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New York Is Unraveling . . .


New York Is Unraveling . . .

November 25, 2002
Urban PolicyNYC

When businessman Michael Bloomberg took office as New York's mayor last January, he boldly declared that the city was "open for business." It was an essential message to the nation and the world from the new leader of a city that, less than four months earlier, had suffered a devastating attack that blew a hole in its second largest business district, killed more than 3,000 people, and vaporized 90,000 jobs.

Businessman Mayor

Today, less than a year later, the businessman mayor is declaring that New York is closing for business. Facing a steep budget deficit brought on as much by the city's continued overspending and Wall Street's big tumble as by the Sept. 11 attack, Mr. Bloomberg is proposing billions of dollars in new taxes in what is already the most heavily taxed, biggest spending city in America. More incredibly, even as New York struggles to win back tens of thousands of jobs that fled the city after the Twin Towers collapsed, the mayor is seeking to impose the bulk of his new taxes on commuters and businesses. "Come back to New York," the mayor's message runs—"even though you will have to pay higher rents because of our property tax increases, and your employees will fork over thousands of dollars more in withholding taxes."

It's a toxic message from a mayor who looks increasingly like a vapid dilettante as he morphs into a classic tax-and-spend NYC liberal pol more concerned to protect the city's bloated budget and work force than to revive its economy. True, Mr. Bloomberg was a self-described liberal Democrat who hoisted the Republican flag only because the party needed a candidate. But his metamorphosis, however predictable, spells disaster for the city that is the center of global finance.

If there is one thing that the last 50 years tell us, it is that New York's periodic efforts to close its spending-induced budget gaps with hefty new taxes are disastrous both for the local economy and for the city's services and quality of life. It's a lesson Mr. Bloomberg should have learned from predecessors like John Lindsay and David Dinkins, whom he increasingly, and dismayingly, resembles. When Lindsay—to pay for his aggressive social agenda even as the city faced a giant deficit—instituted the city's personal income tax, pushed through a hefty city-based corporate tax, and got Albany to agree to a tax on commuters, businesses fled the city. For eight years the city lost jobs, eventually shedding 20% of its private work force. New York, home to the headquarters of 140 of the Fortune 500 before Lindsay's time, now has just 30.

This dramatically smaller city economy couldn't support the huge welfare apparatus that Lindsay had constructed, and in the mid-1970s the city all but went bankrupt. The experience produced harsh lessons in fiscal management—lessons of which Mr. Bloomberg appears ignorant. Dismantling the kind of social spending behemoth that Lindsay had built couldn't be done quickly, so to save itself the city was forced into draconian spending cuts—indiscriminately eliminating a fifth of its work force—nearly overnight. It cut thousands of police officers just as crime was starting its rise upward; it eliminated teachers jobs even as the city's schools were descending into failure; it forestalled repairs on bridges, roads and mass transit that had already been neglected for years by Lindsay's emphasis on social spending over basic services.

Mr. Bloomberg frequently refers to the '70s crisis, but he doesn't understand it. To avoid a rerun, he has decided, the city must raise taxes. In coming to this conclusion, he has mixed up cause and effect. He looks at the '70s crackup and just sees the result—the potholed streets, withered parks, and shrunken police force that came at the end of a long descent into insolvency. He doesn't see the years of tax increases and unrestrained spending that drove businesses and residents away, shrunk the tax base, and finally left the revenue-starved city no choice but to cut services steeply. Today, city tax revenues continue to grow, but more slowly than gladhanded city spending, especially on raises and benefits for municipal employees.

While he is new to government, Mr. Bloomberg has quickly emerged as the defender of the public sector status quo. Even as he asks the overburdened private sector to pony up more in taxes, he's demanded no significant concessions from the city's bloated work force, which has grown from 200,000 workers in the early '80s to nearly 300,000 today—although the city's population has increased only modestly in that time. Despite the size of his budget deficit, estimated at $5 billion of a $42-billion budget, he's even made a no-layoffs pledge to city unions. He seems to have forgotten to ask if the city needs, or can afford, so many employees, to which the answer is a resounding "No!" on both counts. He boldly, and risibly, stated in a recent press conference that there is no significant waste in New York's government, that there are no programs he can find that don't provide benefits to someone in the city, and that virtually all of what the city is doing is essential.

These startling proclamations go against the mayor's own experiences. Earlier this year, he grew so incensed that city employees were caught taking 40-minute-long cigarette breaks several times a day that he order a senior manager fired. Yet this same mayor has asked for only a 1% reduction in the city's work force because he says he's afraid of reducing services, when a respected budget watchdog has argued that the city can absorb without blinking an immediate 5% cut in jobs. Mr. Bloomberg is so suspicious of the city's dysfunctional Board of Education that he's ordered its offices moved closer to City Hall. Yet he is asking virtually no significant staffing reductions at the top-heavy administration of the board, even though studies have suggested that only 50% of its $12 billion budget actually makes it into the classroom. And last spring, he approved a contract that gave teachers a $275 million raise, the cost of which he now must lobby to have the state pick up.

To anyone outside New York, these actions must seem baffling. But one cannot overstate the hold that liberal ideology has on the Manhattan elite of which he is so prominent a member. While companies, workers and middle-class families make for the city's exits in search of lower taxes and better services, the Manhattan elite regards calls for smaller government as something cooked up by conservatives to deny services to the poor. Led by the New York Times, which is now cheering Mr. Bloomberg as he turns back the ideological clock in the city, this Manhattan aristocracy opposed every reform by which former Mayor Giuliani made New York a better, more prosperous place.

Secure in his blinkered Manhattan outlook, Mr. Bloomberg can ignore the examples set by his predecessors. Facing his own $2.3 billion deficit when he took office, Mr. Giuliani made a no-tax-hike pledge, forced productivity gains out of city workers, relentlessly cut costs, and shrunk the work force to balance his budget without impacting city services. In dealing with his budget woes, Mr. Giuliani had learned something from his own predecessor, Mr. Dinkins, who had raised taxes by several billion dollars, only to see the city's economy shed about 300,000 private sector jobs during his term.

Mr. Bloomberg is convinced that he can be more successful governing like Mr. Dinkins than like Mr. Giuliani. What bolsters him is a misplaced confidence, which should have died long ago in Gotham, that the city is a place that businesses and workers will come to no matter what burdens it imposes. "This is still the city where you want to have your company if you want to be successful," he said recently, in the kind of statement that infuriates outsiders and defies reality. The truth, he will find, is that his refusal to lay off 20,000 from the public sector will cause 200,000 private-sector layoffs.

Goodwill Squandered

After Sept. 11, New York City built up an enormous amount of goodwill from those who want to see it rise again as a symbol of our defiance of the terrorists' anti-capitalist agenda. But Mr. Bloomberg is rapidly squandering that goodwill. A few weeks ago I met with executives at a company that had been forced out of the city by the bombings and only recently returned, though they had not brought back all of their workers. The executives told me they had no reason to come back; they merely did so because they felt an obligation to the city. But as the businessman mayor jacks up taxes, that sense of obligation is likely to vanish fast. Then it really will be the 1970s all over again in Gotham.

Mr. Malanga is a contributing editor of the Manhattan Institute's City Journal.