profits on Wall Street.
So, what's the good news? Well, the mayor said, the budget is balanced. (By law, it has to be.) Tourism in the city, and hotel and office occupancy rates remain high. Bloomberg also made sure to give himself a pat on the back for prudent fiscal planning during the city's good times, when he put aside millions to pay down debt in future fiscal years.
Where to Cut
This year's budget poses some quintessential policy questions the city did not have to face during the boom of the past few years: Should the government cut services to preserve tax cuts or should it keep programs at their current level and roll back tax breaks? And if the economy continues on its gloomy trek, what could or should the city do to avoid a far greater economic slowdown?
The answers depend to some extent on how bad things get. Some take a very grim view. Speaking at a forum Friday night, Representative Jerrold Nadler said the country could be facing the worst economic downturn since World War II. Bloomberg, while hardly optimistic, is not that gloomy.
"He's certainly put up big yellow lights, but he hasn't waved the red flag and said everything is falling apart," said Doug Turetsky of the city's Independent Budget Office. "Assuming there are no big local economic surprises over the next few months and things don't get remarkably worse, we're basically still running off the momentum of the good times. What the mayor's clearly showing us is even if things don't get worse, the days of wine and surpluses are over."
Turetsky said keeping the city's $400 tax rebate and the 7 percent tax cut on the table is also a viable option. That is, if the city's economic outlook starts to improve or, at least, not get demonstrably worse.
Some city officials are hopeful. Councilmember Domenic Recchia predicts the markets will recover and funding will be restored before it's time to finalize the budget. "I think that 5 percent is not going to be 5 percent," said Recchia, who chairs the council's Committee on Cultural Affairs, Libraries and International Intergroup Relations, of cuts to the city's cultural programs.
Other experts, though, see the budget as not doing enough to address the tough times that could lie ahead. Bloomberg's proposal uses the city's previous surplus to balance the budget in fiscal year 2009, which runs from July 2008 to June 2009. Then little of the city's surplus will remain. Because of that, some experts see a $4.2 billion gap looming in fiscal year 2010 and want the mayor to think about that now.
Charles Brecher, research director at the Citizens Budget Commission, would prefer to see the surplus money spread out over several years and not used for 2009 alone. "We kind of see this as temporizing and not dealing with the fundamental problems," said Brecher. The commission, he added, will draft alternative options for the City Council and the mayor to consider, including examining premiums in the city's health care system, like requiring employees to chip in, and curbing spending more aggressively.
Doing the Dance
Beyond its effect on spending and taxes, the new economic reality could change the relationship between the mayor and the City Council. The City Council must approve the budget. Over the past few years, with the city's coffers overflowing, the budget back and forth between the administration and council has been relatively congenial. But now that programs are threatened, some members are preparing to strap on their tap shoes.
"Let the dance begin," said Councilmember Vincent Gentile.
This refers to the infamous budget dance, long a mainstay of city politics. The administration cuts certain programs, libraries for instance, knowing the City Council will reinstate them. The mayor takes one step toward a certain program, and the council takes the opposite step back.
City Council Speaker Christine Quinn and Finance Committee Chairman David Weprin have criticized this because it wastes time and accomplishes little. In 2006, both Weprin and the speaker claimed the council had done its last dance. The mayor seemed to acknowledge that last week when he told agency heads that he expected them to suggest genuine savings and not a plan that "takes the most politically popular program and closes it."
That statement aside, the dance already seems to have re-emerged. "It was kind of a back to the future," said Turetsky of the mayor's budget. "Where you had some of the same old litany of cuts to summer jobs, library subsidy, seniors services. ... It seems that they are playing the same tune."
The new fiscal reality could change the tune, Weprin said. "It's a little different. We know we have to do a billion dollars in cuts," he said. Despite that, Weprin said, the council probably would come to the rescue of some of its favorite programs, like libraries and senior and children's programs.
Snipping Away
While the mayor did not list precise cuts, some programs teeter on the chopping block.
The 5 percent cut in libraries threatens the effort to have all libraries open six days a week, which was included in last year's budget.
The Department of Sanitation may eliminate leaf collection, which runs for four weeks in the fall in the outer boroughs and costs the city $2.25 million. The department also proposed dropping some supplemental collection in the outer boroughs.
Some single adult homeless shelters are slated to shut, which will save the city approximately $2.5 million. The closures, said a Department of Homeless Services spokesperson, are in response to a decline in the number of homeless single adults. The department's entire financial plan for fiscal 2009 is slated for a 15 percent decrease, primarily because it does not include funding for the increase in homeless families that occurred in fiscal year 2008. In an emailed statement, a department spokesperson said the decrease would be possible because of shorter stays at shelters and efforts to move people back into the community. "As always, DHS's budget is adjusted year-to-year to ensure we continue to serve every family and individual who is eligible for services at any given time," the statement continued.
Other efforts that might see a decrease in funding are senior centers, Meals on Wheels and summer youth programs.
On the other hand, some departments plan to increase revenues. The Parks and Recreation Department hopes people will pay to put their names on public facilities. The program would involve about four facilities -- probably swimming pools or tennis courts within larger parks -- with naming rights going for approximately $750,000 each. The rights would most likely be available to people not corporations. The department is also looking into holding more concerts at in the parks to boost revenue.
However the departments manage to balance their book, some advocates said they would not harbor any hard feelings, partly because the cuts are across the board. "We can't say that it is unfair," said Randall Bourscheidt, president of the Alliance for the Arts. "It would be hard for people in the arts to feel like they have been singled out."
Making the Grade
What is bound to cause some controversy is the proposed cut to the Department of Education.
During his time in office, Bloomberg has increased spending on education by about $4.5 billion. The funding for the Department of Education got an extra boost last year when the state finally settled the lawsuit on school funding brought by the Campaign for Fiscal Equity by pledging to give the city an additional $3.2 billion in education aid over the four years starting in fiscal year 2008.
Photo (cc) 2007, Runs with Scissors / Ken Stein.
The Department of Education is expected to spend about $20 billion this year on operating costs, including personnel, pensions and debt service. The mayor's preliminary budget calls for about $325 million in program cuts. It remains unclear exactly where these cuts will come - the Campaign for Fiscal Equity said it is still analyzing the plan. The budget does call for making the food program more efficient by requiring kids not eligible for free meals to pay for their lunch and for greater efficiency in purchasing and in using technology.
Individual principals, who have been given more control over spending at their schools, will see their budgets cut by an average of about $100,000 each, Schools Chancellor Joel Klein told the New York Times. As a result, he said, they will "have to tighten some programs," such as weekend tutoring or after-school programs. "My theory is that they should have some discretion," Klein added.
School cuts almost always attract opposition, though Bloomberg's record of increasing funding and focusing so much attention on schools may work to his advantage. "Everyone knows how important education is to him," the vice chancellor of the state Board of Regents, Merryl Tisch, told the Sun. "So if the mayor is recommending these cuts, you could be sure that he's not recommending them without having thought this through very carefully."
Some of the cuts may even please certain education advocates. The budget scales back the number of standardized tests, which the Klein has sharply increased over the years. "If that's the kind of stuff they're going to cut out of the education budget, count me in," wrote Reality Based Educator.
The State Adds A Little Less
The city schools could face further cutbacks if Gov. Eliot Spitzer's proposed budget becomes reality. Under last year's plan to settle the Campaign for Fiscal Equity suit, the city expected an increase of $530 million in state aid for school operating costs. Now Spitzer has proposed an aid increase, but of about $100 million less than anticipated.
Education advocates last week assailed the governor for reneging on the deal. "More than a generation of public school students in New York have already suffered delays that continue to affect their ability to compete in the global economy and actively participate as citizens," Geri Palast, executive director of the Campaign for Fiscal Equity, said in a statement. And city teachers union president Randi Weingarten said the union "look[s] to the legislature to restore these funds in order to maintain the integrity of the Campaign for Fiscal Equity agreement."
Education advocates are particularly dismayed at the $193 million reduction in so-called Foundation Aid to the city. This money comes with strings attached: In other words, the state - not Bloomberg and Klein - set limits on how it can be spent. The restrictions came out of an ongoing debate about whether the state should hold the city accountable for how it spends state education dollars.
With fewer restrictions on spending of state aid, Leonie Haimson of Class Size Matters, an advocacy group, has written, "the city could instead spend it on more testing, cash rewards tied to test scores, more consultants, higher salaries at Tweed, or really any new fad that strikes their fancy."
The state would also delay payment for new school buildings by about 18 months, which, according to the New York Times, would have a disproportionate effect on the city.
Looking to the State
City officials have vowed they will lobby the state for changes in the budget - on education and other issues - but, like the city, the state faces a difficult budget picture. Spitzer, unlike Bloomberg, set out some major new spending initiatives in his proposal for the fiscal year. Despite that, the $124.3 billion plan calls for less growth - slightly more than 5 percent - in spending than any budget in a decade. Some of the key increases come in money for upstate revitalization and programs for the state university system.
To fund that increase in these shaky economic times - and to avoid raising taxes - the governor looks to some unorthodox revenue sources, including a hefty hike in the tax on malt liquor, "monetizing" the state lottery and collecting taxes on cocaine sales.
Some critics questioned whether Spitzer's projections were too rosy. He even called it "a good news budget." But the governor noted that 20 percent of the state's tax revenues come from Wall Street, making some fear tougher times ahead. "They face coming back for a mid-year correction," Elizabeth Lynam of the Citizens Budget Commission told the Albany Times Union.
Or, as the mayor put it, "Anyone that thinks we're out of the woods is wrong."
A Bad News Budget
New York City should get ready to lose some weight. This time, though, the target is not New Yorkers binging on transfat-laden fries or sugary soft drinks. No, now it's government that has to slim down.
For the first time since 2004, the city faces, not a surplus, but a deficit, forcing all departments and agencies to cut back or suggest innovative revenue producing proposals. No agency goes untouched. No department has immunity.
Calling recent economic trends "disturbing," Mayor Michael Bloomberg calmly went through financial indicators on Thursday, reminding New Yorkers that the city faces the effects of the national economic slowdown. "It's going to hurt us," warned the mayor, while ticking through a fairly pessimistic Power Point presentation at City Hall.
The question is, how much?
Five months before the City Council must approve a balanced budget, the mayor's preliminary proposal provides some indication of what some New Yorkers might have to do without next year and additional fees they might pay.
Photo (cc) 2007, kebella/ Nicole.
Bloomberg contends that essential services will not be cut, but he needs to trim a total of $1.5 billion over the next two years. He plans to cut funding for individual schools and close some homeless shelters among other reductions. He hopes to boost the tax on cigarettes once again. But he still intends to keep the $400 tax rebate and 7 percent property tax cut implemented last year -- though some advocates cautioned against that.
The administration needs to fill in many of the details. City Council members, advocates and others are just beginning to mull over what is and what is not included for fiscal '09. And budget watchers wonder whether the mayor has planned for the future or simply offered a quick fix.
A Foggy Forecast
The budget, an increase of 3.7 percent from fiscal year 2008, tops $58.5 billion. Much of the increase is due to contract agreements with city employees, debt services and pensions. The figures announced Thursday incorporate the mayor's departmental directives from last fall, when he required every city department to cut spending by 2.5 percent this fiscal year and about 5 percent in fiscal year 2009. (Bloomberg said last week that agencies had cut a total of 4.3 percent for this upcoming fiscal year - slightly less than he requested.) Unlike in some previous years, schools and police will be forced to cut back along with everyone else.
The city's expenditures are pretty predictable, said Bloomberg, but revenues are not. Almost every expert, though, predicts a downturn from the mortgage meltdown, credit crunch and Wall Street's seesawing.
New York Stock Exchange firms saw their largest losses ever in the third quarter of 2007, said Bloomberg, and the news for the fourth quarter is shaping up to be even worse. Unemployment claims are up nationwide, and housing sales have steadily dropped. Politicians in Washington are so worried that they seem to have put their partisan differences aside to reach agreement on a $150 billion economic stimulus package.
Budget officials estimate the city will receive $660 million less than anticipated in revenue based on the decline in profits on Wall Street.
So, what's the good news? Well, the mayor said, the budget is balanced. (By law, it has to be.) Tourism in the city, and hotel and office occupancy rates remain high. Bloomberg also made sure to give himself a pat on the back for prudent fiscal planning during the city's good times, when he put aside millions to pay down debt in future fiscal years.
Where to Cut
This year's budget poses some quintessential policy questions the city did not have to face during the boom of the past few years: Should the government cut services to preserve tax cuts or should it keep programs at their current level and roll back tax breaks? And if the economy continues on its gloomy trek, what could or should the city do to avoid a far greater economic slowdown?
The answers depend to some extent on how bad things get. Some take a very grim view. Speaking at a forum Friday night, Representative Jerrold Nadler said the country could be facing the worst economic downturn since World War II. Bloomberg, while hardly optimistic, is not that gloomy.
"He's certainly put up big yellow lights, but he hasn't waved the red flag and said everything is falling apart," said Doug Turetsky of the city's Independent Budget Office. "Assuming there are no big local economic surprises over the next few months and things don't get remarkably worse, we're basically still running off the momentum of the good times. What the mayor's clearly showing us is even if things don't get worse, the days of wine and surpluses are over."
Turetsky said keeping the city's $400 tax rebate and the 7 percent tax cut on the table is also a viable option. That is, if the city's economic outlook starts to improve or, at least, not get demonstrably worse.
Some city officials are hopeful. Councilmember Domenic Recchia predicts the markets will recover and funding will be restored before it's time to finalize the budget. "I think that 5 percent is not going to be 5 percent," said Recchia, who chairs the council's Committee on Cultural Affairs, Libraries and International Intergroup Relations, of cuts to the city's cultural programs.
Other experts, though, see the budget as not doing enough to address the tough times that could lie ahead. Bloomberg's proposal uses the city's previous surplus to balance the budget in fiscal year 2009, which runs from July 2008 to June 2009. Then little of the city's surplus will remain. Because of that, some experts see a $4.2 billion gap looming in fiscal year 2010 and want the mayor to think about that now.
Charles Brecher, research director at the Citizens Budget Commission, would prefer to see the surplus money spread out over several years and not used for 2009 alone. "We kind of see this as temporizing and not dealing with the fundamental problems," said Brecher. The commission, he added, will draft alternative options for the City Council and the mayor to consider, including examining premiums in the city's health care system, like requiring employees to chip in, and curbing spending more aggressively.
Doing the Dance
Beyond its effect on spending and taxes, the new economic reality could change the relationship between the mayor and the City Council. The City Council must approve the budget. Over the past few years, with the city's coffers overflowing, the budget back and forth between the administration and council has been relatively congenial. But now that programs are threatened, some members are preparing to strap on their tap shoes.
"Let the dance begin," said Councilmember Vincent Gentile.
This refers to the infamous budget dance, long a mainstay of city politics. The administration cuts certain programs, libraries for instance, knowing the City Council will reinstate them. The mayor takes one step toward a certain program, and the council takes the opposite step back.
City Council Speaker Christine Quinn and Finance Committee Chairman David Weprin have criticized this because it wastes time and accomplishes little. In 2006, both Weprin and the speaker claimed the council had done its last dance. The mayor seemed to acknowledge that last week when he told agency heads that he expected them to suggest genuine savings and not a plan that "takes the most politically popular program and closes it."
That statement aside, the dance already seems to have re-emerged. "It was kind of a back to the future," said Turetsky of the mayor's budget. "Where you had some of the same old litany of cuts to summer jobs, library subsidy, seniors services. ... It seems that they are playing the same tune."
The new fiscal reality could change the tune, Weprin said. "It's a little different. We know we have to do a billion dollars in cuts," he said. Despite that, Weprin said, the council probably would come to the rescue of some of its favorite programs, like libraries and senior and children's programs.
Snipping Away
While the mayor did not list precise cuts, some programs teeter on the chopping block.
The 5 percent cut in libraries threatens the effort to have all libraries open six days a week, which was included in last year's budget.
The Department of Sanitation may eliminate leaf collection, which runs for four weeks in the fall in the outer boroughs and costs the city $2.25 million. The department also proposed dropping some supplemental collection in the outer boroughs.
Some single adult homeless shelters are slated to shut, which will save the city approximately $2.5 million. The closures, said a Department of Homeless Services spokesperson, are in response to a decline in the number of homeless single adults. The department's entire financial plan for fiscal 2009 is slated for a 15 percent decrease, primarily because it does not include funding for the increase in homeless families that occurred in fiscal year 2008. In an emailed statement, a department spokesperson said the decrease would be possible because of shorter stays at shelters and efforts to move people back into the community. "As always, DHS's budget is adjusted year-to-year to ensure we continue to serve every family and individual who is eligible for services at any given time," the statement continued.
Other efforts that might see a decrease in funding are senior centers, Meals on Wheels and summer youth programs.
On the other hand, some departments plan to increase revenues. The Parks and Recreation Department hopes people will pay to put their names on public facilities. The program would involve about four facilities -- probably swimming pools or tennis courts within larger parks -- with naming rights going for approximately $750,000 each. The rights would most likely be available to people not corporations. The department is also looking into holding more concerts at in the parks to boost revenue.
However the departments manage to balance their book, some advocates said they would not harbor any hard feelings, partly because the cuts are across the board. "We can't say that it is unfair," said Randall Bourscheidt, president of the Alliance for the Arts. "It would be hard for people in the arts to feel like they have been singled out."
Making the Grade
What is bound to cause some controversy is the proposed cut to the Department of Education.
During his time in office, Bloomberg has increased spending on education by about $4.5 billion. The funding for the Department of Education got an extra boost last year when the state finally settled the lawsuit on school funding brought by the Campaign for Fiscal Equity by pledging to give the city an additional $3.2 billion in education aid over the four years starting in fiscal year 2008.
Photo (cc) 2007, Runs with Scissors / Ken Stein.
The Department of Education is expected to spend about $20 billion this year on operating costs, including personnel, pensions and debt service. The mayor's preliminary budget calls for about $325 million in program cuts. It remains unclear exactly where these cuts will come - the Campaign for Fiscal Equity said it is still analyzing the plan. The budget does call for making the food program more efficient by requiring kids not eligible for free meals to pay for their lunch and for greater efficiency in purchasing and in using technology.
Individual principals, who have been given more control over spending at their schools, will see their budgets cut by an average of about $100,000 each, Schools Chancellor Joel Klein told the New York Times. As a result, he said, they will "have to tighten some programs," such as weekend tutoring or after-school programs. "My theory is that they should have some discretion," Klein added.
School cuts almost always attract opposition, though Bloomberg's record of increasing funding and focusing so much attention on schools may work to his advantage. "Everyone knows how important education is to him," the vice chancellor of the state Board of Regents, Merryl Tisch, told the Sun. "So if the mayor is recommending these cuts, you could be sure that he's not recommending them without having thought this through very carefully."
Some of the cuts may even please certain education advocates. The budget scales back the number of standardized tests, which the Klein has sharply increased over the years. "If that's the kind of stuff they're going to cut out of the education budget, count me in," wrote Reality Based Educator.
The State Adds A Little Less
The city schools could face further cutbacks if Gov. Eliot Spitzer's proposed budget becomes reality. Under last year's plan to settle the Campaign for Fiscal Equity suit, the city expected an increase of $530 million in state aid for school operating costs. Now Spitzer has proposed an aid increase, but of about $100 million less than anticipated.
Education advocates last week assailed the governor for reneging on the deal. "More than a generation of public school students in New York have already suffered delays that continue to affect their ability to compete in the global economy and actively participate as citizens," Geri Palast, executive director of the Campaign for Fiscal Equity, said in a statement. And city teachers union president Randi Weingarten said the union "look[s] to the legislature to restore these funds in order to maintain the integrity of the Campaign for Fiscal Equity agreement."
Education advocates are particularly dismayed at the $193 million reduction in so-called Foundation Aid to the city. This money comes with strings attached: In other words, the state - not Bloomberg and Klein - set limits on how it can be spent. The restrictions came out of an ongoing debate about whether the state should hold the city accountable for how it spends state education dollars.
With fewer restrictions on spending of state aid, Leonie Haimson of Class Size Matters, an advocacy group, has written, "the city could instead spend it on more testing, cash rewards tied to test scores, more consultants, higher salaries at Tweed, or really any new fad that strikes their fancy."
The state would also delay payment for new school buildings by about 18 months, which, according to the New York Times, would have a disproportionate effect on the city.
Looking to the State
City officials have vowed they will lobby the state for changes in the budget - on education and other issues - but, like the city, the state faces a difficult budget picture. Spitzer, unlike Bloomberg, set out some major new spending initiatives in his proposal for the fiscal year. Despite that, the $124.3 billion plan calls for less growth - slightly more than 5 percent - in spending than any budget in a decade. Some of the key increases come in money for upstate revitalization and programs for the state university system.
To fund that increase in these shaky economic times - and to avoid raising taxes - the governor looks to some unorthodox revenue sources, including a hefty hike in the tax on malt liquor, "monetizing" the state lottery and collecting taxes on cocaine sales.
Some critics questioned whether Spitzer's projections were too rosy. He even called it "a good news budget." But the governor noted that 20 percent of the state's tax revenues come from Wall Street, making some fear tougher times ahead. "They face coming back for a mid-year correction," Elizabeth Lynam of the Citizens Budget Commission told the Albany Times Union.
Or, as the mayor put it, "Anyone that thinks we're out of the woods is wrong."
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2008: The Year the Good Times Ended?
As the new year begins, recent reports suggest that economic prospects for 2008 look rather bleak, but that fiscal prospects, at least in the short run, look manageable. The city projects a yawning $6.5 billion budget gap for fiscal year 2011. But mayors and city councils tend not to worry that far into the future. In the shorter term, while the city anticipates a decline in revenues, money from last year's budget surplus and Mayor Michael Bloomberg's October directives calling for immediate cutbacks in city spending seem to provide a cushion.
The economic slowdown and its effect on city coffers are likely to rule out any major new spending initiatives in the mayor's preliminary budget for next year, which will be released shortly. The city's capital budget, though, continues to climb. The economic uncertainly also raises questions about whether city can continue to cut its property tax rates and still maintain services.
Feeling Wall Street's Pain
The city's reliance on tax revenues from Wall Street bonuses and profits explains the glum forecasts for 2009 and beyond. "The ongoing turmoil in the credit and housing markets will have serious implications for the city's economy.... The greatest risks ... are a sustained downturn on Wall Street and a housing-induced recession," according to the state deputy comptroller's December report on the city's October budget modification.
While the city's forecasters do not anticipate a recession, in October they project a slowing economy and a decline in job growth from 62,200 new jobs in calendar year 2006 to only 12,100 in calendar 2008. The city does not, however, anticipate a recession.
The city comptroller's December report on the city's economy and finances notes that "the unfolding sub-prime mortgage debacle and its collateral effects on credit marketsâ threaten both the national and local economies. The resulting financial losses and layoffs, however, are likely to fall disproportionately on New York firms and workers.
The mortgage crisis has already had a significant impact on Wall Street profits. As a result, the earnings of the city's financial firms are likely to be down significantly from 2006 levels -- along with the associated bonuses, which last year reached a record $34 billion."
The state Financial Control Board's December report notes that worries about the city's financial services industry led the city in its October modification to reduce projections of revenues from sources other than the property tax by $576 million in the current budget year, including a reduction of $207 million in the personal income tax and $256 million in property transfer and mortgage recording taxes.
The city also cut back its estimates of non-property tax revenues for fiscal years 2009, 2010 and 2011 by $1.1 billion, $1.2 billion, and $1.5 billion, respectively.
The control board sees an additional concern: inflation. The city projects that inflation will drop from 3.2 percent in 2006 to less than 2 percent a year from 2009 to 2011. The board, though, points to higher gasoline, other energy and food prices that make it "difficult to see how an acceleration of inflation could be avoided without a recession."
Endangered Tax Cuts?
All of this could affect taxes. Will the city continue its program to cut property tax cuts? The cuts -- a 7 percent reduction in the property tax rate (costing about $750 million) and a $400 rebate for residential homeowners (costing $250 million) -- are built into each of the next three years of the city's financial plan, contributing to the projected deficits. The mayor has said that maintaining the cut wills depend on economic and fiscal conditions.
The importance of the tax-cut question is highlighted by the state deputy comptroller's report. It pointed out that the city will spend $3.3 billion more this fiscal year than it will take in in revenue. It will bridge the gap, though, with funds from last year's budget surplus. That money is paying for the $1.3 billion in tax cuts and $2 billion in new expenditures this fiscal year.
Since the projected budget gap for 2009, which the preliminary budget will have to fill, has grown from $1.55 billion to $2.7 billion since June, the extension of tax cuts as well as new expenditure cuts should become part of next year's budget discussion.
Not only will the mayor and council have to review the arguments for continuing the property tax rate cut and rebate, but they will also have to push the state legislature to keep the current city sales tax rate at 4 percent. The city sales tax rate falls to 3 percent in July with the demise of the Municipal Assistance Corp.
MAC was created in 1975 by the state to create a bonding entity that raised the money to bail the city out of its near-bankruptcy. As part of that state legislation, the city sales tax was raised from 3 percent to 4 percent to assure the payment of debt service on the MAC bonds. Those bonds have now been paid off.
The city's financial plan assumes the sales tax will remain at 4 percent, but the state will have to pass legislation authorizing that rate. Well over $1 billion in city sales tax revenue is at stake.
Expense Budget Trends
The monitors highlight several interesting trends regarding city spending. Expenditures grew an average of 10 percent a year in 2004 and 2005 and 8.6 percent a year in 2006 and in 2007, according to the state deputy comptroller. (The rate for the latter two years includes $2.5 billion that was placed in a reserve fund, the Retiree Health Benefits Trust Fund.) This was well above the rate of inflation.
In 2008 the same report projects an increase of 5.6 percent in spending, and, from 2009 to 2011, an increase of 4.8 percent annually. This is lower than in the earlier years but still more than twice the projected inflation rate.
The expenditures are dominated by so-called non-discretionary spending: debt service, Medicaid, pensions and other benefits for city employees. These are expenses the mayor has little or no control over because of debt obligations, labor contract agreements, and federal/state mandates.
In fact, non-discretionary expenditures account for most of the expenditure growth. And, most importantly, their share of all expenditures has been growing rapidly. In FY 2003, 37 percent of city-funded expenditures were non-discretionary; in 2011 an estimated 49 percent will be non-discretionary. Growth in debt service is a big part of this increase, up 26 percent between 2008 and 2011, to $6.1 billion in 2011.
Where the Growth Is
The big increase in the capital budget may eventually define Bloomberg's fiscal legacy. As the state deputy comptroller notes, city-funded capital budget commitments will increase by 71 percent this fiscal year alone, to an all-time high of $8.3 billion. For the next four years, city-funded capital commitments will total $27.1 billion.
The rapidly growing capital budget means more new schools, more mass transit, more affordable housing, more environmental protection, etc. But, as the city comptroller's December report shows, the debt service that pays for the capital budget is part of the city's operating budget and will eat up an increasing percentage of city revenues -- from 11.8 percent in 2007 to 15.4 percent in 2011. That means there will be less funding available for discretionary services, such as education, housing, libraries, parks, and youth, senior, health and other social services.
In his October modification, the mayor began planning his first cutbacks in expenditures, by setting a hiring freeze in most agencies and asking all city agencies to find 2.5 percent in cuts this fiscal year and 5 percent next year. That would save $500 million and $1 billion, respectively.
We will soon see if these actions, in response to the bleak revenue prospects, keep the current financial plan manageable. If it does not, the city may have to revisit its long-term commitment to tax cuts and its very ambitious capital program.
Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001.Â
Could Wall Street's Woes Be Good for New York?
Even though stock indices may have rebounded from their late November lows, the market remains volatile, and the economic outlook has taken a decided turn for the worse. A credit crunch has emerged on Wall Street with the sudden aversion among banks to lend because of the uncertain value of collateral when almost everything is tainted by years of sub-prime mania. The Federal Reserve took unprecedented actions last week out of fear that the credit squeeze will lead to a serious slowdown, possibly a recession over next few months. Leading economic forecasters polled by the Wall Street Journalrecently put the chances of a recession at 38 percent. In the financial press, “toxic” has become the adjective of choice in describing many of the once-revered “creative” financial instruments linked in one fashion or another to sub-prime mortgages, the high-interest loans financial institutions gave to those who could not qualify for more conventional mortgages.
Wall Street’s implosion justifiably has produced much hand-wringing among budget makers in City Hall and Albany regarding tax revenues. It seems clear by now that the dot-com bubble was no fluke. The Wall Street resurgence and boom since 2003 was largely inflated by real estate and sub-prime lending and spending. Can Wall Street do well only by doing things imprudently -- and on a gigantic scale at that?
Wall Street’s booms are certainly good for the city and state’s tax revenues (the busts certainly aren’t), but are the booms good for the broader economy? Might there be a silver lining in Wall Street’s comeuppance?
The Boom and New York
In many respects, the Wall Street boom of this decade was not that good for the New York economy or for the nation.
Wall Street is often referred to, aptly, as the main engine of the New York City economy. When it revs up, it becomes turbo-charged, generating high incomes and tax revenues. Yet it also belches out the urban equivalent of diesel exhaust, affecting the quality of life for everyone else. Soaring Wall Street incomes helped fuel the demand for luxury housing, pushing up housing prices throughout the five boroughs and pushing out many middle-class people in the process.
Wall Street’s aggressive lending and marketing practices were as responsible as anything for the sub-prime debacle. The reverberations of collapse have been felt in New York City neighborhoods far from the financial district. Thousands of Residents moderate-income New Yorkers, many of them once worthy of more conventional credit, have suffered from the implosion of the sub-prime bubble.
Steering the Economy – But Where?
Wall Street has taken center stage on the national economic scene. The trajectories for the last two economic cycles have been determined largely by Wall Street’s bubble machine. First it was the dot.com and telecommunications bubble, then the real estate and sub-prime bubble. While the Federal Reserve and government “regulators” deserve a big helping of responsibility for not minding the money store, Wall Street’s financial innovations helped pave the way for a debt-induced spending spree since 2001 with mortgage debt increasing four times as fast as wage and salary income. Easy money and mountains of unsustainable debt won out over a real policy debate about how to revitalize the productive economy in a more sustainable manner.
A dynamic financial sector is vital to a competitive, world-class economy. The ability to raise capital and move it across sectors in response to ever-shifting market conditions is essential to robust economic growth. New York City-based Wall Street investment banks have taken over many of the functions historically performed by commercial banks. Mergers, like the one between J.P. Morgan and Chase, have created gigantic financial institutions that amass large pools of capital and provide a wide range of loans, equity investments and other means for corporate finance to grease the wheels of commerce in the nuts and bolts economy producing goods and services.
The financial clout of New York-based Wall Street investment banks over the national economy today rivals the situation in the late 19th and early 20th centuries, before the advent of the Federal Reserve Bank and national regulatory bodies like the Securities and Exchange Commission.
In a well-functioning economic system, the financial sector helps facilitate business activity in the nuts and bolts economy. Wall Street’s role is to help make the economic pie larger. What has happened, however, is that New York investment banks have become the tail wagging the dog. Wall Street’s focus has been on financial innovation in the service of more and more short-term fees, regardless of their economic value or consequence. This has bred an undue tendency toward speculation, with the prices of stocks and other securities pushed higher and higher, drawing in unsuspecting investors.
In analyzing the financial market ills leading up to the 1929 stock market crash, economics great John Maynard Keynes wrote: “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation.”
More recently, John Bogle, founder and former chief executive of Vanguard mutual funds, lamentsthe rising share of the economic pie going to the finance sector. Bogle notes that 25 years ago the finance sector accounted for 6 percent of the profits of the Standard & Poor’s 500 large corporations. Prior to the recent market meltdown, the finance sector took about one-third of corporate profits. Bogle estimates that hedge funds, mutual funds, investment banks and the like “siphoned about $500 billion from shareholder returns” in 2006.
Readjusting the Economy and Wall Street’s Role in It
It is not at all clear how long it will take for Wall Street to right itself. Barely a year ago, Mayor Michael Bloomberg, Senator Charles Schumer and some other prominent New Yorkers worriedthat Wall Street was somehow losing competitive ground to London, Shanghai and other global financial centers. They blamed government securities regulations enacted in the wake of the Enron collapse. Now, it is more likely that there will be calls to effectively regulate Wall Street so that the bubble-making machine is de-activated in favor of a return to making money the old-fashioned way. The problem was not that Wall Street was regulated too much but that it was not regulated in the right way. Financial “innovation” run amok turned out to be the real threat, not London or Shanghai. Those market centers also are plagued by bubble tendencies and are in similar need of effective oversight.
As Wall Street regroups from its current woes, city economic policy-makers might want to consider a different set of priorities. In City Hall, the focus could be on really diversifying the city’s economy and using mega-development projects to make the city more livable and more likely to produce good, middle-income paying jobs. For the past few years, City Hall’s main real estate development goal has been ever more space for huge financial trading floors – a fixation that is no more sustainable than the latest financial bubble. The big challenge is to make sure that the jobs created in developments induced by city actions pay decent wages and offer career opportunities that lead to the middle class. New York will not have a middle class if it doesn’t have middle-class jobs.
In Albany, the state is still groping for an economic strategy responsive to the needs of New Yorkers. While some observers are eager to write it off, manufacturing still employs over a half-million workers in New York and remains the economic backbone of many upstate communities. Several manufacturing industries, including but not limited to ones deemed “high tech,” are highly productive upstate. It is myopic to think that high value-added manufacturing – microelectronics, optics, ceramics, biotechnology, instrumentation -- will entirely desert the U.S. or New York, with its world-class technical universities, advanced technology research base and highly skilled manufacturing workforce. The state should identify the strong performers among manufacturing firms, work to make them even more competitive and ensure that they can retain and develop more highly skilled manufacturing workers.
The state desperately needs to overhaul its economic programs across the board, from Empire Zones to Industrial Development Agencies, to transform them from giveaways and cronyism to strategic interventions addressing the failure of markets to invest sufficiently in further advancing New York’s human capital assets through skill training and research and development.
Both City Hall and Albany should also seriously pursue the many opportunities now unfolding to develop green jobs promoting energy conservation and the production of green building materials and other environmentally friendly manufactured products.
Economic sustainability is as desirable a goal as environmental sustainability. Our current economy is anything but that. In the long run, the state and city tax base will be more sustainable with an economy geared to providing ample opportunities for more good-paying jobs as opposed to our current highly polarized, Wall Street-dominated economic structure. With a strengthened and expanded middle class, New York will have stronger and more vibrant communities.
After the "Financial Emergency"
Why would the mayor of New York City welcome the extension of a state finance law that dictates a state takeover of city finances if the city has a year-end deficit of $100 million or more?
Generally mayors would not want to see state government usurp one of their most important powers. But at a panel discussion last month sponsored by the Center for New York City Affairs at the New School and the Independent Budget Office. Mayor Michael Bloomberg’s budget director, Mark Page, indicated the administration would be happy to see the existing law survive after its July 1, 2008 expiration date because it “had served a very useful function."
The Financial Emergency Act was enacted in 1975 to resolve the severe city budget crisis. It has permitted the mayor to roll over multi-billion-dollar budget surpluses into the next fiscal year. One speaker at the panel discussion, former state budget director Dall Forsythe, characterized this process as a “synthetic rainy day fund” controlled by the mayor.
The mayor apparently wants to protect his discretionary budget powers. If the law was amended rather than simply extended, it could limit mayoral fiscal discretion by requiring that City Council’s approval for any plan to roll over funds for the following year’s expenses.
It would thus create, as one panelist, former City Council staff member John Banks, said, a “more robust debate” between the mayor and the council on budget matters and likely give new fiscal power to the City Council. The council’s speaker, Christine Quinn, has proposed just such a “rain day fund.” So far there seems to be only weak political support for Quinn’s proposal.
WHAT IS AT STAKE
The Independent Budget Office, in a background paper, “July 1, 2008: An Opportunity for a New Framework,” set out several issues that could be addressed in a revision of the Financial Emergency Act.
Moving Surpluses from Year to Year
The city is legally obligated to have a balanced budget. But what does that mean exactly? Does that mean that this year’s revenues must cover this year’s expenses — without any operating deficit or surplus? That would preclude operating surpluses or deficits – or multiyear roll-overs.
The roll-over, or roll, employed by the Bloomberg administration lets the city pre-pay bills for the following fiscal year. This gets around the current state law that says the city can’t end the year with a surplus. Use of this budget tactic gives the mayor a tremendous leg up in balancing the next year’s budget. The down side is that the city is using one-time carryover revenues to balance its budget; there’s no guarantee a similar surplus will be available in another year.
The method also presents a transparency problem for budget analysts and the general public. The way in which one-time surplus revenues are reported in budget documents obscures the actual balance between revenues and expenditures during any single fiscal year. Although a fiscal year may be “balanced” because of the carryover, the city could be spending more that year than it is collecting in revenues.
The state deputy comptrollerfor New York City in his reports on the city budget has adjusted for the use of carry-overs. In his December 2007 report, he found that in four of the most recent eight fiscal years, including 2008, current-year expenditures exceeded current-year revenues. In 2008, he estimates current-year expenditures will exceed current-year revenues by $3.3 billion.
The transparency problem has grown as the mayor has expanded the carry-over tactic, rolling 2007 surplus dollars not only into the current2008 fiscal year, but into 2009 and 2010 as well. In October, faced with a new budget gap that created by lower tax revenues and higher labor costs, Bloomberg took, nearly $300 million of the 2007 surplus that had been scheduled to balance the 2009 budget and used it to re-balance the 2008 budget. (Simple as pie, right?)
Should the city make the roll-overs more understandable, by establishing a rainy day fund with explicit rules for using the surplus funds? Would this require changes in city law, state law or the City Charter.
The State’s Job
Another issue involves the role of the state Financial Control Board. Should it review only city finances? Retain its current power to take over the city budget should the city have a year-end deficit of $100 million or more? Should the takeover trigger be higher than $100 million to reflect inflation and increased city spending?
In addition, the IBO notes that Speaker Quinn has proposed new reporting requirements for so-called “covered organizations,” quasi-public agencies that administer city services but are not under direct city control, such as the Health and Hospitals Corporation, New York City Transit, the New York City Housing Authority and the Battery Park City Authority. The IBO suggests requiring more disclosure by other “off-budget” organizations created by the city, such as the Economic Development Corporation, the mayor’s quasi-independent economic development office that worked under a $1.2 billion city contract in 2007; the Water Authority and the Hudson Yards Development Corporation, which oversees the development of the West Side of midtown Manhattan.
The Council’s Responsibility
The opportunities for a greater City Council role in city budgeting are rare. Structurally, the council is hamstrung in many ways. Its budget staff, for example, is dwarfed by the mayor’s Office of Management and Budget. The mayor’s budget office has a 2008 budget of nearly $32 million. The council’s equivalent office, its finance division, has a personnel budget of $2.95 million. OMB has a staff of 325, the council finance division, has 38 (up six from 2007).
Then there is the problem of term limits. One of the unrecognized consequences of restricting City Council members to two consecutive terms is that it discourages continuity in council budgeting expertise. In practice, the speaker gets only one term (it’s unlikely a first-term council member will get elected speaker) and so any finance division director the speaker appoints is likely to serve a maximum of four years. Furthermore, in recent years a number of top council finance staff has moved to OMB or other mayoral offices, which apparently offer more opportunities.
LOOKING TO THE FUTURE
In many respects, this might be a good time to have a broader debate about the Financial Emergency Act. There may be some tough decisions ahead, so why not try to have more information available and more actors engaged?
The administration’s October budget modification, for instance, has some sobering numbers. It projects a $6.5 billion deficit for 2011 (up by $2.1 billion since June), which, according to the state deputy comptroller, represents nearly 15 percent of city fund revenues and the second-largest gap at this point in a fiscal year since 1981.
That 2011 gap is nearly as big as the one the city faced in November 2002. In that case the mayor acted quickly and unilaterally. The next time the city faces such fiscal hard times, though, it might be good to have more information and a broader consensus in decision-making. A new law could help accomplish that.
Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001.
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Getting Paid: Debating the Council's Outside Income and Salaries
Everyone's got to pay the bills, right? And politicians are no different.
So the City Council's annual salary of $112,500 may seem appropriate given the cost of living in New York City. That is the argument recited, of course, if you ask a member of the New York City Council.
But some good government groups and City Hall observers disagree. Factor in the unrestricted outside income that council members can earn and the stipends they get from serving in leadership positions or as committee chairs, and that income can add up.
Councilmember Lewis Fidler, for instance, works as an attorney as well, ratcheting up at least an additional $140,000 on top of his council salary.
Some question whether moonlighting as an attorney or an investment banker will not conflict with policies decided later on the Council Chamber floor.
Members of the City Council have promised to mull over these issues, but have yet to specify what limitations, if any, will be considered next year. At a hearing before the Governmental Operations Committee last week, some proposals were floated and many got mixed reviews.
What's At Stake
Last year, City Council members voted 41 to 5 to increase their salaries by 25 percent, from $90,000 to $112,500 following a recommendation from a mayoral appointed commission.
At the time, and at the behest of good government groups and Councilmember Tony Avella, who voted against the pay increase, the council promised to revisit several issues attached to their raise and covered in the commission's report. These included whether council member is a full time position, whether chairs or other leadership positions should be awarded additional pay and whether the council should be allowed to vote itself a raise.
And as promised, said Councilmember Simcha Felder, chair of the body's Governmental Operations Committee, several members sat down to revisit those questions a year later - and a couple grand richer.
Felder said he would not take a position on any of the issues until legislation was drafted and all interested parties had spoken. What that legislation would address - whether it would ban the controversial stipend, better known as lulus - he also would not say. Felder did say the council would likely take up the issues next year.
The Issues
The City Council was repeatedly criticizedfor voting itself its own pay raise in 2006. The United States Congress and other state legislatures across the country can only enact raises for future terms of office. New York City Council members can enact an increase that takes effect immediately.
Some media outlets and good government groups, even the mayoral commission which recommended the pay increases last year, contend the integrity of government would be improved if the same class of legislators did not vote itself a fat raise.
The outside income and stipends for council leadership positions are far more controversial.
On top of their $112,500 salary, 46 members out of a 51-member body receive some sort of stipend (click hereto see our lulu chart). City Council Speaker Christine Quinn reins in the highest yearly check at $28,500, while members who chair smaller, select committees receive only $4,000.
The majority of members, nearly 55 percent, receive an extra $10,000 for chairing committees from education to veterans.
Those stipends, some good government groups contend, are merely a way for the City Council speaker to control members.
"In reality, it is a way for the speaker to exert influence over individual members, and reward those who either are loyal or need incentives to become faithful, by providing them with greater responsibilities or loftier titles that come with additional income," said Dick Dadey, the executive director of Citizens Union, the sister organization to Gotham Gazette's publisher.
Though Citizens Union and other advocacy groups, like the New York Public Interest Research Group, say banning all or some of the lulus would create more independence among City Council members, some members argue that their jobs as chairs demand much more time and legwork.
"I happen to think that's the type of dedication that deserves some money," said Councilmember Peter Vallone of chairs who hold several hearings a month and put in extra effort. "It's more of a behavior issue."
Members also said that because the large majority of them receive stipends, it is unlikely any undue influence by the speaker is exerted. Even so, advocates claim most government bodies, including the U.S. Congress, do not award legislators who chair committees.
Some good government advocates are more concerned about the influence a member's outside job can have on his or her City Council work.
The Numbers
With a council seat currently considered a part-time position, the members are unrestricted in the amount of money they can make outside of City Hall. For most, it's a nominal amount if anything at all, but several members have raked in a significant amount of outside cash - some more than $100,000 a year.
According to the most recent financial disclosure reports filed with the city's Conflict of Interest Board for fiscal year 2007, members who have a private legal practice are particularly adept at upping their annual income. Fidler makes a minimum of $252,500 and he could make as much as approximately $457,500, including his council salary.
(Because members are required to file their financial disclosure forms in ranges, such as from $5,000 to $35,000, the exact amount of outside income a member accumulates is not a matter of public record).
Councilmember Domenic Recchia also has a significant amount of outside income from his private law practice - between $100,000 and $250,000. Finance Committee Chairman David Weprin works as an attorney and as an investment banker when not in City Hall and makes between $105,000 and $285,000 on top of his council pay.
Most advocates and members agree the job of City Council member already is a full-time position, no matter what compensation he or she receives. But, good government groups say limiting council members outside income could ensure legislators are not influenced by their outside employment.
The majority of members who earn outside income are attorneys, and for them starting, stopping or even limiting their practice could make business rough when their eight-year term is over, said Vallone, who is an attorney. Vallone earned between $1,000 and $5,000 from his law practice, according to the financial disclosure documents, and earned between $5,000 and $34,999 from a realty partnership.
To address those concerns, Dadey of Citizens Union suggested mandating a more detailed disclosure form which would require more specific reporting on how many hours members are at their other jobs, and that lawyers disclose the number of clients they have and in what areas they practice.
What's Next
It is unclear whether any of these issues will resurface in 2008 at City Hall. Last year, Quinn saidshe supported the speaker's stipends and did not think it was unethical for a sitting council to vote itself a raise.
And, like most politicians, some members of the City Council never really clock in or clock out of their position. Whether at church or the local coffee shop, most are always on the job, regardless of the hourly rate.
"We don't work five days a week," said Councilmember Larry Seabrook. "You go to church and you still deal with constituent service. We took an oath of office to serve, not an oath of poverty." Â
Feeding the Holiday Economy
If there is one thing New York has to attract holiday shoppers and tourists from around the world, it's restaurants.
From fusion fare to destination dining establishments, like the Rainbow Room or Sardi's, New York can tickle the palates of residents and visitors alike with fine wines and decedent deserts throughout the year, not just during the holiday season.
More of the city's economy is directed by the ebb and flow of Wall Street, than the waiting list at a meatpacking district restaurant. But for some independent restaurateurs, catering businesses and grocery store owners, the year's final quarter, which includes celebrations from Thanksgiving to New Year’s Eve, is when they do the greatest percentage of their business. Many restaurateurs know a holiday rush, or lack thereof, can make or break their budgets.
Food Fueling the Economy, Not Really
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The Food Crisis Elsewhere While slow sales may dampen restaurateurs' holiday spirit, at the other end of the economy spectrum, a slowing economy is making it difficult for some New York families to put even basic food on the table. Food-related industries and causes have been struggling this year throughout the city, especially food banks. Late last month just in time for Thanksgiving, the New York City Coalition Against Hunger released a report that revealed one in six New Yorkers lack sufficient food. As a result of slashed federal funding, food banks have been unable to keep shelves stocked with healthy, holiday goods as they confront increasing demand. More New York City residents are knocking on their door, advocates say, because of an economic slump nationwide. The city responded late last month with a one-time $1 million subsidy for the city's soup kitchens, but that bail out will not solve the longer term problems of funding at the federal level, advocates said. It seems getting a table at a restaurant near Broadway may be easier, but getting the necessary subsidized meal from a local charitable organization is becoming more of a challenge.
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The restaurant industry has been flourishing in New York City for the last decade, according to industry experts, which means more jobs and more money being funneled back into city coffers.
In 2006, 222 restaurants opened in New York City, according to the Zagat Survey, adding to the nearly 18,700 establishments citywide.
Though the growing industry is worth about $15 billion annually, according to the city comptroller’s office, dining out or dining in with a caterer does not necessarily affect the city's economy as much as other industries.
" It's not a big industry of itself," said Frank Braconi, chief economist at the city comptroller's office. "It pales in comparison to let's say the media or Wall Street." ( Wall Street is said to account for 20 percent of the city's total wages and salaries.)
Retail sales during December, which includes sales in the food service industry, should account for about 11 percent of the industry’s annual sales, said Braconi, which is 30 percent higher than an average month.
Braconi said about 20 percent of the food service business in the city is attributed to visitors. According to NYC & Company, the city's tourism and marketing organization, about 30 percent of visitor spending will be done in the fourth quarter.
The most popular activity for both international and domestic travelers frequenting the Big Apple is dining out, according to NYC & Company. In 2005, 88 percent of international visitors ate at restaurants, while 59 percent went sightseeing.
What to Expect this Year
Restaurant or retail sales may mean little to city officials - who focus more on the Dow Jones Industrial than on Dolce and Gabbana - but a holiday season slump can mean life or death for the independent business owner or small restaurateur.
" The last quarter of the year is really what determines the annual sales," said E. Charles Hunt, the executive vice president of the New York State Restaurant Association. "You got two months back to back with holidays. People are more likely to go out to restaurants."
Hunt estimates that some restaurants may do 40 to 45 percent of their sales from October through December. This year, he said, because of the Broadway strike (see related story) a lot of midtown establishments may be counting their pennies.
That is certainly the case at midtown staple Sardi's, which saw sales decline between 30 to 50 percent during the stagehand union's 19-day standoff, said Sean Ricketts, the restaurant's dining room manager. Even now that the strike has ended, Ricketts said Sardi’s sales are at approximately 85 percent of where they should be.
Despite the slowdown, he added, he expects business to pick up rapidly in the coming weeks. December usually accounts for 20 percent of the restaurant’s business, he added.
“ Generally the holidays are very good for us,” said Ricketts. “Normally there is a lull in January or February, and the holidays, being in December, really support that lull.”
Though restaurants centered on New York City entertainment, like Broadway, or tourist attractions, like Rockefeller Center, see the holidays as a major boost, other establishments define the holiday season as just another day.
Richard Coraine, chief operating officer for the Union Square Hospitality Group, which includes restaurants such as the Union Square Café and Gramercy Tavern, said they may see an influx of holiday parties, as well as the revenue that comes from a larger party and tab, but sales overall remain consistent throughout the year.
In 2007, Coraine said, sales have been up 10 percent from last year.
“ I think it’s one of the vital components of a New York experience,” said Coraine. “I think the same thing about Broadway. New York has always been the place where you have the best restaurants.”
Supermarkets and Catering
What goes better with buying and giving and family occasions than eating and drinking? Most New York caterers and even local grocery stores stock shelves throughout November and December in anticipation of the holiday rush.
But with the rising cost of food nationwide – due largely to the rising cost of energy and the demand for corn for ethanol– some grocery stores and catering mainstays have been disappointed with their sales so far this holiday season.
Tryg Siverson, executive chef at Balducci’s, the gourmet market and catering establishment in Lincoln Square, said so far this holiday season the store has seen only a 2 percent increase in sales over last year. For the Lincoln Square location in particular, that increase did not meet expectations, especially when Thanksgiving is usually one of their busiest periods.
For a brand name like Balducci’s, that could point to a slowing economy. And for similar establishments, which cater or deal in food completely through retail, profits can become extremely reliant upon the holiday season.
“ The entire six month period prior to Thanksgiving is entirely preparatory for Thanksgiving,” said Siverson. “We spend six months getting ready for one holiday.”
Eat, Drink and Be Wary
Some have not felt the slowdown.
Carl Hum, president and chief executive officer of the Brooklyn Chamber of Commerce, said manufacturers, like Acme Smoked Fish in Williamsburg, have doubled or tripled their shifts to meet demand. The holidays are when people, no matter what borough they live in, spend money, said Hum.
Even if the economy continues to slow down, he added, food will be the last thing to taper off.
“At tougher times, people are not going to buy that diamond bracelet or that car,” said Hum. “But they are going to buy food.”
Whether these holiday profits are spread out equally across the five boroughs and an array of income brackets is unlikely, said industry experts. Manhattan gets much of the season’s hectic rush – the tree at Rockefeller Center, Broadway and a plethora of other holiday attractions. But said Hum, “This is certainly a critical time for all industries in all boroughs.”
It also can serve as a sign of things to come. Economists say shopping trends or how often people dine out can become a decent indicator of the nation's economic stability. If you have the money to eat out every night, one could assume your holiday bonus was as plump as a pumpkin pie. If that trend staggers, then New Yorkers' salaries may be getting slashed or businesses may be cutting more than their Thanksgiving turkey.
We still have three weeks to go before the end of the year, with plenty of time left for holiday parties and nights out at our favorite restaurants. "It's the holiday season and everything's back to normal," said Hunt. "Broadway's back. There may have been some people that missed out that will come out and spend more."Â
New York Shopping: Chains and Bargains
As she prepared to ring up a young couple’s purchase of heavily discounted women’s clothing at the Century 21store in lower Manhattan, the sales clerk made the routine request. “Would you like a Century 21 Card?” she asked.
The man declined. “We’re from Denmark,” he explained, adding the card would probably be of little use there.
Many shoppers at the discount store and other stores across Manhattan would have similar reasons for passing up the opportunity for a charge card. In this time of a plummeting dollar, foreign visitors account for a rising portion of sales in New York City. They make Macy’s and Bloomingdale’s among the city’s top tourist destinations, cram the streets of SoHo and in an intrepid move to capitalize on the buying power of their currency – particularly the euro or the pound – brave the fitting rooms lines rooms and general chaos at Century 21.
With the U.S economy slowing and the spread of chain stores dimming the allure of shopping for some New Yorkers, foreigners seem likely to stave off any major reversal in the retail economy at least for now. No wonder the Bloomberg administration has launched a campaign to lure additional touriststo city streets – and shops.
Uneasy Holiday
Shopping has long been a key industry in New York City. Department stores were invented here, and by the 1890s, a tourist guide said, "All America goes to New York for its shopping."
New York City boasts some 53,600 stores or more than 170 per square mile, according to one estimate. During the holiday season, some 300,000 New Yorkers will work in retail, including food stores, said Frank Braconi, chief economist at the city comptroller's office. Last year, retail workers earned a total of $9.6 billion, with stores ringing up a total of $67 billion in sales.
The weeks between Thanksgiving and Christmas are key to the health of retail. Sales of all goods in the city are approximately 30 percent higher in December than in an average month, Braconi said. In fact, he said, New York’s retail industry is somewhat more dependent on the holiday season than stores in the rest of the nation, partly because so many tourists come to New York to shop.
This year stores have had reason to worry. Nationwide figures found sales on so-called Black Friday (the day after Thanksgiving when, if all goes according to plan, merchants’ red ink turns to black) up by 8.3 percent from the same day a year ago. Analysts concluded, however, that, while more people went shopping, the average shopper spent less money than he or she had in 2006. Retail industry analysts reported consumers “trading down” or frequenting less expensive stores than they had last year. “People are cheaping out,” Bill Dreher of Deutsche Bank Securities has said.
In New York State, the Siena Research Institute found consumer confidence falling, particularly in the city. Based on interviews, a third of the state’s consumer plan to spend less this year than they had last holiday season. Only 8 percent said they would spend more. Perhaps reflecting this, New York City businesses have decided to hire less seasonal workers than usual this year, according to the state Department of Labor.
Rebecca Marion, a spokesperson for the Retail Council of New York, though, has disputed the pessimism. ”Our members are happy,” she told the Albany Times Union. “We’re going to have to wait and see.” Eighty percent of merchants in the state reported that their sales for Thanksgiving weekend “were the same as or better than their sales over the same period of time in 2006,” the federation found.
By some accounts, Black Friday in the city went well. “We didn’t see any indication of declining sales,” a spokesperson for J&R Computer World toldthe New York Sun.
More recent national figures have proved more discouraging though. (Breakdowns of sales by city or state were not available.) ShopperTrak, a private research company, foundsales for the week after Thanksgiving, which ended December 1, dropped by 4.4 percent from the same week in 2006.The firm attributed some of this to bad weather in the Northeast and the Midwest and to the long holiday shopping season this year. “Retailers shouldn’t panic as there are plenty of good shopping days left in the 2007 season,” ShopperTrak’s Bill Martin said in a written statement.
Chain Store Invasion
The possible slowdown comes at a time when shopping in New York has undergone a number of changes, including the emergence of more retail outlets outside of Manhattan and the growth of on-line shopping. Perhaps none has been as striking as the growth of chain stores and the accompanying decline of locally owned stores.
Drugstores and Starbucks have led the way. In January, one count found 220 Duane Reade drugstores and 205 Starbucks in the five boroughs, with larges number of Rite-Aids and CVS stores as well. Payless shoes had 60 outlets in Queens and Brooklyn alone, while the Children’s Placeboasted more than 30 New York City stores.
In general, the number of clothing stores in New York City rose by 6.4 percent from 2000 to 2004 and chains accounted for much of that increase. Some applaud the trend for giving New Yorkers the same choices consumers in much of the rest of the country have and for bringing down prices. Shoppers in New York City pay about 10 percent more for clothing than people elsewhere in the U.S., Elizabeth Macbride reported in Crain’s New York, but that is 10 percent less than they paid in 2000. During the same period, prices for furniture and household goods declined as well, according to Macbride.
The chains bring service to parts of the city that may not have had adequate services previously. “There are some areas of the city that are dying to get chain stores in,” said Vanessa Gruen of the Municipal Art Society, noting that many residents of Bedford-Stuyvesant were “delighted” when an Applebee’s Restaurant opened in their community.
But others see the chains as stamping out local businesses that take a greater interest in the community. Residents of the Upper West Side, for example, have seen a decline in the number of so-called Safe Havens– stores where children can go if they are being bothered in the street -- as locally owned businesses shut their doors. Chain stores often refuse to take part in the program.
When an owner-operated stationery store in Park Slope closed several years ago – a victim of Staplesand rising rent—students at the local elementary school found it difficult to find required school supplies. The owner had had an agreement with the principal and teachers to stock materials the students needed. Staples does not do that.
The change also affects the character of the city.
“ What makes New York City so wonderful is the uniqueness of the neighborhoods and the uniqueness of the stores,” said Gruen. In a city where people walk so much, they “want to see interesting stores,” she said – not just another Banana Republic or Gap.”
Jeanne Giordano, who oversaw redevelopment of the retail space in Grand Central Terminal, believes chain stores have a place in the city. “There are many different neighborhoods to choose from in terms of shopping so if you are industrious in scouting out the options, there is something for everyone,“ she said in an e-mail. “Chains show up in certain areas and not others and chains are not all that bad for basic cheaper stuff. Precious boutiques have higher priced items… If you shop the whole city you get the mix.”
Ethnic Enclaves and Other Choices
Some alternatives remain in New York, particularly outside Manhattan. Many of these are ethnic retail strips catering to immigrant shoppers from the city and the surrounding areas. A recent report by the Center for an Urban Futurefound a number of “once modest retail areas [that] have evolved from primarily serving local customers into regional shopping districts that routinely attract large numbers of second generation shoppers from the suburbs who come to buy saris, spices, plantains, herbal medicines and an assortment of other ethnic products.”
These areas include Jackson Heights, which caters to South Asians; Flushing with products and services for Korean and Chinese shoppers; and Richmond Hill, which has seen a sharp growth in businesses owned by and aimed at Guyanese, Sikhs and Trinidadians from throughout the metropolitan area.
The sharp rise in the number of businesses — businesses in Flushing, for instance, grew by almost 55 percent between 1994 and 2004 — has fueled a corresponding jump in jobs in these communities, according to the report. Employment in Flushing rose by 12 percent during the decade, while Washington Heights, with many businesses serving Dominicans, saw employment increase by about 34 percent.
While suburbanites have little reason to come to New York to go to The Gap, the ethnic businesses serve as a lure. “You do have a large percentage of people coming from Connecticut, New Jersey Massachusetts,” Mabel Law, executive director of the Flushing Business Improvement District, told the center. ”This is where they can get certain foods and products that aren’t available where they live.”
A number of private efforts have tried to foster locally owned business. One of the most prominent is Chelsea Market on 9th Avenue. When Irving Cohen decided to develop the former Nabisco factory in the 1990s he insisted that all tenants be family owned businesses. “It was a bit crazy, but it was a social experiment,” Cohen has said. “It worked out very, very well.”
At a forum last year, Cohen said he hoped to help develop projects to encourage family-owned businesses at La Marqueta in East Harlem and Hunts Point in the Bronx.
Project Enterprise, which offers no-credit, no-collateral loans to black and Hispanic entrepreneurs in New York City also hopes to foster locally owned businesses. “There has been a lot of gentrification so it’s very hard for small businesses to stay open,” said the organization’s marketing director, Christina McSwain. To promote the businesses, the project recently sponsored a bazaar with 35 vendors, offering products such as African sculpture, food and soaps.
The City’s Role
While individual organizations and businesses work to preserve and promote local entrepreneurs, the city government has been largely absent. The last government effort to address the issue came in the late 1980s when a push for commercial rent control failed. More recently, some argue that the massive development projects promoted by the Bloomberg administration, and particularly by Deputy Mayor Daniel Doctoroff. who said last week that he would be stepping down, have promoted chains at the expense of local stores.
Gruen has said she fears that the huge Atlantic Yards developmentin Brooklyn would bring more chain stores to the area, which already is home to such businesses as Target, Marshall’s and DSW shoes, and drive up rents in the neighborhood, pushing out the remaining locally owned businesses.
Crafting policies to address the retail mix in New York presents a challenge Gruen said, because the needs vary so much from community to community. “The city should have a menu of different options,” she said.
Vicky Weiner of the Pratt Center for Community Development has outlinedsome possible ideas, including banning chain stores in some neighborhoods or putting a cap on them, requiring that there be a review of what impact new business would have on a community, offering inducements for government to buy from local businesses and providing tax deductions for small businesses. A handful of smaller cities have implemented some of these strategies, and San Francisco has restricted chains in part of the city.
Zoning can provide a tool as well, according to Victor Dadras, an architect who works with communities to preserve downtowns and main streets. For example, he said, some cities do not allow banks on corners in certain areas.
Dadras sees such effort as vital to New York City. “Once every neighborhood has the same stores -- Starbucks, Rite Aid, Papa John’s Pizza, and all the others –- there is no reason to go from neighborhood to neighborhood”— or from city to city, Dadras said at a forum last year. ”New York City is, along with Boston and Philadelphia, one of the older cities in North America, and we need to be at the forefront of preserving character, which is ultimately what makes people who visit New York come back to shop.”
Shop Til They Drop
Chain stores or not, though, people still come to New York to shop. These days many are from other countries.
Last year, well before the dollar’s latest plunge, foreign tourism rose about 7 percent with more than 7 million visitors from other countries, according to NYC & Company, the city’s tourism agency.. These visitors spent almost $5 billion shopping. After dining out (see related story) shopping represents the most popular activity for visitors to New York.
With the Euro worth almost $1.50– a far cry from the days when the currencies were essentially equivalent -- and the pound about $2 – every day in the U.S. is a sale day for European shoppers. And if you’re coming to the U.S. to shop, New York makes for a more appealing destination for many than, say, a mall in the suburbs.
“I would be hard-pressed to find another metropolitan area that is going to see as big an effect from the falling dollar,” Marisa DeNatale of Moody’s Economy.com has said.
Some companies, such as Ireland’s Tour America, have offered shopping trip to New York. “The number one attraction for Irish people coming to the states – and we’ve done our research – is not DisneyWorld in Orlando,” the company’s Mary McKenna told the Irish Times. “It’s shopping.”
Century 21 has reported that about a third of the business at its New York City location comes from foreign tourists. Tiffany and Co. said sales at its Fifth Avenue jewelry store rose 30 percent in the second quarter of 2007, fueled largely by European shoppers. “They’re buying engagement rings, diamond jewelry, silver jewelry and everything in between,” the store’s Mark Aaron has said. At Macy’s another popular destination, handbags are the number one seller among foreign visitors. McKenna reports that her clients come to New York to the buy name brands that cost them far less here as well as cosmetics, accessories and electronics.
European papers offer tips for where to shop in New York – Century 21 and the Woodbury Common Mall, for example—along with breathless accounts on shopping forays to New York. Writing under the headline “Saks and the City” in London’s Daily Mirror, Emily Stott describeda three-day binge in the city. After snatching up a DKNY watch for half the price it would have cost “at home,” bagloads of cosmetics and shampoo and the “most impractical ever dress” from Diesel,” Shott explained, “Al this shopping leaves time for only a few hours sight-seeing.”
The women did take a ride on the Staten Island, which, since it’s free, will remain a bargain whatever, the currency exchange rates.Â
Where The Funds Stand
Giving to the government may seem a little ridiculous to some New Yorkers. But just in case you were thinking about it, we have taken a look at the charity watchdog ratings of a few government "charities" to see how your dollar would be spent. These ratings do not take into account the mission of the charity, and only examine their financial standings.
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For those that are looking to donate this holiday season here are some watchdogs to check out first. Charity Navigator: rates charities on organizational efficiency, organizational capacity and how an organization grows. Better Business Bureau of Metropolitan New York: rates charities based on 20 standards, from governance and oversight to finances. New York State Attorney General's Office: Oversight of all charities is conducted by the attorney general's office. |
The Mayor's Fund to Advance New York City: Out of the 562 large charities scored by independent charity watchdog, Charity Navigator, the mayor's fund ranks as the best bet for your dollar. It received the highest ranking from the group, which is four stars, but it does not meet the Better Business Bureau’s twenty standards. According to the bureau’s evaluation, the fund does not clearly identify officers on its website nor does its budget clearly identify how much is spent on fundraising and programs. According to Charity Navigator, the fund spends 98.6 percent of its funding on programming, 0 .9 percent on administrative expenses and 0.3 percent on fundraising.
Fund for Public Schools: It met all of the Better Business Bureau's standards and was awarded a four star rating from Charity Navigator. The fund spends 96.5 percent on programs, 2.7 percent on administration and 0.7 percent on fundraising.
Aging in New York Fund: According to the Better Business Bureau, the Aging in New York Fund received nearly $2.8 million from July 2004 through June 2005. However, it did not meet all of the bureau's charity standards because its budget did not clearly identify how much it spends on administrative services and fundraising. The fund spends 83.4 percent on programming, 13.9 percent on administration and 2.8 percent on fundraising.
City Parks Foundation: According to Charity Navigator, the City Parks Foundation brought in nearly $9 million in revenue last year, but it received only two out of four stars. Because Charity Navigator measures an organization's growth, the foundation claims the watchdog does not accurately reflect it finances. The foundation said it helps start-up groups raise money and acts as fiscal sponsors. When that group is ready to become independent, the foundation transfers the fund it had raised for it. In the rating process, that makes the foundation appear as if it is losing program, when it is not, according to the foundation.Charity Navigator found the foundation spends nearly 80 percent on programming, 10.9 percent on administration, and 9.3 percent on fundraising.
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Managing Billions in City Contracts
In the fiscal year that ended June 30, 2007, the City of New York completed over 50,000 procurements worth a total of $15.7 billion. Through contracts and purchase agreements with 49,674 for-profit and non-profit vendors, the city used this enormous sum to buy goods and services and undertake capital projects. In human services alone, the city in 2007 had contracts worth $3.8 billion with various firms.
In addition, the city contracted for $3.5 billion in construction services, $3.7 billion in so-called standardized services (security, transportation, food services, etc.), $3.4 billion in professional services (legal, accounting, auditing, consulting, etc.) and $1 billion in goods. This information comes from the Mayor’s Office of Contract Services latest report, Agency Procurement Indicators for Fiscal 2007.
The contracting report was previously part of the semi-annual Mayor’s Management Report, but under Mayor Michael Bloomberg it has become a stand-alone document that gets even less attention than the MMR (see the October Finance column). One reason for its obscurity is that, like recent management reports, it is essentially a collection of statistics and program descriptions. Another is that it has even less analysis of management matters than the Mayor’s Management Report. Arguably, only three of the contract report’s 99 pages measure recent performance over time.
Worse, one of the two measures of performance celebrated in the three pages – the timeliness of human services contracting – is contradicted in several instances by statistics published by the city comptroller’s office, the office that, under the City Charter, registers contracts.
The other positive performance indicator – evaluations of service contracts – is cryptic. It notes that only 47 of 4,603 vendors evaluated – 1 percent -- were deemed unsatisfactory. Another 138 vendors (3 percent) were deemed in “need of improvement.” Thus 96 percent of all vendors evaluated performed satisfactorily or better in 2007. That’s all we get, since agency-specific evaluations were dropped from the report after 2005.
What the Report Says
The bulk of the contract report describes recent and forthcoming projects, including preliminary efforts to expand opportunities for businesses owned by minority-group members and women and for environmentally friendly purchasing.
It also throws a spotlight on new major areas of city investment:
--Technology, where the city plans to put out over $1 billion in contracts to develop a citywide mobile wireless network and citywide local and long-distance voice and data telecommunications services for all city agencies.
-- Solid waste management, where the report cites over $1 billion of recent and future contracts for truck purchases, disposal and new facilities.
-- The mayor’s ambitious PlaNYC2030 for a more environmentally sustainable city.
All of these programs underscore the fact that big contracts dominate the procurement system: The biggest 25 contracts represent about half of the $15.7 billion of procurements. The top seven contracts in 2007, for instance, each ranged from $500 million to $1.2 billion.
What the Report Does Not Say
These new programs raise an old question: How do we measure results? As presented in the report, there are no publicly announced base lines for big new, or old, investment programs, no specific performance goals, no performance measures for these huge dollar commitments. Yet the need for such performance indicators is reflected in the trouble the city has had fulfilling technological goals in a social services information system and improving police/fire communications, as cited in the 9/11 Commission Report.
The one section of the report that attempts to measure recent performance looks at the timeliness of contract registration. Without prompt registration, providers cannot get paid, and delays can be a sore point, particularly for non-profit organizations. But the performance methodology is narrow. A table in the appendix looks only at one year, and the text offers only few comparisons to the previous year. This ignores the five-year data in the Mayor’s Management Report.
In addition, the timeliness information in the contracts report is inconsistent with the results of similar measures used by the comptroller. The contracts report analyses retroactive contracts – those where the start date for services comes before the contract is registered -- at six human service agencies: aging, youth and community development, children’s services, homeless services, health and social services. According to the contracts report, the Department for the Aging for the second straight year had no contracts that were more than 30 days late. But the comptroller’s report says that 99 contracts – or 32 percent of the agency’s total -- were registered more than 90 days late in fiscal 2007.
Similarly, the contracts report says only 34 percent of contracts in the Department of Youth and Community Development were retroactive in 2007. But the comptroller says 76 percent of all youth department contracts were retroactive in 2007, and 87 percent of those were late for more than 90 days.
At children’s services, the results are much more positive. The comptroller says only 7 percent of children’s services contracts were retroactive, down from 32 percent in 2005. In this case, the contracts office records a higher percentage (16 percent) of retroactive contracts in 2007.
In another comparison more favorable to the city, the comptroller’s report notes a lower percentage (27 percent of late contracts in homeless services in 2007 than does the contracts report (53 percent) does
The inconsistencies between the findings of MOCS and comptroller reports are perhaps most troublesome in their recordings of the average number of days retroactive contracts were late in 2007: MOC says the range was 17 days late at the aging department to 107 days late in the health department) the comptroller says the range was 140 days (homeless services) to 230 days (youth).
Retroactive contracts in all six agencies are late by an average of 52 days, according to the contracts report, 196 days, according to the comptroller. In other words, with some exceptions, the comptroller paints a much bleaker picture of agency management than the Mayor’s Office of Contract Services.
A Case in Dispute
With so little information available about how city agencies deal with contractors, it’s useful to look at the city comptroller’s most recent audit of an agency’s management practices. The comptroller’s audit of the department’s oversight of the Ferry Point golf course project in the Bronx finds many deficiencies in its management system. Although it is only one, rather small vendor deal (less than $10 million of city funds originally), the problems raise questions about oversight and management that are ignored in the Office of Contract Services report.
The $22 million privately funded project, on the site of a former landfill, was conceived during the Giuliani administration in the late 1990s, but most of the project has evolved during the Bloomberg administration. The city entered into an agreement with a firm that would build the golf course.
The city agreed to pick up the costs of correcting the environmental problems at the site, up to about $8 million. The audit argues that the city mismanaged oversight of the project, overpaid for reimbursements to the concessionaire (Ferry Point Partners) by nearly $6 million, lost more than $3 million in anticipated revenue and permitted a construction company to get fees from acquiring fill for the golf course that could have produced as much as $10 million for the city.
The city recently canceled the agreement with Ferry Point Partners and the project, originally slated for completion in January 2003, remains unfinished.
The parks department has rejected most of the criticism in the audit. “The audit reflects numerous errors in both fact and law and a fundamental misunderstanding of a highly complex project and its associated regulatory permitting process,” commissioner Adrian Benepe said. The commissioner blamed the state department of environmental conservation for much of the delay.
In an unusually testy exchange, the comptroller’s auditors repeated many of their original charges. “The [parks] department’s response attempted to obfuscate the serious issues raised in the report,” the office said. ”Clearly, the department has failed to understand the salient conclusion of this audit report – that the department has not properly overseen and managed the administration of the Ferry Point concession.”
The most serious charge in the audit is that there was no effective management system. The report says, specifically, there was no scope for the remedial work to be done on the contaminated site, no breakdown of the costs of remediation, no written procedures for oversight and no full-time project manager for the oversight work. The administration rejects all these charges.
The volatile exchange between the comptroller’s audit office and the parks commissioner underscores how little the Mayor’s Office of Contract Services report includes that would help measure performance. Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001.Â
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