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A Blast To N.Y.'S Budget


A Blast To N.Y.'S Budget

October 4, 2001
Urban PolicyNYC

The horrific attack on the World Trade Center will deal a severe blow to New York's economy and government revenues for some time. In one day, the city was plunged into its worst fiscal crisis since 1990 - which, if mismanaged, may yet become as bad as the brush with bankruptcy in the mid-1970s.

Unfortunately, both Fernando Ferrer and Mark Green seem locked in the kind of tax-and-spend mentality that was unaffordable even before Sept. 11.

The best estimates indicate that tax revenues will drop by at least $1.5 billion due to the loss of jobs and businesses destroyed or dislocated. That would boost next year's gap to more than $4 billion.

While federal aid will cover cleanup costs at Ground Zero, the city will also need to do its part by curbing its spending appetite. But to do that, Ferrer and Green will have to abandon a lot of expensive baggage.

Prior to the attack, a Manhattan Institute analysis had found that both candidates were advocating massive new annual spending increases. Ferrer, in fact, was advocating a total of nearly $2 billion more, with well over three-quarters of this amount going to a 30 percent increase in teacher salaries, and the remaining amount devoted mainly to other new education programs, and to housing and health. Green had supported new spending worth $1.3 billion, including higher teacher and police salaries, class-size reduction and an expanded "living wage" for employees of city contractors, in addition to new dedicated funds for transportation and housing construction.

In the face of the looming fiscal disaster, neither candidate has renounced his proposals. Green has said he will "defer" them, but reaffirms his desire to see them eventually implemented. And Ferrer has barely bowed at all to the new reality, reaffirming on Primary Night that his education, housing and health care proposals remain high priorities.

For the foreseeable future, the only way for the city to pay for such programs would be with a tax increase - which is precisely what New York needs to avoid as it struggles to retain and recreate lost jobs. Unfortunately, it's not clear that Ferrer or Green gets it.

Ferrer, in fact, has just issued a "recovery plan" that calls for reinstatement of the city's commuter tax - a great message to send to all those dislocated and traumatized securities brokers from the suburbs. Before Sept. 11, the Bronx borough president had touted his plan to repeal this year's reduction in the personal income tax surcharge for city residents. And, although it drew much less attention, Ferrer also proposed a $1 billion increase in property taxes, which he said would come from buildings used for commercial purposes but improperly classified as owner-occupied residences.

Green, meanwhile, had said in the final weeks of the pre-Sept. 11 campaign that he would be willing to raise taxes if it were the only way to finance his new spending priorities - pledging, in effect, to consider a tax hike only in case of recession. Now that a recession has actually arrived, Green reportedly has ruled out a city tax hike, although his recovery plan is discouragingly silent on the tax issue.

Even before the catastrophe, it was clear that changes in the city tax burden could have significant effects on New York's economy. For example, a study by the Manhattan Institute found restoring the two Dinkins-era income tax surcharges would reduce employment by 37,000 jobs, our study found. One can only imagine how many jobs would be lost by increasing city taxes at precisely the time businesses are closely examining whether it pays to stay in New York.

What this new fiscal crisis really demands is the kind of tough, question-everything approach Giuliani took to the budget gaps he inherited from David Dinkins in 1994. The only alternative, other than economically self-defeating tax hikes, would be getting Congress to give New York an added appropriation of no-strings-attached federal aid for operating purposes - and it's difficult to believe that will or should be forthcoming.

After all, it's one thing to ask Washington to foot the bill for cleanup, recovery and rebuilding expenses. But it's quite another thing to assume taxpayers across America will be willing to spend hundreds of millions or even billions of dollars to subsidize bigger investments in New York's bizarrely socialized housing market or its dysfunctional school system.

This is no longer just about making America's most highly taxed city more competitive. It's about the very survival of much of New York's core economy. The next mayor needs to dispose of the tax-and-spend mentality, once and for all.