Wednesday, October 29, 2008

Unwilling to Budge(t)

The stuff is just about ready to hit the fan-with a huge state budget shortfall ready to have a major negative impact city finances. As Daily Politics reports: "With the state in increasingly dire fiscal straits, Mayor Bloomberg began calling City Council members today to warn them the city's suffering will likely worsen due to Albany’s budget fiasco, the DN's Kate Lucadamo reports.
“He called me before and said we are going to have a tough time and Albany is not going to help and we are going to have to act sooner rather than later,” said Councilman David Weprin, the head of the Finance Committee." That could mean a mid-year property tax hike or further budget cuts, but will largely depend on how much aid the state ends up withholding."

Are you ready for this? The state is facing a $13 billion shortfall of its own-with school aid scheduled to rise by $2 billion in the next fiscal year, along with a $1.8 billion Medicaid rise. Drastic savings are going to be needed; and yet we read that the state payroll has actually increased. Here's Liz's earlier post: "Calling the fiscal crisis facing New York "unprecedented," Gov. David Paterson today called on legislative leaders to whack another $2 billion from the current budget when they return to Albany Nov. 18 for their second emergency session in three months and stressed that nothing is off the table when it comes to cuts. "Don't get me wrong," the governor said, "there will be hard and painful cuts. There is no segment of this budget that will not be cut."

It is precisely in this environment that we can ill afford legislative gridlock-and we'd like all Obamafiles to keep in mind that the Senator's tax plan would likely cost this high income state around $500,000,000 a year; just when we can least afford it. At the same time we need to find ways to grow other areas of the economy in the face of the Wall Street retrenchment that will only get worse. Up until now Wall Street, only 2-3% of the area jobs, has accounted for around 18% of the taxable wage revenue to the state.

Given this heretofore out sized role for the financial sector, it seems to us that the state and the city is going to need to address-and remedy-the high cost of doing business here. If, as Mike Bloomberg has said, New York isn't like Wal-Mart and is more of a luxury item, then we need to be mindful of how luxury items are the first things that folks sacrifice during hard times.

And the schools, particularly school aid, will be right in the budget cross hairs. NY spends about 30-40% more per pupil (around $13,000) than the national average. The state spends $24.3 billion a year in school aid to localities. Can anyone argue that we're getting the right bang for these bucks? And more school aid is warranted because? However, cutting these funds in the face of teacher union opposition will be the budgetary equivalent of passing a kidney stone.

In the face of these budget and governance realities, Mike Bloomberg has been a minimalist. As Nicole Gelinas comments: "But although Mr Bloomberg was preparing for the downturn, the one hitting the city now is likely to be much worse than anyone expected. Some argue that he has missed an opportunity to deal with the size of the budget in good times, and allowed spending on debt servicing, pensions, healthcare and Medicaid to spiral. “The only thing that stood between us and a fiscal crisis five years ago was a Wall Street business model that is clearly
unsustainable,” says Nicole Gelinas of the Manhattan Institute. “We have just finished with the biggest boom ever seen in modern history and we have not used that time to get costs under control.”

It is the governor who is appearing to be the model of fiscal probity; and, aside from threatening the city with a tax increase, the mayor has been quiescent. His approach is, however, exactly wrong. Once again, here's Gelinas: "Gelinas said Bloomberg could go a step further by cutting income taxes across the board, which would encourage job growth on Wall Street as well as work toward diversifying the city’s economy."

And pigs could fly. These are tough times that demand tough leaders; but toughness alone isn't enough. Mayor Mike has coasted for the past six years, with the Wall Street gale force wind at his sails. With the winds shifting, a good sailor learns to tack; but this mayor is a paint-by-the-numbers one note. We need innovative responses on both the state and city levels. Mike Bloomberg isn't going to provide this, his clack of cheer leading billionaires, notwithstanding.