N.Y.C. Budget Myths

With his latest proposals to raise property taxes perhaps by as much as $2 billion, Mayor Bloomberg is rushing to fix the city's fiscal problems on the backs of taxpayers.

This is a sadly familiar strategy in New York, where politicians use tax hikes to solve their budget problems far more often than elsewhere. In part, the debate here centers on some expertly perpetuated misconceptions about the city's budget, myths that craftily justify higher taxes. A few of the myths, misconceptions and rationalizations making the rounds now:

1) The city's tax revenues are falling. In fact, revenues from city taxes and fees are projected to rise next year, by about $2 billion in some estimates. The projected budget deficit for next year is so large because the city's expenses are growing faster than tax collections.

Even in this fiscal year, tax revenues aren't falling—they're just not coming in as high as projected. Only in 2001 did tax revenues actually drop precipitously, after the nearly complete shutdown in economic activity in the wake of 9/11, but the books have long been closed on that fiscal year.

2) Residential property owners can afford a tax hike because their tax rates are low compared to the suburbs. Those who make this argument quickly brush over the fact that the city has a personal income tax, which suburbs don't impose. Add that together with the city's property taxes, and homeowners are paying about the same in local taxes as many of those who live in the close-in, middle-income suburbs.

And while those in more luxurious suburbs pay much more in overall taxes, they get something for their money that New Yorkers don't: good schools. In fact, lack of good schools combined with its high tax rates, is one reason New York has a net outflow of families with young children. The city is a lousy deal for them, and hiking property taxes will just make it worse.

3) Raising taxes will add billions to the city treasury but only cost average New Yorkers a few dollars a day. This is what I call the gradualist argument, that always seeks to break down every tax increase by the week, day or hour to make it appear small. But because taxes almost always increase during bad times and rarely decline, the effect over time is staggering.

In the last 10 years, the city has collected $250 billion in taxes and fees. If it had merely taxed its citizens at the average of other big cities like Los Angeles and Chicago, it would have instead collected about $145 billion in that period. This is what the gradualism argument eventually gets you—$105 billion more siphoned out of the private economy over 10 years.

4) Still, the only fair way to deal with the city's budget deficit is to share the pain among all parties. This ignores the fact that in New York, those who pay taxes always bear most of the pain, good times or bad.

The city taxes its residents and businesses at about 75 percent more than other big American cities, while the city's municipal workforce is among the largest in the country, and many of its work rules and health and pension benefits are among the most lavish.

What New York City has lost sight of is that city government is the servant of the people. Instead, political leaders here often seem to think that private taxpayers exist almost solely to fund government.

5) Shrinking the city's workforce is a bad idea because the city is already in a recession. Some advocates for big government argue that municipal spending can be a spur to a struggling economy. But government doesn't generate wealth or capital, and the money to finance municipal jobs comes out of the private economy. Taking more money out of a shrinking economy via higher taxes is only going to prompt more private-sector losses.

6) If taxes are not increased, basic services must suffer. Next year, the city will collect about $30 billion in taxes and fees, or $3,750 per resident. If the city cannot provide basic services for that astounding sum, it tells you there is something wrong with New York's spending priorities. If you were to give $3,750 per resident to virtually any other city in America to replace its own tax collections, it would have a huge budget surplus.

7) The city's schools are so seriously underfunded they cannot possibly share in the budget pain. Actually, thanks to growth in schools funding in the Giuliani years, the schools now get about $12,500 per student, making them fifth in spending per pupil among the 100 largest school districts in America. The city's schools are now expending more than many suburban districts noted for their generous school budgets.

8) The city's total budget may be $42 billion, but the mayor only has $15 billion in discretionary spending that he can cut. This $15 billion is bigger than the entire budget of most American cities. And the reason the mayor's wiggle room on the budget is so small is that he's refused till now to cut the city's workforce. Without paring jobs significantly, the mayor is handcuffed because union contracts lock in automatic increases in salaries and benefits to those on the payroll.

9) Albany is part of the problem because it forces too many costs on the city. It is misleading to see many state-mandated costs as an "Albany" burden. Nearly half the legislators in Albany are from New York City, and they are often only too happy to force up the city's Medicaid spending or pension benefits because it advances their political agendas.

When former Mayor Giuliani faced his budget deficits, he made it clear that if these legislators didn't cooperate to solve the budget crisis, he'd just make deep cuts in the workforce and blame them. By contrast, Bloomberg got almost no help from these city-based Albany pols in his first budget, and for good reason: He hasn't even begun to play hardball with them.

10) The city doesn't get its fair share from Washington. Studies of what New Yorkers pay in federal taxes versus what the city and state receive in federal funds always purport to show a deficit of spending locally. But a close look at the studies show that the shortfall is almost entirely a function of low defense spending in the city (not surprising, since New York's congressional delegation is hardly filled with hawks lobbying for bigger defense budgets).

In other spending areas, especially those where the city wants more help from the federal government—such as Medicaid and programs like subsidized housing and welfare—New York already receives far more federal aid per capita than most other American cities. In other words, don't blame Washington.

Adapted from www.city-journal.org. Steven Malanga is a contributing editor to City Journal.