New York City Warned of Belt-Tightening

Recalling how New York almost went bankrupt in the mid-1970s, Mayor Michael R. Bloomberg announced Thursday that the city faces a $7.5-billion budget gap over the next 20 months and proposed a menu of new taxes and service cuts.

The most controversial item was a tax on workers who commute to jobs in the city.

“There is no silver bullet,” the mayor said at a City Hall budget briefing. “The financial picture has eroded significantly.”

The proposal to tax commuters immediately ran into opposition from New Jersey Gov. James E. McGreevey, who labeled it an “ill-conceived notion” and pledged to lobby the New York Legislature to block the plan.

About 250,000 New Jersey residents cross the Hudson River each day to get to their jobs in the city.

The commuter tax would have to be approved by the Legislature, where some key leaders of the state Senate already have voiced skepticism about its chance for passage.

In 1999, the Legislature repealed a similar commuter tax, and New York Gov. George Pataki, who handily won reelection last week to a third term, said during his campaign that he opposed reinstating the tax.

Bloomberg also called for raising the city property tax by 25%, noting that property tax payments can be deducted from federal and state income taxes by people who itemize returns.

The mayor said he would seek to reduce the city’s 250,000-member work force by 8,000 by the end of 2004, mostly through buyouts and early retirements.

He also proposed closing eight fire companies, reducing July’s class of police recruits by 1,900 officers, enacting tolls on East River bridges and raising fares on some bus lines.

But Bloomberg stressed that the cuts were not so sharp as to diminish quality of life or to curb essential services.

“We have a problem because the tax revenues have declined more than we expected, and the only way out of that is to raise taxes,” he said.

“Waiting will only exacerbate the problem, making the choices more difficult, if not impossible.”

Veteran financial analysts saw Bloomberg’s remarks as the beginning of what could be intense and lengthy bargaining with the Legislature and the New York City Council, which also must approve key elements of his plan.

The negotiations take on added complexity because, unlike during the 1970s -- when even larger budget problems loomed -- the state also is facing financial shortfalls.

Economists say the lingering national recession, effects of last year’s terrorist attacks on the World Trade Center and Wall Street’s declining profits have combined to cut city revenues.

Bloomberg said collections from non-property taxes have dropped by 11% since the attacks on the twin towers, and that one-third of the city’s economy is tied directly or indirectly to the securities industry.

Also contributing to the problem is a schedule of large payments that remains on loans that were necessary to help solve the fiscal crisis of the 1970s.

“We borrowed and encumbered out children,” the mayor said. “We lost control.”

He stressed that New York is in far better shape than when bankruptcy was averted only with help from the federal government, and that economic reforms instituted during the 1970s had resulted in far more accurate forecasts of revenues and expenses.

“Unlike the mid-1970s, the economic foundation remains strong,” the mayor said.

Bloomberg said the city’s population is at a record high of more than 8 million, major corporations are constructing headquarters in Manhattan and hotel occupancy rates have recovered to their levels of before the terrorist attacks.

Since January, welfare cases have declined by more than 33,000 and crime has dropped 5%, the mayor noted.

At the same time, he warned that “painful” service cuts remain ahead.

“It would be great if I could look everybody in the eye and say, ‘You can have the chicken in every pot,’ and nobody has to pay for it,” Bloomberg said. “That’s not the real world.”

The city’s almost $43-billion budget is larger than those of most states, but financial planners have relatively little room to maneuver because of debt service and fixed mandates by the state and federal governments.