DMI Blog

John Petro

The Cost of Cuts

City governments across the country are grappling with the worst budget deficits we’ve seen since the days of President Ford. The National League of Cities estimates that city budget shortfalls could total up to $83 billion dollars between 2010 and 2012.

Unlike the federal government, cities cannot fall back on deficit spending during bad years--they have to pass balanced budgets—so cities have few options to face this tremendous challenge. Most often, cities have decided to cut spending rather than try to raise revenue through increased taxes or fees. Nine in ten cities report that they have cut spending in response to budget pressures, while only half of all cities report increasing fees for service and only one in four report raising property taxes.

In New York City, Mayor Bloomberg has stated his intention to take wide swings with the budget ax, cutting nearly $2 billion in spending from the city budget, including almost half a billion dollars for schools.

On the revenue side, the mayor has stated that he will not increase taxes to make up the shortfall. Included in the mayor’s budget is a modest increase in fees of $87 million, a drop in the budget bucket.

This is a shame, because viable revenue options exist, as City Council members Brad Lander and Melissa Mark-Viverito point out.

Mayor Michael Bloomberg and his administration have refused to consider taking a more balanced approach by enacting new revenue-generating options that would reduce cuts by asking Wall Street and the wealthiest city residents to put in their fair share.

Mayor Bloomberg insists that raising taxes on the city’s wealthiest citizens will induce them to leave the city altogether, leaving the city even worse off. This flies in the face of the evidence, as Washington Post commentator Ezra Klein points out. Researchers have found again and again that there is no evidence that wealthy earners flee when income taxes are raised. And even to the extent that some high-income households do move, the revenue generated from increased tax rates more than makes up for those that left the state.

On the other hand, we cannot assume that cutting services will lead to cost savings over the long run. New York City’s Public Advocate Bill DeBlasio recently demonstrated this by examining the effect of cutting the number of rental assistance vouchers to low-income families.

The New York City Housing Authority recently announced that it would have to revoke 2,600 Section 8 vouchers for low-income families. The hardship that will fall on these families is obvious. But less obvious is the fact that cutting this rental assistance will most likely increase city costs down the road as these families turn to the homeless shelter system for housing. DeBlasio found that the city’s shelter costs for a family with children are three times higher than the cost of providing vouchers. “The City should have no bigger homelessness prevention priority over the next year and a half than ensuring that these 2,600 individuals and families find housing,” the advocate concludes.

All this may turn out to be moot, however, as the city’s shelter system is currently at capacity. Bloomberg’s budget would trim $24 million more from the Department of Homeless Services’ budget, further reducing the city’s ability to provide safe shelter to individuals and families.

And the cost of homelessness is even higher for us as a city and as a society. With such priorities, can we really call ourselves a just or ethical society?

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Posted at 6:56 PM, Jun 24, 2010 in Urban Affairs
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