New York is in trouble. With deficits of $6 billion in New York City and $12 billion in N.Y. State looming, what can Mayor Michael Bloomberg and Governor George Pataki do? Despite their claims to have considered everything imaginable, city hall and Albany have overlooked plenty of ways to generate revenue and reduce expenses.
The first principle of government finance is to spend only what revenue permits. This simple accounting rule is broken daily in New York City and New York State.
The second principle is to expand the tax base through incentives so that revenues grow to meet expenses.
And the third principle is if tax revenues cannot increase to meet expenditures, outlays must shrink to match income.
How do you inject such common sense into the government calculus? The following proposals could work if Bloomberg and Pataki simply would try them. These ideas alone could save taxpayers at least $3 billion in fiscal year 2004 and even more thereafter. As dark fiscal clouds gather over New York, these rays of sunshine cannot come too quickly.
Healthcare subsidies are a massive drain on city and state finances, thanks to overly generous eligibility rules and 24-carat benefits. This applies both to private citizens on public relief and city employees with lavish coverage. Several steps would help restrain this taxpayer-funded medicine run amuck:
Tighten qualifications for and benefits within Family Health Plus and Child Health Plus. Pataki lit the fuse on New York’s health-care bomb when he expanded eligibility for these two public health insurance programs. At its inception on October 1, 2001, a family of four could earn no more than $23,475 for a parent to join FHP. As of last December 31, that figure stood at $24,000. On January 1, that income ceiling rose to $28,000.
Former Democratic Governor Mario Cuomo launched CHP in 1992. As of March 1, 1998, a family of four could make no more than $35,631 for its kids to participate. Last New Year’s Eve, that income limit stood at $42,000. As that shiny ball dropped in Times Square, it rose again to $46,000.
FHP and CHP are so ample that some families have moved from private insurance into these state-run entitlements.
“There was an incentive for people to get out of private healthcare and into Medicaid,” says Steve Malanga, senior fellow with the Manhattan Institute. “That alone tells you that there is something wrong with the system.”
Upstate manufacturer Roger Hannay, for instance, told Malanga: “Some of my employees actually asked me to drop our company coverage for a year so that they could join the state program because it’s so much more generous than the coverage I can afford to offer.”
Add a stagnant economy, and it is no surprise that the Citizens Budget Commission (CBC) found that Medicaid expenses soared 35.3 percent between March 2002 and March 2003. Last March’s $2.03 billion monthly tab cost the city and state 25 percent each (or $507.5 million) with the balance foisted on federal taxpayers. If the state reduced the program’s budget by 10 percent, the savings would approximate $600 million annually.
Amazingly enough, Team Pataki wears these excesses as badges of honor.
“The governor’s commitment to ensuring access to health care for New Yorkers is unparalleled and remains strong in the face of unprecedented fiscal challenges,” says state-health-department spokesman Robert Kenny. Thorough, patient and polite, Kenny proudly adds that FHP enrollment has swelled from 195,000 on March 31 to 256,000 on June 10. CHP participation, Kenny explains, “has remained steady over recent months” at 478,000.
Stop recruiting new beneficiaries for public programs. It is bad enough to make it easier for New Yorkers to thrive off the labor of others. However, it is an unaffordable outrage when politicians spend taxpayer money to lure new participants into these programs. Like a host handing dinner invitations to strangers on the A train, Governor Pataki starred in TV and subway ads begging New Yorkers to enlist their kids in the FHP and CHP programs.
“Perhaps as an indicator of the fact that we take aggressive action to enroll New Yorkers in appropriate state health insurance programs,” Kenny says, “we recently printed more than 100,000 applications to be dispersed in various regions of the state.”
Albany also operates the Facilitated Enrollment Initiative, funded at $10 million in 2001 and $20 million in 2002. As Kenny describes it: “The facilitated enrollers reach out to New Yorkers in their communities to see which program they may qualify for, whether it’s FHP, CHP or Medicaid.” New Yorkers have responded enthusiastically. The Medicaid population has grown 28.5 percent from 1,715,513 participants in January 2002 to 2,204,006 in March 2003. Pataki, suddenly facing nearly a third more dinner guests than places at his table, now wonders how he’ll cook his way out of this one.
It would help if city hall and Albany simply stopped spending money to seek new beneficiaries. A new, government-subsidized food discount card, for example, currently appears on a bus shelter ad on Park Avenue South and 19th Street in Gramercy Park. “Over 800,000 New Yorkers who qualify just don’t get it,” the notice states. At most, government only should admit those who are sufficiently destitute to request help. The city and state simply cannot afford to round up new public-aid recipients as if Bloomberg and Pataki printed greenbacks in their basements.
Pay welfare counselors and social workers a bonus for each beneficiary they help move from the medical dole to the medical marketplace. People should be persuaded to gravitate from Medicaid to private health insurance as they graduate from welfare to work or qualify for such plans, say by marrying a commercially insured person. Making this a priority for those who counsel public-assistance recipients, and rewarding those who succeed, would help prune the luxuriant Medicaid rolls.
Require city workers to help purchase their health policies. Unlike their typical private-sector counterparts, approximately 85 percent of the city’s employees enjoy free health insurance, the Office of Labor Relations reports. Taxpayers finance 100 percent of the premiums for these workers. At least marginally, this encourages overuse of medical services. A modest co-payment of 10 percent of premium costs for individual plans and 20 percent of family coverage would save at least $251 million annually, according to a June 30, 2000 city comptroller’s study.
Sell city assets. Former Mayor Rudy Giuliani divested city-owned WNYC-TV for $207 million in 1996, invited the private Central Park Conservancy to manage Central Park starting in 1998 and supported developer Larry Silverstein’s July 2001 purchase of the then-government-owned World Trade Center. Mayor Bloomberg has no similar taste for privatization. In fact, he scotched a Giuliani proposal to sell three publicly owned office buildings that house United Nations agencies. Unloading these assets alone reportedly could generate $50 million in net sales plus $7 million in annual tax revenue while ending the city’s maintenance expenses on those structures. The city could sell many more structures it owns. Even leasing back office space could prove economical once private property tax payments are factored in.
The city should auction off within 90 days all properties acquired due to nonpayment of property taxes. Such distressed assets can languish in the city’s real-estate portfolio literally for years. This is how townhouses become crack houses. It is far better for everyone to return such properties to private owners who actually will pay taxes and fill them with commercial and residential tenants.
Baruch College School of Public Affairs professor E. S. Savas wrote in the June 2, 2003 New York Post that nine different multi-city studies indicate that in trash collection, “competitive contracting cuts costs an average of 26 percent while keeping the same level and quality of service.” Combined with the commercial taxes private haulers would pay, he estimates that extensive private garbage collection could save New Yorkers 37 percent of the roughly half-billion dollars Gotham spends on sanitation, or about $185 million annually. The city’s dire straits should free Bloomberg to experiment with competitive provision and even full privatization of municipal buses, subway cleaning and maintenance, city hospitals, road repair, and lots more.
City employees should work at least 40 hours per week. Though Gotham is not Paris, about 67,000 civilian municipal employees work only 35 weekly. Ditto for sanitation workers who are considered uniformed employees. Expecting these public servants to perform just one more hour daily should, all things being equal, produce 14.3 percent more output for the same expenditure. Gotham’s streets these days could afford to be 14.3 percent cleaner. The CBC estimates that this reasonable measure would save city taxpayers $498 million yearly. Some 8,500 positions could be eliminated since a smaller group of harder-working employees could complete the same duties.
Repeal the city hotel tax. Hotel guests currently pay 4.875 percent atop the recently hiked local sales tax of 8.625 percent. There is an argument for keeping the latter. Scrapping the city hotel tax would cost $206 million next year, but could boost tourism by 10 percent according to city estimates, more that offsetting this loss.
Keeping the sales tax, but scrapping the lodging levy will give Gotham a powerful slogan with which to attract tourists, conventioneers and others reluctant to travel here since 9-11: “Hotel tax: 0 percent!” Local restaurateurs, theater owners, clothiers, taxis drivers and souvenir vendors all would profit if this anti-visitor tax simply vanished.
Local officials should curtail their production of tickets and summonses. Desperate for revenue, city cops and inspectors lately have fined New Yorkers for such things as having too many words on their shop awnings, resting on a milk crate and even, in the case of one pregnant woman, sitting on a subway staircase. These tickets are not only bizarre and annoying; in a supreme irony, they cost the city money! As the Independent Budget Office reported on May 29, aside from the $297.5 million in net revenue from parking tickets in 2002, other summonses lost city-hall cash. The Housing Preservation and Development agency, for instance, spent $13.67 in overhead for each $1 of revenue it produced. Seven key agencies the IBO studied spent $85.1 million more processing tickets than they raised issuing them.
Wine and liquor merchants should be free to sell their wares seven days per week. Recently revised laws allow wine and spirits purveyors to open Sundays, provided they close one of the other six days. This is spectacularly unprincipled. There is an argument for closing such shops on Sundays for religious reasons (even though beer has been available all seven days). Why on Earth should a wine shop close on, say, Tuesday or Thursday? If New Yorkers may purchase alcohol at bars any day of the week, they also should be free to do so at retail establishments.
A May 2002 study by Washington-based American Economics Group for the U.S. Distilled Spirits Council forecast that seven-day alcohol sales would increase statewide tax revenues by $36.6 million compared to the previous Sunday-closure policy. While $27.47 million of this would go to Albany, $8.42 million would reach other localities, and $730,000 would splash into Gotham. City hall and Albany would save additional money by no longer having to enforce this absurd regulation.
In the 1862, President Abraham Lincoln introduced a homesteading project in order to populate the plains. He offered pioneers stakes in the future and, through them, helped to build the nation. Lincoln required that homesteaders had not taken up arms against the Union. He also expected them to fence in their property, build wells and occupy their land for at least five years. Likewise, Gotham’s homesteaders should be free of criminal records. They promptly should build upon and improve their properties rather than leave them fallow. Areas such as Bushwick and East New York, with vast regions of vacant land, should be distributed via public auctions.
In areas where it has been employed, (e.g. Michigan) urban homesteading has fostered a stakeholder psychology among local residents and expanded property tax collections. New York could use plenty of both. A modest 10-percent increase in real estate tax revenue would generate $500 million annually.
Although cutting Gotham’s budget involves a host of tough decisions, trimming jobs across the board so that all agencies suffer slightly reduces disproportionate pain in any one area. If cty Hall reduced the workforce by 5 percent — surely a level of thrift that scarcely would affect the delivery of services — 16,000 jobs could be eliminated. This goal can be achieved even without touching the NYPD. At an average cost of $74,318 in salary and benefits per city employee, this translates into a potential savings of $1.2 billion.
New York has 30 government employees for every 100 in the private sector (the U.S. average is 17 per 100), a ratio higher than almost any city in the world. That statistic is an unvarnished example of union influence. The mayor should tell labor leaders that if they reject the 5-percent reduction in headcount, their unions will have to offer $1.2 billion in “give backs,” or the city will renegotiate all of their contracts.
Two taxes that yield de minimus revenue relating to the damage they inflict are the unincorporated business tax (4 percent of gross income, projected to yield $827 million in fiscal 2003) and the commercial rent tax (8.85 percent, forecasts to $398 million). These nuisance taxes impede small business development, thus squelching opportunity and job growth. Recent immigrants point to these levies as roadblocks to their commercial ambitions.
If anywhere on Earth should be business friendly, it is New York, the place with more entrepreneurs per acre than anywhere on the globe. Yet city hall seems determined to debilitate entrepreneurs, thus reducing potential business people into hustlers eager to “beat the system.”
Beating the system is of course what government intervention requires since politicians give special privileges to some at the expense of others. Rent control typifies this phenomenon. This “temporary solution” to a need for G.I. housing after World War II has been transmogrified into a permanent entitlement for middle class and wealthy city residents. Moreover, tenants can bequeath their rent-controlled apartments from one generation to the next. Eliminating rent control — assuming the governor and mayor had the guts to do so — would generate approximately $300 million in new tax revenue in the first year of decontrol. It would also rationalize a bizarre arrangement in which a cross subsidy exists with new residents underwriting under-market rents for ensconced tenants. Distortions in rent values, as well as overly restrictive zoning, permitting and building regulations all discourage new construction. Liberating these restrictions would help balance supply, demand, tenant outlays and landlord revenues.
These are just a few ways to revitalize a metropolis and state hungry for dynamism. Gotham’s $44.3 billion budget offers limitless possibilities for additional reforms. Suggestions like these would help Bloomberg and Pataki focus on budget restraint, tax relief, economic growth and higher value for each taxpayer dollar. For now, they seem unaware that fed-up New Yorkers will not tolerate higher costs and deteriorating quality of life as long as the Holland Tunnel and local airports allow them to flee.
As we see it, New York has become the Vampire City within the Vampire State. Each sucks the blood from those who work here for a living. By embracing limited government, New York State once again can become the Empire State and New York City the Big Apple. We await these sensible reforms, but we are watching our necks.
— Herbert London is president of the Hudson Institute and was the New York Conservative party’s 1990 gubernatorial candidate. Deroy Murdock is a syndicated columnist with the Scripps-Howard News Service and a senior fellow with the Atlas Economic Research Foundation in Fairfax, Virginia.