Feeling Your Pain The Sting of the City's Fiscal Crisis

Feeling Your Pain

New York City's eight million hardy souls are used to a lifestyle in which the best of everything is at their disposal. But now residents may have to do more with less as the city struggles to find its way out of a deepening fiscal crisis.

In an attempt to close a $3.8 billion budget gap, Mayor Michael R. Bloomberg has proposed a draconian $44.5 billion budget that, without significant state aid, would mean extensive public service cuts, massive layoffs, the closing of facilities like firehouses, senior citizen and health care centers, and reduced funding for schools, libraries, museums, zoos, and other cultural institutions.

Taxing the Rich

In recent months, city dwellers have been hit with an 18.5 percent property tax hike, higher rents, maintenance fees, common charges and insurance premiums, rising fuel costs and increased subway and bus fares. Now the cornerstone of a state Legislature budget proposal, endorsed by the mayor, asks city residents to pay even more.

The sales tax is proposed to jump from 8.25 percent to 8.63 percent and the city's wealthiest residents would be taxed at a different personal income tax rate than lower or middle-income wage earners. Under the budget agreement, individual taxpayers earning more than $100,000, heads of households making more than $125,000, and married couples making more than $150,000 would now pay a higher income tax rate. The current top tax rate is 3.65 percent. The rate for wealthier New Yorkers will rise to 4.25 percent this year and drop to 4.175 percent in 2004, and 4.05 percent in 2005. However, city residents earning more than $500,000 would pay 4.45 percent each of the next three years.

According to the city's Independent Budget Office, the new surcharge would rise proportionately depending on earnings level. For example, a single filer whose taxable income is $125,000 would pay $4,441 in taxes under the 3.65 percent rate. At 4.25 percent, that same taxpayer would owe $4,593, a 3.4 percent increase, according to Doug Turetsky, IBO communications director. A married couple filing jointly and having $250,000 in taxable income would pay $8,900 under the existing income tax rate. Under the new rate, the couple's taxes would jump to $10,615, a 19 percent increase.

Once you hit certain bracket levels, the surcharge becomes a flat tax on your entire earnings, according to Turetsky. Under the $200,000 level, for example, filers would pay the higher rate only on portions of their taxable income, he explained.

Help from Upstate

Bloomberg is asking Governor George Pataki and Albany legislators to come to the city's aid so that the severest of the tax hikes and service cuts can be avoided. The Legislature's $92.8 billion state budget plan proposes to restore program funding, primarily in the areas of education and health care, and provide about $2.7 billion in aid for New York City. In the area of housing, legislators restored funding for a number of affordable housing and neighborhood preservation and public housing programs but eliminated funding for lead remediation and urban homeownership assistance programs.

"The challenges we face today, and the solutions we find, will define our city for generations to come," said Bloomberg during his fiscal year "˜04 budget presentation.

"Times are tough, and we will find ways to stretch what resources we have. We must remember the lessons of the past - New York City must not be permitted to deteriorate as it did in the late 1970s.

"Seeking our fair share of state and federal resources to preserve New York City's status as the greatest city in the world is not only the necessary thing to do - it is the right thing to do since the entire state and country benefits from a strong New York City," Bloomberg said.

No Pain, No Gain?

A contingency plan presented by Bloomberg as the worst-case scenario calls for laying off as many as 14,000 city workers, including sanitation personnel, fire and police, corrections officials, parks and recreation workers, social service workers, and school employees. Summer pools and recreation facilities and as many as 40 firehouses would close, libraries, museums, and zoos would curtail hours, and after-school programs would be slashed.

The city would also get dirtier. In an effort to save $11 million from the recycling budget, more than 500 sanitation employees would be laid off, trash pickups with the exception of Manhattan, would be reduced in some cases to once a week, and curbside trash cans would be emptied less often.

"Implementation of the contingency plan would require abrupt cuts in city services. Regrettably, this would require massive layoffs," warned Bloomberg. "The contingency plan can be avoided if we get the necessary assistance from state government and I am optimistic we will get the help we need. No problem is intractable if we focus on our common goals. Time after time, New Yorkers have shown that, by working together, we can overcome any obstacle. Now, we will have to prove our strength once more."

The mayor, state legislators and the governor are at odds as to the best way to close the budget gap, which on the state level is approaching $11.5 billion. Pataki publicly criticized the Legislature's budget plan, saying that he is against imposing higher taxes and believes the plan will harm business and hurt the state's economy.

State taxes would also rise if the budget plan is enacted. New York State's personal income tax rate would jump from its current 6.85 percent to 7.5 percent for single filers earning $100,000 or more; for heads of households earning $125,000 or more; and for married couples filing jointly, who earn $150,000 and up. And taxpayers earning $500,000 or more would be taxed at a 7.7 percent rate.

"Despite proposing the largest tax increase in state history, the Legislature's budget will create the largest budget shortfall in state history," said Pataki, who vetoed the plan prior to the Legislature's override. "Because of the Legislature's massive spending increases, the state will face a current $1.5 billion shortfall in the current year, and a staggering $13 billion shortfall in the upcoming two years.

"Our efforts to fight for every single job and every New York family are in jeopardy," added Pataki. "The Legislature's fiscally irresponsible budget - which includes the largest tax increase in state history - will severely damage our efforts to keep New York competitive and create new jobs. Instead of putting the state's fiscal crisis behind us by taking bold, responsible action, the Legislature's budget will perpetuate and dramatically worsen the crisis."

Trickle-Down Theory

Some board members fear that the city and state budget deficits, coupled with cutbacks in city services, can only mean one thing - a new hike in building operating costs and reduced service levels as well, for things like street maintenance, landscaping, and trash pickup.

"There will be an absolute trickle-down effect where these increases or cutbacks will in effect impact our budgets sooner rather than later," said Jim Quinn, president of the 1,844-unit North Shore Towers, a three-building 33-story complex in Queens. A private gated community of 110 acres, the luxury cooperative has its own security force, golf club, shopping center, full service country club, health club and recreational facilities.

Combined with the higher taxes, insurance premiums, fuel costs, and other operating expenses that buildings these days are facing, you also have to factor in building assessments which made the 18.5 percent property tax hikes seem like 24 or 25 percent, according to Jordi Reyes-Montblanc, the president of the Housing Fund Development Council (HDFC) and a low-income housing cooperative in Hamilton Heights in Upper Manhattan.

"The market rate co-ops are suffering, so you can imagine that the HDFC co-ops are suffering even more," added Reyes-Montblanc. "I don't think there's one co-op that's happy with what's going on but we just have to accept it and try to live within our means."

The impacts of service cutbacks are already being felt, according to Greg Carlson, the executive director of the Federation of New York Housing Cooperatives and Condominiums (FNYHC). Carlson said he saw garbage pickups in his building reduced from three times a week to two times and who knows if further cutbacks are in store, he said. The building, he added, is even trying to find additional storage space for the extra refuse.

It's déjà vu all over again, said Carlson, noting that the city's fiscal problems might cause a re-emergence of what happened in the real estate market of the late 1980s and early 1990s when the city was facing rough economic times. "Crime was up, buildings couldn't pay and we had all these foreclosures. We are revisiting that cycle again because you have people who are unemployed. I've spoken to a few attorneys and they're telling me that all the legal notices for non-payment is picking up - so we're entering that cycle again."

Additionally, the hike in personal income and sales taxes means that people have less disposable income, making it harder to meet one's financial obligations as both maintenance charges and rental rates rise. And if all else fails, he added, it's not implausible that the city may raise real estate property taxes once more as a stop gap measure.

Debra A. Estock is Managing Editor of The Cooperator.

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