A Shortchanged City

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The World Trade Center attacks and the national recession may be largely to blame for the city’s current fiscal crisis, the worst one since the 1970s. But if it weren’t for a series of actions taken by Governor Pataki and the state legislature over the past five to 10 years, the city might be a lot better off.

From repealing the commuter tax to mandating large pay increases for municipal workers, Albany deprived the city of nearly $2 billion in revenue during that time.

It’s not like the city hasn’t put enough into the coffers. In the 1990s, New York City almost single-handedly drove the state’s economy, accounting for more than half of all new jobs created statewide and a similar share of state tax revenues. Revenues from Wall Street, the technology sector, and Big Apple tourism provided the state with surpluses that allowed the governor and legislature to balance the budget, enact roughly $11 billion in politically popular tax cuts and provide about $728 million in emergency financial aid to other municipalities since 1996.

“You can make an argument that Albany has done more damage to the city’s budget than 9/11 did,” says Adam Barsky, the city’s budget director during the final years of the Giuliani administration. “Credit agencies that monitor the city actually cite Albany as being more of a credit risk [to the city] than anything else in the economy.”

Here are just a few of the ways Governor Pataki and the state legislature have shortchanged New York City:

  • Financial support from the state since September 11 has been extremely low. After an earthquake struck the San Francisco Bay area in 1989, the California legislature and governor supplemented federal aid with nearly $1 billion of its own, raised through a temporary increase in the sales tax. The executive budget proposed by Governor Pataki in January, by contrast, did not include any significant state aid for recovery efforts.
  • In October 2001, Albany officials finalized a deal to end the $114 million payment the state had been making to the city since the elimination of the stock transfer tax in the mid-1970s.
  • Under the governor’s budget released in January, the $750 million new economic development investment program–the Empire Opportunity Fund–would benefit every area of the state except New York City.
  • Several major programs enacted in Albany over the past decade have benefited upstate and suburban communities at the city’s direct expense. The STAR program (School Tax Relief) delivered about $70 per pupil to the city in 2000, compared to a statewide average of $413 per pupil. The state agreement to split up money from the national tobacco settlement provides counties outside the city with 145 percent of their damages and New York City with just 74 percent of its damages.
  • The city receives 32 percent less municipal aid from Albany today than it did a decade ago. The reduction is largely attributable to a decision by Governor Cuomo in 1991 to reduce state “revenue sharing” aid to all the state’s municipalities by 50 percent. In 2000, the legislature went a step further and froze this aid to New York City at its existing levels, costing the city about $28 million in the 2001 fiscal year and $16.5 million annually in subsequent years. Meanwhile, state municipal aid has increased over the past decade by 173 percent in Yonkers, 96 percent in Syracuse and 74 percent in Buffalo.
  • No decision coming out of Albany in recent years has discriminated against the city as much as the May 1999 law that repealed the city’s commuter tax on suburban residents who work in the city. The loss of commuter tax revenue from all three states will cost the city $410 million in fiscal year 2002 and $516 million in fiscal year 2005. (The legislature left in place Yonkers’ commuter tax.)
  • A 1997 study found that the state’s mental health budget was biased against New York City. It showed that while there were 100 more mentally ill patients in the city’s five state psychiatric hospitals than in the 11 upstate psychiatric hospital, the city’s psychiatric hospitals had 1,500 fewer staff and a combined budget that is $63 million less than the upstate hospitals.
  • In 1996, the state instituted an aid program for distressed cities. Since then, the program has channeled $728 million to city governments across the state. More recently, the state approved a financial rescue plan for Nassau County, one of the wealthiest communities in the nation, which includes $100 million in emergency state aid over five years. New York City has never received a dime.

From the new Center for an Urban Future report, “Sympathy, but no Support,” by Jonathan Bowles. For the full report, see www.nycfuture.org.

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