City Journal Autumn 2014

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Autumn 2014
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By Steven Malanga:

Shakedown: The Continuing Conspiracy Against the American Taxpayer

By Steven Malanga, Victor Davis Hanson and Heather Mac Donald

The Immigration Solution.

By Steven Malanga
The New New Left: How American Politics Works Today

Eye on the News

Steven Malanga
What Happened to the Businessman Mayor?
Bloomberg’s 2002 budget wimps out.
19 February 2002

Michael Bloomberg spent his first several weeks as Mayor of New York racing around the city meeting with people his predecessor, Rudy Giuliani, had feuded with. Collaboration, not confrontation, became his theme, and he won accolades for this approach.

Additional Comments:
New York Post, 20 Feb 2002

Yet, no one who knows New York politics thought this honeymoon would last beyond mid-February, when the new mayor was scheduled to present his first budget, which was sure to be filled with tough choices in order to balance the city’s books.

But Bloomberg has defied the odds. Last week he presented a budget that, despite being couched in the rhetoric of sacrifice, is relatively painless. It is a budget designed to upset almost no one catastrophically, but by its very mildness, it sets New York off on a potentially dangerous fiscal course.

The new mayor is borrowing money to finance the city’s operating budget yet not laying off one single city employee. Claiming that New York faces an unprecedented crisis, he is asking Washington for hundreds of millions of dollars he won’t get, yet demanding no significant contract concessions nor productivity gains from his unions.

That Bloomberg has been able to produce a budget like this and still win so much acclaim is evidence that he is a shrewd politician—which is not the same as being an effective mayor.

At the heart of Bloomberg’s strategy is a game of role reversal he is playing with fiscal watchdogs, who typically tend to be far more conservative in their budget projections than the administration. Over the past few months, these watchdogs have progressively lowered their estimate of the deficit to about $3 billion for next fiscal year. Seen in context of the size of Bloomberg’s budget, that’s about the same size deficit Giuliani faced when he took office in 1994.

But Bloomberg is estimating that the deficit will be a whopping $2 billion higher than that. Why? Because that allows him to argue that New York faces an emergency of unparalleled scope that requires extraordinary solutions. His way out is to borrow money to bolster the city’s operating budget--the equivalent of taking out a loan to pay your weekly supermarket bills or your rent. He’s even cowed the Wall Street rating agencies into not heavily criticizing this fiscally dangerous policy—which was so roundly denounced after the fiscal crisis of the 1970s that it seemed unlikely any mayor would ever again be able to employ it.

But before endorsing Bloomberg's rush to borrow money, the rating agencies and budget analysts ought to demand that he get his other budget priorities in order. For one thing, Bloomberg is proposing to borrow almost as much money as he is cutting from the city budget. Instead, he should be getting far more savings from spending cuts by reducing the city's oversized workforce. For instance, even as corporations around New York shed workers to deal with their economic slowdown, Bloomberg is cutting a mere 5,000 jobs-and all through attrition-in a city workforce of 365,000. Even former Mayor David Dinkins—who hardly had a reputation as a budgetary tough guy—ultimately agreed under pressure to shrink the city's workforce by 20,000 when facing smaller deficits than Bloomberg.

Nor is the mayor making many significant productivity demands on city workers, or expecting any major concessions from the unions in upcoming labor talks. By contrast, Mayor Giuliani, when he faced budget deficits in his first two years, won $600 million in savings through productivity changes.

Bloomberg does deserve some credit for dumping wasteful and inefficient programs like the city’s glass recycling effort, and for restraining growth in New York’s oversized social services budget. And he has earned kudos from the business community and Wall Street for not raising taxes, although he’s using borrowed money to do that.

But his budget does present one important tax increase—a move to up the city’s levy on cigarettes. The mayor anticipates raising $250 million a year, even though past cigarette tax increases have, by encouraging bootlegging and other means of avoidance, failed to generate the estimated revenues.

Bloomberg is also entreating Washington to help bail him out, evoking a familiar refrain of New York policymakers—with the notable recent exception of Giuliani—that the city gets far less from Washington than it receives. But on this subject, Bloomberg is being extraordinarily disingenuous. For instance, he complains that the city deserves more federal Medicaid aid because Washington matches a smaller percentage of New York’s health care spending than it does in most other states. But surely the mayor understands that New York’s huge self-designed Medicaid system offers many benefits that aren’t part of the federal program, which is why the percent of funds matched by Washington is lower than elsewhere. And even so, the federal government provides far, far more total Medicaid money per capita and in absolute dollars to New York than to anyplace else, which is why Bloomberg won’t get any more money from the feds.

With dubious arguments like this, it’s clear that Bloomberg is not really approaching the city’s fiscal problems with the discipline and sense of reality of a businessman. And one way or another, his approach spells trouble for the city. If the economy does not turn up, then Bloomberg is left with $1.5 billion in borrowing—that is, in nonrecurring revenues—that he must replace in future years to balance the budget.

And even if the economy produces more in tax revenues, Bloomberg seems intent on spending that money as fast as it comes in rather than restraining the growth of the city’s government, especially its workforce, which is already one-seventh the size of the federal government’s. Bloomberg made his intentions clear last week when, speaking of Gotham’s budget surpluses of the 1990s, he said: “What the government did was it kept providing more services, and it was able to do that because tax revenues kept growing. And in fact that’s what government is here for, to provide services.”

That’s not a prescription for a sound fiscal future, especially in a city that already has the highest taxes and the largest budget of any American city. As a businessman, Bloomberg should understand that New York’s economy will forever be caught in the boom and bust cycles of the past 50 years unless it can do something to bring its taxes, and spending, under control. This budget doesn’t even begin to send New York down that road.

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