With the national economy apparently heading for a dip and Wall Street firms reporting lower earnings and cutting jobs, New York City may soon be facing its biggest fiscal jam since the recession that occurred in the aftermath of 9/11.
If you thought we were prepared for the rainy day, think again. The raindrops will fall on all of our headsand chances are, they will sting. Nearly everyone could wind up paying more in the form of fewer services and higher taxes.
This may not be what people expected. After all, New Yorkers have had a pretty smooth fiscal ride since the middle of 2003 because of the robust national economy, which has sent billions of dollars in unanticipated tax revenues from Wall Street and the real estate boom pouring into city coffers.
But the city has been spending that windfall hand over fist. Under Mayor Bloomberg, the city's budget has increased by a whopping 50%. Adjusting for inflation, that's the highest rate of spending by any mayor since the fiscal crisis of the 1970s.
Bloomberg insists that much of this spending has been beyond his control in the form of higher Medicaid costs and growing employee pensions and benefits, which are guaranteed in labor contracts. But the mayor has done little to try to rein in costs. By contrast, New Jersey Gov. Jon Corzine earlier this year took a tough negotiating position with the state's unionsand won concessions that over time will save the state hundreds of millions of dollars annually.
Because Bloomberg hasn't won similar savings, the city will have to scramble when the next budget crisis hitsslashing spending that can be eliminated quickly. That almost certainly means that we can expect another round of threatened closuresif not actual closuresof firehouses and senior citizen centers, not to mention cutbacks in library hours and reduced staff in the Police Department.
The next fiscal squeeze will also almost certainly cost New Yorkers more in the form of higher taxes, because the city's budget is now so large that it needs supersized revenues to run on. Expect property tax rebates, which the mayor and City Council have used to offset their record-setting $1.8 billion property-tax increase of 2003, to be rescindedmeaning homeowners will not be able to count on those $400 checks any more.
In the meantime, businesses, which have been paying far higher property tax rates and haven't gotten any rebates, can forget about long-awaited tax relief. They will continue to pay the highest taxes of any business community in the country. If the recent past is any indication, small businesses in particular will bear the brunt of higher licensing fees and increased fines.
And if the crisis gets really steep, look for other recent tax cuts to disappear. After cutting the sales tax on clothing purchases under $110 in 2000, the city reinstituted the tax three years later. Only recently, with record surpluses, have the mayor and City Council again done away with the tax. If the fiscal vise tightens, it will returnmeaning we'll all be paying more for clothing.
Of course, it's always possible that the national downturn will be mildand the city will escape without this much pain. But a credit squeeze in lending markets has already trimmed the profits of banks and securities firms. Forecasters are now predicting Wall Street will cut at least 10,000 jobs. And economists worry that there may be hidden time bombs waiting to go off in the credit markets.
If Wall Street's jitters turn into an extended slide, New Yorkers will discover that their city government has been living way beyond its means.
Malanga is senior editor of the Manhattan Institute's City Journal.
Original Source: http://www.nydailynews.com/opinions/2007/09/20/2007-09-20_why_new_yorkers_may_soon_kiss_their_tax_.html