This is an important moment in the life of our great city. And the dedication of the people present in this room - and the millions of others whom you represent - gives us confidence in our ability to meet the challenges we face and to secure our future as the world's greatest city.

Around the world, New Yorkers have earned a reputation for being gutsy, creative, tough, brave. Some characterize us as loud and opinionated. But that's what comes from speaking our minds with candor and making our point with vigor.

It is in this spirit that I come before you today to discuss the state of our city.

We in the council began the past year with many questioning the ability of a brand new body to lead this city. We answered those questions by discharging our duties responsibly.

The council succeeded in making city government more efficient and cost-effective, and in addressing some of this city's lingering injustices.

And we did this together - 51 members of the council representing every community in the most diverse city on earth. Everything this body achieved, we achieved as a team.

Because we understand that what we do here in this room has a real and lasting impact on people's lives�. Every budget we pass affects millions of New Yorkers and every piece of legislation has a real life story behind it.

In a tough environment, the council flexed its legislative muscle in defense of real people. And I want you to meet a few of the real life faces behind some of the bills we passed this year.

Too many New Yorkers are unable to lift themselves out of poverty despite working full time. That's why we passed a living wage bill�to help hard working people like Marie Watson, Niteka Petgrave and Yu Wa Chan who are here with us now�these women all work as home health aides, caring for the elderly. The living wage bill means that they can keep the jobs they love, their clients will benefit from their experience and expertise and they can still afford to pay their bills and build a better future for their children and grandchildren.

Last year, we also passed a displaced workers bill, which has already saved the jobs of many workers and will save the jobs of many more�workers like Ardian Meta. Mr. Meta cleans offices at a midtown company. When the company changed contractors he would have been laid off - and lost his family health plan - were it not for this important law that protects workers during these transitions.

We also passed a bill to protect people from losing their homes. Sadly, many New Yorkers fall victim to predatory lenders who cheat them with credit terms they know can never be repaid. Repeated refinancing of homes drives people deeper and deeper into debt. That's why I am proud we passed the most innovative and effective legislation in the country to prevent predators from taking the homes of people ever again.

We also passed and fought for important initiatives to:

• improve the administration of New York City public schools;
• provide better access to health care;
• expand domestic partnership rights;
• protect employees from the dangers of second hand smoke;
• improve access to breast cancer screening;
• reform the city's procurement procedures;
• exempt seniors from rent increases;
• create affordable housing;
• and, of course, begin the long process of rebuilding and revitalizing downtown Manhattan.

The council stepped up to make some very tough decisions. And we got results.

But as everyone knows, New York City continues to face a daunting budget deficit.

Tackling this deficit was job number one last year; it remains job number one this year.

Last year, the council worked with the mayor to adopt nearly $2.7 billion dollars in spending cuts and we proposed an additional $500 million in further cost savings that we're going to continue to fight for. And in what had to be the most difficult step taken in 2002, we negotiated down the mayor's proposed 25 percent property tax increase to 18 and a half percent.

We understand that this is a financial strain for many working New Yorkers�that it's a sacrifice in these difficult times.

But we simply had no choice. We needed the revenue to sustain the essential services New Yorkers depend upon.

Unfortunately, our budget problems are still not solved. We face a deficit next year of more than $3 billion dollars. And I want to commend Mayor Bloomberg for his honesty about the severity of our predicament.

New Yorkers are tough, and I believe we are prepared to take steps necessary to ease future burdens. As for how the council will respond to the specifics of the mayor's recently released preliminary budget, I will say this now:

The council's job is to listen to the people � to hold hearings and deliberations� to thoughtfully and conscientiously consider the budget and its impact on our quality of life.

This is what allowed us, during the course of the last budget negotiations, to not only say "education first," but to actually put education first.

To not only advocate for our city's seniors and children, but to actually protect senior centers and day care services from dangerous cuts.

We are prepared to scrutinize the budget� line by line, comma by comma� as we protect essential services and find additional savings. We will also creatively work to find new revenues.

With deficits looming in the city and state, we will make every penny count.

But if we are to discuss our needs realistically, then we must also discuss, just as frankly, the causes of this fiscal crisis. There are four significant factors.

First of all, we were bombed.

We were the site of the worst terrorist attack in our country's history. We saw thousands of our loved ones die in just a few moments. The human cost of this tragedy is immeasurable.

But the economic impact is also enormous. The comptroller put the overall cost to our economy at $95 billion dollars for just the first two years. And the GAO estimated that, as a direct result of the September 11th attacks, we lost $3 billion dollars in local revenue.

Second, we are experiencing a national recession that is particularly harmful to key sectors of New York's economy. Wall Street's downturn alone has cost our city nearly one billion dollars in local revenue. We need to broaden our economic base so that our fortunes will not be so directly linked to the ups and downs of the stock market.

Third, if we are to be honest with ourselves, we should admit that we probably lived a little too high during the boom 1990's. We could have paid down more debt and put more aside for the rainy day that we knew would come, although I don't think anyone could have anticipated such a downpour.

We must not make that mistake again. And so the council will be sending up to Albany legislation to enact a real rainy day fund that will help this city put away money in the good times we know will return so that we have resources in the bad.

But I want to direct your attention today to a fourth cause�a more consistent and less acknowledged component of our city's fiscal stress.

In recent decades, a structural imbalance of both responsibilities and payments has developed between the federal, state and city governments.

Just last year, New York City sent Washington $6.3 billion dollars more than we got back� and we sent Albany $3.5 billion dollars more than we got back.

This imbalance fuels a cycle of crisis. In boom times, it makes us less competitive. In difficult times, it is crippling. At all times, it costs our city jobs and growth.

Simply put: we pay more than our fair share, we get back less than our fair share, and the result is that we are forced to compete with both hands tied behind our back. It's been going on too long, it's wrong and it's time we put an end to it.

Let's start with Washington. The government mandates federal programs and fails to fund them, leaving states and localities to pick up the check. More accurately, the federal government fails to fund some programs while fully funding others.

For example, each year Washington distributes $32 billion dollars in agricultural support to farmers. Federal funds flow in and no matching funds are required of the states and localities. Arkansas received $832 million dollars in farm support last year and didn't contribute a nickel of its own.

Why must states match federal funds for TANF -- temporary assistance for needy families -- but not for permanent assistance for needy farmers?

Medicare is another fully-funded federal program, one to which states aren't required to contribute.

Why, then, should all states and localities be required to match federal funds for Medicaid but not Medicare? Why does the federal government pay for the health care of seniors but not poor people?

Where is the logic?

Where is the justice?

This is not an academic question. The federal government's inconsistent and unfair funding formulas suck billions of dollars out of New York City year after year after year.

$6.3 billion dollars in 2001�. 6.3 billion dollars.

They take our money, distribute it elsewhere and we never see it again. Is it any wonder why New Yorkers are so highly taxed?

New York City spends nearly $4 billion in matching funds for Medicaid. That's $4 billion dollars that our residents have to pay in taxes. That's almost the same amount as our entire personal income tax receipts.

Think about that.

Close to 80% of our entire personal income tax� four out of the first five dollars that every New Yorker pays in their personal income tax goes to pay matching funds for a program we have no control over. That money could be used to pay for teachers, cops and firefighters. Other cities don't have this burden and it undermines our competitiveness.

What we need from Washington is responsible leadership.

And what are we being offered instead?

Well � let's take a look at the economic stimulus plan that the president proposed last month.

First of all, there is nothing stimulating about a tax cut on dividends. Most working Americans who get dividends do so through their 401 k plans.

They're already not paying taxes on dividends. And even under the president's plan, they will pay taxes when they finally retire and take their money out. Those who will realize savings from the dividend cut will reallocate the savings within their stock portfolios. This is not going to create one single job.

But it's worse than that. The proposed exemption on dividends is a disaster for cities, who rely on the benefits of municipal tax-free bonds.

By making our bonds less attractive, president bush's proposal will directly increase the cost of raising capital to improve and maintain our subways, roads, parks and schools.

The exemption on dividends would also reduce New York City's revenue by over a hundred million dollars in tax year 2003, with New York state losing around $550 million in revenue.

The president's economic plan may leave no multi- millionaire behind, but it soaks America's local governments and decimates the services that working people depend upon.

So what do we need from Washington?

Today I ask the federal government to take several actions that would dramatically improve the city's ability to realize genuine and sustainable recovery.

First: release the three billion dollars the city deserves in disaster aid. That's how much the GAO says the city lost in local revenues as direct a result of September 11th.

It's actually a simple measure requiring congress to pass a bill to remove the recently imposed cap on the community disaster loan program.

This was a good, common sense program that the federal government used to offer to cities that were struck by a disaster. Other cities and counties got this when they were struck by hurricanes or floods.

Why shouldn't New York get this assistance when we have been bombed by Al Qaeda? All New York City wants is what other local governments were granted in the past.

Second, we need Washington to provide full funding for public safety needs relating to anti-terrorist activity. The current budget of the New York City police department includes $110 million in national security expenditures to combat terrorism and protect foreign dignitaries.

When did Washington decide that cities and towns are responsible for national defense?!?

Third, and most importantly, let's deal with unfunded mandates. The federal government needs to pick up the cost of Medicaid and other mandates and stop heaping a disproportionate share of the weight on the backs of local governments.

But until they do this, Washington should give New York City� and every other city in America that's drowning in red ink� what we need most - real revenue sharing.

Right now the bush administration is perpetuating a cycle of crisis in every city in the country. With one hand, president bush offers the illusion of billions in tax cuts. And with the other, he forces city and local governments to raise their taxes on homeowners. It's a shell game.

During an economic downturn, the burden on local governments increases at the same time as revenues fall. There is greater joblessness, homelessness, and more pressure on police departments to keep crime low. And we have to respond to all these challenges with fewer resources.

Without help from Washington, local governments have to respond by increasing the taxes at their disposal. Take a look at what's happening in Westchester, Suffolk, and Nassau counties. They've been forced to raise property taxes too.

Across the country, there is a growing realization that the system is not working. Forty-six states have budget gaps:

• Oregon is trying to save money by shortening the school year.
• Oklahoma has plans to lay off thousands of teachers.
• and Kentucky is planning the release of 500 prisoners as a cost saving measure.

All of these states are hampered by a system that holds America back.

If the president was really serious about stimulating our economy and addressing the needs of working people, he would support federal revenue sharing.

Let's take the $80 billion dollars that the president set aside in tax cuts for the wealthiest Americans and use it instead to finance a federal revenue sharing program to help all Americans.

With this program, the federal government could distribute money among localities, who in return would agree to use the funds they receive for two purposes: to keep our cities safe, educate our children and allow our seniors to grow old in dignity� and decrease property taxes.

In New York City, this program would provide more than a billion dollars in budget relief and more than a billion dollars in property tax relief for homeowners. That's a two-thirds rebate on the property tax increase that the city was forced to enact last November.

That's the kind of stimulus New York and the nation need � stimulus for all of us and not just the lucky few. And I am pleased to say that Congressmen Weiner and Sweeney will soon introduce bipartisan legislation to accomplish just that. And Senator Schumer has already introduced a bill to support federal revenue sharing. All of their efforts deserve our support.

Now, there are those who say this is unrealistic. But they need only look a few short decades back. That's when Congressman Ed Koch led the fight to pass a similar program, which was then enacted by President Richard Nixon. Back then, revenue sharing was a rational, sound measure to relieve budget deficits in states and cities around the country. It remains so today.

We can change policy in Washington.

And if America is going to get moving again� if New York City is going to get moving again� then we must change policy in Washington.

But it doesn't stop there. We need change in Albany, too.

Because in case after case� instance after instance� the state shortchanges New York City in a wide and costly variety of ways.

Currently, the state shortchanges the city with:

• $258 million in foster care payments;
• $166 million for early childhood intervention;
• we're short $141 million in indigent defense costs;
• $50 million of our share of funding from the environmental bond act;
• the state doesn't even reimburse us for $10 million in expenses for supervising state prisoners!

The list goes on and on and on and on� and to add insult to injury, consider this: when the governor established 75 economic development zones across the state, only 10 went to New York City.

It's gotten so that whenever I hear the word "formula" in Albany, I wince�because I know that it means, one way or another, New York City is about to get cheated.

Take the transportation formula. Currently New York City moves about 84 percent of the state's transit riders but receives only 63 percent of all state aid for mass transit. This costs us $325 million.

Finally, the state's repeal of the commuter tax was a cynical exercise that has cost New York City $1.5 billion dollars to date.

Given this state of affairs, what is Albany offering New York City?

The governor says his top priority is to avoid tax increases. Strong words. But let's look at his actions.

Take his proposal for a transit-fare increase. The governor likes to pretend it isn't a tax. But what else do you call it, governor, when you take money from the pockets of working people?

Before we even consider a fare increase, the governor ought to give New York City the transit aid we deserve.

And let's look at his tuition hikes for students at our state and city universities. Making it harder for people to get a college education doesn't just kill jobs, governor, it kills hope and opportunity.

I urge the governor to reverse this decision�. And while you're at it, meet your obligation to fully fund associate degree programs at all of the city's four-year institutions.

John Jay College� the College of Staten Island� Medgar Evers College� and New York City Technical College� all are still denied the state funds to which they are entitled.

And as it turns out the governor is proposing new taxes. Now he wants to put back the sales tax back on clothing items under $110.

The mayor and the city council pushed for getting rid of this tax to create retail jobs and ease the burden on lower-income families. How did it become the one tax the governor was willing to impose?

Unfortunately, the news gets worse from here.

The governor actually found a way to cut $1.2 billion from Medicaid without saving the city any money at all. Just a week ago, most of you wouldn't think that was possible.

Now he wants to take over the cost of prescription drugs, (a burden that the federal government is actually considering assuming), and increase the city's share of hospital, clinic and outpatient costs to 37%.

We're already paying 25% more than almost any locality in the country. In the midst of our fiscal crisis, he wants us to pay more?

Now New Yorkers admire chutzpah. But we don't like having our pockets picked. And the governor's Medicaid proposal is a disaster for our city, our health care industry and all working New Yorkers.

But amazingly it gets even worse. The governor's cuts in education aid add up to more than $700 million dollars and fall directly upon the most vulnerable among us - our children.

We're trying to turn our schools around. We cannot possibly absorb these cuts to public education and our children cannot be forced to languish in a second-rate school system.

Remember this: it costs the state more to sacrifice a generation of students than it does to invest in them.

Governor Pataki, please, stop your assault on public education.

If the governor was serious about addressing our real problems, he wouldn't resort to false solutions�

We need real help. New Yorkers have stepped up to the plate already. We have cut our budget dramatically and raised our property taxes. Now it's time for Albany to match our commitment.

Today, I call on the state to give us the opportunity to address our own fiscal problems. Give us the power to enact a $1 billion commuter tax. Twenty cities currently have some form of commuter tax - including Yonkers. The state imposes its own commuter tax. Why should we be treated differently?

Let New York City decide its own fate� and let us provide real fiscal relief for our citizens and our commuters alike� because our commuters have just as much stake in the fiscal integrity of the city as our residents.

Next, I ask the state to, once and for all, give our city the right to begin property tax reform through an absentee landlord surcharge.

Right now, absentee commercial landlords enjoy the same property tax rates as those who actually live in their single family homes.

This eludes both fairness and logic. Renting apartments is, after all, a business. And if absentee landlords paid commercial property taxes as they should, the city would realize hundreds of millions of dollars in tax revenue - revenue we desperately need.

It's time for Albany to change its ways�. And it's time for all of us to dedicate ourselves to restoring balance and fairness to the system.

Because only when we get our fair share will our city be as productive and competitive as the talents of our citizens allow.

Only when we get our fair share will our schools truly meet the needs of all our children. Only when we get our fair share will our police officers and firefighters have all the resources they need to keep crime low and protect our families from harm.

Our city's relations with the state and federal governments are fundamentally unfair. We are overtaxed and we are undeserved.

And we are fed up.

Today, I propose an organized, concerted effort, a campaign called "fair share," to realign federal, state and city responsibilities and the balance of payments between them. It is a campaign for equity and responsibility.

I am a realist. I know when we are standing at the bottom of a very steep hill, looking up. But I also know that we are not alone. We have so many dedicated and effective allies in this battle. We have two extraordinary U.S. Senators -- Senators Schumer and Clinton -- who have fought for the community disaster loan act and federal revenue sharing.

We have an outstanding congressional delegation, led by the Honorable Charles Rangel, to argue our case on Capitol Hill.

We have a State Assembly Speaker, Sheldon Silver, who has always stood up for New York City and will continue to fight.

And we have committed state assembly members and state senators who fight for us in the trenches everyday. I know we will prevail.

Our history is full of imposing mountains and rugged hills made plain by the determination and commitment of our people. We've spanned rivers and tunneled beneath them; built skyscrapers and subways.

Is it really beyond us to order our affairs of government in a responsible and equitable manner? I don't believe it is.

We have already begun to reach out to cities across our nation who will join us in this fight for federal revenue sharing.

Over the last month, I have heard a chorus of support from mayors, council presidents and county executives from California to Georgia�from New Mexico to Connecticut. Like New York City, they all want to be treated fairly.

What we are doing here is building a movement�. A movement where public officials and private citizens alike will join in the fight to help New York City get the resources we need and deserve. We can get justice in Washington, justice in Albany� we can boost New York City high above the inequitable formulas and cycles of crisis that threaten to hold us back.

We will become New York City boosters� foot soldiers in the fight for equity and fairness.

In the months ahead, we'll be rolling out a series of grassroots ideas to fuel this campaign. And everyone will be encouraged to participate.

We have recently created a website -- nycboosters.com. It will be a great resource to raise public awareness and let New Yorkers know what they can do to help. We ask all New Yorkers to log on. There you will soon find information about rallies and bus trips to attend� we will be asking you to write letters and make phone calls. The important thing is that we bring to the attention of every New Yorker the terrible injustices our city faces. And we need to confront our leaders in Washington and Albany with one voice, united.

The good news is that we have plenty of opportunities to drive our points home. New Yorkers are civic-minded people. We belong to thousands of organizations that support causes and candidates across this country.

New York City is a regular stop on the campaign trail for almost every political office in the nation. When candidates ask for our support and contributions, we usually ask them where they stand on a variety of issues that are important to us. From now on, when a candidate asks you for your support, I want you to ask them:

What are you doing for New York City? Do you support revenue sharing?

New York's generous fundraisers, business organizations and labor unions are already united by a deep and abiding love for this great city. Now we need to band together to ask candidates this one simple question: what are you doing for New York City? Do you support our commuter tax?

I can promise you that when every presidential candidate comes here I won't be shy in asking, what are you doing for New York City?

Mr. President and Governor Pataki: something's got to give. Because so far, the citizens of New York City have been doing all the giving.

The numbers tell the tale of inequity. Yet as significant as those numbers are, they don't begin to tell the story of this city's enormous contributions to our state and to our nation.

New York City is truly the finance capital of the world. But we represent a lot more than money. We're also the cultural and intellectual capital of the world. We're home to the stock market� and the United Nations� and the world's greatest cultural institutions. We're home to the most extraordinary� most diverse� most industrious� innovative and accomplished citizens on the planet.

We have public schools where the kids speak more languages than the delegates at the U.N.

We're a hub for global transportation and an incubator for today's most important ideas and tomorrow's most compelling vision.

And that's just a small sampling of the intangible, incalculable contributions our city makes to our nation and the world every day. Because of those extraordinary qualities, New York City will rebound. We will recover and we will come back stronger than ever.

In the end, we are still the greatest city in the world. I can't imagine living anywhere else. My wife and I can't imagine raising our two kids anywhere else.

After September 11th, the entire nation poured out its heart and demonstrated to the world an astounding commitment to the people of New York City.

We are all tremendously grateful. And it is this spirit of generosity and faith in humankind that inspire us to move forward � to seize this moment in history and rededicate ourselves to building a better, more competitive, and more just 21st century city.

And when we have succeeded, we will look back and say to ourselves and our children that we helped the greatest city on earth meet its greatest challenge.

I thank you all for your confidence in the future of New York City.