EARLY coverage of Mayor Bloomberg’s address on Friday called his new plan a “doomsday budget.” If only.
With Wall Street self-destroyed, New York must get used to a vastly different future. Yet Bloomberg made only modestovertures toward acknowledging that things likely have changed forever.
Yes, he brought up the specter of municipal bankruptcy unless the city makes huge changes – but he’s still asking for far greater sacrifice from the public and the ailing private sector than from the outsized public sector.
Bloomberg moved to close a budget gap that’s ballooned in the last few months to nearly 10 percent of city revenues. The deficit is so big because New York’s spending growth since 2001 was simply unsustainable.
From 2002 to today, city spending rose nearly 29 percent after inflation. All that kept us from drowning was an even more reckless Wall Street, whose tax revenues (temporarily) let the city indulge in booming Medicaid outlays and ever-costlier benefits for city workers.
Now tax revenues are dropping at just as torrid a pace. They’re on track to drop 13.5 percent between last year and the next fiscal year, which starts in July. Personal-income taxes will fall by 35 percent.
Since 1971, when the city started keeping good records, New York has never seen a drop-off like this one. The money is gone.
The least horrible news? First, the mayor acknowledged Friday that across-the-board spending cuts to city services won’t get us through this mess (they’re a recipe for disaster). For the first time, Bloomberg said that cuts to some vital middle-class services must be smaller than cuts elsewhere.
For the next fiscal year, for example, spending on things like police and sanitation will creep up half a percent, while spending on social services will fall 6.5 percent.
Yet the Police Department will still lose 1,000 officers by cutting recruits. This is a risk: If the force shrinks too much, it would be hard to quickly attack a spike in crime.
Plus, city-funded education spending is falling only by a tenth of a percentage point next year, after a 7.5 percent hike this year, and is slated for a 10 percent spending rise the following year. Yet, because it has consumed ever-increasing amounts in the last decade, it’s just mathematically impossible to protect education from big cuts, even if the state backtracks on some of its own proposed cuts.
Second, the mayor acknowledged Friday that we can’t keep spending the way we do on public-sector benefits, even using the word “bankrupt” if nothing changes.
To that end, Bloomberg called on labor leaders to open up contracts to start paying 10 percent of their own health-care premiums and to allow for slightly less generous retirement benefits for new hires, including a rise in the minimum retirement age for uniformed workers to 50. (There’s no minimum now after 20 years of work.) These changes would save $550 million a year.
But labor’s not in a cooperating mood. Municipal Labor Committee chief Harry Nespoli said that “we cannot be placed in a position where wages are greatly diminished by new benefit costs we are asked to assume.”
If labor stays defiant, Bloomberg will have to threaten layoffs beyond the nearly 15,000 now contemplated. While it’s terrible for anyone to lose his job in this environment, the city workforce has grown by nearly 30,000 in six years, and there’s no way to afford a growing workforce with ever-growing benefits.
The mayor also must be clear that his proposed labor concessions are just a down payment on future, bigger, reforms. Nobody in the private sector – whose taxes cover city workers’ benefits – has a guaranteed pension anymore. In some states, like Massachusetts, young public-sector workers make such large contributions to their pensions that they pretty much pay for them.
Yet parts of Bloomberg’s budget may ease the pressure on the unions.
First, there’s the $1 billion worth of federal bailout money – at least – for next year. Bloomberg, along with Sen. Chuck Schumer and Rep. Anthony Weiner (who got us this money), must make it clear that we can’t use this cash to delay needed changes. The city must use it to avoid panicked cuts in vital services and desperation tax hikes – moves that could send us into a death spiral a year or so from now. (We’ve still got to make wise budget cuts now, so we can survive when the federal funds dry up.)
Second, there’s Bloomberg’s proposal to hike sales taxes by nearly $1 billion. This hike would push the rate up to where it was after the tech bubble burst. But that hike was proposed as temporary; this one isn’t. Ending the tax exemption for clothes, as the mayor also proposes, would kill already suffering retailers.
Even more ominous, Bloomberg is going for sales taxes because, he said, the state likely will hike income taxes. That hike, too, would fall mostly on city residents.
It’s telling, anyway, that the mayor wants retailers to give back nearly twice as much as he’s asking from his union workforce.
Finally, there’s his inexplicable expectation of a huge improvement in the budget in just 16 months. Starting then, the mayor expects 8.4 percent growth in existing tax revenue, driven by a 20.1 percent gain from the personal-income tax.
But Friday the mayor pointed to a chart of the more modest Wall Street profits from a generation ago and said that when surviving firms recover, they might recover only to such profit levels. Why expect a personal-income boom?
It’s impossible to predict where the local economy will go. But the simple fact is that it’s just as likely that today’s drop in tax receipts is a return to normal – that revenues will never bounce back to the insane growth seen from the Wall Street bubble.
So it would be safer to assume nothing. That, and not counting on a permanent sales-tax hike, would make the deficit balloon to nearly $7 billion by then, instead of $3.2 billion. Such numbers would make it harder for labor, the City Council (and everyone else, too) to dodge real reforms.
Nicole Gelinas, a contributing editor to City Journal, blogs at nyfiscalwatch.com.