LAST week, Mayor Bloom berg presented a $61.7 bil lion budget that's the right prescription for a mild economic downturn followed by a quick recovery. Problem is, the economy may be in for much worse. If so, the mayor's prescription may be like sending the patient home with two Tylenol when what he really needs is open-heart surgeryand quickly.
Much of the media headlined the story with "budget cuts"and, for the first time in the Bloomberg era, the cuts could be real ones, meaning that city spending in some areas wouldn't be keeping pace with inflation.
City agencies will cut back on expected spending by 2.5 percent this year and 5 percent next year. That would make the city's overall spending this year about 1.9 percent above last year's, while inflation has been clocking in lately at nearly 4 percentmeaning, likely, a net cut before the year is up.
Looking to the future, the city expects spending to be up about 3.2 percent for the fiscal year that starts in July, while it expects inflation to fall back to 2.9 percent. So if inflation doesn't decline, we'd see a net spending cut two years in a row. And higher inflation is a very real possibility, what with the feds printing up tens of billions of dollars to send to taxpayers as "rebates."
Still, for now, the cuts are mild, especially since Bloomberg's past budgets have outpaced inflation.
The cutsless than $1 billion for the upcoming fiscal yearcertainly aren't the main factor in balancing the budget for the coming fiscal year. That budget is balanced mainly because we're still running on fumes from the Wall Street boom: A $4 billion surplus from way back before last summer (before the credit crunch hit) is tiding us over. Without that surplus, things are way out of whacka $4 billion shortfall in a year's time, nearly $6 billion the year after, and so forth.
The problem is, that absent another investment bubble quickly forming, it's imposser, highly unlikelythat we'll have another such surplus to fill the gap awaiting us a year from now.
That's when we'll have real work to do: Absent such a magical surplus, we'll need budget cuts of three times the magnitude of those Bloomberg just announced to hope to close the gap, even if he drops his tentative plan to extend property-tax rebates.
And we can't cut back on huge spending obligations like guaranteed pensions for public-sector workers in a pinch; those reforms take a long time to negotiate. (That's why Bloomberg should have tackled these issues during the biggest modern boom the city has ever seen.) Indeed, poor returns on Wall Street could oblige the city to pony up more money in the coming years to make up for the shortfall in its workers' pension fundsjust when the city is least able to do so.
That's why the mayor and the council should seriously consider adding another percentage point (or at least half a point) to their planned cutsnow. That would give us a bigger start for what likely awaits us in a year's time, or sooner. With these looming deficits (and because the city, by law, must balance its budget every year), every point we can save now is precious.
Want to worry more? The deficits will worsen if the national and local economies fare worse than the mayor's office thinks they will.
The mayor's budget assumes that while it will be a "close call," we won't have a national recession, and that Wall Street will recover to eke a $9.1 billion profit for 2008, roughly in line with healthy 2005 levels. Yes, that projection is "below the average performance of the past decade"but the last decade was, on balance, extraordinary.
Based partly on those projections, the city expects that its take from from personal-income taxes will drop just 2.5 percent this year and 6.6 percent next year. But in 2002, such taxes fell 25 percent, by nearly half again what the city had expected in January of that year, after 9/11 had already happened.
That year, total income-tax collectionspersonal and businessfell by more than 22 percent, when the city had expected a 16.5 percent drop. Back then, increasing property-related taxes helped make up the differencebut we might not have such luck this time.
Further, the mayor's plan to get help from state and federal governments is also risky. To tackle future deficits, he wants the state to put up half a billion dollars a year in extra money, and the feds to put up a whopping $2.2 billion extra.
That seems unlikely, to put it mildly: Congress isn't going to bail out just New York; even if it devoted $50 billion to state and local governments nationwide, the "fair share" for all of New York state would be only about $1 billion.
As for Albany: The mayor told state legislators yesterday that "we're being shortchanged" when it comes to the state's existing aid to the city. It's hard to see why Albany would stop "shortchanging" us now.
In any case, state/federal bailouts aren't free moneyNew Yorkers pay federal and state taxes, too.
The mayor says we shouldn't panic and flee to live in tents. Fair enoughbut we should be working more urgently to batten down the hatches.
Original Source: http://www.nypost.com/seven/01292008/postopinion/opedcolumnists/nyc_budget_blues_510204.htm