Archive for January, 2009

City Projects $4 Billion Gap for Next Fiscal Year

by Sewell Chan

Mayor Michael R. Bloomberg used his annual budget address on Friday afternoon — one of his most significant policy pronouncements as he seeks to persuade voters to return him to a third term in office this November — to warn that New York City will need state and federal action, union concessions and more belt-tightening to close a mounting fiscal gap.

Speaking for more than an hour from the Blue Room at City Hall, Mr. Bloomberg outlined a four-part plan to close a projected the $4 billion gap for the 2010 fiscal year by reducing expenses by roughly $1 billion, obtaining another $1 billion from the federal government through higher Medicaid reimbursements, securing another $1 billion from unions and the state by renegotiating labor contracts, and raising $900 million from tax increases, including a possible rise in the sales tax rate to 8.625 percent from 8.375 percent. He concluded his remarks around 1:40 p.m.

The mayor’s budget plan includes the elimination of 1,000 police officer positions and 1,000 positions at the Administration for Children’s Services, which deals with abused and neglected children. Although many of the job cuts would come through attrition rather than layoffs, some public officials warned that the reductions would disproportionately affect vulnerable populations.

The mayor warned that a proposal by the administration of Gov. David A. Paterson to cut state education aid to the city by $770 million could have devastating consequences, and pleaded for Albany to come up with federal aid or other ways to make up the money.

Mr. Bloomberg also urged the city’s municipal unions to accept less-substantial health care benefits and a less-robust pension system for new employees, setting the stage for a political showdown with powerful labor groups.

“As we all know, this is a very tough time for our city and our nation, and our administration is trying to do everything possible to help New Yorkers weather the storm,” he said as he presented the preliminary plan for the 2010 fiscal year, which will start on July 1.

Between last June, when the last budget was adopted, and December, when revenue projections were updated, the city’s fortunes have worsened. “They keep deteriorating, and with the deterioration in our economy, the revenues keep calling,” he said, citing an additional $800 million budget gap for the current fiscal year since November.

“It’s fair to say that nobody was prepared for the severity of the downturn we are experiencing,” he said.

The mayor said the city had already taken action to reduce $2 billion in spending, leaving a $4 billion gap for the 2010 fiscal year. “It is serious, but I think it is manageable,” he said.

“The big unknowns for the city at the moment are, No. 1, whether the tax revenues will continue to decline at the rate that’s been forecast, or will it be better or worse,” he said. “We don’t know what the state is going to do, and we rely on the state giving us back the monies or part of the monies we send to the state every year.” Albany’s budget process will “dramatically impact” the city’s fiscal fortunes, he said. Finally, he said, federal actions could have a major impact on the city’s budget.

Mr. Bloomberg vowed to keep “controllable city expenses” flat between the 2009 and 2010 fiscal years and predicted that “noncontrollable” expenses could stay flat as well if unions agree to “major changes” in pension and health care benefits.

Mr. Bloomberg vowed to continue investing in what he called vital infrastructure projects, like a new Police Academy, bridge repairs and continuing the construction of the Third Water Tunnel, begun in the 1970s.

The mayor, a businessman who amassed a fortune worth billions through his financial-information company, Bloomberg L.P., and who is estimated to be the wealthiest person in New York City, presented a litany of dismal news: collapsing housing prices and a steep collapse in city revenues.

Tax revenue will be $3.3 billion lower in the current fiscal year than in the 2008 fiscal year, and another drop of $1.7 billion is anticipated for the 2010 fiscal year.

“For 2010, we’re going to have $5 billion less to spend than we did in ‘08,” the mayor warned, later estimating that city tax revenue would fall to $37.1 billion in the 2010 fiscal year, from $42.8 billion in the 2008 fiscal year.

City agencies have “found ways to do more with less” and have been key to a remarkable city recovery since the terrorist attack of Sept. 11, 2001, the mayor said.

The mayor charted his four-part strategy for closing the $4 billion gap, but cautioned that it was too soon to say for certain whether the sales tax would increase for certain.

Employment — an estimated 300,000 jobs — has fallen. Wages have dropped. So have corporate profits. Wall Street has shed 46,000 jobs. “When Wall Street catches a cold,” the mayor said, “it’s a very serious illness to us.”

“What’s changed dramatically in the business model will stay with us for a while,” he said, predicting that the financial industry’s depressed state could continue for some time.

Commercial vacancies are on the rise, and rental rates are declining. “There are an awful lot of empty stores, but what is more damaging for the landlords is that most of the other stores are empty — not empty physically, but people aren’t shopping,” Mr. Bloomberg said, describing a dismal commercial situation in Lower Manhattan.

Tourism — “the employment industry for those starting up the economic ladder” — is also taking a hit, the mayor said. The city will spend more money on marketing itself as a tourist destination, he vowed.

The city has mitigated the scope of the deficits by rolling over money (technically by prepaying interest payments) from previous years in which revenue exceeded estimates, but now there is essentially no more money left to roll over, he said.

About $24 billion of the $42 billion in city taxpayer dollars that the city spends each year goes toward salaries, pension and health care. Then, after taking out fixed costs like legal expenses, only $7 billion is left in controllable expenses, he said — short of adjusting the size of the city work force.

“If you say let’s reduce city expenditures, you are really talking about reducing head count,” he said. “You can only take so much blood out of stone.”

Mr. Bloomberg said his first obligation was “taking care of the public” in a fiscally responsible and, then, secondly, preserving the quality of the city’s work force of some 300,000.

“We don’t have any obligation to people we haven’t hired yet,” he said, adding, “What we’ve tried to do is protect the current work force to the extent possible, and that includes downsizing through attrition rather than layoffs.”

The mayor insisted that unions agree to some $500 million to $700 million in concessions over pensions and health care costs.

Then Mr. Bloomberg turned his attention to teachers. The mayor said he had raised teachers’ salaries by 43 percent and that teachers had helped lift student achievement. But the mayor said the governor’s budget “cut $770 million out of our education budget.”

“They’re cutting the state education budget dramatically,” Mr. Bloomberg said, noting that the state finances the cost of more than one-third of the school budget. Most federal education aid flows through the state, Mr. Bloomberg said. “I’m sympathetic to the state – if they want to reduce their spending by $770 million to the state, that’s fine, but just make it up to us with somebody else’s money, the federal government’s money,” he added.

The $770 million translates to about 14,000 teachers. The mayor said he had reduced bureaucracy by shifting $350 million in resources into the classroom. The “vast bulk” of education expending is for principals and teachers and classroom-related functions.

Without labor concessions, “we will have no choice but to lay off people,” the mayor said.

The same applies to the Fire Department, he said. In 16 fire houses that have both an engine company and a ladder company, the city would take one out, the mayor said. “We think a better solution,” he said, is to go from five firefighters to four firefighters on big engines — arguing that four firefighters plus a lieutenant is the standard in many parts of the country. Union approval would be needed to make the change.

Echoing a call by Mr. Paterson, the mayor also reiterated his call for a so-called fifth pension tier that would apply to new employees.

“It is the kind of pension system that we have in this city and the health-care plan that we have in this city — the defined-benefit plans — which have bankrupted Detroit and the airline industries, and which, if we don’t do something about it, will bankrupt big cities like us,” he warned.

“There’s nobody in the private sector anymore, or virtually anybody, that has a health plan without co-pay,” he said. “It’s just too expensive for us to continue to do this.”

The mayor proposed eliminating 1,000 police officers, bringing the size of the force down to 34,700 cops, 5,000 fewer than when Mr. Bloomberg took office in 2002.

“Am I happy with the budget? No,” Police Commissioner Raymond W. Kelly told reporters. “But this is the hand we have been dealt.”

Several other New York City officials also responded to the mayor’s budget address.

Comptroller William C. Thompson Jr. said in a statement:

As comptroller I recognize that times are tough. At a time when more people are losing their jobs, their homes or healthcare, and they require more assistance from our great city, we face a shrinking budget and sharp cutbacks in support from the state. Simply put, there are no easy solutions.

However, the mayor’s plan would balance the budget on the backs of working people.

The mayor’s budget proposal relies far too heavily on a sales tax increase at a time when the city’s hardworking families and small businesses are suffering.

Instead, I propose an increase in the city’s personal income tax focused on high-income taxpayers earning more than $500,000 annually. Such an increase could sunset in better times.

As Barack Obama said yesterday, we all have a shared responsibility to get our economy going again, and we must take steps to get credit flowing again, reopen businesses, and put people back to work.

Public Advocate Betsy Gotbaum said in a statement:

I met with Mayor Bloomberg earlier today. While I recognize the need to erase our budget deficit, I’m concerned that some job cuts – particularly those at A.C.S. – will compromise the safety and welfare of our children. Nearly 1,000 A.C.S. jobs are slated to be eliminated, and this stands out as a major cause for concern. In recent years, A.C.S. reduced caseloads dramatically and in the three years since the tragic death of Nixzmary Brown, A.C.S. made laudable reforms. Removing front-line workers would reverse the progress we have made to protect children since the implementation of those reforms.

I hope that federal aid eliminates the need for these cuts. In the meantime, some things must remain sacred—the health and well-being of our children is one of them.

Harry Nespoli, chairman of the Municipal Labor Committee, the coalition the unions representing municipal employees, said in a statement:

This City and its workforce have overcome adversity before, such as the 1975 fiscal crisis and the aftermath of 9/11, and we shall survive the current financial problems.

These are difficult times, but we must ensure that problems are not compounded. A reduction in services may produce immediate short term savings, but the long term harm to the City can be far greater.

Businesses and citizens demand a high quality of service. Staffing cannot be reduced and the remaining workforce simply asked to do more. High quality service levels will not be maintained when there is an expectation of layoffs or diminished benefits.

In his testimony about the proposed State budget. Mayor Bloomberg stated: “In too many instances, it (the State) uses the fiscal crisis as an excuse to shift State expenses to New York localities….” Now he is doing the same thing in an effort to shift the cost of employee benefits onto City employees.

We cannot be placed in a position where wages are greatly diminished by new benefit costs we are asked to assume.

We recognize the seriousness of a problem we did not create. However, the final budget to be adopted in six months must not result in long term damage to the City of New York or its workforce.

Governor’s budget would set back progress in state school system

by Richard C. Iannuzzi

New York state is once again receiving national recognition for the high quality of its public school system. Education Week, an independent national publication that covers education issues, has ranked the state third in the nation (just slightly behind Maryland and Massachusetts) when it comes to providing the framework necessary to ensure student success.

Mayor Bloomberg’s grim doomsday budget cuts 23,000 city jobs

by Kathleen Lucadamo

Mayor Bloomberg’s bare-bones budget for next year will slash the city work force by 23,000 and drastically increase its sales tax, officials revealed Thursday.

The plan hinges on the shaky prospect of help from the federal and state governments and from stubborn unions.

The mayor will introduce his executive budget today; it also calls for cuts in big-ticket construction projects and for city employees to cough up cash for health care, according to those briefed on the plan.

Homeowners will lose their $400 rebates – but won’t be hit with new property taxes, a proposal City Council members had vowed to block.

Although Bloomberg would not hike income taxes, he is pushing for a $900 million increase in the city’s sales tax, officials said. The proposal would raise the sales tax to 8.75% from 8.375%, officials said.

“It’s not a good-news budget,” said City Councilman David Weprin, who chairs the Finance Committee.

Bloomberg’s scaled-back plan plugs a $4billion deficit, but officials warned that the work force will shrink further if the state and feds don’t approve reforms to city pensions, employee health care contributions and Medicaid relief.

“In order to close this deficit without destroying the core services New Yorkers rely on, the mayor will need help from all of our partners, from the municipal unions to the leadership in both the state and nation’s capitol,” said Deputy Mayor Ed Skyler. “We all will have to do our part to get through these tough times,” he said.

Bloomberg proposes to reduce the city head count by approximately 23,000, a feat he plans to achieve through layoffs and attrition.

Among those on the chopping block will be roughly 15,000 teachers and other educators, a move United Federation of Teachers President Randi Weingarten warned “would be devastating” to schools.

The budget also includes another 3,000 job cuts that Bloomberg announced last year, including eliminating this month’s Police Academy class and firing 500 Housing Authority workers.

The Council has until July 1 to approve his fiscal blueprint, which is likely to change dramatically if Albany comes through with school funds or the economy takes another nosedive.

Gov. Paterson’s budget shaves $770 million from city schools.

The city staved off a deeper budget gap for next year because Bloomberg and the Council in November raised property taxes 7% and trimmed $1.5 billion from all agencies. Even with those measures, the deficit hovered at $1.3 billion and swelled in recent months because of dwindling tax revenue. Bloomberg’s doomsday budget comes as Controller William Thompson released a report Thursday that shows the city lost 65,000 jobs between October and December.

Thompson also found sales tax collections had dropped 5.1% in the last quarter of 2008, Manhattan office vacancies rose to 8% and the average market value of one-family homes in the city fell 6.8%.

The bleeding is not likely to stop.

The Independent Budget Office pegs the city budget hole over the next 2-1/2 years at $11.3 billion.

Albany and City Battle Over Fund Meant for Low-Cost Housing

by Manny Fernandez

Tucked into Gov. David A. Paterson’s budget proposal in December was a little-noticed measure authorizing the Battery Park City Authority to transfer up to $270 million in excess revenues to the state’s general fund. The move, intended to help close the state’s $15 billion deficit, would take effect March 1, according to state budget documents.

DiNapoli: Wall Street Bonuses Fell 44% in 2008

Securities Industry Losses Could Exceed $35 Billion

Audio Available

Cash bonuses paid by Wall Street firms to their New York City employees declined by 44 percent in 2008 in response to record losses suffered by the securities industry, according to an estimate released today by State Comptroller Thomas P. DiNapoli. DiNapoli noted that the federal Troubled Asset Relief Program (TARP), which infused billions of dollars into the financial system, helped prevent more institutions from failing. TARP placed restrictions on bonuses for top executives and many have voluntarily forgone bonuses, but it did not impose limitations for lower-level employees.

Read the complete press release: Bonuses

BALCONY Joins Coalition to “Keep New York Working”

WAMC Photo by Dave Lucas

Broad coalition of labor, business, civic and environmental groups launch aggressive campaign in Albany to “Keep New York Working”

Advertising and Lobbying Efforts to Ramp up as Coalition to Keep New York Working Pushes for $12 Billion Stimulus Plan to Save 435,000 Jobs while Improving State’s Infrastructure

Group Unveils Specific “Shovel-Ready” Projects in Regions Across State

The Coalition to Keep New York Working, a group of top labor, business, civic and environmental organizations from across New York, today continued their push for a $12 billion New York State stimulus package by announcing they would embark on an aggressive advertising and lobbying campaign aimed at state lawmakers and unveiling a list of specific shovel-ready infrastructure projects they said would help jump start the state economy.

Read the complete press release: Keep New York Working

Lighten weight of tax burden

By JAMES PARROTT
First published: Tuesday, January 27, 2009

Both fairness and sound economics should play a role in closing New York’s budget gap.
Gov. David Paterson’s budget proposal shows that the top 5 percent of New York taxpayers had 59 percent of all income in the state in 2006. That’s one and a half times the combined income of everyone else. However, if you put this together with the income numbers from 2002, and with the budget’s projections for 2009, a curious picture emerges.

Even allowing for some slippage in high incomes in the recession, all of the income growth between 2002 and 2009 will go to the wealthiest 5 percent. The other 95 percent of households taken together will have about the same income this year as in 2002 (and that’s without adjusting for inflation.) The incomes of the top 5 percent will have doubled over that period. That’s a $200 billion income gain.

That’s a staggering set of figures, even to those of us who have been shining a spotlight on income polarization for years. No income growth for 95 percent, double for a handful.

This picture is particularly curious because, when it comes to tightening our belts in the recession, the governor’s budget has all of the tightening done by the 95 percent, sparing the one in 20 at the very top of New York’s economic pyramid.

The economic carnage hits harder at those with modest incomes and those losing their homes and/or jobs and/or retirement savings than at those whose incomes may fall from $3 million to $2 million.

Asking the top 5 percent — or maybe just the top 3.5 percent with incomes over $250,000 — to pay a slightly higher rate on their state income taxes seems like a reasonable way to share the sacrifice that’s being exacted by a damaged economy and a tighter budget.

It would also be a step in the direction of restoring fairness to New York’s graduated income tax, which has become significantly less graduated over the years. Today, New York’s middle- and lower-income households pay a higher share of their incomes in state and local taxes than the top 1 percent or top 5 percent.

Will higher earners desert New York if their taxes are raised? They didn’t after 2003 when the state (and New York City) instituted higher tax brackets at the top. (Those increases expired in 2005.)

Similarly, a Princeton University study showed that an increase in New Jersey’s top income tax rate in 2004 did not adversely affect the number of high earners choosing to live there.

There is a very good chance that President Barack Obama’s stimulus package will include significant fiscal relief to New York and all states. However, federal aid alone will not stave off all of the proposed service cuts that could worsen the New York economy.

The state needs to do its share as well. One hundred and twenty economists from across the state wrote to the governor last month telling him the right answer: “economic theory and historical experience (shows) it is economically preferable to raise taxes on those with high incomes than to cut state expenditures.” New York, which unlike the federal government has to balance its budget, doesn’t have a perfect set of choices. In a recession, it’s not ideal either to raise taxes or to cut services. But high earners typically spend only a fraction of their income in any given year, saving the rest. On the other hand, state spending employs workers, provides services and puts money in the hands of New Yorkers in need — all of which put money in circulation, priming the economic pump.

The Legislature should use any federal aid to trim the proposed budget cuts as much as possible. That’s the idea behind the stimulus. To further trim the remainder, we should modestly raise taxes, restoring progressivity to the state’s graduated income tax, and minimizing harm to an already damaged economy.

James Parrott is the deputy director and chief economist of the Fiscal Policy Institute.

Tax burdens
by income group

Bottom 20%: 12.5%
Second 20%: 11.3%
Middle 20%: 11.6%
Fourth 20%: 11.1%
Next 15%: 10.2%
Next 4%: 8.4%
Top 1%: 6.5%

Source: Institute on Taxation & Economic Policy.

Tax burdens, by income group

Less affluent New Yorkers pay a notably higher portion of their income in taxes than the top earners do, thanks to the state’s regressive tax structure.
http://timesunion.com/AspStories/story.asp?storyID=763966&category=OPINION

Press Rleases by BALCONY Members Since 1-19-09

CSEA
General Contractors Association Press Conference
GCA Member Saves the Day
Construction Industry Conference
New York State AFL-CIO
New York State United Teachers
NYSUT’s recommendations for cost savings, revenues
Fiscal Policy Institute: Lighten weight of tax burden

Read the Releases by clicking this link.

BALCONY Bulletin: January 22, 2009

Read the latest Bulletin from BALCONY: Bulletin – January 22, 2009

If you wish to subscribe to the e-mail broadcast of future BALCONY BULLETINS, please contact: info@balconynewyork.com

In Albany, Higher Taxes for the Rich Expected

by Danny Hakim

ALBANY — Warning to rich New Yorkers: The tax man might be digging deeper into your pockets in the years ahead.

There is a growing sense in the capital that legislators are likely to turn to an income tax increase on the wealthiest New Yorkers to help close the state’s $15 billion deficit, now that Democrats control the Senate, the Assembly and the governor’s office.

The Assembly, where Democrats have an overwhelming majority, has long supported increasing taxes on the wealthy, and Sheldon Silver, the Assembly speaker, reiterated this month that there continued to be strong backing for the measure among his colleagues.

Gov. David A. Paterson, a Democrat, did not propose any income tax increases in his budget proposal, but acknowledged in last month that “taxing the wealthy is probably going to be part of the solution if the deficit gets any worse, and all indications are that it probably will.”

That could leave the matter in the hands of the Senate, where Democrats won a narrow majority in November. Senator Eric T. Schneiderman, a Manhattan Democrat, said that he planned to introduce a bill in the coming weeks that would increase taxes on the rich, and that he expected his colleagues to have an active debate about the issue.

“There are a lot of us who feel that for the last 30 years we’ve been shifting the tax burden from the wealthy to middle-class families,” Mr. Schneiderman said on Tuesday. “Our conference is operating through consultation and discussion, and I expect we’ll be talking about restoring some additional tax brackets for upper-income New Yorkers as well as a lot of other options.”

Malcolm A. Smith, the new Senate majority leader, said he was not enthusiastic about the idea but looked forward to a vigorous debate in his caucus.

“I know that recent surveys have come back and shown that it is very popular among the people of the city and state, but I’m not sure at this present time it’s the right course of action,” he said, referring to polls showing support for increased taxes on the wealthy. “The conference members are split on the issue and are discussing it, but it’s my belief that it’s the last course of action we should take.”

“I’m not ruling it out, but it’s not the first course of action,” he added.

There is considerable pressure on lawmakers to act, and several powerful interest groups in Albany are pushing for a tax increase for the wealthy as a way to forestall steep budget cuts. Days after the governor unveiled his budget proposal last month, a commercial touting “fair share tax reform” was aired by 1199 S.E.I.U. United Healthcare Workers East, the influential hospital workers’ union, and the Greater New York Hospital Association.

The Working Families Party, a labor-backed party that has considerable clout in Albany, has also been outspoken in its support for the tax.

“We are going to be running a full-throated campaign to make the case that it would be wiser to tax the very wealthiest New Yorkers rather than cut spending on the elderly, children and the disabled,” said Dan Cantor, executive director of the Working Families Party.

“That will mean knocking on doors, organizing local opinion makers, meeting with people affected by the cuts, doing town hall meetings and meeting with legislators.”

Democrats would have to largely unite behind the proposal, because there are probably not many Republicans who would support a budget with income tax increases. Pending the outcome of a contested Queens race, Democrats are expected to have a 32-30 majority in the Senate.

“We are not going to support increases in income taxes,” said John McArdle, a spokesman for the Senate minority leader, Dean G. Skelos, a Long Island Republican.

“We aren’t going to support increases in business taxes, we aren’t going to support raising taxes on people’s insurance policies, their soda, their cable television, their satellite television, you name it,” he added, referring to some of the 137 individual new or increased taxes the governor proposed in his budget last month.

Several measures that would impose higher taxes have been discussed, so it is not clear which path Democratic lawmakers will pursue. The measure previously talked about in the Assembly called for an increase of nearly one percentage point on anyone who earns $1 million or more annually. But other plans echo President Obama’s campaign call for increased taxes on families earning $250,000 or more.

Mr. Silver said in a recent interview, “The extent of the tax is to be determined, but clearly the public has indicated they support a millionaires’ tax, the Assembly has indicated they support it.”

Over the last 30 years, the trend has been to pare back income tax rates on the rich, federally and in the state. Since the mid-1970s, the state has cut its top tax rate from 15.375 percent to 6.85 percent. The top income tax rate in New Jersey is 8.97 percent, and in Connecticut it is 5 percent, according to data from the Fiscal Policy Institute, a liberal research group.

That said, the richest 1 percent of New Yorkers paid more than 40 percent of the income tax in 2007, up from about 30 percent in 1996, according to state data, though that figure is declining as the financial crisis makes the rich less so.

“This is the worst possible time to do this, because the economy is deeply stressed, our key industry is laying in pieces in the gutter and partially nationalized, and a lot of business people have to reassess their future in the most costly city in the country,” said Edmund J. McMahon, director of the Empire Center for New York State Policy, a conservative group.