Mayor Bloomberg's Mistake

We don't fathom what New York Mayor Michael R. Bloomberg is up to these days. As an entrepreneur, he built an empire by being smart and innovative in a tough business environment. As a Republican mayor, he's punting on a chance to make New York's 300,000-strong public workforce more productive by relying largely on sharply higher taxes to finance a $6 billion budget deficit. Bloomberg's taxes will almost certainly hurt New York's already fragile competitive position. Worse, the whole country could suffer if mayors and governors around the U.S. copy him and raise taxes. The National Bureau of Economic Research forecasts a combined state budget deficit of $60 billion in 2003. Add in the red ink from cities and the total may hit $80 billion. If governors and mayors raise taxes to solve this problem, the fiscal drag could cancel out the tax cuts being mulled by the Bush Administration for 2003.

For average people, the timing for new taxes couldn't be worse. Employees haven't seen much in the way of pay raises or bonuses for two to three years. Their 401(k)s are shot, their health benefits are skyrocketing, and their kids' college tuition is rising. They're putting in more hours than ever hoping to keep their jobs. Families feel besieged. Double-digit hikes in real estate, transportation, and commuter taxes would hurt.

Of course, the financial plight of New York and other localities is not all of their own making. Since September 11, cities have spent billions fighting terrorism. Congress promised to compensate them, then went home without offering up a penny. Congress also promised to give states some $9 billion to help pay for increases in Medicaid spending, then walked away from this obligation as well.

That doesn't leave Mayor Bloomberg off the hook. To his credit, he has taken control of New York's vast public school system but hasn't yet made a serious effort to streamline costs. Only 50 cents of every dollar spent on education goes directly into the classroom. Police and fire emergency rescue teams still duplicate their activities. City bureaucrats work far fewer hours than private-sector employees, and most receive generous defined pensions, while the corporate world makes due with precarious 401(k)s. There is a better way: higher productivity from the city's workforce. The private sector did it. Why should we expect less from government?

In the '90s, Republican and Democratic mayors and governors counted on rising tax revenues from the sale of stocks to pay for more of everything. Even when the economy recovers fully from the recession, those revenues won't return. Local politicians are going to have to learn to do more with less. Call it efficiency. Call it productivity. Call it what you want. But New York's costs are too high, Mr. Mayor.

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