Pay Your Share

Out-of-Towners, Stock Speculators, Unions Must Ante Up in Fiscal Crisis

Say this for billionaire mayor Mike Bloomberg and his long-delayed headfirst plunge last week into the city's budget maelstrom: He got the language right.

"We are all in this together," said Mayor Mike toward the end of his straightforward, hour-long dissertation last Thursday on the city's ever-tightening fiscal noose. It was a formulation he offered in a dozen different ways during his talk, and the words underscored the centerpiece of his program, the $1 billion a year he hopes to raise by taxing those who earn their livelihoods in the city and live elsewhere-a tax he had refused to discuss as recently as this summer.

"Everybody who benefits from city services must pay their fair share," he said.

Mayor Michael Bloomberg: There are sizable loopholes in his mantra of shared sacrifice.
photo: Elizabeth Lippman
Mayor Michael Bloomberg: There are sizable loopholes in his mantra of shared sacrifice.

Of course it was a souped-up version, with a new name, of the old commuter tax, the one that would have generated $400 million this year had it not been eradicated by Albany legislators in 1999 during one of their periodic (and fruitless) bouts of jockeying for political position.

But good marketing is essential to success, as the media tycoon turned mayor knows well, and Bloomberg vigorously resisted attempts by reporters to call the tax by its rightful name, the one that the newly re-elected governor and the leader of the state senate have repeated over and over they will not reconsider.

Reality has a way of intruding, however, and neither Governor Pataki nor state senate chief Joe Bruno immediately slammed the door shut when asked about Bloomberg's new gambit. Both men had reason to be grateful for Bloomberg's discreet refusal to focus on the city's hemorrhaging budget as they ran their respective re-election campaigns.

In his inaugural address last January, the mayor insisted the city should never tax its way out of its problems; later, as he struggled to cobble together a precarious new fiscal budget in June, he turned away recommendations from the new leaders in the city council that the city both raise personal income taxes for wealthy New Yorkers and push for a reintroduction of the commuter tax.

No politician was going to agree to new taxes in a year of statewide elections, Bloomberg said then. The implied message was clear, however, to those who paid attention: The city's budget problems wouldn't be addressed until after the November elections.

In the meantime, the rationale for asking New York's out-of-towners to contribute more to the city's upkeep continued to grow. The average commuter into New York City earns almost twice the income of city residents, studies show. Connecticut commuters make an average of three times as much as New Yorkers. As Bloomberg repeated over and over, they earn those incomes courtesy of the world's greatest urban economic engine, one now hammered by both 9-11 and a failing economy.

Moreover, there is nothing unique about the idea of taxing the earnings of out-of-towners. It is the practice in Los Angeles, Cincinnati, Cleveland, Pittsburgh, St. Louis, San Francisco, and even neighboring Yonkers, as the mayor pointed out.

Bloomberg's massive request—he seeks a commuter levy six times the old level—may be just a bargaining ploy to end up back at the old tax rate (Nassau county executive Tom Suozzi has already said he wouldn't oppose it). But if so, he will still have an enormous hole to plug.

Bloomberg's other major tax initiatives are an onerous 25 percent across-the-board hike in property taxes and, in an effort to cushion the blow of that hike, a decrease in personal income taxes.

Tethered to all of these measures, he said, were cuts in all city services, ranging from 2000 fewer cops and eight closed firehouses to 32 fewer senior centers.

But after the new commuter tax, the mayor's rhetoric of shared sacrifice began to fade. The decrease in the personal income tax rate will have the effect of granting major tax breaks to the city's wealthiest citizens. While a $30,000-a-year family would save about $80 under the plan, a $1 million family would score more than $30,000 in tax savings.

"It's backwards," said Harvey Robins, a former aide to the Koch and Dinkins administrations who now watchdogs city budgets. "It was only the wealthiest New Yorkers, the top fifth in earners, who really benefited from the '90s boom," said Robins. "Working and middle-income families stayed stagnant or lost ground, while the richest New Yorkers are in the best position to contribute more now that times are tight."

Robins also noted that Bloomberg made no mention of the looming $2 transit fare, a burden that will fall disproportionately on the backs of the 40 percent of New Yorkers who earn less than $22,000 a year. Each year, the city's straphangers are shortchanged by state funding mechanisms that favor railroad commuters. "It would be good to think this was on Bloomberg's agenda as he heads up the Taconic Parkway to lobby Albany," said Robins.

Similarly, notes Robins, the across-the-board nature of the property tax hike virtually assures inequities. Landlords are sure to pass on their higher costs onto rent-regulated tenants, whose median income is $27,000. Meanwhile, it is owners of one- and two-family homes who have enjoyed a 10-year freeze on property taxes, courtesy of legislation passed by the city council in 1991.

In the realm of contributing a fair share, Robins, along with other analysts such as populist historian Mike Wallace and the labor-backed Fiscal Policy Institute, have suggested that the city re-impose a lesser version of another long-forgotten levy, the stock transfer tax. Beginning in 1907, New York City collected up to a nickel every time a share of stock changed hands. The tax was dropped in 1981 amid worries that increasingly transient markets might take their business elsewhere. Had it remained in place, however, that tax alone would have generated a mind-boggling $8 billion a year during the boom markets of the 1990s, according to J.W. Mason, an economist who analyzed the tax in the October issue of City Limits magazine.

Robins and others have suggested that the tax (which technically remains on the books for legal reasons) be reinstituted at one-tenth the old rate, enough to generate some $800 million a year. There is little reason to fear a renewed tax will cause the markets to flee, as Mason points out in his article. The cities with the fastest growing stock exchanges, including Singapore, Hong Kong, and London, all collect levies on stock sales, with London exacting a whopping .5 percent.

True shared sacrifice might also mean that large corporations maintain their contribution to the city. Using his bully pulpit, businessman mayor Bloomberg could urge a renewed municipal patriotism upon his corporate colleagues. Such New York loyalty should include a freeze on subsidies and abatements to major businesses. Bloomberg is in a good posture to do so, since he renounced subsidies awarded his own firm, Bloomberg LP, after his election last year. Similarly, Bloomberg should warn the business community that making money in New York only to move those profits offshore or out of state, a trend noted last month by the city's Independent Budget Office, is also anti-New York.

So, too, such shared sacrifice should extend to municipal unions. On the same day that Bloomberg's aides released details of the planned budget measures, they also announced a new labor agreement with the firefighters union that included no significant work rule changes that might have saved the city substantial funds. The same lapse also extended to the recent police union contract. Late last month the teachers union, which won its best wage contract in years from the Bloomberg administration this summer, paid the city back by securing a court ruling that pension benefits should extend to extracurricular activities and summer school classes. According to the city's comptroller, the increase will add $70 million a year to the city's pension costs. Similarly, the union retained its rights for paid, yearlong sabbaticals for veteran teachers, a unique program that costs another $70 million for taxpayers.

Bloomberg has the language right. Now it's a question of putting it into practice.

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