New York City, LLC


It is by now commonplace to say that the city has a “new C.E.O.” Hardly a day has passed during Michael Bloomberg’s fist two months in office without the introduction of some sort of new “efficiency” or “downsizing” initiative, cloaked in management-speak, and presented by one or another nicely-suited new city officials.  And with City Hall offices sufficiently cubicled, the marriage of government and business now, at least superficially, appears to be complete.

Troubling as this relationship may be in theory, for a moment let us accept it in fact: Michael Bloomberg is indeed our new city C.E.O., and so the question becomes of what sort of company.  That is, will the city take the shape of a productive corporation, complete with decent salaries and benefits for its workforce, with profits spread among all of its shareholders?  A start-up firm, with quick cash for some, and false promises for the rest?  Or a chain store, offering potentially handsome returns for its owners, and low salaries and no benefits for its workers?

photo: David Mandl

No, in our view, the most appropriate business model for the Bloomberg administration is that of a Limited Liability Company.  Such companies tend to reward those at the top, and in terms of operation, require only a modicum of overhead and personnel.  The goods that they generally offer—a lease, an investment opportunity—confer no responsibility to the owners of that company for the well being of those who join in.  For those at the top, limited liability often results in maximum returns.

It shouldn’t take too long for the tenant/client/customer/citizens of the new city to understand the new contract.  Even as he announces that we all must “share the pain” of the company’s budget woes, the mayor has mapped out an agenda that further absolves it from any residual social responsibilities.  Unlike his predecessor, he has done so, as many have noted, in high executive style, making no open enemies.  But while the new administration’s style may be kinder, its agenda is anything but gentler than Giuliani’s.

THANKS A MILLION (ACTUALLY $2.7 BILLION), RUDY!

Many New Yorkers didn’t quite know what to think when the billionaire financial media magnate turned neophyte politician actually won the election to be a mayor of post-disaster, post-Rudy New York.  After spending a record $72 billion to achieve this seemingly quixotic goal, skeptics wondered whether Bloomberg could sustain his triangulated political identity: socially liberal former Democrat, Guiliani-endorsed Republican, financial kingpin.  Far more conciliatory than his predecessor, the new mayor won plaudits for his initial attempts at outreach to organizations that Giuliani fully ignored, like the Coalition for the Homeless and the Legal Aid Society.  But as the honeymoon period wore off in his new administration, Bloomberg at times seemed peevish about the job’s demands, lashing out at reporters’ efforts to find out trifling details, like where he spends the weekends or the nature of his sanitation policy.

Bloomberg, though, inherited far more from Giuliani than just the skepticism of liberal organizations toward the office of the mayor.  During the months between Bloomberg’s election and inauguration, we all became aware of a dire reality; that “mostly” because of the terrorist attacks on the World Trade Center, our city would be facing the largest budget gap in decades.  At first, Giuliani predicted it would be around $2 billion, but then Bloomberg announced that it would be closer to $5 billion.

The shortfall is due largely to Giuliani’s increase (not decrease, his ideological preference) of workers on the city payroll, as well as his sizable increase in capital expenditures and failure to service to the city’s debt using the recent budget surplus.  A Citizen’s Budget Commission conference paper stated last December that “At least two-thirds” of the then-projected $4 billion gap for the fiscal year that begins this July “is due to events unrelated to the terrorist attacks.”

Whatever the causes, the reality of the budget gap opened up a significant question for the executive now managing the city’s top public office: who must bear the brunt of declining jobs and revenue?  How will such a massive gap in the city’s finances be filled?  And, can a “bottom line” approach overcome the demands of the inter-woven constituencies who make claims on the city?

EXECUTIVE DECISIONS

Mayor Bloomberg was met with warm reviews after his subdued budget proposal from the language of British colonialism, his proposal had a theme of sorts: No Sacred Cows.  In other words, the “pain would be spread around,” or we would all become sacrificial lambs.  In post-attack New York City it was clear that there would be no scapegoats, that we would need to work together in order to salvage a wrecked economy and fill a record budget gap.

While the final budget will not be set until at least June after the City Council amends and approves it, the current proposal, while on the surface seeming to “share the pain,” further naturalizes an idea that benefits Bloomberg’s elite colleagues: no new taxes for the wealthy, cuts in programs for everybody else. It’s now sacrosanct among economists as well as politicians that taxes cannot be raised, only lowered.  And anyone who proposes taxing those who cashed in on the boom times of the 90s would become sheep for the slaughter.  Bloomberg has said himself that raising taxes on the city’s wealthy would be “foolish” because it “could chase this most mobile class of residents out of town.”  Cleveland anyone?

The proposed budget’s axe will fall on services that disproportionately benefit the city’s have-nots.  Here is a brief sampling of cuts: the Board of Education by $350 million; as much as a 26 percent from the Health and Hospitals Corporation; 17 percent from the Department of Homeless Services, despite a surge in homelessness; libraries by nearly $40 million and arts centers and museums nearly $20 million; 19 percent or $16 million from Youth and Community Services; $133 million or 18 percent from the Administration of Children’s Services (eliminating 10,000 slots in day care expansion and 2,000 summer jobs for youths); and $26 million, or 16 percent, from the Department of Aging.  In short, anyone who depends on the city’s public services will effectively be put out to pasture.

Bloomberg also hopes to save the city money by limiting the damages it pays out in tort claims.  Payments to resolve lawsuits against the city more than doubled over the course of the 1990s, from $176 million in fiscal year 1990 to an estimated $459 million in 2001.  These payouts stem mostly from medical malpractice in city-owned hospitals, personal injury claims, and police misconduct.  While it is perfectly reasonable to want to reduce these claims, genuinely corrective measures would require public investment in training and city infrastructure.  Instead, the limited liability model suggests that “you are in the city at your own risk,” and “don’t sue us because we have better lawyers.”

COLLECTING CANS FOR CORPORATE HEALTH

The proposed budget even goes so far as to propose that the city scrap the recycling programs currently in place and keep the 5 cent deposit on cans and bottles as a tax rather than something that can be cashed in by city residents.  Obviously, the homeless are disproportionately reliant on collecting cans but, while cutting services for the homeless, Bloomberg would prefer that the city keep the deposit.  In his budget address, however, Bloomberg made no mention of the money the city doles out to the big spenders.

For example, in the last days of Giuliani administration, a Memo of Understanding was signed between the mayor and the chairman of the New York Stock Exchange, with both sides agreeing in principle to develop a new 10-story trading complex with the largest public subsidy ever granted to a single company—at least $865 million.  Whether Bloomberg will significantly challenge this agreement is yet to be seen.  But it is true that corporate welfare has been a staple in New York City for quite some time.  According to the City Project, corporations in NYC have received more that $2 billion in subsidies from the city and state since 1994.  However, out of the 80 major “incentive” deals made by the city since 1989, at least 39 were with companies that later shrunk, merged or moved, losing 40,000 jobs for the city.

Just as the idea of raising taxes on the wealthy is seen as a New Deal relic, the notion of giving tax incentives and subsidies to large corporations has become de rigeur.  While these lucrative deals can produce more high-paying jobs and, therefore, more revenue for the city, they must come with binding commitments from the recipients of such largesse.  Bloomberg is likely to continue this tradition of corporate welfare, and at the same time propose small-change measures such as keeping can redemptions in an effort to fill the budget gap.  But it must be kept in mind that any one of these corporate deals would, for example, more than cover the cost of the 10,000 day care slots now slated to be cut. 

One fairly sizable revenue generator proposed by the mayor is a hefty hike in cigarette taxes.  In essence, smokers will pay Canadian style prices, but without Canadian-style health benefits.  Taxes on consumer goods like beverages and cigarettes surely can be justified, but it must be kept in mind that they are inherently regressive.  Some City Council members have raised the possibility of modest income tax hikes, stock transfer taxes, and other measures designed to distribute the burden of the city’s budget shortfall more equitably.  One idea also worth exploring is a small luxury tax on goods and services casting over $500.  It remains to be seen, however, whether equity of this sort will be a primary concern within the new administration’s pain-sharing scheme.

The boom times of the 1990s clearly benefited the wealthiest sectors of the city, yet, according to a Community Service Society of New York report, not only did the city’s poorest become poorer, but the number of “working poor” families in New York City increased by 60 percent over the last decade.  And now, during a national recession in which welfare time limits are kicking people off the dole, the less well-to-do are being asked to make sacrifices.  Is this what customers are to expect from New York City, LLC?  Let the buyer beware.

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