Tail wags dog

An really thorough and excellent series on urban finances over at City Journal.

This part focuses on the ability of city leaders to balance budgets in this tough economic times.....

Mayor Michael Bloomberg says that balancing New York City’s budget in tough times requires “shared sacrifice,” by which he means combined tax increases and spending cuts. Yet as is often the case in New York, the biggest sacrifice is expected of taxpayers—this time, nearly $1 billion in tax hikes on top of what is already the heaviest tax burden among major cities in the nation (see “Life in Taxopolis,” coming soon).

The city’s budget-cutting, by contrast, is exceedingly modest. In fact, Bloomberg isn’t really cutting the city’s budget in the fiscal year that begins July 1; he’s merely slowing (slightly) its rate of growth. According to the Independent Budget Office, city-funded spending to provide services will rise $1.6 billion, to $46.9 billion, in the new year. That’s a 3.3 percent increase, once you include expenditures in the coming year that the city has already paid with surplus funds from the Wall Street boom. By contrast, Bureau of Labor Statistics data show, inflation in the greater New York area is running at zero percent. In other words, in the middle of a deep fiscal crisis, city spending is rising significantly faster than inflation—part of a pattern that goes back to the beginning of the Bloomberg administration. Over Bloomberg’s tenure, the city has, thanks to annual spending increases, expanded the budget on an inflation-adjusted basis faster than any mayor since John Lindsay, whose spending pushed New York to the edge of bankruptcy (see “New York’s Next Fiscal Crisis,” Summer 2008).

Bloomberg has a reputation in some circles as a cagey fiscal manager, but he owes that reputation mostly to Wall Street, which flooded the city with massive tax revenues—enough for him to offer fat contracts to public unions, add to the city-worker headcount, and still have money left over. But now, facing the possibility of a long-term Wall Street decline, the mayor will need to earn his reputation by real budget-cutting and restructuring of city services. He could start by reducing city spending growth to zero next year, something that Rudy Giuliani achieved in his first tough year in office.

In fact, Bloomberg could do that in one fell swoop by negotiating a wage freeze for city employees, who are scheduled to get 4 percent raises because of his generous contract deals. The Citizens Budget Commission has estimated that a one-year freeze, a concession that has become common in the private sector, would save $1.2 billion. That’s enough to halt spending growth and prevent a tax hike next year.

Is such a wage freeze politically feasible in the face of strenuous public-sector union opposition? Yes, if Bloomberg—or, should he improbably lose this year’s election, his successor—threatens an alternate series of steps that, combined, would likewise make the city’s finances sustainable. The first: shrinking New York’s bloated workforce. In his budget presentations, the mayor typically lists employee-benefit costs, such as pension and health benefits, as “uncontrollable,” since they’re subject to state mandates and fixed by contract negotiations. But one way New York City adds to those costs is letting the city-worker headcount drift up. Since 2003, it has grown by some 41,000 workers, including over 16,000 paraprofessionals made full-timers at the Department of Education and the Department of Parks. At an average cost of more than $100,000 per worker in salaries and benefits, workforce size matters.

Read the rest here.........