What Would Hamilton Say?

By Henry J. Stern
June 10, 2004

Fiscal responsibility is often ignored in the discussion of proposals that would require substantial increases in expenditures by the City of New York.
 
News reports are published daily which are true on their face, describing events that actually occurred — a rally, a meeting, or a statement by a politician, labor leader, social service provider or business executive. These stories often involve demands made by a group for the city to commit resources to deal with one problem or another.
 
What is left unsaid is that what is demanded is often unaffordable. The revenue to pay for it simply may not be there. That fact, however, is never part of the news story. If the city tries to raise funds for new projects by increasing taxes, they run the risk that the tax base will remain flat or decline. People are not stupid, and those who are able to move will take their homes and businesses out of high-tax New York to a more hospitable climate. Millions already have; just look west across the Hudson River.

This is scarcely news. Many of you are well aware of it. The problem is that when media only write about demands, because that is the news in the sense of what has actually happened on that day, people may come to believe that the demands are feasible. In some cases, they are; in others, they are not. And even if they are feasible, they can be unaffordable.

When legislators seek massive increases in the education budget to comply with their interpretation of a Court of Appeals decision finding New York City public school education to be inadequate, they are being unreal. Is the Court of Appeals prepared to tell the governor and the Legislature what taxes they should raise, or what other programs they should cut? Yet the proposals to spend billions more throughout the state for education appear in a context of the bigger, the better. Anyone who does not ritually approve enormous additional expenditures for education comes off as a miser.
 
The same applies to the $13 billion capital spending plan for the schools offered by the mayor, as well as a similar plan proposed by the Council speaker. Everyone wants to spend money to build schools (it's even good for the construction industry), but no one is certain where the dollars can be found, with city borrowing now close to its legal limit. School construction in New York City has been notoriously profligate, despite repeated restructuring and exemption from the Wicks Law. What confidence can anyone have that the latest School Construction Authority appointee, William Goldstein, will be able to do any better than his predecessors? More important, what impartial evaluation, outside the education empire, has been made of the necessity for each of the building schemes?
 
When I was parks commissioner, we built hundreds of capital projects a year, many added to our budget by local City Councilmembers. I was glad to spend any money we received that was needed to renovate playgrounds, but I suspected that some of the projects on the list were unnecessary, because the existing playground on the site had recently been repaired. I asked our assistant commissioner for capital projects, Richard Schwartz, to visit the sites and tell me what he saw (Rule 12-G: Go to the scene). As a result, we saved millions of dollars, and had more money for playgrounds that really needed rehabilitation.

The West Side stadium, which might make good economic sense, is supposed to be funded by revenue streams derived from increased commercial activity, which may or may not take place to the predicted degree.  But even if the stadium succeeds, the additional taxes that will accrue from its construction and its operations will not be available to support other city agency functions dependent on tax revenues. This is a zero-sum game: what you allocate to A will be unavailable for B. It is argued that the stadium will generate so much economic activity that its benefits to the city will far exceed its costs. If that is so, why are there no private sector investors other than the Jets? And what about the opportunity costs of not being able to consider other development that could take place over the West Side railyards?
 
I do not oppose the stadium; great cities must continue to build. When Robert Moses built, he included toll booths so his bridges and tunnels would pay for themselves. A generation later, those tolls provided support for mass transit, which was not a Moses priority. If the Jets only use the stadium ten Sunday afternoons a year, how will they earn enough revenue to amortize their $750 million investment? The press should use its research capacity to explore these issues. Newspapers and TV do cover the Nimby (Not in my back yard) and Banana (Build absolutely nothing anywhere near anybody) opposition, but does that bring people any closer to understanding the merits of the project?

The demands of the police, fire, and teacher unions — as expressed at Tuesday's rally around City Hall Park — are totally out of sync with the city's ability to pay. It is therefore highly unlikely that these economic issues can be resolved through traditional labor-management negotiation. In all probability, a year from now or later, the issues will be settled by arbitrators. It is politically impossible for a union leader to make a reasonable settlement, and it is financially impossible for Mayor Bloomberg to give these unions anything close to what they want. The total public debt of the City of New York now exceeds $46.5 billion. Debt service alone costs taxpayers $4.1 billion a year.  With interest rates rising, the city is likely to have to pay even more next year. That sum comes off the top before you even begin to pay for services, pensions, and operating costs.

Union rhetoric that Bloomberg is a billionaire and therefore doesn't understand the plight of working people is ludicrous coming from those who never minded the millions of the Roosevelts and the Kennedys, or the hundreds of millions belonging to Mr. and Mrs. John Kerry. Disparaging people because they are rich, or poor, is playing the class card. It is as unfair as using the race card, which has no legitimate place in politics. Besides, Bloomberg is unusual as a rich man who earned his fortune by his own efforts. He did not inherit, marry, or steal his billions. He deserves credit for his achievement, not obloquy.
 
All these issues — the education budget, the school construction plan, the West Side stadium, and demands for wage increases exceeding the DC 37 formula — represent financial uncertainties. Proposed tax rebates or reductions, now before the Council, would further widen the gap between city resources and commitments. And additional borrowing would mean spending even more money for interest.
 
When you read about budget issues over the months to come, you should know that some stories depict mirages, based on money that is not here, and unlikely to be found elsewhere. The city budget, when adopted in late June, will be somewhat different from the executive budget proposed in April, but it will conform to its basic outlines, because so much of the spending is mandated.
 
The city and state comptrollers are aware of the disconnect between aspiration and reality, the Citizens Budget Commission has warned about what lies ahead, and many knowledgeable people have a good idea of the problem. When events or demands that would have financial impact on the city are reported, it would be helpful if the public were informed how much the pipe dreams would cost. It is easier to decide whether or not to buy something when you are fully aware of its cost, short term and long term. That data must sometimes be plucked from those who believe that transparency is bad for business. In fact, it is a prerequisite for honest dealing.