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Tax-and-Spend, Boom-and-Bust: Lessons for Mayor Bloomberg


Tax-and-Spend, Boom-and-Bust: Lessons for Mayor Bloomberg

E. J. McMahon December 2, 2001

In the wake of the attack on the World Trade Center, New York City faces a budget gap of at least $3.6 billion. As a result, Michael Bloomberg will confront the city’s most serious financial crisis in a decade.

But even if the events of September 11 had never occurred, the next mayor was destined to confront hard fiscal times. Recurring expenditures were on track to exceed recurring revenues by at least $2 billion in Mayor Rudolph Giuliani’s last budget—an operating deficit he temporarily covered with prior year surpluses. Sooner or later, something was going to have to give: spending, or taxes.

The severity of the post-9/11 downturn will make it essential for the new mayor to reduce the budget over the next two years. Nonetheless, he will feel strong pressure to hold permanent spending cuts to an absolute minimum—an approach which will simply postpone the inevitable day of fiscal reckoning.

Ultimately, as fiscal and economic conditions begin to improve, Mayor Bloomberg will find that the political course of least resistance in New York is to resume a cycle of budget increases that can’t be sustained without higher taxes. History shows this is a course he must resist.

When city taxes were raised by record amounts under Mayor Dinkins in the early 1990s, New York lost hundreds of thousands of jobs. On the other hand, tax cuts enacted under Mayor Giuliani were responsible for nearly one out of every four new jobs created during the last seven years.

To close the potential budget gaps, the next mayor of New York should curtail spending. Fortunately, this can be done without reducing the quality of basic services. There is ample room for reduction in the city’s education, welfare, and law-enforcement bureaucracies, and on the staffs of elected officials. Justifiable reductions in capital expenditures and personnel, and feasible gains in productivity, could generate more than $3 billion in savings to help close the immediate budget gap and permanently adjust the city’s bottom line for the future.