New York City’s budget battles rage on – By George J. Marlin

The following appears in the May 4-10, 2012 issue of the Long Island Business News:

In “Modern New York: The Life and Economics of a City” (Palgrave Macmillan, $28), author Greg David traces the longtime war between pro-welfare state pols and pro-economic growth ones.

David’s story begins in the 1960s when most potentates embraced Mayor Robert F. Wagner’s proclamation that he “would not propose to permit our fiscal problems to set the limits of our commitments to meet the essential needs of the people of the city.”

That philosophy was taken to its extreme by Mayor John Vliet Lindsay. To cure perceived social ills, during his tenure (1966-1973), he went on a spending and hiring spree that put the city on the road to perdition.

To fund budgets that ballooned from $3.87 billion in 1966 to $11 billion in 1973, Lindsay raised every existing business tax and invented new ones. He imposed a progressive city income tax on residents and a flat one on commuters. He also successfully pursued the extension of World War II’s “temporary” rent control laws.

As a result of Lindsay’s tax-and-spend policies, the end of Wall Street’s bull market in 1969 and rent control laws that caused landlords to abandon 13,000 apartment buildings and “cost the city $500 million a year in property taxes,” the city fell into the fiscal abyss.

New Yorkwas saved thanks to two people, Gov. Hugh Carey and Mayor Ed Koch. Carey created the state oversight and control agencies – the Emergency Control Board and the Municipal Assistance Corp. – needed to avoid bankruptcy and to institute an orderly process for placing the city on a sound financial footing. Koch made the tough decisions needed to balance the budget four years in a row and to get state controls lifted.

David reports that Koch not only “moved to curtail many of the social programs the city financed,” but also held that spurring economic development “was the key to reviving the city.” Koch boasted, “Past administrations did not talk about jobs and profits but how to getNew York Cityto be the No. 1 welfare city inAmerica. The whole business of our city is how to get people to stay here, how you get people to come here, how you get business to thrive.”

During Koch’s three terms as mayor,New Yorkregained “two-thirds of the jobs lost in the downturn of 1969-1977.” Employment growth in banking and securities, business services, culture and tourism, and various professional fields more than made up for the loss of 259,000 factory jobs.

New York’s immigrant population, who earlier labored in factories, now occupied jobs in the thriving tourism industry. They have revitalized many of the city’s most depressed neighborhoods.

With the exception of Mayor David Dinkins’ administration (1990-1993), the Koch approach has prevailed. Despite the tragedy of 9/11, severe recessions and reckless spending by Mayors Giuliani and Bloomberg, the city has endured.

It hasn’t been perfect. David states that when the city’s investment banking jobs peaked at 190,000 in October 2007, “the sector accounted for 28 percent of all the wages in the city.” Hence the city, and for that matter the state, have been too dependent on a cyclical industry that paid 20 percent of state and 13 percent of city tax revenues.

The potential impediment to future prosperity: the election of a new mayor who will be beholden to municipal employee unions and the Working Families Party. An administration dedicated to reviving Lindsay’s spendthrift ideological approach to governing could stifle economic growth and drive out the city’s most mobile citizens, the 40,000 households that pay 51 percent of taxes and make investments that create jobs. Taking such a course, David rightfully concludes, could cause “another economic and fiscal cataclysm.”

 

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