From the WSJ Opinion Archives
THINKING THINGS OVER
Bloomberg to New York: Drop Dead
The mayor tries to destroy the city in order to save it.
Michael Bloomberg seems to think he's mayor of Ben Tre. That's the Vietnamese city etched into history by the quote "It became necessary to destroy the town in order to save it."
The original quote was attributed to an anonymous army major in an AP dispatch by Peter Arnett of more recent notoriety. But whatever its provenance, it describes Mayor Bloomberg's answer to the New York financial crisis--a slew of tax increases certain to speed the downward spiral. The state legislature is about to give him what he wants, precluding meaningful recovery from the September 11 attacks coming atop the debacle of the city's major industry, financial services.
The mayor and city council have already increased property taxes by 18.5%. He also instigated a cigarette tax increase of $1.50 a pack. Water fees and transit fares are going up, and parking meters now apply on Sundays. In his deal with the legislature, the combined state and local sales tax will go to 8.625%. An income-tax surcharge will be applied on taxable incomes of more than $100,000. With the state taking a similar approach to its own budget problems, the top marginal rate for state and local income taxes will reach 12.5%.
Even without the pending increases, the Tax Foundation calculated that on average New York State residents spent 12.0% of their incomes on state and local taxes, second only to Olympia Snowe's Maine at 12.2%. The figure was 9.7% nationally, 10.9% in Connecticut, 9.8% in New Jersey and 9.1% in Pennsylvania.
Mayor Bloomberg says the taxes are necessary because budget cuts would ravage essential services. His 2004 budget plan projects spending of $44.5 billion, an "austere" increase of 2.0%. This depends on union concessions not yet reached, and on laying off some 4,500 employees. The mayor's "doomsday" contingency budget would lay off an additional 10,000.
New York City counts 296,598 public employees; doomsday would be a 5% reduction. The city's work force is nearly 25% of the 1.2 million employees it takes to run the U.S. federal government, exclusive of the defense department and postal service. Over the last two years, private-sector employment in the city has already absorbed a 4.7% loss; the public sector dipped 0.2%.
The state comptroller reported in April that the city accounted for half of the 293,000 jobs the state lost in that time period. Heaping on new taxes can only accelerate the loss. Businesses and residents have been fleeing New York for years. A decline in manufacturing has been offset by growth in finance, but with modern communications these firms are not tied to any one location. And of course, the upper-income individuals targeted by the income tax surcharge are the most mobile taxpayers.
These realities are propounded in detail by the Manhattan Institute, one of the nation's premier think tanks and an important source of advice for initiatives such as the Giuliani crime program. At a campaign lunch at the institute, Mayor Bloomberg said he didn't mind paying high taxes because life in New York is a luxury good. His hosts explained the life of a housewife in Queens, and he did give a few speeches on fiscal responsibility.
Since election, though, his message has been mixed. Sometimes he compares the city and federal work forces, and sometimes he professes find no corruption or waste in the budget. His signal success as mayor, establishing control over the sprawling board of education, seems to be slipping away as the advertised phonics program turns out not to be a phonics program.
So Mr. Bloomberg has lost the precious opportunity to use the present crisis to address structural issues in the city economy, such as the power of the municipal unions and its unique municipal welfare state (20% of the population is on Medicaid, for example). Instead he will be remembered as the mayor who banned smoking in bars, which is to say, as a political dilettante.
The rest of the nation has pledged $21 billion to help the city recover from the September 11 attacks, and has been fascinated by Daniel Libeskind's winning design for the site. But a downward spiral in the New York economy would mean little of the design will ever be built. It ultimately depends on demand for office space in downtown Manhattan, where the vacancy rate already stands at more than 13%.
Financial firms remaining in the city but diversifying to other locations (including this newspaper's publisher Dow Jones) have millions of square feet of sublet space in the World Financial Center, and millions more in other Class A buildings. This does not count space, such as the shrouded Deutsche Bank building, that is currently off the market.
The landmark 1,776-foot tower may indeed be built, essentially at taxpayer expense by political fiat of New York Governor George Pataki. He wants to lay a cornerstone during the Republican convention in 2004 and top out structural steel by the end of his term in 2006. There will be revenue from a TV tower, and the governor promises to move his offices into the tower, but there are 70 stories of office space to fill.
The governor is also promising to veto the pending state tax increases, and possibly the city ones as well. But both passed the legislature by veto-proof margins, and Pataki cynics doubt he'll make a serious effort to reverse this. Letting taxes pass over his veto relieves him of responsibility and allows him to posture as a fiscal conservative.
If the governor is serious, he will shortly have a second chance to revive the city. Its malignant rent-control laws expire June 15, and vetoing an extension could directly spark recovery. Thanks largely to these World War II laws, the city is perpetually starved for housing; their demise would be the essential first step toward a construction boom to meet a vast untapped market.
Mr. Bartley is editor emeritus of The Wall Street Journal. His column appears Mondays in the Journal and on OpinionJournal.com.
