From what I understand, the Mayor and City Council are having trouble agreeing to a New York City budget because they disagree how bad the city’s fiscal situation is likely to get. The Mayor wants to raise taxes on the less important people who don’t get Bloomberg checks, don’t sell clothes, and are not retired, and reduce services that less important people rely on, to start getting people used to what the future will hold. The Council wants to pretend all will be well, but tax people from out of town staying in hotels at a much higher rate than is paid in tax for other services, while continuing to allow out-of-towners to buy expensive clothes made in China with cheap dollars without paying any city sales tax at all. Like most U.S. politicians, if they aren’t creating a future which is truly horrible, the Council Members feel they haven’t done enough today to “fight for the people” who don’t care about that future.

My own view is that both the Mayor and Council are underestimating how bad things will get. The city’s revenue base is somewhat insulated from the coming recession because the property bubble is only partially reflected in property tax revenues here, and (if we don’t discourage them from coming and make they pay it) spending by foreign visitors will support sales tax revenues even as city residents become poorer and spend less. But the city is heading for a massive decline in personal and corporate income tax revenues. More importantly, the state will be hit even harder by those declines, because such taxes are a bigger part of its revenue base, it the likely result will be state tax increases and spending cuts specifically targeted to hurt New York City as much as possible while sparing other parts of the state, as in the past. We are heading for a crisis a bad as the early- to mid-1990s, with the exception that this time most of the country will be even worse off, not better off as it was back then. In the face of this, I suggest the following…

Why not just create a phantom non-profit, jointly overseen by the Mayor, Council and Comptroller, to hold the additional revenues from the property tax increase? Call it the “Taxpayers Restitution Cooperative.” In the unlikely event the increase proves not to have been necessary after 18 months or so, it can all be given back. As for the spending reductions, that money could be set aside for a phantom organization called “Up with Producers Down with Consumers.” If the reductions prove to have been unnecessary, the extra funds could be put into the public employee pension and retiree health care accounts, helping the city to gradually crawl out of the hole, at the cost of diminished services, before the state legislature is ordered to allow public employees to retire even earlier while contributing even less.

By putting the money in phantom accounts, the city can create a back door rainy day fund and settle on what the future holds when the future arrives. That eliminates the guesswork. Some may say this violates the state constitution, but Court of Appeals decisions have proven that most provisions of that constitution are not binding without the always-absent “and we’re not kidding” clause. Ie. all state debts must be voted on in a referendum…and we’re not kidding. Only the irrevocability of any and all pension deals regardless of the consequences is binding without that clause, because Court of Appeals judges also get pensions.

In other words, defer the decision and move on. Why get all hot and bothered now, when the real state budget for this year let alone the horror that will be next year isn’t even going to arrive until after November?