Larry Littlefield's blog

Note To REBNY, The Manhattan Institute and the Post

These organizations have long maintained that housing is expensive in New York City because New York City's development regulations are extremely difficult and restrictive. It is a mantra repeated over and over. Well some bad news -- a developer who builds all over the United States has moved into town, and when asked about development restrictions in an interview with the Wall Street Journal, he gave the "wrong" answer.

WSJ:   Is it easier to build in the suburbs versus the city?

Mr. Toll:   It's easier in the city. The approval process is more professional in the city. The experts that you deal with are pretty much doing the assigned job, as opposed to the secret unassigned job to stop the growth, stop sprawl [in the suburbs].

Give 'Em the Damn Money

You may have gotten the impression that I’m not a big fan or our elected officials at the state level, based on my view of the decisions (and more to the point non-decisions) they have made, and the deals they have cut. But unlike many commentators I’m not going to get all worked up about the legislature getting a cost of living pay increase after many years, just as I didn’t get all worked up about the City Council pay increase. We all expect, or at least hope for, annual increases in pay that keep up with the cost of living. It may be fair to suggest that our current state legislators have treated the general public with contempt, and do not deserve the increase. But my view is that one has to meet one’s own obligations before pointing fingers, and showing contempt for the legislature by cutting its inflation-adjusted pay isn’t doing so.

Conflicting Versions of Property Tax Equity

So the Independent Budget Office has found that New York City’s property tax system is unfair. This is not a surprise. In a fundamental sense, property taxes are a tax on property wealth, and “fairness” requires that the tax be charged equally to all residential and commercial property owners based on the value of that wealth. This, however, has run into another definition of “fairness,” one based on income, with concern that people with high property wealth relative to income (such as senior citizens and, in rural areas, farmers) could be taxed out of their homes. This post will propose a different way to balance "wealth" fairness and "income" fairness.

Governor Spitzer's First Job

According to the New York Post, Governor Spitzer's first job is to wage war on Silver and Bruno. Although I don't usually agree with the Post, I too had concluded that things aren't going to get any better without the removal of all three men who spent the last 12 years in the room, hence my pre-election preference for Suozzi. But the election is over, and a war is not in the cards. Instead Spitzer is going to travel another road to change things.

To the extent that the public knew what it was doing, it voted for change from the inside, backed by an appeal to the people, in voting for Spitzer. All the insiders realized Spitzer was going to win, and got behind him, and will now be calling in their favors. Theoretically Spitzer will be able to tell them that he is on their side, but they've taken too much and have to give some back to everyone else. Otherwise, a Suozzi might be in their future. Theoretically existing privileged interests will look at his mandate and go along with his changes, extracting a few symbolic victories to save face. And that's how things will improve.

Another Raid on the Unemployment Insurance Fund

In the 1990s, the Pataki Administration brokered a deal between "business" and "labor." Unemployment insurance taxes were cut and unemployment payouts were raised, an "everybody wins" deal. Those who became unemployed and stayed unemployed in a booming economy when just about everyone was working got more money. And employers who were getting ready to lay people off and leave the state paid less in.

The only problem -- New York was one of two states which failed to follow the guidelines of the U.S. Department of Labor and build up a big trust fund for hard times. Then the future arrived, and the state had to borrow from the federal government to pay benefits, and impose a massive unemployment insurance tax increase to pay it back, in a recession at the worst possible time. Those who left the state, of course, didn't have to pay the tax, but anyone dumb enough to start a new business here when we needed them most did.

The Political Economics of the Bump on my Forehead

A couple of years ago, a bump grew on my forehead. It didn't hurt, and by the time someone noticed it, it had stopped growing. Concerned friends and relatives began to push me to see a physician, fearing it might be cancer or some other dangerous condition. Finally I relented and my worst fears were realized -- I had taken time out of my all-too-limited life to find that what I had was nothing more than a bump on my head. This didn't satisfy anyone, and I continue to be bothered about getting it removed. The question is whether I should do so, and whether everyone else should help to pay for it with tax dollars.

I spoke with my health insurance company, which said I would have to go to the doctor who would confer with the company on whether a removal was "medically necessary." My observation is that for purposes like this, "medically necessary" depends in part on how hard one is willing to push, and how adept at working the system one is. I also observe that if the procedure were not covered by insurance and I paid for it myself, I would probably pay less that the insurance company would be charged.

The Importance of Member Items

With the release of details about who is responsible for which member items, there is likely to be a great deal of discussion of the member items per se. But the nature of what they fund is not their true significance.

While the amounts of money involved are not small, neither are they large in the context of overall state and local government spending in New York. And while most of the services funded with these grants are not useless, few are essential, or incapable of being funded locally if thought to be worth the money. Some parts of the state may be treated unfairly in the distribution of these grants, but the effect of this is not likely to be siginificant either in terms of the taxes they have to pay or the services most of them receive. The real importance of member items (and, at the federal level, earmarks) is that this sideshow is virually the sole focus of most of our elected representatives. And, it is the sole focus of elections for state legislature and Congress.

Savings and Investment to the Dustbin of History

Well Rumsfeld is finally gone, pushed out for being half right. He was right about how easy it would be to topple Sadaam, but wrong about how easy it would be to get Iraq up and running and get out. Too bad he wasn't completely wrong. By the time we took over the place, we'd have had enough troops, and we might be out by now. There is no such accountability in the economic policy realm, where interest trumps ideology and the same mantras are repeated regardless of the evidence. For example, what about all those Republicans who claimed that cutting taxes on investment returns, but eliminating tax breaks for consumer debt, would encourage savings and investment?

Rails to Trails, Hospitals to High Schools

For a few decades, in large part as a result of state fiscal policies, the City of New York has spent far more than average on the health care industry (not all on health care) and far less than average on the public school system (and even less than that on education). With the possibility of at least somewhat more fair school funding from Albany, and the release of the report of the Commission on Health Care Facilities in the 21st Century, there is an opportunity to alter that pattern. As other forms of transportation developed, much of the nation’s rail capacity became redundant, and eventually had to be abandoned to save the rest of the rail system financially. Since rights-of-way are uniquely valuable and hard to replicate, many places preserved them as trails. Similarly, in a densely populated city space is scarce and expensive, and one of the city’s educational problems is the lack of it. The hospitals and wings to be closed have been exempted from local property taxes for decades, an exemption the value of which likely exceeded their current value many times over. They should be purchased by or given to the city, gutted, and turned into high schools (if large enough) or other schools. If purchased, the money received should only be used for a purpose consistent with the purpose of the tax breaks had been received, not bonuses for departing executives. At least the schools would have decent labs and, if a high school were located in the former wing of a still-working hospital, perhaps some of the students would be inspired to health care careers. For despite the “jobs lost” in the short run due to the proposed closings, the long-term situation in health care is a labor shortage.

The Meaning of the CFE $1.93 Billion

So the Court of Appeals has ruled that in 2004 New York City schools should have spent, at a minimum, an additional $1.93 billion. Is that a lot, or a little? Would the total be an excessive waste of money, or nowhere close to the need? If the state paid for it all, would those elsewhere in the state have been cheated out of their rightful share of aid, or have continued to shortchange the city’s children? And would city residents have reason to be on-their-knees grateful, or outraged? To me, the way whatever settlement is described is as important as what that settlement is, because it will set the stage for what is demanded, and what is rationalized, for years to come. New York State’s winners expect a high level of service; they not only expect to win, but also expect to be told they have been generous, or cheated, so they can continue to sneer at and resent the losers. You’d think the truth would be the easiest thing to provide, since giving one person the truth doesn’t’ take money from someone else. It actually appears to be the most difficult. As it happens, while the Zarb Commission appears to have had Fiscal 2004 data years ago, that happens to be the latest available to me, both from the New York State Department of Education Fiscal Policy Unit and the U.S. Census Bureau. And below, using that information, is the meaning of the CFE $1.93 billion.

Hey Hevesi, Where’s My Data?

My interaction with politicos has been very limited over the years, probably to our mutual benefit. I can count the times I have been the same room with an elected official on two hands, and the times I have actually spoken with one on one hand. But about four and a half years ago, I found myself in the back of a room next to Alan Hevesi, who was then running for New York State Comptroller, and I asked him for something. Handing over a sample, I asked if he, as Comptroller, would compile and publish the kind of comparative state and local revenue, expenditure, employment and payroll data that I have been producing privately over the years (see here and here). I had previously tried to convince some of his future underlings to do the work, but had gotten nowhere, which is no surprise given my own history as a government underling and inability to accomplish anything. But here I was taking to the future top guy. The reason I wanted the Office of the State Comptroller to compile and publish the information isn’t that I didn’t feel like doing it myself. For reasons I’ll explain after the jump, that office is in a position to provide more detailed and timely data than I am. Well, despite some positive noises at the time, I never did get my data.

Repelling the Young

You might have read this article in the Times which reports on how cities around the country are desperately trying to attract the young, particularly the educated young. The reason: with the nation's aging demographics, we are entering an era of skilled labor shortage, and whoever gets the educated young gets jobs, income, and economic activity.

I have also heard this issue raised in Upstate New York, but here the concern about losing the young isn't about jobs and business, it is about "the tax base." In New York, you see, we have the richest senior benefits anywhere, but prefer to exempt seniors from taxes, so someone has to be available to pay relatively more and get relatively less.

How To Create Affordable Housing

If you read my screed on tax breaks here, you can guess my position on the 421a program, which exempts new condos and apartment buildings from property taxes for years and years. Get rid of it.

The developer captures that benefit from the apartment buyer by charging more, or from the renter by renting for the same amount and pocketing the savings. The development site owner then captures it from the developer, by also charging more, leaving housing no more affordable, development no more profitable, and new housing no more likely. If the tax breaks are exchanged for new units dedicated to a few people earning $35,000 or less, then the taxes are instead collected from others equally less well off, or diverted from services such as schools.

Last Chance For NYC Democrats

While the CFE decision provided one last chance for NYC conservatives to show they aren’t hypocrites (one they apparently will not take), it also provides one last chance for NYC Democrats to show they care as much about the quality of life of NYC residents as they do about the perpetuation of their own power and perks, and those of their organized supporters. Such Democrats might want to tax everyone more and spend more on everyone. But faced with opposition from elsewhere, they have agreed to tax New York City more and spend more elsewhere, nowhere more so than in education. At least, in their view, overall education spending is higher than it would otherwise be – number one in the nation as a share of personal income, despite low spending in the city. In general, those that matter are unaffected by the negative consequences, making those consequences seem remote and unimportant. That is the deal we have, the deal the Court has held to be constitutionally wrong but also has held that it cannot or will not change.

Last Chance For NYC Conservatives

Well folks, you got you wanted in the Campaign for Fiscal Equity decision. Not only is the minimum only $2 billion more (in 2004 dollars) for NYC schools, but also the state is free to cut school aid to the city, and increase it to the rest of the state, as in 1995-96, and the courts will do nothing about it other than tut tut 13 years later. With the decision in and the election over, there is one last chance for you (and you know who you are) to show you aren't hypocrites.

Use the Zarb Commission estimates of the lower cost of living in Upstate New York, and the additional needs of low income students, to esimate what school districts in the rest of the state should be spending. And then demand that spending in the rest of the state be cut, and that NYC taxpayers no longer have to pay excess state taxes for wasteful spending elsewhere.

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