Bloomberg's Fragile Budget

Re-Election Year Politics Dictate Choices

Less than 24 hours after Mayor Bloomberg and City Council leaders shook hands last Wednesday night on a new city spending budget, fiscal analysts were predicting a short and bitter life span for the $42 billion deal.

"It is clear this budget is dead on arrival come the day after the November election," said Harvey Robins, a former aide in the Koch and Dinkins administrations. "In fact, it could unravel sometime between July and November because of the recession and our failure to grow jobs. A major modification is going to be needed."

The November date has less to do with the city's already precarious fiscal health than with the awkward political dance between a rookie Republican mayor and a Republican governor seeking re-election. In deference to George Pataki's political needs, Bloomberg apparently decided not to make heavy demands on the governor.

"Bloomberg and Pataki made a deal to put no pressure on the governor in an election year," said Robins.

"One of the major missed opportunities of this budget was not getting more from the state," said Jonathan Bowles, research director for the Center for an Urban Future. The impact of the 9-11 terror attack and the accompanying loss of 100,000 jobs should have presented an ideal opportunity for the city to seek major assistance from Albany, said Bowles. "It should have prompted more of a budget package than simply increasing parking fines and cigarette taxes."

The deal cobbled together by Bloomberg and City Council Speaker Gifford Miller rests on the shakiest of platforms. In addition to those taxes, as well as another on cell phones, the officials agreed to borrow $1.5 billion to pay for current operating expenses, a practice generally frowned on by fiscal monitors. Those sources, along with federal assistance that has yet to be nailed down and a still emerging menu of service cuts (even days after the deal, most council members were seeking specifics), are expected to bridge a $5 billion deficit.

However shaky, the deal accomplished a key political mission for all involved by averting budget damage to the poster children of city services: Most of the mayor's proposed education cuts were restored; senior citizen centers were spared from closings; thousands of summer youth jobs were retained and libraries kept open six days. Even the mayor's plan to end curbside recycling collections was reduced to a two-year suspension for glass and plastic while metal pickups continue.

Hidden from view, however, are the inevitably corrosive effects of cuts imposed upon every agency.

"There is a lot of hidden harm that no one knows the magnitude of yet," warned Bonnie Brower, director of the watchdog group City Project. "The [budget] restorations they made are the easier ones to make, politically. They have vocal, well-organized constituencies. But cuts in public health care, in housing code enforcement, all these things are not immediately palpable and pass beneath the radar."

The potential antidote to some of that civic harm was a combination of tax hikes and cost-saving measures. The council had proposed reinstating the commuter tax—which is estimated to produce as much as $500 million annually—and imposing a surcharge on the wealthiest New Yorkers. In late April, the city's Independent Budget Office published a lengthy laundry list of potential savings and revenue sources for consideration. The savings ideas ranged from reopening Fresh Kills landfill to reducing the workweek for municipal workers and eliminating sabbaticals for public-school teachers. Revenue raisers included the commuter tax, bridge tolls, a 1 percent hike for high-income earners, and restoration of the old stock-transfer tax at one-tenth of its original rate.

All fell on deaf ears. Bloomberg refused to undertake any political heavy lifting locally, such as the landfill reopening or the bridge tolls. And his mantra from the start was that Albany, in an election year, would never pass new taxes, so it was a waste of breath to ask.

With virtually no pressure on him from City Hall, Pataki delivered a minimal package of support. Albany, with the governor's backing, passed legislation that permitted the new borrowing, the usage taxes, and a series of tax holidays aimed at reviving Lower Manhattan. The state's one significant increased contribution to the city was a 3.2 percent hike in educational support. But even that assistance, which helped Bloomberg finalize a costly new contract with the teachers' union, had its own political advantages for the governor, who is hoping for an endorsement from the United Federation of Teachers.

City budget watchdogs argued that even the education money was too little and too late.

"The city has been screwed on education aid for so long it is not making up for money lost over the years," said Bowles. "This is a one-time thing that is not going to help in the long run."

The state's response to the city's terror-born fiscal ills, noted Bowles, was dramatically different from the action taken when heavily Republican Nassau County hit a fiscal crisis two years ago. Albany lawmakers arranged a phased, $100 million aid package for the county, even though its problems were widely acknowledged to be the result of mismanagement by the county's then Republican bosses.

City Council leaders insisted that their decision to forgo a major battle over the proposed alternate tax hikes was grounded in political reality and put them in good stead for the next budget battle.

"If we had stood and fought, we would have wound up trying to pass our own budget," said a council official. "The whole thing would have wound up in court and we would have ended up re-negotiating with [Bloomberg] anyway. We think we moved the mayor off the dime and put him in a box in which he acknowledged [the taxes] can't be done this year because of the governor."

Indeed, a day after the budget was announced, Bloomberg was openly talking about the need for "new sources of revenue" to bridge what is now expected to be a $3.7 billion deficit for 2004—a figure that leaped by $1 billion largely because of the new teachers' deal. Bloomberg refused to commit himself to seeking new taxes but talked of the need to have "credibility" in Albany when and if the city does seek a tax change.

The stance is ironic since it was Pataki, fully aware of the city's and the state's own looming fiscal troubles, who fashioned a $1.8 billion deal in January to provide wage increases for the health care workers' union, whose endorsement he won shortly thereafter.

"Both the mayor and the governor played a very expedient hand this year, and the losers are the citizens," said Robins. "There are some really treacherous clouds ahead."

Part of the hidden cost, analysts say, is also contained in the $1.5 billion in new expense-budget borrowing the mayor and council agreed to as a crucial part of the deal. The loans, along with a bizarre agreement to sell a city water tunnel in order to raise short-term cash, are reminiscent of the deals that helped cripple the city in the mid 1970s.

"We are getting out of today's problems but more and more tying our hands for the future," said Doug Turetsky of the Independent Budget Office. "The losers in this budget may well be future taxpayers and New Yorkers who need services in the future."

"There is a fairy-tale aspect to all this," summed up a veteran City Hall lobbyist who recalled watching former mayor Abe Beame vainly try to keep the word bankruptcyout of the newspaper lexicon in the 1970s.


Research assistance: Jen DiMascio

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