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The Real Reason for New York’s Budget Wreck
Bloomberg refuses to rein in Gotham’s out-of-control spending.
Spring 2003

Mayor Michael Bloomberg defends his handling of Gotham’s budget crisis with the claim
that he has cut more out of the budget than any previous mayor. Given the steep drop in tax revenues since 9/11 and the fact that he has slashed down to the bone, he says, his recent tax hikes were unavoidable.

But a new report from the Citizen’s Budget Commission paints a very different picture of the city’s budget mess. It shows that Gotham’s budget woes are mostly the result of continuing government profligacy, not plummeting revenues. More than half of the city’s projected $6 billion deficit for the next fiscal year, the report points out, comes from hiked spending, much of it needed to pay for rising employee benefit costs—including more than $730 million in new pension costs and $343 million in additional medical benefits.

These ballooning outlays don’t just fall out of the sky. They result from specific policy choices, such as the Bloomberg administration’s decision to give a plummy $275 million raise to teachers and its refusal to demand that city employees pay part of their health-care insurance premiums, a common practice in the private sector. Thanks to this extravagance, the city’s cost in wages and benefits for fiscal 2004 will be nearly $7,000 higher per employee than previous estimates, the CBC says.

The CBC study also belies the mayor’s assertion that he is slashing spending with gusto. Three-quarters of the $2.8 billion in savings that Bloomberg has earmarked results from shifting the cost of some city programs to the state or federal governments, revising estimates of how much programs will cost (simply an accounting gimmick), or canceling new programs (a move that doesn’t cut spending but merely slows down its rate of growth). By contrast, service cuts amount only to $600 million out of a $42 billion-plus budget. The budget relies on new revenues to close 54 percent of next year’s gap, with the biggest boost coming from the city’s new property-tax hike. In short, the Bloomberg administration is trying to pay for the city’s spending increases largely with higher taxes and fees.

The mayor’s refusal to rein in the city’s spending could cripple New York’s future fiscal health. By locking in higher spending levels in the future, the city will need deeper spending cuts, or additional tax increases, or both, to balance its budget after this year. The economic consequences of further taxes would be devastating—the Manhattan Institute estimates that Gotham will bleed 67,000 jobs because of this year’s property-tax hike alone. The mayor is digging a deeper and deeper hole for New York to climb out of—if it can.

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