The recent spate of indicators showing weakening in the economy is a reminder of the folly of government budget austerity as the best medicine. More than anything else, the economy needs more jobs. Businesses are not creating jobs because consumer demand, which accounts for two thirds of gross domestic product, is anemic.
Without consumer spending, businesses have no need to hire more workers. Budget cutting at the state and local government levels compounds the problem. Stubbornly high unemployment, evidenced in employment figures released late last week, in New York City reflects a faltering recovery. Historically steep state budget cuts enacted this spring will push joblessness higher in the months ahead. If the City Council accepts Mayor Michael Bloomberg's proposed budget cuts and layoffs, the city's job market will see the proverbial double whammy from an already weak recovery compounded by state and city budget cuts that worsen unemployment.
While the Great Recession technically ended in June 2009, total employment continued to decline through the end of that year. Twenty-five million Americans are unemployed, discouraged or underemployed. Long-term unemployment is at record levels making this is the longest period of 8 percent-plus unemployment since modern record-keeping began in 1948. Unemployment remains over 9 percent. There are several reasons why this recovery has been tepid at best, and far weaker than previous recoveries since the Second World War.
American households, on average, are still saddled with high debt burdens, the result of a borrowing spree during the last expansion and the housing bubble. Families borrowed heavily in part to maintain living standards since the 2004-2007 expansion, the first during which wages were stagnant and family incomes did not rise. This continued a trend that began in the early 1980s, in which most of the income generated by national economic growth has been concentrated in the hands of the wealthiest 5 percent of the population.
Unprecedented mortgage foreclosure problems and the prolonged housing slump also have contributed to the weak recovery. A rebound in housing construction and the purchase of appliances and furniture normally provides considerable fuel for a recovery; this time the wrecked housing sector is a big anvil chained to the ankles of an already sluggish rebound. The continuing difficulty small businesses face in borrowing -- largely due to weak consumer demand and the unwillingness of many banks to lend -- is a third major factor behind the tentative recovery.
Finally, the recovery owes a good part of its snail's pace to the continuing budget pressures weighing down state and local governments. State and local governments account for 12 percent of the national economy -- one and a half times the federal government's share and slightly larger than the business investment share. Weak tax collections and the winding down of the federal stimulus leave state and local governments with the unenviable choice between raising taxes or cutting spending. Most states and localities faced with this have cut spending and laid off teachers and other public sector employees to balance their budgets. Those cuts have subtracted from growth in the economy and added over a half million people to the ranks of the unemployed.
It defies comprehension to think that more unemployment resulting from consumer belt-tightening and government budget cuts will pull us out of our economic muck. Stephen Roach, formerly a leading economist for Wall Street giant Morgan Stanley, recently characterized debt-burdened and underpaid American consumers as "zombies" -- the economic walking dead -- whose constrained spending keeps the economy from firing on all cylinders. Yet Roach urged more belt-tightening on consumers. Many others among economic conservatives and the well-to-do try to shift blame for the economic crisis onto government or at least hammer away at the need to slash government spending.
This has become an epic economic battleground. On the one side, the burgeoning ranks of the out of work, the under-employed, the underpaid, the debt-burdened, and the millions trapped in a collapsed housing market seem to echo Langston Hughes' refrain, "Let (America) be the dream it used to be." On the other, the economically comfortable, who draw sustenance from a bailed-out financial sector and financial investments that enable them to seek profits from anywhere in the world, firmly feel that everyone else needs austerity.
New York City labor expert Ed Ott has a phrase for depriving working families of gainful employment: "economic capital punishment." You have to go back at least 80 years to the eve of the New Deal to find a period in this country when so much of the public discourse tacitly accepted such a prolonged period of extraordinarily high unemployment.
As in many parts of the United States, high unemployment is no stranger to New York City. While the jobs recovery here has been in line with the nation’s overall, it is tepid at best and unemployment remains far higher than before the Great Recession. Fifteen percent of New Yorkers are unemployed or underemployed -- that's over 600,000 out of a workforce of 4 million. The average period of joblessness exceeds 40 weeks. Most of the drop in the unemployment rate in this "recovery" has occurred because discouraged workers have given up looking for jobs.
As Bloomberg noted when he presented his fiscal year 2012 budget proposal in early May, state budget cuts will take $6.8 billion in spending out of the New York City economy over the next year. In addition to cutting back on local school aid and threatening the jobs of thousands of teachers, the state budget cut support for the City University, the Metropolitan Transportation Authority, public assistance and tens of millions in contracts to social service providers serving low-income communities. And in curbing Medicaid spending, the state budget will reduce the flow of over $2 billion in federal Medicaid payments to local hospitals and health care providers. Thus, the recent state budget deal will drag down job growth and subtract basically a year's worth of federal stimulus from the city economy. Two steps forward, one step back. Recovery will have to wait.
While the mayor repeatedly blames the federal and state government for reducing spending, ironically his proposed city budget is cut from the same cloth. There has already been a reduction of 16,000 since 2009 in those working for the city or related agencies, including public libraries and the Health and Hospitals Corp. Bloomberg's budget proposes to add 6,000 teachers and 3,000 other city employees to the ranks of the unemployed. In addition, the budget proposal slashes spending on childcare, homeless rental assistance, and services for youth and seniors, and closes firehouses, libraries, childcare and senior centers. Even through enrollment in CUNY community colleges has grown by 26 percent since 2008, the mayor proposes they receive less city funding than they did three years ago.
In the face of the lingering adversity resulting from the Great Recession -- with rising poverty, ultra-high unemployment, record homelessness and demand for emergency food assistance -- the mayor's budget can only be described as austere.
The city needs budget policies that match resources to real needs. Is the city really getting value for the tremendous near-tripling in business tax breaks -- now close to $3 billion -- over the past decade, or for the $3 billion in contracting out for information technology, professional, clerical and maintenance services when city employees can more cost-effectively perform those services? Can the city afford $320 million in tax loopholes for hedge fund managers when that has the effect of shifting costs to low-income working families who can ill-afford to pay more for childcare?
Wouldn't it be far better to begin to shift the tide toward shared sacrifice with the comfortable elite contributing through progressive taxation to help their fellow city residents re-build their economic lives? Budget austerity is not the solution to our economic calamity, not in Washington, not in Albany and not in New York City. The city can't fight this battle on its own, but it should at least be fighting on the right side.
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.
Gov. Andrew Cuomo's proposal for pension reform is in the best interest of taxpayers and public employees. The plan would bring New York's pension benefits in line with those of other public employers, creating a more sustainable and affordable pension system, significantly reducing future costs and ensuring benefit obligations can be met. The proposal deserves support from legislative and union leaders.
While other states have neglected their pension funds, New York state and its local governments have historically funded their obligations. However, state and local budgets have been squeezed as the cost of pension contributions skyrocketed over the last decade. Between 2000 and 2010, pension contributions for state and local employers grew from 0.9 percent of payroll to 7.4 percent for civilian employees and from 1.9 percent to 15.1 percent for police and fire employees.
Contribution rates are projected to continue their growth for the foreseeable future, reaching 13.5 percent and 21.5 percent of payroll, respectively by 2015. These projections are low because the state opted to postpone making its full payments last year. It will need to make up these "borrowed" sums at a later date. In 2015, the contribution rates required to fully fund the annual obligation will be 20.9 percent and 27.1 percent of payroll for civilian and police and fire employees.
The problem is especially severe in New York City, where costs have quadrupled from $1.5 billion to $7 billion since 2002 and will continue to grow to $8.7 billion in 2015. Pension contributions have grown from 4 percent to 11 percent of the municipal budget – squeezing other priorities including education and social services. The thousands of layoffs proposed in the most recent budget are the clearest example of how growing pension costs force tough choices.
Tackling growing pension costs -- while ensuring retirement security for public employees -- requires broad thinking. Targeting fraud and eliminating double-dipping are important but on their own will not adequately address the problem.
The governor's proposal focuses on the features that make New York's pension systems costly -- even as compared to other public systems. The proposal makes three important changes to bring New York in line with other public employers.
First, the retirement age will increase to 65, the same age that retirees become eligible for Medicare. While uniformed employees still will be able to retire after 20 or 25 years of service, they will not receive pension benefits until age 65. Police and firefighters currently have no minimum age requirement; as a result, one-third of all New York City fire retirees and one-half of all City police retirees are under age 60. In localities outside New York City, over 80 percent of police and fire retirees in the last year were under 60, increasing the length and cost of benefit payouts.
As for teachers, they currently are eligible to retire at 57 and 55; 58 is the average retirement age for teachers in the state outside New York City.
Second, the plan would raise required employee contributions to bring them closer to national norms. Many New York state, city and local employees contribute only 3 percent of their earnings toward their pensions for only the first 10 years of employment. Only employees who opt for enhanced plans make larger contributions or contribute for a longer period of time. As a result, employer contributions to the pension funds exceed employee contributions by a ratio of 9 to 1. This proposal would require a 6 percent contribution from all employees for their entire length of service. The nationwide mean is 6.4 percent for state and local workers with a fixed contribution requirement.
Third, prospects for "pension padding" will be eliminated. Now the benefit is calculated using all wages -- including overtime -- for the highest three years of earning, giving public employees an incentive to rack up overtime at the end of their careers.
In the governor's plan, pension benefits will be calculated based on the highest five years' of earnings with maximum eligible wages capped at $179,000. Overtime pay will no longer be included in the earnings used to calculate benefits, bringing New York’s rules in line with 94 percent of other public employees nationwide. In addition, an "anti-spiking cap" will exclude extraordinary increases in income in any year.
Because pension benefits are constitutionally protected, the benefits of current employees and retirees would remain unchanged; the changes would only apply to future employees. As a result, the savings would be small initially but would grow to $93 billion for state and local governments and $30 billion for New York City over 30 years. The changes would create a more affordable pension system that would alleviate the pressures that rapidly escalating costs have placed on the structural balance of state and local budgets.
The proposal also would create a more sustainable system that ensures the retirement security of current and future workers. As experience in other states shows, when pension costs reach a breaking point, elected officials pay less than the required amounts, placing the solvency of the pension funds at risk.
New York has already started on this slippery slope. Rather than enact any additional gimmicks, legislators should support the structural changes proposed by Cuomo. This will reduce the costs of the pension system while ensuring pension benefits for state, city and local employees are not placed in jeopardy.
Municipal union leaders and their members should support these changes to the pension system. They, too, are taxpayers who have an interest in protecting vital services from drastic layoffs and other cuts necessitated by the whopping costs of fringe benefits. Pension benefits for current employees and retirees will be preserved, but the changes proposed for future employees will go a long way toward putting New York and its local governments on the road to good fiscal health.
Carol Kellerman is president of the Citizens Budget Commission, a nonpartisan civic group that seeks to promote the fisical health of New York state and city government.
Gov. Andrew Cuomo’s misguided proposal for a adding another tier to New York's pension systems represents another grandstand play to impress his millionaire friends at the expense of working people. The proposal is unnecessary, unfair and will not provide any immediate savings. It means the lowest paid public employees will pay more, work longer and receive less benefit.
There are a lot of misconceptions about New York's public employee pension systems. A little background is required.
Nearly all public employees represented by the Civil Service Employees Association participate in the New York State and Local Employee Retirement System, the largest of New York’s systems. (There are eight separate systems: five in New York City and two others, one for police and fire and one for teachers, in addition to the state and local system for public employees outside of New York City.)
The New York State and Local Employee Retirement system is fully funded according to all appropriate professional accounting standards. This means that the system has adequate assets to cover the cost of all current and future pension obligations.
State and local government pensions are paid for by employee and employer contributions based on salary, investment earnings and lifespan and other projections.
Before 2000, most state and local retirement system participants contributed 3 percent of their annual salary toward their pension. Since 2000, that contribution ended after 10 years in the system. In 2009, the state enacted a Tier V, reinstituting provisions requiring new employees joining the system to contribute 3 percent of salary throughout all their years of active service. The state claims this reform will save taxpayers $35 billion over the next generation.
The state and local government system, which is combined with the New York State Police and Fire Retirement system into what is known as the Common Retirement Fund, currently has assets of around $133 billion. However, the fund saw some dramatic swings in value over the past decade as Wall Street investments see-sawed. As a result, a number of reforms were put in place by legislation to ensure fund assets will be able to meet obligations.
In the past, strong investment returns allowed state and local governments to practically avoid making pension contributions for extended periods of time. Throughout the 1990s, as public employees contributed 3 percent of salary each year, public employers contributed only token amounts. That can no longer happen. Reforms enacted in recent years, largely out of concern about Wall Street volatility, require responsible, minimum employer contributions in good economic times and bad. Related legislation allows the obligations to be spread out over time to avoid spikes.
Because of these necessary and appropriate reforms, a number of highly vocal politicians, egged on by business groups with their own agenda, have been railing about the high costs of pensions.
Again, keep some perspective: the average Civil Service Employee Association pension is $14,000; members of our association and most other participants do not double-dip or pad their pensions in any way. In fact there are already caps on the amount of overtime that applies for pension purposes.
Yet Cuomo’s Tier VI proposal overreaches for reform at the expense of working people. Rather than address specific reforms that close loopholes and eliminate political abuses, Cuomo is pursuing draconian, wholesale changes that tar all participants with the same broad brush. His proposal would hit the lowest paid employees the hardest and without good reason.
The governor's proposal would require employee contributions to be increased from 3 percent to 6 percent of salary; raise the retirement age from 62 to 65; lengthen the time period to vest in the system to 12 years. It includes a number of other provisions that would seriously diminish benefits.
At the same time, Tier VI will not yield any short-term savings for taxpayers. Tier V was implemented last year for the state systems only, and its savings are not expected for another generation.
Cuomo's timing on the proposal is also suspect. It was unveiled without warning when there were only 10 days left in the legislative session -- hardly enough time for legitimate consideration of such a controversial piece of legislation.
For all these reasons, the Tier VI proposal can only be viewed as an attack on working people to score some cheap political points rather than seriously addressing the challenges that confront all the people of New York.
Danny Donohue is the president of the nearly 300,000 member CSEA.
City Comptroller John Liu strode into the spacious fifth floor conference room in the municipal building last week to hold his first impromptu press conference as the steward of the city's finances.
Liu, short spoken and somber, revealed the project manager for the city's controversy-laden time keeping system, CityTime, billed the city for hours he never worked.
"I think its safe to say there just hasn’t been enough oversight for the better part of a decade," said Liu.
That same morning, Manhattan Borough President Scott Stringer stood in front of the municipal building and blasted the Bloomberg administration for its so-called bloated education contracts.
"With all of this increase -- over millions of millions of dollars -- they cannot cut back one dollar, that's absurd," Stringer said, standing next to the head of the teachers union. "Every contract should be evaluated. The problem is the process is so opaque."
The recent contract scandals have brought renewed attention to the city's contract budget -- which has grown by more than 70 percent during Mayor Michael Bloomberg's tenure. Nowhere has that increase been more evident than in the budget's professional services or consulting area -- which blew up from $357 million in fiscal year 2003 to nearly $1.5 billion in the proposed budget for fiscal year 2012 budget.
Those increases have caught the attention of Bloomberg's potential successors. A central focus of Council Speaker Christine Quinn's State of the City speech early this year was city contracting. Other prospective mayoral candidates, like Liu and Stringer, are now also calling for culling contracts.
While the administration has more recently been receptive to cutting back, officials balk at any across-the-board cut or substantial decrease. The debate is pitting the council speaker against the three-term mayor -- a rare occurrence -- as the two attempt to negotiate a budget deal before the June 30 deadline.
Between 2003 and the release of the mayor's budget proposal for fiscal year 2012, the number of contracts actually fell from more than 18,000 to 17,214.
The amount the city pays for those services -- which cover everything from social services to computer consultants -- has skyrocketed well above the rate of inflation.
City officials, particularly Quinn, can't seem to figure out why.
"There are a lot of unanswered questions," Quinn said in a phone interview this week. "What's the $290 million of data processing equipment?" Quinn asked referring to a one portion of the contract budget outlined in the mayor's executive budget proposal.
"I am not saying that every dollar of that $290 million is unnecessary," the speaker continued. "Maybe it is necessary. … let's just not assume it is without drilling down."
The contract issue has become a key point in this year's budget negotiations. As the city faces laying off thousands of teachers and closing fire companies and swimming pools, officials at the council, particularly Quinn, question why the administration insists on keeping outside consultants.
Between the 2012 preliminary budget proposal, released in February, and the executive budget, released in May, the contract budget grew by $110 million, according to council officials.
During a hearing on the education budget on Wednesday, Councilmember Robert Jackson criticized consultant contracts in the Department of Education. He questioned why the city would consider laying off more than 4,100 teachers, while it continues to contract out funds for professional development.
Schools Chancellor Dennis Walcott skirted the question.
Quinn said she has no exact goal for how much she wants to reduce the contract budget this year. The speaker has said just holding spending flat on contracts in fiscal year 2012 would save $100 million.
But the administration disagrees. Bloomberg Spokesperson Marc LaVorgna contends the city cannot amend contracts until they expire. He said it would be impossible to hold spending flat.
Quinn countered: "We told every nonprofit in the city of New York to do more with less. Why cant we tell the for profit entities in the city to do more with less?"
Ultimately, she added, "I believe every single city contract can be broken."
LaVorgna said the city is making some strides in reducing the size of the contract budget -- specifically in technology consultants. The city used to hire outside consultants for quality assurance to oversee technology contracts. They started to hire project managers at the Department of Information Technology and Telecommunications to replace those outside consultants. By creating staff positions, the city will save $37 million, according to the administration.
These proposals, LaVorgna said, are part of a larger attempt to find contract savings.
But, LaVorgna wrote in an email, "There will still be needs for highly specialized, outside technical expertise of course."
Based on the numbers, it looks like New York may have a greater "need" than other big cities.
New York City's contract budget comprises 16 percent of all city expenditures. In comparison, Los Angeles's contract budget is just 3 percent of its entire budget, according to a spokesperson for Mayor Antonio Villaraigosa.
District Council 37, the city's largest municipal employees union, questions the "need" for consultants' expertise.
Sitting in the union's Barclay Street office, Henry Garrido, the union's associate director, said consultant contracts are negotiated in cycles, with one individual bouncing from department to department. They are paid by the hour, costing the city thousands more than if they had been on staff, Garrido said.
Scandal aside, there is so little oversight of some of these projects, Garrido said, they can end up costing the city more than double what it had originally projected.
"[There is] the overutilization of contract consultants on the one hand that have exorbitant prices," Garrido said. "In other areas, it's just change orders."
Critics of DC 37's efforts are quick to suggest Garrido may just be trying to save his members' jobs. Garrido doesn't dispute this. He argues the consultants should be put on staff, which would allow them to become union members.
"Forget the union," Garrido said. "If you think it's in the best interest of the city, make a cost comparison."
DC 37 isn't the only union using this tactic this budget season. The United Federation of Teachers, which faces the largest employee loss, is also blasting the administration for consultant contracts in the Department of Education.
Standing alongside Manhattan Borough President Stringer last week, the head of the teachers union, Mike Mulgrew, said city funds should be used in the classroom not for consultants.
"There is something wrong here," said Mulgrew. "The parents in this city, the children in the schools, the teachers are sick and tired of every week hearing about another scandal with outside contractors and consultants making millions of dollars that should be used in the classroom for direct services to students -- not lining the pockets of privateers who are trying to use children to make money."
Should the latest budget deal include a reduction of contract services, it is likely Liu, Quinn and Stringer will all claim some sort of victory -- a win that could easily be spun to saving jobs during the next campaign season.
Ultimately, trying to cut contracts now, may be less about a budget crisis and more about the mayor's race.
"There are real fiscal issues and there are fiscal issues as political issues," said Doug Muzzio, a professor at Baruch College. "Clearly this administration is rich in contracts, or made other people rich through contracts. Clearly there are questions about the efficacy of many of those contracts."
Five years after Mayor Michael Bloomberg named a blue-ribbon commission to "analyze the causes, scope and consequences of poverty" and created a city Center for Economic Opportunity to turn the commission's "recommendations into policy and practice," it is hard to find any changes in city policy, practice or theory to ameliorate city poverty.
The city's poverty level remains where it was five years ago; the center's 40-plus pilot programs have served only a few thousand New Yorkers; and the mayor himself is on a 10th round of cutting traditional anti-poverty programs: daycare, libraries, senior and youth programs, education, among others.
Despite minimal local impact, the center has just received a federal grant to replicate some of its New York programs in other neighborhoods in the five boroughs and in cities across the country. There is, it seems, a fundamental disconnect between the poverty commission's goal and what it has actually done to change anti-poverty policy and practice in the city.
One reason for the disconnect may simply be that, even though the center is in the mayor's office, it is not so much a public program to fight poverty in New York City as a privately funded, privately run policy shop with a national focus. The center's work on broadening the federal definition of poverty is one example. .
The federal grant --a $5.7 million Social Innovation Fund award from the federal Corporation for National and Community Service -- is another indication of Bloomberg's national focus. The grant will provide money to expand a few of the center’s pilot programs to "combat poverty across a diverse cross-section of America." .
But the structure and administration of the mayor's overall anti-poverty reform plan -- revealed in rare detail in his federal grant application -- best explains the disconnect. It shows how the mayor uses private funding, national nonprofit research/policy organizations and nonprofit service providers to design, implement, administrate, and evaluate “public policy.” This has, in essence, created a private, parallel universe. .
This pattern, which the New York Post recently characterized as a "shadow government" provides additional funding or some programs but also shields mayoral projects from the public scrutiny they would receive if funded entirely by taxpayer dollars. .
The federal review of the grant proposal cites some of the other problems with that parallel universe. Two expert review panels, for example, viewed some parts of the poverty proposal with much skepticism. They liked the private funds raised by the center -- the bulk of it from the Mayor’s Fund to Advance New York City and the mayor’s own charitable foundation -- but questioned several aspects of the proposal: its coherence, its cost-effectiveness, its lack of theory and its weak link to city government itself, among others. Nonetheless, a final review panel approved the application with enthusiasm.
The mayor's anti-poverty effort has three partners. Together they spent $58 million over the four years on earlier stages of the anti-poverty pilot programs. .
The five-year plan included in the federal proposal (the grant is for the first year only) anticipates total funding by the three organizations of $74.3 million, to serve 17,800 people across the nation. The Bloomberg Family Foundation will contribute $25 million over the five years, the Open Society Institute, $2 million. The balance will apparently come from extended federal funding, other private sources, and in-kind contributions by city agencies and nonprofit organizations. .
The first year budget of $12.6 million ($5.7 million from the federal grant and the balance from the Mayor’s Fund) includes $4.57 million to MDRC for selecting sub-grantees, evaluations and fiscal monitoring. One review panel called this share "too significant an investment for year one, even with a gold-plated partner like MDRC." .
The $74.3 million program has five parts and builds upon programs developed by the three partners since 2006. It will replicate the city's pilot programs in New York and seven other cities. The best known of these is Family Rewards, a new version of the controversial three-year "conditional cash transfer" program begun in 2007. .
The original program gave low-income people cash rewards if they did various things, such as making sure their children attended school or keeping doctor appointments. The average family payment was $3,000 per year for the first two years. .
MDRC did a preliminary study in 2010 that gave it a mixed review. Its follow-up study of program participants will continue until 2012, two years after the program’s demise. .
Under the new federally supported plan, the Mayor's Fund and the center have awarded Seedco, a national nonprofit organization which was a partner in the original effort, a three-year $694,000 contract to implement the new Family Rewards program in the Bronx and Memphis, Tenn. Seedco, working with six city community-based organization, including BronxWorks and the Children's Aid Society in the Bronx, will choose 600 families in each city to be part of the program. .
MDRC will do a full scale "randomized control trial" of the program's "streamlined incentives," studying an additional 600 families in each city who do not participate in the program. .
The other components of the proposal are:
The Mayor's Fund/Center proposal went through a two-phase review process. In the first phase, one panel rated the application "Satisfactory," the third highest of four options, and the second assessed it as "Strong," the second highest rating. A second-phase review panel gave it the highest score, "Excellent." .
The first panel found that the program design lacked "cohesiveness and clarity around a theory of change." Overall, the panel did not feel confident that the grand scale of the program, more than $100 million over five years, would lead to "outcomes that were demonstrable or cost-effective." .
The second panel, although generally quite supportive, questioned the role of MDRC. It expressed concern that the MDRC would both be providing technical assistance and then, in effect, evaluating the success of its own program. .
The second-phase review panel, on the other hand, was very enthusiastic about the application. And for them, MDRC was the strength of the proposal. Noting MDRC had partnered with the applicant on past programs, the panel said, "The established partnership with the MDRC brings both the evaluative capacity [and] program-specific experience that would lead to a successful program."
One thing missing in the review panels' work is any mention of the fact that during the several years of the pilot programs, the city poverty rate showed no statistically significant change. According to the center's own research office, using the official federal definition of poverty, which defines a family of three with income less than $22,000 as being below the poverty line, the poverty rate in New York City was 17.9 percent in 2006 and 17.3 percent in 2009. Using the center's broader definition, the poverty rate remained unchanged at 19.9 percent over that period. A third estimate, from the private Fiscal Policy Institute says the poverty rate in 2009 was 21.3 percent, or 1.8 million New Yorkers, with half of them in deep poverty -- meaning their income was less than 50 percent of the poverty line.
Aside from a few pilot programs, they city has had little to no response to the high poverty level in recent years. On the tax side, the mayor's raising of the city sales tax in August 2009, from 4.0 to 4.5 percent -- a historic high for the regressive tax -- only added another burden for low-income households. On the expense side, the Mayor's Management Reports and the Independent Budget Office's March analysis of Bloomberg's preliminary budget show the city helping residents access federal anti-hunger money, but cutting back on well-established anti-poverty programs.
Although the number of people receiving public assistance between fiscal years 2006 and 2010 declined by 10.4 percent, from 393,800 to 352,800, the number of persons receiving food stamps rose by over 64 percent to 1,789,700 as the number of people not on public assistance jumped by 136.5 percent to 1,121,600. Experts credit this partly to the very large number of working poor in the city -- people making minimum wage or slightly more.
Homelessness among families with children has increased dramatically in recent years. The average number of families with children living in shelters has risen nearly 30 percent, from 6,671 in fiscal 2006 to 8,629 in 2010.
Spending for children's daycare and preventative services for children at risk of neglect or abuse, both programs largely used by families living in poverty, have plunged in the past five years. For example, the number of children receiving contracted preventive services declined by over 13 percent from 2006 the first four months of fiscal 2011.
According to the Independent Budget Office, childcare enrollment dropped 12 percent, from 116,000 in 2006 to 102,000 in 2010. While the mayor recently said he would not eliminate thousands of additional daycare slots, many advocates dispute this. Bloomberg also has proposed increases in fees parents must pay for contracted childcare, starting in fiscal 2012.
One city youth program, the Summer Youth Employment Program, has shrunk over the past two years. The Independent Budget Office pointed out in March the program served more than 52,000 youth in 2009, but only 35,612 youth (out of more than 140,000 applications received) in the summer of 2010.
The proposed enrollment for summer 2011 is 17,200 – a 67 percent cut in two years. Much of the cut stems from anticipated state and federal cutbacks, but the mayor himself reduced city funding by $3.2 million, or 9 percent, from 2010. The city isseeking private money to pick up some of the slack.
The fiscal and program disconnect between the Mayor's Fund/Center research/demonstration project and the city’s everyday policies is clearest, however, in public education. As the Independent Budget Office notes, for “the second year in a row the Bloomberg administration has presented a budget that would decrease the number of teachers and classes (thereby increasing class size) and cut other school services.
In dollar terms, over the two-year period, -- fiscal years 2011-2012 -- public school classroom cuts will total $364 million.
The federal grant to the Mayor’s Fund and the Center for Economic Opportunity raises more questions than answers about city anti-poverty policy. This 10-year (2006-2016) mayoral experiment in national urban anti-poverty policy -- targeting fewer than 18,000 individuals – may be "scattershot" or it may be "extensive and rigorous," but so far it has had little or no effect on poverty in New York.
Designed and controlled mostly by a national nonprofit organization, funded mostly by private philanthropy, implemented by national and local nonprofits, the demonstration will continue essentially independent of city public agencies. In fact, Bloomberg sees these partnerships and programs being institutionalized in each city. He envisions a kind of long shadow government so that "a change in government leadership would not disrupt the dialogue and joint efforts."
The larger question is whether the apparently exclusive focus in the mayor’s office on the privatization of policy reforms ultimately translates into effective public policy.
(Correction: The April Public Finance column incorrectly reported property tax assessment increases for one, two and three-family houses are "phased in over five years, but with limits on total increases." Rather, increases are recorded each year, to a limit of 6 percent each year, and a five-year limit of 20 percent. The article has been corrected.)
Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001.
This time the billionaire mayor means business.
For the 10th time, Mayor Michael Bloomberg stood in the Blue Room at City Hall, clad in a sharp, dark suit, and unveiled his executive budget proposal. After 10 rounds of budget cuts since 2008, totaling $5.4 billion, Bloomberg proposed to make reductions in every department. The $65.7 billion fiscal plan would slash 6,166 teachers, about 2,000 of them through attrition, close four swimming pools this summer and shutter 20 fire companies. The City Council has vowed to fight the teacher layoffs.
Bloomberg blamed the cuts on the state and federal governments. This year's budget represents a steady stream of divestment in the Big Apple by Albany and Washington, the mayor said. Now we will lose services because of it, he added.
"Both places are keeping our tax dollars to close their budget deficits," the mayor said on Friday. "If the state was paying 50 percent or close to it [for the Department of Education], we would not be talking about laying off teachers."
For the first time since the fiscal crisis of the 1970s, the city could lay off large numbers of teachers -- 5 percent of all instructors. The state's share of aid has dropped by 20 percent, the mayor said. To make up for the loss, Bloomberg said the city would use up all of its surplus and nearly $700 million from its health care trust fund, a reserve used to pay for retirees' health benefits.
Immediately following the mayor's morose budget presentation, City Council members and advocates blasted the administration for slashing services for the city's most vulnerable. Others questioned whether the third term mayor was bluffing.
"I am sick and tired of this administration's use of teacher layoffs as a threat to unions and continued attempts to balance the budget by direct cutting services to the neediest among us," said Councilmember Margaret Chin in a statement.
Officials accused the mayor of playing politics. Some saw his threat to lay off teachers as another attempt to pressure Albany to approve certain education changes, specifically legislation to allow the city to lay off teachers based on merit not seniority. The mayor also wants to convince Albany to approve a new pension tier for new city employees.
For these reasons, council members wonder whether these slashes are symbolic or serious. Either way, council members are trying to come up with plans to save their favorite programs.
This is the second time in as many years the mayor has threatened to lay off teachers. It is the seventh time he has proposed closing fire companies.
None of those cuts ever materialized.
This year, say City Hall observers, is different.
"This is a zero sum game, and every year the restoration list gets longer and our ability to restore it doesn’t get larger," said Councilmember Lewis Fidler. "It's going to be a tough year."
Even members of the administration aren’t holding their breath on getting extra funds.
"Until July 1, I'm hoping that something does turn around," said Fire Commissioner Salvatore Cassano. "If it's 20 [companies], the whole city will be impacted."
In addition to the teacher layoffs and the fire companies, the administration has proposed to increase parking rates and fees for inmates to make telephone calls on Rikers Island. It also would reduce the amount of condiments and number of bread slices inmates receive.
Administration officials are exploring whether to start charging nonprofits and churches for garbage collection in 2013. The mayor has proposed to move forward with a plan to house small homeless families in shared apartment style units.
At the budget announcement, the mayor reversed an earlier decision to eliminate 16,000 child care slots. Instead, he said, the city would make sure those kids receive day care through an after school program. The city also plans to increase minimum child care copayments from $5 to $15.
Advocates criticized the move, saying the after school program does not offer the same amount of service.
"Working parents need child care support in order to remain in the workforce, and it is vital for children to receive quality care and early childhood education. Partial restoration of this funding is a step in the right direction. We are hopeful that the mayor will recognize that more funding will be required to prevent irreparable damage to the city's subsidized child care infrastructure and system," said Fatima Goldman, the executive director and chief executive officer of the Federation of Protestant Welfare Agencies.
Beyond child care, the mayor's plan would eliminate outreach contracts for homeless youth and slash more than 2,100 summer youth employment slots.
Senior centers have been held harmless, but the Bloomberg administration would decrease funding at the city's library system by about $40 million. The parks department will also take a hit with reductions in seasonal staff and increased fees at recreation centers and for tennis permits.
Already the council has identified teacher layoffs as its top priority. In order to stave off any staff reductions in the classroom, the council would have to come up with $435 million in funding.
"Since the recent financial crisis and recession, the City Council has worked aggressively to control spending and manage the city's budget in a fiscally responsible manner while protecting vital services," said Council Speaker Christine Quinn and Finance Chairman Domenic Recchia in a joint statement. "That's why we have grave concerns about a budget that allows for teacher layoffs, which would be immensely damaging to our education system and children's opportunities for a quality education. Make no mistake, we will do everything in our power to prevent teacher layoffs."
But it's unclear where the council will get the money to do so.
Last year, the council was able to save $397 million in cuts. If the council were to successfully negotiate to save teachers this year, it could likely be the only restoration the city could afford.
"It's a big lift," said Doug Turetsky of the Independent Budget Office. "It pretty much takes up all the funds they typically get to work with."
The council identified keeping fire companies open as well. According to the Bloomberg administration, keeping the companies open would cost $55 million.
No matter what the cuts the council looks to save, it will have to identify other areas of the budget to cut back. Both Quinn and Recchia have said they would not raise taxes. On Friday, Quinn took aim at the administration's outside contracting, arguing if contracts were held flat this year the city could save $100 million.
Meanwhile the council's progressive caucus is urging the State Legislature to extend the state's millionaire's tax and close tax loopholes for hedge fund managers. According to the caucus, those two measures could bring in $570 million.
Other budget experts predict some council members will push for the city to drain its health care trust fund -- now at $2 billion.
On Friday, Bloomberg warned of a projected $5 billion budget deficit in fiscal year 2013. He warned using the fund to stave off cuts this year would be irresponsible and said he would not consider raising taxes to create more revenue.
"I liked his emphasis on how important it is not to spend the rest of the money in the retiree health benefits trust," said Carol Kellermann, the president of the Citizens Budget Commission of the mayor's budget. "I think that's where the battleground will be. He was warning the council that that's an irresponsible thing to do."
Mayor Michael Bloomberg’s preliminary budget for fiscal year 2012 and five year financial plan overstates the immediate need to eliminate over 6,000 teaching positions, close senior centers, reduce summer jobs for youth and cut many other human services. The proposed budget ignores a number of untapped revenues that could maintain both current services and budget balance for next year.
At the same time, the financial plan understates the city’s long-term “structural balance” problem. Annual budget surpluses -- projected to be $3.2 billion this year -- disappear come July, and in later years projected city expenditures far outpace projected revenues. So the mayor and City Council can erase the cuts in the short run, but in the long run they need to find the political will to tap into the city’s tax base. If not, the city will see three more years of the serial budget cuts, which started in January 2008.
It’s important now, in other words, to see what revenue sources the city can tap into. In the short run, it’s likely the mayor will find additional revenues -- just as he found in November to project ending the current fiscal year with a large surplus. That surplus was built from budget cuts, new Wall Street generated tax revenues, and what the city comptroller calls “budget maneuvering.”
The Independent Budget Office’s analysis of the preliminary budget and financial plan provides some clues to what the short-term “maneuverings” might be. It also helps us, for the longer-run, to understand the city’s current tax base, including its evolution, inequities and inefficiencies.
The mayor has the power to estimate tax revenue forecasts, tax audits and debt-service savings. Under Bloomberg, they have generally low-balled. According to the Independent Budget Office, taxes collected a year or more after they were due have averaged $800 million a year for the past six years. Yet the city assumes only $500 million in these collections for next year. The $300 million difference would go a long way toward saving 6,000 teaching positions currently on the cut list (an estimated savings of $350 million). More realistic assumptions about debt-service savings would also make additional millions available for service restorations.
For the long term, the administration could start with the city’s property tax exemption programs. As the Independent Budget Office's analysis shows, three of these programs alone cost the city over $2 billion a year in lost revenues. They also create inequities, favoring certain businesses and homeowners at the expense of others, like two-thirds of New Yorkers who rent.
Two of these long-time property tax exemption programs are up for re-authorization in Albany: the 421a exemption program for residential construction, which will cost the city $920 million in fiscal 2011, and a commercial abatement program that cost $623 million in 2011. Perhaps because of the political power of housing and commercial development interests in the city and state, the IBO assumes both programs will continue.
An abatement program for co-ops and condos, introduced in 1997, is also costly. It was supposed to be temporary, until the disparities between what homeowners pay in property taxes, on one hand, and coop and condo owners pay, on the other, were fixed. (See the IBO’s Twenty-Five Years After S7000A: How Property Tax Burdens Have Shifted in NYC for the history.) Fifteen years later the inequities remain, and the “temporary” abatement will cost the city $450 million this year. The IBO assumes this tax break, too, continues.
Another big revenue option, noted by state comptroller's office, is the mayor’s Retiree Health Benefits Trust fund has $2 billion in reserve. This is the same fund -- originally designed for long-term health-benefit liabilities -- that the mayor drew down by $1 billion to help balance the 2012 budget.
There are bigger revenue options. Excessive overtime has been a problem for years. The city comptroller’s report estimates that overtime next year will be over $1 billion, nearly $200 million more than the mayor currently projects. The State Financial Control Board says it will be $216 million more in 2012 than the mayor projected, and $240 million more in 2013.
The mayor has belatedly, with the help of Deputy Mayor Stephen Goldsmith, recognized the need for better agency management, and they hope to save more than $50 million in 2012 doing so. But what about this year’s $538 million in police overtime cited by the city comptroller ($465 million to uniformed officers, $73 million to civilians!), which comprises nearly 12 percent of the NYPD’s $4.645 billion 2011 budget? The IBO notes that 621 high-paid uniformed officers are doing work usually done by lower-paid civilians.
The IBO analysis notes also that the central office of the Department of Education will have a budget 10 percent higher next year. The office will add 218 positions and spend over $39 million in contracts for administrative professional services, not to mention $36 million in contracts for computer services.
The property tax structure, which accounts for about $17 billion in city revenue, is immensely complicated -- often bizarre. In a recent study from the Independent Budget Office, the tax was called a “very stable revenue source,” even as the real estate market slumped in recent years.
The main reason for the tax’s stability is the way in which assessments – the city’s valuation of a property for tax purposes -- work. Increases in assessments for commercial and large residential properties are phased in over five years. Other properties, like one-, two- and three-family houses, are also phased in over five years, but with limits on total increases. So even when assessments begin to go down as market values fall, there are left-over increases from previous years (called a “pipeline”) that keep taxes growing.
A small increase in the property tax rate raises a lot of money. A one percent rate hike would raise about $170 million. (A homeowner’s $4,000 tax bill would be only $40 higher.) And the property tax is the one major tax rate that the city can authorize by itself without state approval.
The 4.5 percent city sales tax, a regressive tax, has risen in recent years. In August 2009, the mayor and City Council agreed to raise the city sales tax rate from 4 percent to 4.5 percent (added to the state’s 4 percent sales tax and the 0.375 percent metropolitan transportation tax, the total rate is 8.875 -- a historic high).
Politically, for Bloomberg and the council the sales tax was apparently the easiest route. The Independent Budget Office's March analysis says the rate increase brought in $521 million in 2010 and will raise more in later years. A similar amount of money could have been raised by restoring progressive, higher personal income tax rates in effect during Mayor David Dinkins and Rudy Giuliani’s and Bloomberg’s first term. (See the Independent Budget Office's budget options for details.)
The conservative shift in city tax policy is most obvious in Bloomberg and the City Council’s refusal to use the city’s mildly progressive (higher-income earners have slightly higher tax rates) personal income tax rate to fill budget gaps for the past three years. Of course, the same conservative shift has been obvious in President Barack Obama and Congress’s extension of Bush-era tax cuts, and in Gov. Andrew Cuomo and the state legislature’s refusal to extend the so-called millionaire's personal income tax.
The state’s conservative shift has enormous consequences for New York City. As the Fiscal Policy Institute points out, the expiring tax will mean a loss of $5 billion in state revenue in calendar 2012 at a time when “the wealthiest 1 percent of New York taxpayers are receiving an average windfall of $124,000 from the extension of the Bush tax cuts.” An extension would have likely wiped much if not all of the current cuts in state aid to city education, health, housing and other essential services.
Thus Obama, Cuomo and Bloomberg tax policies have created a tax cut trifecta for the city’s wealthiest residents. This is a group that the mayor says would flee the city were they to pay city personal income taxes at rates Bloomberg -- the wealthiest of them all -- set himself from 2003 to 2005. The city’s own tax-policy history contradicts his claim.
The elephant in the room continues to be that over 90 percent of the city workforce is working without a contract, and a two-year contract dispute with city teachers and administrators has yet to be settled. The preliminary budget has no reserve fund for contracts over the next two years -- any raises are supposed to be self-funded by labor through benefit concessions and productivity measures. The state comptroller points out that settling teacher/administrator contracts and future wages for all city workers at projected inflation rates could cost $1.4 billion in 2012 and nearly $2 billion in 2013.
The city itself at this point projects budget deficits averaging $4.9 billion for the next three fiscal years, while the city comptroller sees deficits averaging $5.7 billion during the same period. (The Independent Budget Office, reflecting its projection of more robust tax revenues than the mayor, projects deficits averaging $3.4 billion.) Unless the mayor and council adopt a more reasonable, more equitable revenue policy, labor settlements may trigger another round of budget cuts much sooner than the preliminary budget suggests.Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001.
On Wednesday, hordes of protestors poured into the New York State Capitol in Albany chanting, "Hey ho, hey ho, these budget cuts have got to go!"
Simultaneously, legislators worked to pass the $132.5 billion fiscal plan -- most ignored the chanting as much as they could.
But it wasn't just the protesters who weren't being listened to.
Mayor Michael Bloomberg stamped his feet and gnashed his teeth about how the state budget hurts New York City. It wasn't enough to shake the will of the Cuomo administration. The newly minted governor convinced legislators to vote for almost the exact same budget the governor presented to them -- except for a few small restorations. All told, it looks like the city lost just under a half billion dollars in education aid.
Expecting cuts, Bloomberg didn't do the traditional lobbying in Albany. Rather than focusing on restorations, he pushed Albany to reduce state mandates and give the city more flexibility in negotiating public contracts.
Unfortunately for Bloomberg, and some would say the city, he didn't get any of it.
Bloomberg's biggest request was for the state to do away with "last in, first out," or LIFO. Rescinding the policy would allow the city to lay off teachers based on performance, not seniority. He made his case in Albany during budget hearings, as did Schools Chancellor Cathie Black. The issue was pressed in editorial pages and through like minded legislators in the Capitol, but in the end Bloomberg struck out; LIFO is not part of the budget agreement.
There is a possibility that Senate Republicans and the governor will continue to work with Bloomberg to reach a deal on LIFO after the budget is voted on, but at the moment it just seems that Bloomberg's agenda utterly failed.
Bloomberg's other gripe was a cut out of millions of dollars in revenue sharing funds that the state gives to localities every year. New York City sends more money to the state than any other locality, yet for the past two years the state has proposed eliminating the local aid. The Cuomo administration argues it didn't zero out those funds -- the cut was made in budget extenders last year under Gov. David Paterson. Cuomo just didn't go out of his way to restore aid to the city. New York City was singled out by Albany and eliminated from the revenue sharing program, while other localities took no more than a three percent cut.
"We appreciate that some of the cuts in education aid were restored. But make no mistake: the final budget still cuts New York City more than ever before," Bloomberg wrote in a statement. "The restorations are merely a fraction of the $600 million necessary to avoid additional layoffs and cuts in the city's budget -- beyond what was announced in February -- for the upcoming fiscal year."
Cuomo's spokesman, Josh Vlasto, blasted Bloomberg, saying the budget "restores tens of millions of dollars in additional education aid, millions to keep senior centers open and millions to protect the homeless. AIM aid to the city was not cut 100 percent. AIM aid was eliminated last year, so it is a zero percent decrease for fiscal year 2011-2012. Prudent budgeting would not have counted that as an increase. In addition, the City Department of Education has a surplus of over $300 million and the City revenue position has improved, so they have much less pressure on their overall budget."
Bloomberg, however, sent out a mailer blaming Albany for cuts and painting himself as a champion for the working class. His literature read: "Albany budget cuts will hurt our families. That's why Mike Bloomberg is standing up for us." The flyer also says that Bloomberg is "protecting vital services like police and fire that keep our neighborhoods safe."
In response to the flyer, Councilmember Jimmy Oddo asked Bloomberg in a letter if his planned cuts to fire stations still stood. "Respectfully, I ask that the appropriate individual within your administration publicly state whether the aforementioned direct mail piece does, in fact, signal a change in administration policy eliminating the threat of closing any fire companies as part of the FY 2012 budget."
The council's progressive caucus made it clear that they think Bloomberg has been fighting the wrong battles in Albany. Rather than pushing for changes to last in, first out and other labor concessions, they say Bloomberg should have been focused on restoring cuts to education and Medicaid funding and joined them in calling for the renewal of the state's millionaire’s tax.
Since the state budget does not reauthorize the millionaire’s tax, the progressive caucus is calling on Bloomberg to support the creation of one on the city level. The odds of accomplishing that are extremely low; Bloomberg hasn't even supported the state version.
"We urge Mayor Bloomberg to keep the millionaire’s tax for New York City. If Albany won’t look out for the over 1.8 million New Yorkers who live below the poverty line, the one-third of city residents who rely on Medicaid, the 17,000 children who stand to lose daycare, and the one out of every four working New Yorkers who rely on food stamps -- then we must," wrote the Progressive Caucus in a statement.
Another major way the city lost out in the budget talks, according to a number of Democratic legislators, is rent regulations were not renewed as part of the package. The laws are set to expire in June. Cuomo and Senate Republicans have close ties to the real estate lobby that opposes stronger laws for tenants. At one point in negotiations it seemed that a deal might be made to include a property tax cap along with a renewal of the rent laws, but that fell apart.
Meanwhile good government groups, including Citizens Union, the sister organization to Gotham Gazette's publisher, are decrying the fact that the budget continues funding for the Legislative Task Force on Demographic Research and Reapportionment -- the group of legislators that decides district lines. Groups such as NY Uprising and Citizens Union have been pushing for legislators to pass independent redistricting to prevent gerrymandering. A majority of legislators pledged to support the move, but by continuing to fund the old system, it becomes less likely a new one will be instated before the redistricting process begins.
The Senate finished passing bills late on Wednesday night. The Assembly was still working past midnight--meaning Cuomo did not get an early budget, but likely one that will be on time.
For the opposing point of view, see New York's Wealthiest Need to Sacrifice a Little Too by Kenneth Brynien of the New York State Public Employees Federation.
The Partnership for New York City is an organization of business leaders committed to promoting the economic interests of the city and state. We are not a knee-jerk opponent of tax increases.
On the contrary, the partnership was an early advocate of the Earned Income Tax Credit, which dramatically reduced the tax burden on New York’s working poor. We supported real estate tax increases to hire additional police and to raise teacher salaries. Most recently, we advocated for the imposition of the payroll tax on employers to help fund the Metropolitan Transportation Authority capital plan.
But the partnership opposes the "millionaires tax" as a solution to the state budget crisis for two primary reasons: first, this tax will do very little to address a budget shortfall that is projected to total $43 billion over the next three years if spending continues along historic trends; and, second, this tax is a poor substitute for the fundamental reforms that we all need to set our ship of state on a proper fiscal course.
It is also legitimate to worry about whether the millionaires tax will cause business owners, employers and investors to move out of the state, taking with them a lot of wealth and purchasing power that our local economies rely on. We already have seen this transpire in New York City, as more than 30 hedge funds have relocated to Connecticut.
Ninety percent of the taxpayers who would be captured by a millionaires tax reside in New York City, Long Island and Westchester. These communities carry the biggest portion of the state's tax burden, while simultaneously generating most of its new jobs and economic activity. Increasing taxes on the state's most prolific job generators so half-empty prisons and under-utilized health facilities in declining communities can remain open will not boost New York's revival.
The millionaires tax gives Albany an excuse to delay making the hard decisions required to reverse tax and spend policies that have resulted in an exodus from our state of 1.7 million people and 400,000 jobs over the past decade.
New York's two biggest areas of spending are Medicaid and education. Both are tough to scale back. But New York's Medicaid program has the most generous eligibility standards in the nation and provides patients with "Cadillac" health care plans. It also allows virtually any New Yorker to shelter income and assets in order to qualify for taxpayer-funded benefits during the last years of life. This is why our Medicaid costs are double the national average. It is not easy to cut spending on health care, but it is unfair to increase taxes on some New Yorkers so that others, who could well afford private health insurance, can shirk their responsibilities.
When it comes to education, 21 percent of the $52 billion state school budget goes for non-instructional purposes. The state has far too many local school districts, each insisting on running its own transportation system and maintaining a gaggle of administrative employees, consultants and turf prerogatives. New York's education spending is 67 percent higher than the national average, without a commensurate advantage in student outcomes. Districts resist consolidation, but their parochial concerns should not trump taxpayer interests.
New York's current deficit of $10 billion is not a short-term problem that was triggered by the recession. It is the result of government spending that has increased by 74 percent over the past decade, far outpacing the rate of economic or personal income growth.
Advocates for a millionaires tax argue that the state has a revenue problem, resulting from a financial crisis and global recession that depleted public coffers. But the current year's tax revenues are estimated to be only $100 million short of their all-time peak of $60.8 billion in 2007-08 and are projected to grow to $64.8 billion next year. In short, New York's fiscal crisis is a consequence of spending too much, not taxing too little.
Gov. Andrew Cuomo has called for fundamental reform of the programs and policies that have made New York the highest cost, highest taxed place to live and conduct business in America. He seems to have momentum to bring real change to Albany. He is trying to take the actions required to make our state competitive again. Adopting a millionaires tax at this time will only detract from those very promising efforts.
Kathryn Wylde is president and CEO of the Partnership for New York City.
For the opposing point of view, see New York Needs Real Reform, Not Higher Taxes by Kathryn Wylde of the Partnership for New York City.
New York is suffering a fiscal crisis as a direct result of greedy financial institutions. Billionaire financial wizards caused this mess, and it is not too much to ask for them to pitch in a few pennies on the dollar to help clean it up. That is why the Public Employees Federation, many other unions and advocates for education and social services, strongly support the extension of the so-called "millionaires tax."
In the mid-1990s New York, like the rest of the world was in the middle of a fantastic economic expansion. Some thought it would last forever and the revenues generated by Wall Street would never stop flowing. Based on this assumption New York commenced cutting taxes. What a time it was! You could cut taxes and still keep spending at the same level or even increase it.
This expansion, as it turned out, was not real. It was based on one financial scheme after another: first the tech bubble, then WorldCom and Enron and finally the housing bubble. Now we are finally dealing with the decisions made in the mid-1990s based on those faulty assumptions. New York gave away billions in tax revenues thinking the party would never end. According to the Fiscal Policy Institute, if we had the same tax structure now that we had in the mid-1990s, we would have an additional $13.5 billion in revenues. Instead of talking about our devastating fiscal crisis we would be asking, what can we do with the surplus?
New York's leaders have stated their plans for how to deal with this new reality. They talk a lot about "sharing the pain" in Albany these days. Unfortunately, there is a definitional problem because apparently sharing doesn’t mean what I thought it did. The governor has proposed a budgetthat cuts spending for state agencies by 10 percent. He has threatened my members with thousands of layoffs unless we make concessions worth hundreds of millions of dollars. Yet wealthy New Yorkers are going to realize a tax cut on Jan. 1. Either it pains the wealthy to get tax cuts or there is no sharing of the pain here.
While the leaders wrestle with how a tax cut equals pain the voters are not so confused. When asked if the tax on those making more than $200,000 should be allowed to expire at the end of the year almost 65 percent of voters said no.
Unfortunately, for some of our elected officials the will of the voters matters little. Gov. Andrew Cuomo has stated in no uncertain terms that he will not extend the surcharge on the wealthiest New Yorkers. The state Senate leadership has made similar statements. Only the Assembly has stood up against the moneyed interests in New York and passed a bill that, if enacted, would continue the surcharge on the wealthy. The Assembly's tax plan extends the surcharge for only one year and modifies the current surcharge by raising the income levels affected. Extending the existing surcharge would raise $1 billion this fiscal year and $4 billion next year. The Assembly proposal raises $750 million this fiscal year and $3.45 next fiscal year.
So the voters are being ignored. The unions, the students, the advocates for the poor and thousands of others who have protested in Albany are being ignored. Who is it that has the ear of the leaders in Albany? Those who "vote" with large amounts of cash are being heard loud and clear.
New York's wealthiest are joining forces and pitching in not for the betterment of New York but for the fattening of their wallets. Yes New York's greediest are putting up $10 million and more to fight against the rest of us so they can keep their millions and billions.
Well, it must be that New York’s wealthiest are being buried in taxes and need a break. As it turns out that is not the case. Right now, the wealthiest New Yorker’s, the top one percent whose households make more than $633,000 a year, pay 8.4 percent of their income in state and local property taxes. Gov. Cuomo and the State Senate want to cut the top one percent's tax burden to 7.2 percent by allowing New York's top two tax brackets to expire.
If the temporary tax rates were made permanent, New York would be able to balance its budget with a lot less damage to the economy. It would still be able to devote $1 billion a year, starting next year, to helping the people who really need tax relief -- those middle and lower income families being squeezed out of their homes by high property taxes.
New York is a great state and a great place to live and raise a family. Every New Yorker should be willing to do whatever it takes to help us keep New York great. I have said repeatedly that we, the members of the Public Employees Federation, are willing to make sacrifices but we are not willing to be sacrificed. We will do our part but we fully expect that all New Yorkers will do their part too.
Kenneth Brynien is president of the New York State Public Employees Federation.