New York City’s impending property tax hike will lead to the loss of another 62,000 private sector jobs, re-accelerating a downward economic spiral that dates back to the end of 2000, according to a forecast by the Manhattan Institute's econometric model.
This report analyzes New York State government’s fiscal history over the last three and a half decades, with a particular focus on Governor Pataki’s accomplishments. It finds that fiscal crises are always preceded by periods of higher-than-normal spending, and that reducing spending is the only successful way to solve a crisis. Tax increases, such as those passed in the early 1970s and 1990s, exacerbate crises by reducing economic activity.
New York City's new schools chancellor, Joel Klein, kicked off his introductory news conference with the observation that ‘resources are scarce.’ True enough—although you wouldn't know it from looking at the Board of Education's budget for 2002-03. Even after the latest round of budget cuts ordered by Mayor Bloomberg, spending will keep pace with inflation. And adjusting for cost-of-living changes, per-pupil expenditures are up 57 percent since 1983.
For all the hue and cry about the ‘cuts’ needed to close New York City’s $4.9 billion budget gap, a funny thing happened on the way to the 2003 fiscal year: the first adopted budget of the Bloomberg era does not reduce overall city spending. The nearly $800 million increase in the "city funds" portion of the budget is the key to understanding why New York City continues to face massive potential deficits for as far as the eye can see.
Mayor Bloomberg's proposal to raise the city’s cigarette tax to $1.50 from 8 cents per pack is expected to cut taxable consumption in half, as many more smokers quit, cut back, or turn to alternative sources out of state or on the Internet. This would undermine the financing for Governor Pataki’s health care programs, which depend partly on revenue from the state’s cigarette tax.
Mayor Bloomberg could realize more than $1.2 billion a year in city budget savings if he can get municipal employee unions to agree to proposed labor givebacks and productivity reforms including a health insurance co-pay, a longer work day for teachers, more scheduling flexibility for cops and firefighters, and less vacation and leave time for newly hired workers. But it all starts with ‘the zero option’—a pay freeze after current contracts expire in fiscal year 2003.
The collective bargaining table will be the most important field of action for Mayor Bloomberg over the next 18 months. Bloomberg's tenuously balanced Executive Budget assumes little change in the size of the city workforce in the year ahead and no net wage increase for city workers in the three years after current contracts expire. If this assumption proves overly optimistic, next year's budget will be knocked out of balance, and huge projected budget gaps in subsequent years will grow by another $1 billion or more. Clearly the mayor cannot bring city finances back under control unless he wins significant concessions from municipal unions—and reduces the employee headcount in the process.
A majority of City Council members has called on the council leadership to back a city income tax surcharge of up to 55 percent on high-income New Yorkers. This $1.23 billion tax increase would have a devastating impact on the city's economy, leading to the loss of another 48,000 jobs, according to the Manhattan Institute’s tax policy analysis model. It would boost the combined state and city income tax rate to a maximum of 12.5 percent—nearly double the next-highest rate in any neighboring state.
At a time when New York desperately needs to find ways of delivering public services more efficiently, its transit bus operations could prove to be a significant source of recurring savings for the future.
The key to unlocking these savings is competition—an essential spur to improved performance and efficiency that’s been missing from transit in New York for most of the past 50 years.
Mayor Bloomberg's preliminary budget was surprisingly easy on city employees, even though personal service costs comprise more than half of the total budget. His proposed workforce reduction of 5,000 to 7,000 positions out of a total workforce of 306,000—20% higher than was previously reported—is many fewer than the number Mayor Giuliani proposed to cut in 1993 when he faced a similar budget gap.
By eliminating 5,000 state government jobs through attrition and early retirement incentives, Governor George Pataki’s proposed 2002–03 budget would return the total executive branch headcount to its lowest point in nearly two decades and ultimately save about $275 million a year, according to an analysis of quarterly full-time employee (FTE) estimates from the state comptroller’s office. Not counting the prospective job cuts, taxpayers are now saving $676 million annually as a result of the net reduction in the state workforce over the past seven years.
As another budget cycle begins, Governor Pataki is once again citing his record of spending restraint. Adjusted for inflation, however, the rate of state spending growth actually has been higher in Governor Pataki's first two terms than it was in Mario Cuomo's last two terms.