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Citizens Union

Bloomberg and the Budget: A Story in Three Parts


Mayor Michael Bloomberg's eight-year city budget story can be broken into two chapters and an unfinished epilogue. In the first chapter, the mayor, having inherited economic and political circumstances beyond his control, masters fiscal turmoil by filling a nearly $8 billion budget gap with bold spending reductions and tax increases -- and puts the city back on a firm fiscal foundation.

In the second chapter, blessed with a robust economy and unanticipated new revenues, the mayor introduces new spending, including a major increase in capital spending. He also reduces taxes for high earners and property owners, and, not incidentally, expands his fiscal powers by building huge budget surpluses and creating a new reserve fund.

In the epilogue, the mayor in June 2009, facing a major recession and plunging tax revenues, patches together the 2010 budget, the last budget of his second term, filling yet another $8 billion budget gap with big expense and capital budget cuts, tapping into his reserve fund, and new tax increases.

The epilogue is unfinished, however as the patching fails to fill the cracks in the city's fiscal foundation. The story comes full circle as the June 2009 Bloomberg financial plan paints a fiscal future as gloomy as that of former Mayor Rudolph Giuliani's June 2001, last financial plan for fiscal years 2002-2005.

Who Wins, Who Loses?

The roller-coaster changes in the Bloomberg fiscal narrative make it hard to determine the overall impact of the eight years. Certainly, on the spending side, there has been a rapid increase in so-called non-discretionary areas: Medicaid, debt service, pensions and health insurance costs. Those mandated costs, coupled with two periods of agency downsizing and tax cuts during chapter two, have squeezed the budgets in essential city services.

On the tax side, the story is simpler. City tax burdens have shifted over the past eight years. The bold tax increases in the crisis of chapter one were not only ambitious, they were equitable, raising not personal income tax rates in a progressive way and increasing average property tax rates by 18.5 percent after a decade of frozen average rates.

But during chapter two and the epilogue, the tax system seems to be more about politics than policy. Progressive income tax increases were phased out and property taxes were cut back -- then raised again. And the last patch job -- the June 2009 financial plan -- was a 12.5 percent increase in the city’s most regressive tax, the sales tax, while the personal income tax remained at historically low levels.

In addition, the mayor never addressed the inequities and bizarre complexities of the city's property tax system, the city's biggest tax source. The current system plays favorites, giving preference to especially homeowners over renters, who pay a portion of their landlord’s tax, in spite of the fact that renters represent two thirds of New Yorkers.

Chapter One: Fiscal Crisis

When he took office, Bloomberg inherited a host of economic and fiscal crises: an unbalanced financial plan and a national recession that began in 2001 and deepened with the local economic consequences of the Sept. 11, 2001 terrorist attack. Former Mayor Rudy Giuliani's last financial plan, adopted in June 2001, had projected $2.8 billion and $2.6 billion deficits for fiscal 2003 and 2004, respectively. The New York State Financial Control Board warned in July 2001, "The city's fiscal fortunes are about to enter a period of turbulence."

Turbulence indeed. Bloomberg and the City Council, in June 2002, balanced his first budget, with the help of $1.5 billion in state-approved borrowing, but by November 2002, prospects for the 2003 budget were dark, and the projected 2004 budget deficit ultimately reached nearly $8 billion.

Here began the mayor's finest fiscal hour. Not only did he begin a series of agency budget reductions, but in a matter of weeks he convinced the City Council to agree to an 18.5 percent increase in the city's property tax rate, as of January 2003, a bold political move given that the average rate had been frozen for 10 years.

The second major step was the mayor's larger gap-reduction strategy in the fiscal 2004 budget. Again, in addition to big expense cuts, the mayor and council agreed on two new and temporary personal income tax rates for higher income households (4.25 percent for singles earning over $100,000 and 4.45 percent for those with incomes over $500,000) and a temporary (two years) sales tax rate increase (0.125 percent).

Thus the mayor resolved the fiscal crisis with a balanced use of new tax revenues and agency reductions. The tax burden was spread equitably, the bulk of it falling on commercial and residential property owners and higher-income households.

Chapter Two: The Boom Years

Once the fiscal 2003 and 2004 budget crisis was resolved, the city benefited from a robust economy and the new tax revenues that poured in. City-funded spending increased rapidly, as spelled out in the July report of the state deputy comptroller for New York City, averaging nearly 10 percent in fiscal 2004 and 2005 and 8.6 percent during 2006 and 2007.

But the spending had a unique pattern. It included the crafting of huge annual budget surpluses, the creation of a new reserve fund, the use of surpluses to pre-pay future expenses and substantial salary increases for city workers. Uniformed workers, for example, got annual increases of 4.5 percent and 5.0 percent in 2005 and 2006, and 4.0 percent annually from 2007 to 2010. As long as the surpluses continued, the surplus rollovers made budgeting for the next year rather easy.

The scale of these surpluses was impressive. According to the state deputy comptroller, revenues exceeded expenditures by $3.3 billion in fiscal 2005, $6 billion in 2006, $6.6 billion in 2007 and $4.1 billion in 2008. But the high rate of city-funded spending in that period masks the fact that relatively little of the growth went into new services.

Most of the growth was in so-called non-discretionary and employee fringe benefits (pensions and health insurance costs primarily) or went to pre-pay expenses. During 2006 and 2007, for instance, the city contributed $2.5 billion to its new reserve fund, the Retiree Health Benefits Trust. In 2007, it retired $1.3 billion in outstanding debt due in fiscal years 2009 and 2010. Excluding those discretionary trust-fund contributions and the pre-paid debt, city-funded spending would have grown more slowly, 2.5 percent in fiscal 2006 and 7.4 percent in 2007.

In what would turn out to be the last year of the economic and budget good times, city-funded expenditures increased by 5.1 percent in 2008 -- including another big pre-payment, of $2 billion in debt service otherwise due in 2010. During this period the mayor started reducing his earlier property tax increase, introducing in fiscal 2005 an annual $400 property tax rebate for residential owners and in fiscal 2008 a 7 percent reduction in the property tax rate.

The other big budget initiative during these years was in the capital budget. A 10-year capital plan that totaled $49.3 billion in fiscal 2004 increased to $83.7 billion in fiscal 2008, according to the July financial control board report. The city made capital commitments of $12 billion in 2008 and $13 billion in 2009.

Epilogue

The mayor recognized halfway through the 2008 fiscal year that the economy was slowing, tax revenues were about to fall, and several years of city budget surpluses were about to end. So in the January 2008 financial plan modification, the mayor began a series of agency reductions and new taxes that continues to play out in the current 2010-2013 financial plan. Total gap-filling actions for fiscal 2010 alone total $8.4 billion, according to the state deputy comptroller.

The same report notes the result: Spending over fiscal 2009 and 2010 is projected to decline by 2.8 percent. The 10-year capital budget plan was cut back by $22 billion, or 27 percent.

So what has been the cumulative effect of several years of discretionary spending increases, tax shifts, rollovers of budgetsurpluses, steady increases in non-discretionary areas and recent discretionary cuts? There are at least four different ways of answering the question.

Conservative or Expedient

One views the Bloomberg administration as doing the prudent thing: preparing for a rainy day, keeping discretionary spending down, paying future bills early, putting money in a reserve fund for future retiree health costs, keeping taxes lower than they had been -- in other words, fulfilling a solid conservative agenda.

But another way of looking at these years sees short-range budget-patching trumping long-range planning and politics winning out over policy. In this view, the focus should be on the fact that Bloomberg's June 2009 long-term financial plan is structurally unbalanced. The financial control board says future deficits could reach $6.3 billion in 2012 and $7.1 billion in 2013.

One reason is that the budget surpluses have finally run out. The state deputy comptroller points out that some $6.6 billion of the current $60 billion 2010 budget is composed of "nonrecurring revenues," often called "one-shots," a no-no for fiscal conservatives. Some $5.7 billion of those one-shots in 2010 represent the pre-payments from earlier surpluses.

As a result of using one-shots like the surpluses, budgeting for next year -- fiscal year 2011 -- starts with a $6.6 billion hole to be filled. In fact, the prospects for the 2010-2013 financial plan look worse than for Giuliani’s last financial plan, in June 2001.

The state financial control board in 2001 projected that Giuliani's plan would leave as much as a $3.6 billion budget hole for the next mayor’s first full-year budget -- an amount equal to 8.3 percent of the projected $43 billion 2003 budget. Bloomberg learned how prescient the board was a little more than a year later when the November 2002 fiscal crisis erupted.

In this view, we have come full circle. The June Bloomberg financial plan for 2010-2013 projects a budget gap for fiscal 2011 (the next administration’s first full-year budget) that the financial control board says could be as high as $6.2 billion, or 9.2 percent of a projected $67 billion budget.

Missed Opportunities?

A third view of the Bloomberg record posits that using budget surpluses as rollovers and parking money in a reserve fund meant missing a chance to improve essential services.

Discretionary spending ihas become a much smaller part of the total budget. The deputy state comptroller notes, for instance, that non-discretionary spending is projected to represent 54.2 percent of city-fund revenues by fiscal 2013, up from 39.9 percent in fiscal 2002.

Since the January 2008 gap-filling began, agencies have seen their funding squeezed. The total cuts reduced 2010 spending by over $3 billion. The most severe of these reductions came in June’s adopted financial plan. They will average about $2.1 billion each year from 2010 through 2013. Nearly $1.2 billion of those annual cuts -- or 62 percent -- will come out of five major service agencies: public education, police, fire, social services and children’s services. Nearly $700 million a year, 34 percent of the cuts, will come from education alone.

The mayor's strategy of service cuts the past two years has generally called for across-the-board reductions: no priorities, no exceptions for any service, such as education, seniors or children services. On the tax front, however, the changes have been more selective, adding a new burden for the average New Yorker while protecting higher income residents.

For instance, the $2.4 billion in new taxes in the 2010 budget have two major parts. About $1.5 billion comes from eliminating the 7 percent property tax cut in January 2009 and the $400 property tax rebate for homeowners as of July 2009. The beneficiaries of those cuts will then pay the same rates that went into effect in January 2003.

On the other hand, the big city sales tax rate increase (from 4.0 to 4.5 percent) and repealing the sales tax exemption for clothing over $110 together add over $600 million in new revenues, but use the most regressive tax available, inequitably burdening lower-income New Yorkers.

At the same time, the top rate of the city's mildly progressive personal income tax remains at 3.65 percent, well below the 4.45 percent top rate used to help resolve the fiscal 2003 and 2004 crisis, as well as a similar crisis in the early 1990s. The mayor has claimed that restoring the higher income tax rates for higher earners could be counterproductive, forcing the richest New Yorkers to leave the city.

Expanding Mayoral Power

A fourth reading of the Bloomberg budget narrative would challenge the mayor's increased power over fiscal matters. New York City mayors have enormous power over city budgets under the city charter. The City Council does formally approve each executive budget and the mid-year modifications but rarely challenges the mayor. The council restored or added only $364 million to the $60 billion budget adopted in June -- less than 1 percent.

Mayors of New York have always had this power but Bloomberg has taken it further. For one, he made major changes in mid-year modifications, which are normally uneventful, technical updates. The November 2002 and January 2008 financial plans were pushed through in a matter of weeks; the City Council -- and the public -- had little chance to comment on either modification. Bold actions, yes, but they short-circuited thedemocratic give-and-take of the January-June budget process.

The most controversial example of enhanced mayoral power is the creation of the Retiree Health Benefits Trust fund in fiscal 2006. That fundwas sold as a set-aside for the city’s growing liability for health benefits for retired city workers. Liability will reach nearly $100 billion by fiscal 2013, according to the financial control board's July 2009 report.

The board in another report, little more than two years ago, said, "The trust fund money, once committed, will only be used to pay the costs of healthcare benefits in future years and will not be used for any other purpose."

Well, the board got that wrong. The June financial plan for 2010-2013 draws down $1.1 billion of the fund's $2.5 billion to help fill the big deficits ahead. The board in its most recent report calls this, "a significant step back" in addressing the healthcare liability. The city comptroller's July report calls the drawdown "unfortunate." The deputy state comptroller adds that it "shifts the burden to future taxpayers."

Bloomberg deserves credit for balancing eight budgets, two of them under very difficult circumstances. But any judgment about the substance of the budgets themselves must note the city's uncertain fiscal future, the expansion of mayoral discretionary power, and the lack of any sustained and substantial budget policy priority, either on the spending or the tax side.

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

The City Grades Itself on Schools, Homelessness


photo (cc) superk8nyc

The Mayor’s Management Report for fiscal year 2009 is a 236-page jumble of data that tells us a lot about social conditions and agency activities in the city. But an analysis of data on two priority departments -– education and homeless services –- shows how limited the report is in determining actual management performance. In fact, contrary to the requirement set out in the City Charter, the Mayor's Management Report released Sept. 29 -- 12 days after the due date set out in the charter -- says very little about management.

In education, for instance, some data seem to show substantial progress, much as the mayor has claimed. And in homeless services, some data seem to show the reverse: how badly the mayor has failed in his promise to reduce homelessness by two thirds.

But with both agencies the design of the report makes it difficult, if not impossible, to determine success or failure. Indicators are changed constantly; few trace performance over long periods of time. Some numbers are self-serving; other more useful indicators are simply ignored.

What little management review the report provides is either cryptic or opaque. The result is not so much a management report as a fact book. The fact that the book is designed, produced and advertised by those whose accountability the Mayor's Management Report is meant to document limits its readability and credibility.

High Marks for Education

The 2009 management report is packed with good news about a school system now under direct mayoral control. In fact, the section of the mayoral press release that reviews the eight years of the Bloomberg administration said that 27 of 27 public education indicators show a "positive or stable trend." In human services, by way of contrast, it's 22 of 34.

Among the highlights: Using city data, the percent of students who graduated high school in four years rose from 51.0 percent in the 2000-01 school year to 65.5 percent in school year 2008-09. .

The 2009 Mayor's Management Report adds a new indicator that uses state, not city, data. Under this method, the graduation rate rose from 46.5 percent in school year 2004-05 (no data available able for 2000-01) to 60.7 percent in 2007-08. The difference stems from the fact that the state doesn’t count graduation-equivalent diplomas or special education diplomas in measuring graduation rates.

A more amazing highlight is that the number of students in grades three through eight meeting or exceeding standards in English Language Arts rose from 39.0 percent in the 2000-01 school year to 68.8 percent in 2008-09; in math the rate rose from 34.0 to 81.8 percent in the same period.

Equally astounding was the success announced in early September in an indicator included in previous management reports: 97 percent of schools scored A's or B's on their school progress report cards -– an indicator introduced in the 2007 report, when 62 percent of schools received A's and B's.

The press greeted this year's report cards more as a joke than a triumph: A Times reporter commented, "Suddenly, New York City looks like Lake Wobegon, where all the children are above average." This may explain why neither the mayor’s Mayor's Management Report press release nor the report itself includes those new school grades.

Budget Size, Class Size

The school budget for the 2008-09 school year was $17.7 billion according to the report, over 50 percent more than in 2000-01. The reduction in class size, however, is quite modest as measured by the nine indicators in the press release show changes in class size in grades kindergarten through eight.

In grades kindergarten through three, class size declined, on average, by less than one student per class (to 21.3 in 2008-09 from 22.1 in 2000-01). In grades four through eight, class size fell by an average of 2.2 students per class (from 27.5 to 25.3).

The department has reduced overcrowding in schools. The number of elementary schools exceeding capacity fallen from 48.5 percent in 2000-2001 to 26.0 percent in 2007-08. The number of overcrowded high schools is down from 58.3 percent to 40 percent in the same seven-year period (the 2008-09 data are unavailable).

Questioning the Numbers

This mix of modest-to-amazing progress is tempered by a number of critics who have questioned the department’s test results. More than a year ago, a team of New York Daily News reporters raised serious questions about the sudden explosion in New York State reading and math scores, including those from New York City scores. Robert Tobias, an NYU professor and a former top test official for the city Board of Education, suggested, "The test is probably easier than in the past."

More recently, the Times in September reported that seventh graders who correctly answered only 44 percent of math questions got passing grades. On some tests, a student could randomly guess and still stand a good chance of receiving a passing grade.

NYU research professor Diane Ravitch has pointed out that Mayor Michael Bloomberg's claims for dramatic improvements in student achievement have not been verified by any independent source. She noted that on the federal National Assessment of Educational Progress, New York City "showed almost no academic improvement between 2003, when the mayor’s reforms were introduced, and 2007."

She added, "There were no significant gains for New York City's students, black, Hispanic, white, Asian or lower-income -– in fourth-grade reading, eighth-grade reading or eighth-grade mathematics." Significant gains in fourth-grade math, she suggested, may be suspect because 25 percent of the students were given extra time and help.

In September, Ravitch called the school progress scores "bogus."

The only indicators in the Mayor's Management Report with any direct relevance to management in the Department of Education are the numbers of years of teaching and principal experience. The percent of teachers with at least five years experience has remained unchanged at 64.4 percent over the past four years, and the percent of principals with more than three years experience in 2009 (53.5 percent) is almost exactly (53.7 percent) what it was three years ago.

The report makes no effort to examine the effect of major mayoral initiatives in education, including: charter schools, small high schools and the centralization of administration. Nor is there any mention of the more than $3 billion of contracts that the department manages -- in spite of recent criticisms by the state and city comptrollers.

The Bloomberg administration in 2002 moved contract information from the Mayor's Management Report into an annual report issued by the Mayor's Office of Contract Services that has extensive data but even less exposition than the management report.

Homeless Services

It is equally hard to get useful management information about the Department of Homeless Services in the Mayor's Management Report. Unlike the education department, which provides mostly direct services, homeless services is essentially a contract agency. More than 77 percent of the agency’s $865 million budget in 2009 went to189 privately run shelters under contract with the city. The city itself runs 11 more. The almost complete privatization of homeless services has been one of the major changes in city government over the past 15 years.

But the management report indicators do not include any management information about that new city/private relationship. The eighth-year review in the mayor’s press release on the management report acknowledges many more families are in the shelter system today than eight years ago: The average number of families in shelters per day rose from 5,563 in 2001 to 9,244 in 2009, almost a two thirds increase.

The number of adults in shelters, on average per day, has dropped slightly, from 7,187 in 2001 to 6,526, or by 9 percent. However, in the mayor’s second term, the number of single adults, adult families, and families with children entering the shelter services system have all increased. Some 18,480 single adults entered the system in 2009 (up by 7 percent), along with 1,278 adult families (up by 27 percent), and 12,959 families with children (up 61 percent).

Because of shifts in indicators (breaking "families" into two categories -- for instance, those with children and those without) over the past years, it is hard to find many more eight-year indicators. One indicator that was dropped during those years is the number of children in the shelter system.

The Coalition for the Homeless provides that figure and other useful social indicators missing in the management report. In November 2008 15,884 children were living in shelters -- 35 percent more than the 11,732 children sheltered in April 2006, the lowest number in any one month over the past eight years. Altogether, 36,600 men, women, and children were in shelters last November.

The coalition points out that 109,000 different homeless adults and children turned to the city’s shelter system in the previous year. It also notes that thousands more live in public places.

The management report minimizes the problem and says that the number living in public spaces has actually dropped from 4,395 in 2005 to 2,328 in 2009, or nearly by a half. The unanticipated increase in families and adults coming into the shelter system has forced the department to dramatically increase its placements in permanent housing. And the numbers are impressive. The number of families moved to permanent housing increased by from 3,349 families in 2001 to 9,244 in 2009. The number of adult placements rose from 5,532 to 9,107.

In the face of the increasing number of families entering the shelter system, the Department of Homeless Services has focused on preventive services. Three indicators look at the percent of single adults and families with and without children receiving such services who then do not enter the shelter system. The success rates in 2009 in each category are very high: 95.8 percent, 98.6 percent, and 91.3 percent respectively. However, the report does not provide either the total number of people served or any sense of who managed the services and at what cost.

Costs and Benefits

In fact, neither the education nor homeless services section tries to make any link between expenditures and results. The Coalition for the Homeless says that sheltering a homeless family costs $36,000 a year, and a homeless individual, $23,000. Some such figures in the management report might help develop new policy. For instance, the coalition suggests that the alternative of rental assistance with support services for a family costs as little as $8,900 per year.

The fact book that the Bloomberg administration has created over seven years is full of information about social conditions and bureaucratic actions. But the Mayor's Management Report is meant to be more than that -- a measure of mayoral accountability. On that score, the current version no longer serves that purpose. That could explain its lack of coverage in the mainstream press.

The next charter revision commission (or the City Council) should find a more independent, comprehensive accountability mechanism that would complement or replace the Mayor's Management Report.

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

Is Anyone Willing to Cut the State Budget?


Illustration by Ya-Hsuan Huang

Gov. David Paterson fancies himself a financial doomsayer -- the man with the intestinal fortitude to stand up and shout the bad news. "The economy stinks and we have to cut the budget!"

Paterson blames his historically low approval ratings on the economy and the "tough choices" he has had to make to keep New York out of devastating financial straits -- along the lines of what California is suffering through. New York has yet to issue IOUs to its debtors as California has done, and Paterson has trumpeted that fact -- even taunting his potential opponents, daring them to get off their "deck chairs" and join him in the "ocean" with the sharks. But while Paterson has repeatedly sounded the alarm, he has not yet presented any kind of concrete plan to close the state's multibillion spending gap.

The state faces a mounting budget deficit but accounts of its size vary. Early estimates pegged the gap around $2.1 billion, but because income tax revenue has been lower than anticipated, Paterson has said the gap could reach $3 billion or more.

Earlier this summer Paterson promised to introduce a budget plan in the fall. In a July report, his Division of the Budget said: "To address this issue, Gov. David A. Paterson today announced that he will work with Lt. Gov. Richard Ravitch to develop an Economic and Fiscal Recovery Plan that will eliminate the current-year budget deficit and improve the state’s long-term fiscal health. The governor’s plan will be released in September." September is now officially over.

As summer wore on, Paterson spoke of having a special legislative session in the fall to address the deficit, but legislators countered that they wanted to see a plan before returning to Albany. Paterson also readied what seemed to be his financial super weapon: Ravitch, whom Paterson asked to review the state's finances. Paterson continued to push for the legislature to return to address the deficit but to no avail.

Finally, Paterson called a public leaders meeting. The meeting featured Paterson, Ravitch, Senate Conference Leader Sen. John Sampson, Senate Minority Leader Dean Skelos, Assembly Speaker Sheldon Silver and Assembly Minority Leader Brian Kolb. The meeting was designed to get the leaders to publicly agree at least on a path toward finally addressing the budget gap.

Meeting of the Minds

During that meeting last week, Paterson spoke again of his desire to make real cuts to spending rather than using the state's rainy day fund or raising taxes. If such cuts are not made, he said, "We would face the peril of being unable to meet our obligations, having our credit rating reduced, and getting ourselves into serious economic trouble."

Rather than returning for a special session the attendees agreed that staffers from Paterson's office and the legislature will meet to formulate a plan. Beyond that it seemed the attendees didn't find much common ground -- even on the size of the deficit. Skelos reportedly said it was only $1.6 billion. The Democratic leader, Sampson, responded to Paterson's $3 billion claim by saying his conference "doesn't believe in government by guess work. We need real numbers to provide real solutions." Silver and Kolb indicated they agreed with Paterson's projections.

This may be where Ravitch comes in. At the leaders meeting the new lieutenant governor said little except to suggest leaders look for common ground before looking for solutions. ""If we start off, hopefully with a common view of the numbers that we have to address, then we can talk about solutions in the context of that agreement, rather than fighting about solutions because we disagree with what the underlying numbers are," he said.

Critics like E.J. McMahon, director of the Empire Center for New York Policy, say that Paterson, despite his flagging poll numbers, needs to lead -- he has to present a plan and shepherd it through the legislature while taking the heat for tough cuts.

"You have to lay something on them," said McMahon. "You have to push for it and have to give them cover. You have to say it was hard but it had to be done."

McMahon said that having legislative and executive staffs negotiate over the size of the deficit and solutions to cut it is simply futile. "Legislative staffs don't work that way. They are reactionary; they don't initiate," he said.

Sen. Liz Krueger agreed that the governor should present a plan for the legislature to consider. "That’s why I advised my conference leader not to move to a date for a special session until we have a plan," Krueger said.

Who to Blame for the Delay?

Krueger said that criticizing the legislature for holding up a deficit reduction plan is simply "not a rational objection."

The legislature actually has a limited amount of input into the budget. The New York State constitution requires executive budgeting. In other words, the governor is responsible for presenting a budget plan after consulting with the appropriate departments. The legislature then can then strike things from the budget or reduce them but it cannot alter the budget in other ways.

Krueger pointed to the 2004 Court of Appeals decision Silver Vs. Pataki, which resulted in a ruling that the legislature had overstepped its bounds in a number of instances.

In one example, former Gov. George Pataki argued that the legislature had overstepped its bounds in trying to postpone a prison project approved in the budget. After the budget was passed the legislature voted to bar construction until the project received legislative approval. The court found that the legislature was acting beyond its authority.

Getting Their Way

This does not mean the legislature has no say. During the extremely secretive budget negotiations last year, the legislature was seen as having won the budget battle with Paterson. Many of the large cuts to education and health care that the governor had sought were restored. To avoid making the large cuts that Paterson threatened, the budget imposed a tax on the rich and a number of newly implemented fees and surcharges, and used federal stimulus money.

McMahon, whose organization advocates reducing spending on labor benefits, education and health care, said that Paterson can't expect the legislature to make the tough cuts needed to actually reduce spending. "They don't know how to say no to anyone," he said.

It's Getting Worse

Comptroller Tom DiNapoli bolstered McMahon's argument with his recently released Financial Condition Report for the 2008-2009 year. DiNapoli's report showed that the cumulative budget deficit could expand to $38 billion by the 2012-2013 fiscal year if current spending and income trends continue. The report finds that spending has increased 21 percent over the past four years and could go up another 22 percent by the 2012-2013 fiscal years.

"The state must look to the spending side of the ledger, rather than raising taxes and issuing large amounts of debt to pay for things it cannot afford,” DiNapoli said in the report. “New York needs a strong dose of fiscal discipline, which has been lacking for far too long. The State must make difficult choices today to fix New York’s persistent budget troubles.”

As McMahon points out, the legislature never wants to make spending cuts, especially in areas like education and health care, because of the cuts can incur the wrath o unions and the Working Families Party.

Some legislators are delaying making cuts because they hope a new round of federal stimulus money could save them from making further reductions. "They've been propped up by stimulus," McMahon said. However, so far, there is no new stimulus plan and, McMahon said, "You'd be hard pressed to find anyone in Washington who thinks that" there will be.

Krueger said the state still is finding that certain money has been allocated to New York through the stimulus plan, and those funds help. "I would like to see the stimulus continued," she said, "but it's too early to tell." Ravitch warned that the state could face "cataclysmic impact" if the stimulus is not extended past 2010.

In any event, Krueger said, real cuts must be made -- and quickly. "We need to make sure the savings is immediate. We can't make cuts that we find would take six months for savings to start," she said.

McMahon, who is a strong opponent of the income tax increases in this year's budget, said he fully expects labor groups and the Working Families Party to push for another tax increase rather than making cuts in the budget. "I would bet on it," he said.

Krueger and Sampson, who both supported the income tax increase, have publically stated they do not support closing the budget gap with increased taxes or fees.

In the end, some say Paterson might desperately want to take the lead on the budget. He may very well want to make tough cuts and take a stand for fiscal responsibility, but with an approval rating of 17 percent the hard reality may just be that Paterson doesn't have the political leverage to push the legislature to accept any cuts. His only hope may be to negotiate with the legislature and hope its members understand the gravity of New York's financial situation.

"The more Paterson says we can't wait while he does not offer a plan the more otherworldly this gets," said McMahon.

Amid Talk of Recovery, Jobless Rates Reach Double Digits


Photo (cc) like, totally

Federal Reserve Chairman Ben Bernanke says the recession is "very likely over at this point," although he does say that "it's still going to feel like a very weak economy for some time" because unemployment will remain high.

Grossly understating serious crises is part of the job description for the fed chairman, and Bernanke has certainly fulfilled his role here. The banking crisis may seem like it's over (for banking executives who still have their jobs, anyway), and gross domestic product may technically increase in the third quarter (in large part because of the Obama stimulus package), but the financial crisis tore through the American economy like a category 5 hurricane, and it will take more than a few more months to clear out the wreckage and for millions of people re-build to their livelihoods.

The Great Recession

Americans will be reeling from the effects of the "Great Recession" for some time. That name is apt since the current crisis is, by far, the longest and the steepest economic downturn since the 1930s. Seven million jobs lost nationally, 15 million people officially unemployed, millions losing their homes and millions losing billions in retirement savings.

In New York, a record 875,000 people are unemployed statewide, 50,000 New Yorkers lost their homes to mortgage foreclosure last year, and there have been 50,000 personal bankruptcies in the 12 months through June. Here in New York City, the official unemployment rate jumped to 10.3 percent in August, more than twice the level in the early months of 2008. It's time to take a closer look at how bad the unemployment situation really is and what it will take to get the economy back on a track to sustainable prosperity.

The Great Recession is largely the consequence of poorly regulated financial markets that went on a spree of excessive debt and risk-taking, destructive lending practices, and the use of ill-advised exotic financial instruments. It was preceded by an expansion dominated by unsustainable and dangerous bubbles in housing and the financial markets. Too many Americans borrowed more than they could afford as they tried to maintain their standard of living while their wages did not keep up with rising costs,.

In short, for the past decade, we've had a bubble-prone economy and stagnant wages for most workers where too much of our growth came from either speculation or borrowing.

It's hard to tell from the recent behavior of New York's financial giants that a year ago they were on their knees with their hands out waiting to accept the-sky-is-the-limit taxpayer bailouts. Executives of the big banks have opposed serious financial regulatory reform, rushed to resume giving themselves enormous bonus and compensation packages, and picked up where they left off in managing financial markets solely to pad their own bottom lines regardless of the impact on other businesses or the American people. As Dean Baker -- one of the few economists who was worried by the housing bubble as it inflated -- recently noted, they haven't even stopped to utter so much as a "thank you" to their benefactors.

The Real Unemployment Rate

Background photo (cc) SnaPsi

More than in other recessions, the official unemployment rate in this downturn understates the real extent of the distress in the job market. The official unemployment rate does not reflect the steep rise in the number of discouraged workers (up 56,000 in New York over the past year) or the equally steep increase (up 186,00) in under-employment -- people who have been reduced to part-time status even though they want to work full time. With these workers factored in, the "real" unemployment rate in New York in the first half of the year was 14.1 percent, nearly three fourths again as much as the official 8.2 percent unemployment rate for the first six months.

Blacks and Hispanics in New York State have been hit particularly hard. Even using the official figures, the unemployment rate for black men for the first half of 2009 was 18.3 percent, for black women 11.5 percent and for Hispanic men and women, 9.6 percent. But the real black male unemployment rate was a devastating 27 percent. Rates were somewhat lower for Hispanics and black women, but still very high. The real unemployment rate for Hispanic women was nearly 19 percent. It was 18 percent for black women and over 17 percent for Hispanic men. Real unemployment rates for white men were 12 percent, and 11 percent for white women.

All of these rates are averaged over six months to make sure that the numbers are not one-month statistical flukes, and state, not city, data was used because it provides a larger sample. Given the recent up-tick in the city's unemployment rate, it is very likely that the real unemployment rates for black and Hispanic New York City workers are now 20 percent or higher.

Meanwhile on Wall Street

Given the severity of the financial meltdown, a lot of attention has focused on job losses in finance. Certainly, there have been significant job cutbacks on Wall Street and in some other parts of the finance sector. Over the past year, employment has declined by 36,000 in the finance and insurance sector.

The greatest number of lost jobs in New Y has come from the manufacturing sector, with nearly 45,000 jobs lost over the past year. The administrative services sector has lost 32,500 jobs, retail trade 32,000, construction 23,000, professional services 22,000, wholesale trade 21,000, and information 9,000. aAll those other sectors combined have lost more than five times as many jobs as finance.

The decline in finance employment could end up being a lot less than was predicted nine or ten months ago in the immediate aftermath of the September 2008 financial market meltdown.

For many on Wall Street, bonuses running into the millions of dollars are not a thing of the past. In the city's commercial banking sector, unemployment is unchanged from a year ago, despite historically unprecedented turmoil in the market turmoil and the loss of tens of thousands of jobs elsewhere in the local economy (and millions around the country). Credit the extraordinary U.S. Treasury and Federal Deposit Insurance Corp. bailout measures, billions in taxpayer funds and limitless ultra-low interest loans courtesy of the Federal Reserve.

That's good news on the one hand; particularly in New York where spending by financial workers supports many jobs in other parts of the local economy.

Policy-makers, though, need to focus on how to restore the massive number of jobs lost throughout the economy. As often happens, innocent bystanders far from the source of the economic cataclysm are bearing the brunt of the devastation.

We need to recognize and deal with the pervasive economic insecurity of the vast majority of people. From stagnant real wages, to vanishing retirement savings, to foreclosed homes, to eroding health insurance coverage and skyrocketing health care costs, the economic challenge goes much deeper than just getting GDP growth into positive territory. The biggest challenge in putting the economy on a sustainable growth path is to recreate a wage-driven economy. What we've had is a finance bubble-driven economy.

 

In his recent speech on Wall Street, President Barack Obama admonished finance executives: "They (American taxpayers) shouldered the burden of the bailout, and they are still bearing the burden of the fallout -- in lost jobs and lost homes and lost opportunities. It is neither right nor responsible after you've recovered with the help of your government to shirk your obligation to the goal of wider recovery, a more stable system, and a more broadly shared prosperity."

The president went on to urge the financiers to help families modify their mortgages, more readily lend to small business owners, help communities and community development institutions, and "of course, to embrace serious financial reform"

The president's rhetoric is right on the mark.

Easing the mortgage foreclosure problem and getting banks to start lending are essential steps in moving the economy toward recovery. But, with sky-high unemployment and many debt-burdened American families reluctant to spend, another round of federal stimulus probably will be needed to help get us out of the deep hole the economy's in. And to get us on course for sustainable growth, we need policies to lift wages.

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.

Unemployed in New York


Photo (c) Nick McGlynn
Participants at the 2009 Unemployment Olympics in Tompkins Square Park on March 30th.

This story was done through a partnership between The Huffington Post's Eyes and Ears citizen journalism program and Gotham Gazette.

Joshua Deutch Dylan is a pre-bust transplant. A New Yorker for about 15 months, Dylan is already planning -- rather morosely -- his exit.

Dylan, who moved to Brooklyn from Philadelphia for a job as a legal technology consultant, was laid off six weeks ago. Now, he and his wife are struggling to get by on $430 a week -- courtesy of the New York State Department of Labor.

Their rent for a two-bedroom apartment in Bay Ridge is $2,300.

Their Volkswagen payments have been deferred just two months.

They are thinking about moving in with Dylan's parents… in New Jersey.

"We were doing pretty well for ourselves," said Dylan. Now, he adds, "Everything got sacrificed."

Dylan isn't alone. He is one of thousands of New Yorkers who lost their jobs in May, bringing the city’s unemployment rate up to 9 percent. (It was 8 percent the month before.) Now, approximately 361,000 New Yorkers are grappling with similar dilemmas, wondering how they will make rent, shell out for their Metro Card, and generally afford to stay in the country's most expensive city.

For this article, the Gotham Gazette collected stories about New Yorkers living on unemployment through the Huffington Post's Eyes and Ears citizen journalism program. (Read more about the initiative.)

Some say the State Legislature isn't helping. New York State's maximum unemployment benefit rate is $405 weekly. It's boosted temporarily to $430 thanks to the federal stimulus package, but it still pales in comparison to our neighbors. New Jersey gives $584. Massachusetts hands out $628. Pennsylvania's maximum is $558.

North Dakota pays a dollar more a week than New York does -- and you can bet the rent in Sioux County doesn't rival SoHo.

At one point this legislative session an increase seemed palatable. But now that the State Senate is sputtering and the Assembly may not return until January, most New Yorkers who are sans employment will have to find more creative ways to make ends meet.

Some already have.

A Day in the Life of the Unemployed

Janet Raiffa made more than $200,000 a year as head of recruiting for Orrick, Herrington, and Sutcliffe -- one of the largest law firms in Midtown. A mid-career professional in her 40s, Raiffa owns a two-bedroom apartment in Park Slope, which she refinanced in March, bringing her monthly payments to $3,000.

That same week, she was laid off, and her six-figure salary morphed into $430 a week -- before taxes.

Photo (c) Nick McGlynn
Challengers competed in "phone bocce"

Fortunate for Raiffa, she has substantial savings and can bide her time looking for future employment. So, she bird-sits for $25 an hour. She gets cash to collect signatures for politicians petitioning for this fall's election, and she writes a blog for the 405 Club -- an unemployment network whose namesake is a tribute to the state’s weekly stipends. Raiffa has even gotten paid to go to the movies and check out the upcoming trailers.

"I haven't started babysitting again, but I am actively considering it," she said with a chuckle.

Raiffa takes it well. But other New Yorkers are finding their situation harder to accept. According to the National Employment Law Project, New York's unemployment benefits only replace 27 percent of an average weekly income.

That income still has to cover the laundry, groceries and the other tabs of living in the Big Apple. According to the Bureau of Labor Statistics, items here can be about 90 percent more expensive than in Chicago. A can of tuna may cost $1.60 on the Upper East Side, according to the Council for Community and Economic Research, but it will cost 94 cents in the Hollywood Hills and 81 cents in Motor City. The cost of a quart of whole milk averages $2.22 nationwide. In TriBeCa it goes for $2.64, according to the council.

The city, according to some estimates, may have the highest utility costs in the country. Water rates are climbing, and the subway fare is slated to go up another 25 cents on Sunday.

The costs, for Jeremy Hoekstra, add up.

“Fast food is a special occasion,” he quips.

Nowadays even a roundtrip subway fare is a questionable expense – which is taking a serious toll on the former human resources administrator’s social life.

“The most horrible thing about it at first was I was friends with my coworkers. … Everyone at work were my best friends,” said Hoekstra, his Texas accent barely noticeable. “The feeling of loneliness sets in immediately.”

Rough Road Ahead

For now, like Raiffa, Hoekstra manages to get by. On the unemployment rolls for about six months, the 29-year-old has already sent out more than 200 resumes. He has had six interviews. Hoekstra, like thousands of others, is about to surpass his 26th week of unemployment benefits.

In better times, 26 weeks would be the cutoff. Lucky for Hoekstra, Gov. David Paterson signed another extension of benefits for 13 weeks last month, which is funded by the federal economic stimulus package. With that, some New Yorkers could receive unemployment benefits for a maximum of 72 weeks.

For some New Yorkers, those benefits are set to expire in August, said Leo Rosales of the state Department of Labor. Currently, Congress is not considering another extension, according to the office of Rep. Jerrold Nadler.

“We want to get the point across that these benefits are a safety net,” said Rosales. “It’s not a salary. It’s not an income. It’s temporary support to get them through these tough times, and there is an end date coming.”

So far, the state has borrowed about $1.3 billion from the federal government to cover those unemployment checks, which add up to $100 million weekly. It expects to borrow about $2 billion by year’s end.

But any extension doesn’t solve the real problem, say advocates. A bill introduced in the Assembly and the State Senate would have increased benefits incrementally for the next three years, going up to $475 weekly in July, and $50 every year thereafter until 2012. In future years the benefit would be set at half the average weekly wage. The bill was not taken up by the Assembly before they departed Albany last week, and its fate in the Senate seems dismal, considering the current stalemate.

For now, the unemployed have to make do with what they can: food pantries, free events, the public library (described as a “godsend” by one unemployed New Yorker). Some have even turned to food stamps -- though to get them you have to bring in less than $1,127 a month, which will exclude anyone who takes home the maximum weekly benefit.

Others just rely on generosity of others.

Speaking from his Midtown home this week, Tom Adcock, a New York Law Journal reporter turned unemployed novelist, lamented that his 62 years have made him virtually unemployable. But, he adds, he’ll get by.

"I can't afford to join friends in restaurants," Adcock said. “Tonight I’m entertaining at home. Hopefully, my friends will not come empty handed.”

Band-Aid Budget


Gotham Gazette image by Ya-Hsuan Huang

We all were expecting the worst.

Spending slashes that would eviscerate social service programs. Apocalyptic tax hikes. Layoffs and job losses in the thousands. With the city's revenues in free fall because of Wall Street's meltdown, many expected fiscal year 2010 to be doomsday.

But last week, Mayor Michael Bloomberg and the City Council came to an agreement on a budget that is far less devastating than most expected. Firehouses are staying open. Library doors will remain ajar six days a week. And kids will have day care programs at the Administration for Children's Services.

How did this come to pass? For one thing, the city may have simply postponed the bad news.

In the time between the release of the mayor's executive budget in May and the unanimous approval of the city's fiscal plan on Friday, the Bloomberg administration's projections for the deficit for fiscal year 2011 grew from $4.6 billion to $5 billion. Last month, the city's Independent Budget Office predicted the city's deficit next year would be $5.6 billion, and the city comptroller's office reportedthe financial hurdles facing the city in the next few years would be "daunting."

Such projections have prompted advocates and watchdogs to wonder whether the budget the City Council approved last week is a band-aid solution when what New York really needs is open-heart surgery.

As they announced the revised spending plan last week, the mayor and other officials warned the worst may be yet to come. "This may not be the last word on this year's budget," Bloomberg said, hinting that the administration and the City Council might have to reopen the $59.4 billion fiscal plan to revise spending later this year.

Later this year could very well mean after this fall's citywide election.

A Storm Ahead

City Council members Jimmy Oddo and Vincent Ignizio, both Republicans from Staten Island, stroll through City Hall's parking lot Friday evening moments after the council approved the city's 2010 budget by a vote of 50 to 1.

Typically, they would be off to their ritual post-budget Whiffle ball game. Not this year.

"It's an election year," said Oddo.

"It's a tough budget year," Ignizio retorted.

That exchange may encapsulate this year's fiscal process. For the most part, city officials and advocates have described this year's budget as both good and bad.

Advocates had anticipated "doom and gloom" earlier this year, when the mayor released a preliminary budget that threatened to lay off 14,000 teachers. The deal the council and the mayor reached last week, in comparison, said advocates, appeared far better.

"There were more restorations than people expected," said Sean Barry, executive director of the New York City Aids Housing Network. "The mood, maybe jubilant wasn’t necessary, (but) people were pretty excited. They felt much better about it."

In total, the City Council injected $362.3 million into programs the mayor had planned to cut. By far, the city's cultural institutions and libraries were the largest benefactor of that funding -- to the tune of nearly $72 million. Also topping the list, the city’s Fire Department received $17 million from the council to keep 16 fire companies open and retain 400 positions. Approximately $8 million will go toward preserving classrooms at the Administration for Children's Services, and another $3 million will save 100 caseworker positions at that agency, said council officials.

The council also allocated nearly $33 million for senior services, $1 million for playground supervisors at city parks and $24.7 million for education programs throughout the city, including $13 million for teachers to purchase school supplies.

The mayor's executive budget in May called for slashing the city's work force by 13,541, with 9,782 of those jobs coming from attrition. On Friday, a mayoral spokesperson said the administration was not sure how much the city's work force would be reduced now. Last week, though, Bloomberg said to expect work force reductions similar to those in his executive budget.

Where It Comes From

In May, the mayor hoped to generate $1.5 billion in revenue by raising the sales tax, doing away with a sales tax exemption for clothing and negotiating with the city's unions on both health care costs and pensions.

He was partly victorious: The City Council signed off on hiking the sales tax to 8.875 percent from 8.375 percent and agreed to do away with the exemption for clothing sales of more than $110. The city's unions also went along with contributing to some of their health benefits.

Elsewhere, the mayor was not so persuasive. He was unable to secure the creation of a fifth pension tier for new city employees in Albany, and the City Council refused to endorse a five-cent tax on plastic bags. In the end, the fiscal year 2010 budget agreement came up $359 million short.

This also doesn't factor in the uncertain situation in Albany, where the legislature must approve all of the mayor's tax proposals. The state will have to OK the sales tax increase, among other revenue measures, by July 1.

An administration spokesperson said the city will make up the revenue shortfall elsewhere. Conveniently, the city's budget department reported last week that an additional $438 million to help fill the gap was generated thanks to "conservative" revenue projections.

But what some see as faulty revenue projections, others caution is a misleading budget process.

"It amazes me that they find a half a billion dollars," said Councilmember Lewis Fidler. "Surprise, here is a half billion."

"They are not playing all the cards on the deck," added Fidler, who says the administration squirrels away funding to keep the City Council out of the budget process.

Some advocates also question whether the administration is being completely open about its revenue projections.

"If they are not being transparent about where the money comes from it makes me nervous for New Yorkers who rely on programs that are less politically popular, like AIDS housing programs," said Barry. "We aren’t firehouses."

Others wonder about the politics and whether the entire budget process represents an attempt to make the city's fiscal situation appear OK for now, until after the city elections. In an analysis of the mayor's budget, the city's Independent Budget Office not only predicted far higher deficits in future years -- climbing to $5.8 billion in fiscal year 2012 -- but also observed, "Given that this a municipal election year, the difficult decisions about spending cuts and tax increases that lie ahead are unlikely to be addressed until November."

Some advocates fearfully agree.

"People expect these cuts to be back on the table in the November financial plan after the city elections," said Barry.

One-Time Fix

At least $3.6 billion of this year's $59.4 billion budget is one-time only revenue. The city received $1 billion for Medicaid from the federal stimulus package earlier this year, and it was also able to roll over $2.6 billion of surplus from the city's boom years and apply it to this year's budget.

But those days are over. There is no surplus left, according to the mayor's office.

"We do budgets 12 months at a time," said Council Speaker Christine Quinn on Friday. "There is no doubt about it that the 2011 budget holds the real prospect of being more challenging than the 2010 budget."

The mayor's office expects the economic downturn to be reversed by the end of 2010, but many believe that between now and then the city is in for a turbulent ride.

"There is no question that the stimulus money was a one or two-year deal and we're going to take advantage of that," said the council's Finance Committee Chairman David Weprin. "We'll take it when it comes, and we'll worry about next year, next year."

Knowing that the city already faces a $5 billion deficit for 2011, some watchdogs wonder whether the administration and the council could have used this budget to address some of the city's long-term fiscal problems, like pension costs. The city has cut more than $3 billion in spending and every city agency has had to take a hit, the administration argues. These one-time revenue sources, like the federal stimulus package, have weakened that blow.

The mayor and council, say watchdogs, have delayed the inevitable. The real cuts could be coming down the line later this year or next.

"2011 is really bad," said Carol Kellermann, president of the Citizens Budget Commission. "This doesn’t really address any of the underlying structural problems."

Looming on the Horizon

The fate of departments and agencies that lost out this budget season, especially the Department of Education and the Police Department, are bound to be the subject of debate this year -- especially during the election campaigns.

The city's school system is slated to get more than a $1 billion cut, which would dig deep into non-pedagogical personnel. According to the mayor's executive budget, the number of non-teaching personnel at the Department of Education, from crossing guards to assistants, could be reduced by 475.

In response to these cuts, Geri Palast, executive director for the Campaign for Fiscal Equity, put out the following statement: “The budget agreement reached by the City Council and Mayor Bloomberg marks a disappointing retreat from New York City’s commitment to provide adequate funding for all of New York City’s public school children. Cuts to the classroom and elimination of vital programs like the English Language Learners Incentive Grant Program, the Middle School Success Program and the Student Success Center Program will stifle the impressive strides our highest needs students have begun to make.

The Police Department could also see a reduction of 989 civilian employees -- those who are not uniformed officers but do necessary administrative work. Police Commissioner Ray Kelly has said that work will still have to get done and so the reduction in the civilian workforce will lead to fewer officers on the beat.

Already, the city's unions have staged rallies against the reduction of city workers at the Department of Education.

Even advocates and social service agencies who were able to save their programs are looking toward November cautiously.

"We are really pleased given the doom and gloom budget scenario," said Susan Stamler, director of policy and advocacy at United Neighborhood Houses. Programs her group supports, such as home delivered meals for seniors or after school programs, survived this round. "We recognize that needs are only growing. We remain concerned that these dollars are only one-year dollars, and we'll have to advocate next year."

Many advocates say they expect a lot of these cuts to return in November following the city elections.

Next year could be just five months away.

Council and Mayor Reach Budget Deal


The City Council and the Bloomberg administration reached a budget deal last night, which will preserve the city's six-day library service but also raise the sales tax.

Though the agreement, which was solidified with the quintessential handshake, was announced two weeks before the city's budget deadline of July 1, it comes with a cloud of uncertainty since all of the city's proposed tax increases, worth a total of $887 million in revenue, need approval from the State Legislature. Though city officials say the state Assembly is ready to move the legislation forward, the State Senate is mired with political infighting over which party is in control, and it is in the process of settling the dispute in a courtroom.

"The story of this budget won't quite end with tonight's announcement," Mayor Michael Bloomberg told a crowd of reporters in City Hall's rotunda last night. Because all of the tax proposals need an OK from the State Legislature, the mayor added, "that makes approval of these measures in Albany the final step."

When the mayor first released his budget proposal in May, the city's workforce reduction climbed to 13,541 positions -- 9,782 would be from attrition. As of last night, it was unclear how many of those positions were saved or who was being sent pink slips.

The total $59.4 billion budget is a 2 percent reduction from fiscal year 2009, said the mayor. It cut total agency spending by the city, over the course of 18 months, by $3 billion. The cuts and tax increases address the loss of $5 billion in tax revenue due to the financial crisis on Wall Street and nationwide recession.

What's In and Out

According to City Council Speaker Christine Quinn, libraries, the Administration for Children's Services and the Fire Department were all reprieved from the mayor's budget ax. At least 100 positions at the Administration for Children's Services will be kept on from the original 361 positions that were slated to be cut through attrition, according to the council. The council also allocated $8 million to preserve 31 classrooms at the administration's childcare centers.

Also, said Quinn, the city will no longer close 16 fire companies, four of which would have been shuttered in July. The $17 million that was restored to the Fire Department will save 400 positions, according to the council.

"In the budget we reached tonight, I believe, we've sent a message to New Yorkers that even in a recession, government's job is to protect and support New Yorkers," said Quinn.

By far, the largest program the council saved is the six-day library service, which is worth $46.5 million.

Unlike last year, where the council made the city's Department of Education its first priority, the fate of the city's public school system this year was also unclear last night. According to the mayor's proposal in May, the department was slated for a more than $1 billion cut. Council Finance Chairman David Weprin said the agreement reduced that by half.

"On the education cuts, we are not sure what it is going to mean to the classrooms in September," said Weprin. "I think we are going to have an ongoing dialogue with the Department of Education, with the administration."

Also included in the budget, according to Quinn, are cuts to the Police Department's civilian workforce, which is facing a reduction of 989 positions, according to the mayor's May plan. Police Commissioner Ray Kelly has said in the past that the work done by civilian personnel, like paperwork, would still have to be done. Kelly warned he would have to take cops off the street in order to make sure this administrative work was completed.

A Tax Package

On the revenue side, last night's agreement will repeal both a sales tax exemption for clothing sales of more than $110 as well as an exemption for customers who purchase energy from non-utility companies. It will revise the city's corporate tax structure -- no longer basing its formula on property, payroll, and sales, but only on a company's sales. The move is expected to spur companies to headquarter in the Big Apple.

The city also will give a tax break to about 11,000 freelancers and small businesses, which currently fall under its unincorporated business tax.

The council has already endorsed the city's revenue package, voting 48 to 0 to send most of the proposals to Albany for approval yesterday. The council voted 37 to 10, with one abstention, to send the increase in the sales tax to Albany as well. The sales tax increase, likely the most controversial part of the mayor's plan, will raise $518 million for the city.

The plan does not include a five-cent plastic bag tax or the creation of a new pension tier for city employees, which the mayor had been pushing for in Albany.

Despite last night's handshake, there are many questions that remain over the city's budget agreement, not only on what could happen in Albany, but what programs have been saved or slashed and what the effects of those funding cuts may be.

"It is better news, but the concern is these are difficult economic times and these are the programs that see increased demand," said Bich Ha Pham, the director of policy advocacy and research at the Federation of Protestant Welfare Agencies. "When people lose their jobs or have their hours cut, they go to nonprofits to get services."

Council and Mayor Reach Revenue Deal


Photo (cc) Jeremy Brooks

The City Council and the Bloomberg administration have reached an agreement on a tax revenue package, which will increase the city's sales tax by 0.5 percent and put a tax on clothing purchases over $110.

The move represents the first step toward a budget agreement at City Hall. The administration and the council have not yet agreed on a spending plan, which could reduce the city's workforce by 13,541 positions and slash spending at all city agencies, from the Police Department to the Fire Department. The council must approve the budget -- revenue and spending -- by July 1.

In addition to the increase, the administration and the City Council have agreed to expand the sales tax to customers who purchase energy from non-utility companies, which currently are exempt from the tax. The administration and City Council Speaker Christine Quinn also have proposed a number of business tax proposals, expected to generate $167 million. These would close loopholes and bring the city's tax code in line with state policy.

"While we have been forced to make some unpopular choices, this package has a silver lining -- significant tax relief for 44,000 local businesses that will help create and retain jobs for New Yorkers and grow the city’s economy," said Mayor Michael Bloomberg in a prepared statement. "After a lot of collaborative work with the City Council, we now need the state legislature to act quickly."

These proposals are part of an effort to close a $6.6 billion budget gap caused by plummeting tax revenues and the financial crisis on Wall Street.

All of the proposals in the revenue package announced yesterday require approval from the state legislature in Albany. Their fate upstate is uncertain.

When asked whether the administration was confident in support from Albany, administration spokesman Marc LaVorgna said, "We think that everyone is aware of the urgency and the needs created by the financial collapse."

What the Plan Doesn't Do

Excluded from the revenue package were several proposals the administration has lobbied for since last year, including a requirement for the city's unionized workers to pay for some of their health-insurance costs. Most unions currently contribute nothing.

LaVorgna said the administration was continuing to work with the city's labor force to reach an agreement.

As part of the deal between the mayor and the council, the administration agreed to shelve a five-cent plastic bag tax it had been pushing for since late 2008. The idea was politically unpopular among the council's 51 members, many of whom argued the fee would disproportionately affect poor New Yorkers. Others thought the tax would spur city residents to trade plastic bags in for more environmentally friendly canvas ones.

The decision not to pursue the tax is "definitely a disappointment," said Dan Hendrick, communications director for the New York League of Conservation Voters. But, he added, "There is definitely momentum behind this issue. If there is a chance to get revenue for the city, this isn’t the last we are going to hear of it."

The city had estimated it would receive $100 million in revenue from the plastic bag tax.

The Compromises

In total, the tax revenue package, announced at 6 p.m. last night with no press conference, would generate $887 million. The sales tax, if approved by Albany, would increase to 8.875 percent and would bring in the bulk of the new revenue at $518 million. The sales tax on clothing over $110 is expected to generate $119 million in revenue, while the tax on energy customers would bring in $83 million. The new sales tax on energy customers, according to the administration, would affect mostly large, commercial customers.

The business tax proposals would generate $167 million in the coming year, but over the long term the changes would be "revenue neutral," according to the administration. Those proposals include doing away with the unincorporated business tax, which can double tax freelancers and small business owners, and revising the city's corporation tax to keep businesses in the five boroughs, according to the administration.

According to the administration, the city's general corporation tax currently bases its formula on a company's property, payroll and sales. This proposal, which could reduce taxes for 27,000 businesses and benefit those that are headquartered in the city, would just use a company's sales to determine taxable income.

"Switching to the single sales factor will encourage more companies to create jobs here and lead to greater diversification of our economy," said Quinn in a prepared statement.

In this agreement, the council successfully lobbied for the administration to also table a tax on clothing sales under $110, which the administration proposed earlier this year.

Though this agreement is relatively early and could be taken as a sign the administration and the council are ready to reach a consensus, advocates say that the battle is far from over. Not only does this revenue package rely on state approval, which can be a tricky course to navigate at times, but it is also less than the $1.1 billion in tax revenue proposals the administration proposed earlier this year.

"This is a very tight revenue scheme," said Carol Kellermann, president of the Citizens Budget Commission. "None of the (proposals), except the sales tax, is really very large. It's great that they came up with an agreement, but they still have a lot of work ahead of them."

Also yesterday, the city's Comptroller William Thompson Jr., who is the leading Democratic mayoral contender, released a report calling the mayor's budget proposal "risk-laden." The report, which was released before the mayor and council speaker announced their revenue package, predicts the city's budget deficit will grow to $4.578 billion in fiscal year 2011. Thompson does not support an increase in the sales tax.

Court Limits Aid to Aged and Disabled


Photo (cc) Cobalt123

Twenty aged, blind or otherwise disabled New Yorkers sued seeking supplemental local benefits to make up for federal benefits they cannot receive because they are legal residents of the United States, but not citizens. The state's highest court recently handed down a decision in the case.

As noncitizens, the plaintiffs are not eligible for Supplemental Security Income (SSI). In its decision, the court -- the New York Court of Appeals -- ruled they also are ineligible for Additional State Payments to make up the difference.

The specific question presented to the court was whether, under the state and federal constitutions, the plaintiffs and others in the same situation are entitled to receive from the state benefits similar to what aged, blind or disabled persons who are U.S. citizens receive from Social Security. As reported in The New York Times, the ruling affects between 9,500 and 37,000 people. As result of the decision, the state Office of Temporary and Disability Assistance will save approximately $100 million to $270 million that otherwise have needed to be added to it $1 billion budget.

The Welfare Laws

Reversing two lower courts, Judge Theodore Jones' majority opinion in Khrapunskiy v New York State Commission of Temporary and Disability Assistance ruled that the denial of the benefits did not violate any constitutional rights. The case name refers to plaintiff Boris Khrapunskiy, who came from the Ukraine when he was 90. He was 97 and living in Brooklyn when his SSI benefits were reduced.

Prior to 1996, that might not have happened. But that year, Congress enacted the Welfare Reform Act, officially known as the Personal Responsibility and Work Opportunity Reconciliation Act and the centerpiece of the Clinton administration's "end to welfare as we know it." Under that law, legal aliens, by virtue of not being citizens, no longer qualified for SSI and Additional State Payments. Congress restricted eligibility to people who became U.S. citizens within seven years. It later extended that by two years.

As Congress tightened federal requirements, New York amended its law to conform to the federal standard. It only provided noncitizens with safety net assistance of about $352 per month for shelter and a heat/energy allowance, while SSI benefits would have been $761.

Looking to the State Constitution

The plaintiffs argued that the state Constitution mandates that the state has a duty to "provide for the aid, care and support of the needy, whether or not they are citizens of the United States."

The government countered that New York's Constitution requires the state to "provide for the needy in a manner and by such means as the legislature may from time to time determine," but that it does not have to provide aid to any particular group. "Equal protection does not compel the state to create a public assistance program to provide benefits discontinued by operation of federal law," the state maintained.

In his opinion, Jones, writing for the five-judge majority, agreed. The Constitution, the court held, "does not command that the state always meet in full measure the legitimate needs of each public assistance recipient."

The Constitution, the decision continued, "does not compel the state to assume the federal government's obligation when an elderly or disabled person becomes ineligible for continued SSI/ASP benefits. ... Nor does it require the state to remediate the effects" of federal welfare law.

Jones also pointed out that New York once had a special assistance program for the needy, aged, blind and disabled but discontinued it more than 30 years ago, when the federal government began providing SSI benefits to that population.

Sharp Disagreement

In her dissent, Judge Carmen Ciparick, joined by Chief Judge Jonathan Lippman concluded that denying benefits based on immigration status was unconstitutional. In agreeing with the two lower courts that had decided in favor of the plaintiffs, Ciparick and Lippman concurred that the state has "an affirmative duty to aid the needy [and] preventing the Legislature from simply refusing to aid those whom it has classified as needy."

Some affected individuals, Ciparick wrote, did not attain citizenship within the required period because of "long delays in the processing of their applications as a result of hardships caused by age and poor health or lack of English-language skills."

According to the minority view, the social services law is "need-based." Basing aid decision on citizenship status, rather than financial status, "is incongruous to the plain meaning of the term 'standard of need,'" the two justices said.

In their strongly worded dissent, they found, "The majority today has turned its back on the history of New York's commitment to protect its most fragile and vulnerable populations."

The plaintiffs were represented by the Legal Aid Society, the Empire Justice Center and the New York Legal Assistance Group. The State of New York was represented by the state attorney general.

Emily Jane Goodman is a New York State Supreme Court Justice

The Regressive Effects of a Sale Tax Increase


The one big change in Mayor Michael Bloomberg's executive budget for fiscal year 2010 is his proposed increase in the city sales tax from 4.0 percent to 4.5 percent, double the increase he proposed in January's preliminary budget. The increase is, as the New York Times put it, the "centerpiece" of $1 billion in new taxes. Added to the state's 4.0 percent sales tax and the 0.375 percent sales tax dedicated to the Metropolitan Transportation Authority, the total sales tax on goods bought in the city would be 8.875 percent.

The sales tax increase, the largest in 35 years, includes the elimination of the current exemption for clothing and footwear. It is apparently meant to be the death blow to any notion of a personal income tax increase, such as the $1 billion plan City Council Speaker Christine Quinn floated briefly in February, with new top rates for the tax (up to 4.65 percent), often called a "billionaire's tax." The mayor made his stance clear back then on the radio when he said of the Quinn plan, "The first rule of taxation should be you don't try to tax people who can move."

The Independent Budget Office in its February Budget Options report pointed out that, even when both the state and the city in 2003 temporarily raised their personal income tax rates, "There is no evidence that these affluent New Yorkers left the city." The state has again raised top state income rates this spring, to 7.85 and 8.97 percent.

The mayor's argument seems to have worked. The City Council's formal response on April 1 to the mayor's January budget plan makes no mention of the earlier Quinn plan.

Tax Policies, 1974-2009

The council's concession to the mayor's argument about peripatetic millionaires and billionaires is perplexing, given the pattern of tax policy since the city raised its sales tax from 3 percent to 4 percent in 1974 and top personal income rates first reached 4.3 percent in 1976.

Bloomberg himself has successfully used higher taxes in times of economic and fiscal emergency, with no known exodus. For instance, the top city personal income tax rate is currently 3.648 percent. Yet the mayor himself set the top rate at 4.65 percent in 2003 and kept it there through calendar 2005. And the top rate was 4.3 percent from 1976 through 1986, and 4.46 percent from 1991 through 1999.

Interestingly, in New York State from 1975 to 2008, the top personal income tax rate dropped steadily from a high of 15.375 percent in 1975 to 10 percent by 1981, 7.875 percent by 1989 and 6.85 percent by 1997, according to a recent report by the Fiscal Policy Institute. The top rate stayed at 6.85 percent from 1997 through 2008 with the exception of a temporary top rate of 7.70 percent from 2003 through 2005. The Fiscal Policy Institute points out that, were the highest state rate still in effect, the state would have about $20 billion more in tax revenues per year.

The two new top state income tax rates will restore some of the progressivity of the state's tax system. According to data from the Independent Budget Office, based on 2006 state tax data, high-income taxpayers in New York City will pay nearly $2 billion more to the state in calendar 2009. The 19,185 city residents who have more than $1 million in income will pay nearly 80 percent of that increase, with a average total payment of roughly $82,000 each. The 22,573 earning $500,000 to $1 million will pay 15 percent of the total or about $13,000 each on average.

The city, in contrast, continues to keep its own personal income tax rate, historically, quite low. In fact, as the mayor's own Tax Revenue Forecasting Document, published in September 2008, shows, the current top city income tax rate is (with the exception of only three years, 1988, 1989 and 2001) at its lowest rate since 1975.

The mayor has been quite specific in his reasons for keeping the income tax rate low. He noted in his radio interview that the top 1 percent of city taxpayers pay about 50 percent of total personal income tax revenues and added that if "a handful" of those, "about 40,000 people," moved out of the city it would wipe out any increase in revenue from the tax hike.

While a "handful" of the super-rich leaving could have such an impact, history, again, contradicts the notion. The IBO explored the question, at least in terms of the average-rich, in the February Budget Options report. A top rate of only 4.2 percent would raise $455 million in 2010 and would cost those making over $500,000 an average of $10,400 more in 2010. If 5 percent of those paying that average increase left the city, the new top rates would bring in $183 million less.

Sales Tax vs. the Income Tax

But what about the impact of the sales tax. Who pays that? As the mayor acknowledged on May 1, the sales tax is a "regressive" tax, a greater burden on lower than higher income taxpayers. He added, "Is it a good tax? No. None of these taxes are good taxes."

Well, that's a bit disingenuous. The personal income tax is certainly less regressive than the one-rate-fits-all sales tax. The personal income tax is "progressive" in the sense that higher-income taxpayers pay a slightly higher tax rate (3.648 percent) than do lower-income taxpayers (2.907 percent).

Since 1974 the city sales tax has been 4 percent (with the exception of an increase to 4.125 percent from mid 2003 through mid 2005). The mayor's proposal is thus a 12.5 percent increase in a sales tax that's been pretty much untouched for 35 years, presumably in large part because most people recognize its regressive impact.

In his executive budget, the mayor, who, according to the Times is "the wealthiest person in New York," not only claimed that the wealthy might flee an income tax hike; he suggested they would pay more with the sales tax increase, because "the people that have more money buy a lot more things, and they spend a lot more of it."

The notion that the wealthy spend a lot more than the less-wealthy breaks no new ground, but it dodges the big question: How much of the sales tax increase will the wealthy and the less-wealthy, in fact, pay?

We know that the wealthy pay the bulk of the personal income tax. In fact, the Tax Revenue Forecasting Document shows that, in the 2005 tax year, the 315,000 city taxpayers who had $100,000 or more in taxable income (only 9.2 percent of all filers) paid nearly 73 percent of the total personal income tax, even though they accounted for only 9.2 percent of all filers. Most significantly to the mayor's point, the 1 percent of filers who have incomes of $500,000 or more accounted for 49 percent of the total income tax.

Lower-income filers, of course, pay much less. The 1.64 million filers (48 percent of total filers) who have less than $25,000 of taxable income pay only 2.2 percent of total personal income taxes. That's the nature of a progressive tax system.

The sales tax presents a very different picture. A 0.5 percent sales tax increase will have a greater impact on lower- and middle-class taxpayers (and a lot of New Yorkers who pay no personal income tax at all) than higher-income residents.

The Times, using Independent Budget Office data, provided a partial answer to the impact question. The IBO estimates that a household making $35,000 a year would pay an additional $129 in sales tax, one making $125,000 would pay $356 a year more, and a household making $500,000 would pay $840 more.

Those numbers alone provide a good example of how regressive the sales tax is. For instance, the additional burden on the $35,000 household (measured by dividing $129 by $35,000) is 0.37 percent, more than twice that on the $500,000 household ($840 divided by $500,000), 0.17 percent.

Tax Politics

The last time the mayor recommended an increase in the sales tax was in November 2002, when it was part of a $3 billion tax revenue package to fill the huge deficit created by a national recession and the impact of 9/11. At that time he actually proposed a 0.25 percent increase, but the council negotiated that down to the ultimate 0.125 increase, to 4.125 percent, which was in effect from June 4, 2003 to May 31, 2005.

The council this spring has thus far rejected the mayor's proposed increase, and if history is a guide, there might yet be a compromise that lowers or cancels any increase. (Mayors often find some unexpected, non-tax dollars to fill budget gaps between May and June.) But with the exception of the City Comptroller, Bill Thompson, who has proposed the more conventional and progressive alternative of a higher personal income tax rate for those making more than $500,000, there has been surprisingly little attention to the scope of the mayor's regressive proposal.

Of course, it's an election year. The political cooperation between the mayor and the City Council leadership that led to the sudden extension of term limits seems at the moment to be holding. Apparently neither the mayor nor the council leadership wants to tax higher-income New Yorkers this year.

But the notion that the 40,000 richest taxpayers - and especially the "handful" of super-rich so much on the mayor's mind - should be protected in these tough times, while some 8 million New Yorkers pay 12.5 percent more in sales taxes, remains a curious, if not cruel, re-writing of four decades of tax policy in this city.

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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