Mayor Bloomberg’s planned property-tax rebate for New York City homeowners won’t provide the same economic boost as a permanent rate cut for all property taxpayers. But it sweeps $250 million off the budgetary table and away from the grasping hands of the municipal labor unions and City Council.

In this crucial respect, Bloomberg’s State of the City Address represented a promising start to what is sure to be a difficult and contentious year on the fiscal front.

By contrast, Gov. Pataki’s State of the State speech was a study in conflict avoidance. Badly mauled in last year’s confrontation with the Legislature, the governor avoided specifics on how he’ll deal with the state’s massive fiscal problems in 2004-05.

To be sure, Bloomberg hasn’t become a born-again conservative, fiscal or otherwise. And even allowing for self-serving hyperbole, the mayor’s view of the city’s economic prospects is unduly rosy. “Wall Street firms have stayed in this city,” he boasted yesterday – although many of the same firms are plowing their resurgent profits into new hiring elsewhere.

While tourism is up, the Big Apple isn’t regaining high-wage jobs in the securities industry or the corporate sector, which should be a real source of worry for the future.

The mayor also claimed once again to have “cut spending by $3.3 billion” – a misleading figure derived from higher projections of spending made before he took office. In fact, on Bloomberg’s watch the city budget actually has grown by more than $2 billion, which is why his tax hikes were necessary in the first place.

Indeed, it seems clear the mayor still sees no connection between taxes and economic performance or decision-making. Rather, he described the rebate as a matter of recognizing taxpayers for having “sacrificed” and “stepped up to the plate” – as if there was something voluntary about it.

But the mayor’s motive is less important than the new principle he has established: If there’s extra money available, a chunk of it should be used to reduce taxes, not to increase spending.

New York’s economy is straining to recover under the burden of a combined state and local income-tax rate of over 12 percent – the highest in the country – thanks to supposedly temporary increases approved by the Legislature last year and due to phase out by the end of 2005. So from an economic standpoint, it was even more important to hear the mayor declare that “as promised, the surcharge on the personal income tax is going to . . . sunset on schedule.” [his emphasis]

While Bloomberg’s speech noticeably shifted the grounds of the coming city budget debate, Pataki seems to be jogging in place. Virtually the only reference to the biggest single challenge the Governor faces – closing a $6 billion budget gap – was his vague hope that legislators will join him in “restraining spending and budgeting responsibly,” which is hardly a rallying cry.

The governor also said he was “pleased” that Senate Majority Leader Joseph Bruno and Assembly Speaker Sheldon Silver “have said they don’t think New Yorkers’ taxes should be raised this year.”

“Obviously,” the governor added, “I agree.”

But this statement is more an aspiration than a promise. In fact, in the wake of Pataki’s speech, it’s clearer than ever that none of Albany’s Big Three is unequivocally committed to holding the line on taxes in 2004.

If there was any silver lining in Pataki’s annual message, it was his goal of creating a million new private-sector jobs by the end of this decade.

The state gained roughly 900,000 jobs from 1994 through 2000, so a million more from 2004 through 2010 is hardly out of the question. But it’s a tall order, nonetheless. After all, that ’90s job growth was aided by one of the strongest booms ever on the national level and, on the state level, by $9 billion in tax cuts accompanied by efforts to hold down state spending.

Assume, against all expectations, that the national economy experiences another 1990s-style employment boom over the next seven years. Creating a million new jobs in New York would still require a dramatic new effort to reduce the cost of government and the level of combined state and local taxes.

But that kind of policy was missing from Pataki’s address. There were two promising initiatives: a tax break long sought by New York manufacturing firms, and a pledge to seek further workers-compensation reforms. Otherwise, the governor’s agenda boils down to a lot of Cuomoesque industrial policy – government-directed investments in trendy biotech and semiconductor research.

Pataki’s budget, due out in less than two weeks, provides another chance for the governor to stake out a clear course toward his million-job goal. In the meantime, Bloomberg is at least firmly headed in the right direction.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

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