No-Pain Budget

Mayor Bloomberg has defied the odds. Last week he presented a budget that, despite being couched in the rhetoric of sacrifice, is relatively painless. It is a budget designed to upset almost no one catastrophically, but by its very mildness, it sets New York off on a potentially dangerous fiscal course.

The new mayor is borrowing money to finance the city's operating budget, yet not laying off one single city employee. Claiming that New York faces an unprecedented crisis, he is asking Washington for hundreds of millions of dollars he won't get, yet demanding neither significant contract concessions nor productivity gains from his unions.

That Bloomberg has been able to produce a budget like this and still win so much acclaim is evidence that he is a shrewd politician—which is not the same as being an effective mayor.

At the heart of Bloomberg's strategy is a game of role reversal he is playing with fiscal watchdogs, who tend to be far more conservative in their budget projections than the administration. Over the past few months, these watchdogs have progressively lowered their estimate of the deficit to about $3 billion for next fiscal year. Relative to the size of Bloomberg's budget, that's what Mayor Rudy Giuliani faced when he took office in 1994.

But Bloomberg estimates the deficit to be a whopping $2 billion higher than what the watchdogs project. That lets him argue that the city faces an emergency of unparalleled scope that requires extraordinary solutions—i.e., his plan to borrow money to bolster the city's operating budget.

The tactic risks fiscal disaster—it's the equivalent of taking out a loan to pay your weekly supermarket bills or your rent.

Yet Bloomberg has cowed even the Wall Street rating agencies into not heavily criticizing his policy—which was so roundly denounced after the '70s fiscal crisis that it seemed unlikely any mayor would ever again be able to employ it.

But before endorsing Bloomberg's rush to borrow money, the rating agencies and budget analysts ought to demand that he get his other budget priorities in order.

For one thing, Bloomberg plans to borrow almost as much money as he's cutting from the city budget. Instead, he should be getting far more savings from spending cuts by reducing the city's oversized workforce.

Even as corporations around New York shed workers to deal with the economic slowdown, Bloomberg is cutting a mere 5,000 jobs—and all through attrition—in a city workforce of 365,000. Even former Mayor David Dinkins—who hardly had a reputation as a budgetary tough guy—ultimately agreed under pressure to shrink the city's workforce by 20,000 when facing smaller deficits than Bloomberg.

Nor is the mayor demanding many significant productivity gains from city workers, or expecting any major concessions from the unions in upcoming labor talks. By contrast, Giuliani, facing budget deficits in his first two years, won $600 million in savings through productivity changes.

Bloomberg deserves some credit for dumping wasteful and inefficient programs, like the city's glass recycling effort, and for restraining growth in New York's oversized social services budget. And he has earned kudos from the business community and Wall Street for not raising taxes (though he's using borrowed money to do that).

But his budget does present one important tax hike—a rise in the city's levy on cigarettes. The mayor expects this to yield $250 million a year—even thought past cigarette-tax hikes have, by encouraging bootlegging and other means of avoidance, failed to generate the estimated revenues.

Bloomberg is also entreating Washington to help bail him out, evoking a familiar refrain of New York policymakers (with the notable recent exception of Giuliani) that the city gets far less from Washington than it receives.

But on this subject, Bloomberg is being extraordinarily disingenuous. He complains that the city deserves more federal Medicaid aid because Washington matches a smaller percentage of New York's health-care spending than it does in most other places. But surely the mayor understands that Gotham gets a smaller percent of aid from the federal government because New York's huge self-designed Medicaid system offers many benefits that aren't part of the federal program.

Even so, the feds send far, far more Medicaid money—per capita and in absolute dollars—to New York than to anyplace else. Which is why they won't send Bloomberg any more money.

With dubious arguments like this, it's clear that Bloomberg is not really approaching the city's fiscal problems with the discipline and sense of reality of a businessman. And this spells trouble for the city.

That $1.5 billion in borrowing will get the mayor through one year without any political pain. But that money is "nonrecurring revenue," devoted to expenses that will recur. If the economy doesn't turn up, he'll still have a $1.5 billion hole to plug to balance the budget in future years.

And even if the economy produces more in tax revenues, Bloomberg seems intent on spending that money as fast as it comes in rather than restraining the growth of the city's government.

Bloomberg made his intentions clear last week when, speaking of Gotham's budget surpluses of the '90s, he said: "What the government did was it kept providing more services, and it was able to do that because tax revenues kept growing. And in fact that's what government is here for, to provide services."

That's not a prescription for a sound fiscal future, especially in a city that already has the highest taxes and the largest budget of any American city.

As a businessman, Bloomberg should understand that New York's economy will forever be caught in the boom and bust cycles of the past 50 years unless it can do something to bring its taxes, and spending, under control. This budget doesn't even begin to send New York down that road.

Steven Malanga is contributing editor of City Journal. Adapted from the "New & Newsworthy" section of CJ's newly expanded Web site (www.city-journal.org).