Rudy's Gift to Mike

A Fiscal Legacy That Will Haunt the Bloomberg Years

Imagine that September 11 was just another desultory day in the life of Second-Term Giuliani. If he and his city had not been transformed that day, what would Michael Bloomberg be inheriting on January 1? How much of the nightmarish challenge facing Bloomberg is a consequence of Bin Laden and how much is a direct result of the fiscal mismanagement of Osama's rumored top competitor for Time's Person of the Year, "America's Mayor," Rudolph Giuliani? How can Bloomberg best avoid the same mistakes and close the Giuliani budget gap—the largest in city history?

The Citizens Budget Commission (CBC) answered these questions this weekend at a two-day, heavy-hitter conference at the Palisades Executive Conference Center, attributing much of the looming deficit to "egregious fiscal policy error" that predated the camouflage of 9-11. Founded in 1932, when Gentleman Jimmy Walker was in his final days as mayor, the commission is a business group with a heart, as socially compassionate as it is fiscally cautious.

The 175 assembled guests included five former or current city and state comptrollers, six top Giuliani appointees, Clinton treasury secretary Robert Rubin, Chancel-lor Harold Levy, new Bloomberg deputy Dennis Walcott, and Ed Koch, who, when mayor, had ordered his commissioners to boycott CBC gatherings. Dennis Sullivan, deputy director of DC 37, was the only union leader to speak, mocking CBC for its advocacy of labor givebacks, but expressing a willingness to "play a part" in the mutual sacrifice ahead "if we feel like we're partners," and are not viewed as "part of the problem."

CBC's former president, Ray Horton, was a Giuliani campaign adviser in 1993 and served on his transition team. Its current chair, Gene Keilin, was an adviser to Bloomberg's campaign and serves on his transition team. Bloomberg was to deliver the closing address, but went to Israel instead. His girlfriend, Long Island Power Authority CFO Diana Taylor, who met Bloomberg at a CBC breakfast a year ago, attended Saturday.

A bad-news messenger with bite, CBC has wound up scorned by most mayors, so angering Giuliani that his deputy started calling business leaders in 1997 to urge them not to buy tickets to its annual dinner. Nonetheless, this year Budget Director Adam Barsky spoke on a panel, claiming to an audience of disbelievers that the budget calamity "was not caused by anything we did."

No less than investment banker Keilin ridiculed the notion, stating that the Giuliani administration "has been spending its savings," blowing billions in budget surpluses over the golden years, and that "those chickens are definitely coming home to roost."

Keilin recalled that when he was chair of the state's Municipal Assistance Corporation in Giuliani's first year, he provided hundreds of millions to bail out the city in exchange for a "promise" that the new administration would "permanently" cut the workforce. Instead, Rudy leaves office with 6600 more workers on the payroll than supposedly profligate David Dinkins. The CBC conference background paper flatly stated that "up to half" of the billion-dollar shortfall in the current fiscal year and "at least two-thirds" of the $4 billion gap for the fiscal year that begins in July 2002 "are due to events unrelated to the terrorist attacks."

As the economic boom continued through Giuliani's second term, CBC found, real expenditures increased by $4 billion, or 3.5 percent, annually. Even under the current budget, adopted in June, when the city was already three months into a recession, expenditures were still projected to grow by 1.4 percent, though revenues were projected to decline by 3.6 percent. "The difference was filled," charged the report, "by drawing down virtually the entire surplus accumulated in the late 1990s boom. The combination of spending increases and using the surplus in this fiscal year set the stage for the unusually large budget gap" facing Bloomberg.

CBC also minced no words about Rudy's 115 percent explosion in pre-September 11 police overtime, or his 22 percent boost in city debt service costs for construction projects, both of which will require dramatic reductions. It pointed out that Giuliani cut a deal with the unions for a temporary $800 million drop in the city's contributions to pension funds, a savings in times of plenty that will lead to greater costs in times of scarcity. While CBC was far happier with Giuliani's tax cuts, it conceded that, combined with state actions, like the elimination of the commuter tax, they have slashed city revenue by $3.6 billion a year, deepening the hole for Bloomberg.

Indeed, Giuliani last week threw another curveball at the man he helped elect, putting a skeptical Bloomberg on the spot about hundreds of millions in city funds he still wants for Yankee and Mets stadia. Rudy was not even deterred by the report just issued by Comptroller Alan Hevesi that said city debt had reached $41 billion, exceeding other municipalities by 2.3 to 1, and that debt service would now take almost 20 cents from every city tax dollar, leaving less for services. "Not one dime of the surplus has gone to pay down the debt," Hevesi wailed during his appearance.

As disastrous as the cumulative effect of these Giuliani decisions has been, what may cripple Bloomberg even more is the lame-duck mayor's undercutting of congressional efforts to secure the Bush-promised $20 billion in federal emergency aid. Contrary to the pro-city stance of upstate Republican congressmen like John Sweeney, Giuliani has publicly supported the Bush administration's decision to delay nearly half of the aid the president promised.

Budget director Barsky tried to defend the mayor's backpedaling, warning that the city should be "very careful not to bite the hand that feeds us." Citing Giuliani's "tremendous, great relationship with the White House" and recounting "how many times" Rudy's been there for friendly meetings, Barsky said "you gotta believe" Bush and vowed that "if we don't piss on them," the city will eventually get all its aid.

Hevesi immediately countered that "hoping for goodwill won't work," citing the immediate federal aid to California after the 1989 earthquake, and saying the problem is "us not having consistent lobbying." Even more powerfully, Robert Rubin, who certainly knows Washington, said it would be "vastly more difficult to get the help next year," calling the delays "a heck of a problem."

With the full $20 billion an obvious part of Bloomberg's comeback strategy, Keilin and Horton, for decades two of CBC's guiding lights, offered an immediate budget remedy: a mix of tax increases, service cuts, productivity improvements, and deficit financing. Horton put the gap-closing price tag at $1 billion for each of these four actions, including in the package a two- to three-year wealth tax hike, simultaneous with the Bush tax cut for the rich. Insisting that the labor input would have to include real work-rule changes—as opposed to the mirage labor "contributions" of the Rudy years—the CBC gurus were hopeful that the severity of the crisis would prod change at every level.

Ironically, it was a Giuliani aide, Finance Commissioner Andrew Eristoff, who doubted that even the twin towers was enough of a load to topple the institutional resistance to reform that he said has gripped the city "over the past 25 or 50 years." Eristoff railed about how city leaders "haven't had the will" to more fairly allocate "the burdens and the benefits" of city government, wondering, "Where's the political leadership to make the real choices?" Pressed for an example, he mentioned the city's "biased" property tax classes, which disproportionately hammer rental apartment owners and businesses. Asked by the Voiceif he'd ever raised the same question with the mayor he served, Eristoff said no.


Research assistance: Sam Dolnick, Rivka Gwertz, Jeff Herman, Ari Holtzblatt, Whitney Kassel, Jill Nawrocki, Katie Worth

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