As Mayor Bloomberg and everyone else keep reminding us, Superstorm Sandy packed an economic and fiscal wallop. But Sandy didn’t create City Hall’s economic and budget problems; it only made them a little worse.
Bloomberg shouldn’t allow Sandy to distract him from what was already his task for his very last budget as mayor: tackling the mess that existed before Oct. 29.
Yesterday, Bloomberg tallied up the Sandy damage to Gotham: $19 billion.
That number includes $5.7 billion in lost “city product” — money that people didn’t earn or spend in New York because they were waylaid by the storm.
Nearly $6 billion isn’t nothing — and if it’s your restaurant on Staten Island that had to close or your lost wages, you’re taking more than your fair share of the hit.
But that’s only about eight-tenths of a percent of the city’s annual economic activity.
Gov. Cuomo claimed yesterday that Sandy packed a bigger fiscal punch than Katrina. Sorry, no: This is not Katrina when it comes to the proportion of the city damaged.
Katrina knocked more than 9 percent off New Orleans’ regional economy in late 2005 and early 2006. An equivalent hit here would be $60.8 billion in lost business, not $5.7 billion. For that, we can be thankful.
Of course, it’s still jarring that Chinese tourists can flock to Louis Vuitton on Fifth Avenue while poor elderly folk huddle in the cold in the Rockaways, but that is what keeps the city budget afloat.
What about the budget?
Bloomberg says that city agencies have lost $4.5 billion, either in overtime spending or in damaged property, like the Staten Island ferry terminal.
The feds will automatically pay three-quarters of that, leaving $1.1 billion for city taxpayers. (Bloomberg wants the feds to pay this, too; maybe they will.)
Then there are lost tax revenues. The city generally takes in about 3.6 percent of its GDP in taxes that are particularly sensitive to lost business — so the hit there could be about $200 million.
But this is not easy to predict: Home rebuilding and replacing lost appliances will add tax revenues, plus high-wage earners, who pay the most taxes, lost less income than low-wage earners.
All told, though, the hit to the city budget could be about $1.5 billion. But before Sandy, the city already faced a budget gap of $2.5 billion for the fiscal year that starts next summer — or about 5.6 percent of tax revenues.
Just a few days after Sandy, Bloomberg quietly released a budget update trying to close at least half of that gap. But the “action” is mostly just placeholders — telling agencies to keep doing things like increasing nuisance fees or cut back on staff.
And the mayor is still relying on one-shots that didn’t come through last year, like selling 2,000 new taxi medallions. Absent gimmicks like that, the city is still spending more than it takes in, each and every year.
Plus, even if the feds don’t pay for everything Sandy-related, the extra Sandy costs will go away soon enough. Once the city has replaced flood vehicles and work schedules have gotten back to normal, it’s done with.
What’s driving the permanent budget disaster won’t go away.
In fact, Bloomberg’s budget update contains one ominous figure that nobody noticed: Starting next year, what the mayor calls “non-controllable” expenses — pensions, health benefits, Medicaid, welfare and the like — will exceed the city’s “controllable” expenses for the first time ever.
And they’ll keep doing so. Next year, “non-controllable” expenses will exceed “controllable” ones like city-worker salaries by $508 million. Two years after that, they’ll be higher by $2.6 billion.
“Non-controllable” is really a misnomer. No, pension costs can’t be controlled in a year. But they could have been controlled over Bloomberg’s 12 years, with a bigger effort in Albany and by holding the line on salaries and overtime. (All of these things affect pensions.)
Who cares, though? We always muddle through. Indeed, in its first budget report after 9/11, the city said outright that the terror attacks similarly didn’t cause our budget problems, only “exacerbated” them.
“In the late 1990s, a booming national and local economy caused tax revenues to grow faster than expenses,” said the then-month-old Bloomberg administration, but the burst tech-bubble “signaled the need to reconsider our ability to maintain services at that level.”
That’s still true today — and, yes, New York is still alive and kicking. But as “uncontrollable” costs eat up ever more of the budget each year, the city has less and less to spend on core functions — including flood-control measures.
Nicole Gelinas is a contributing editor to the Manhattan Institute’s
City Journal.