Fear City’s Revenge

I was reading Kim Phillips-Fein’s Fear City at the time news broke of Amazon’s choice of Long Island City as one of its two HQII locations. The Amazon announcement was greeted with a weary acquiescence to the city’s inevitable dominance, as though the Yankees had just signed Bryce Harper. What a contrast to the mood of grim, inexorable decline that permeates Fear City. It reminded me that each chapter of Gotham’s story sets the stage for the next, and that the great city’s essence can be suppressed but not extinguished. 

Phillips-Fein’s book is a highly readable narrative of New York City’s brush with bankruptcy in the 1970s. For those who are not municipal budget wonks, the book maintains a good balance between financial detail and narrative flow. I set down to read it as a professional chore but found myself re-immersed in a period I lived through but, in the heedlessness of youth, failed to appreciate as a time of such outlandish grotesquerie. I could almost hear the punk music pounding and smell the tenements burning.

In Phillips-Fein’s telling the fiscal crisis was not just a trauma for the city, but a pivotal triumph for the emerging neoliberal creed of public-sector austerity over an exhausted New Deal progressivism. With banks refusing to lend to the city, and Wall Street refusing to issue more bonds, and the White House refusing to provide federal aid (thanks in no small part to President Ford’s Chief of Staff, Donald Rumsfeld), the city was forced to make draconian cutbacks in public services. Fire houses and day care centers closed, public infrastructure decayed, and perhaps most symbolically, CUNY ended its policy of free tuition. It was the end of expansive, activist urban government.

If Phillips-Fein had continued her story, though, it would be apparent that the neoliberal triumph was not so final. City government did make many important fiscal reforms as the result of the crisis and today it is run with a great deal of financial discipline and transparency. But its ethos of activist municipal government was not eradicated. In the early 1980s the state and city undertook a major reinvestment in its subways under the leadership of Richard Ravitch, and in the late ’80’s Ed Koch launched his massive housing program, which was instrumental in revitalizing large parts of the city. Mayors Dinkins, Giuliani and Bloomberg continued the housing program and made large strides in reclaiming the city’s waterfront and other abandoned industrial areas. Mayor di Blasio launched a universal preschool program. CUNY did not restore free tuition but it survives as a unique urban institution and in many respects is thriving. Urban liberalism in New York City retreated but did not surrender and had reasserted itself within a decade of the crisis.

There is also another sense, I think, in which Fear City’s short-period narrative obscures the meaning of the fiscal crisis. By giving so much attention to the neoliberal critique of the City’s financial practices and its expansive mission, Phillips-Fein inadvertently conveys that they were the underlying causes of the crisis. They were not. The crisis occurred in the midst of a severe national recession, which Phillips-Fein barely mentions, and a long-term restructuring of the nation’s economic geography. The city’s manufacturing base had been hollowed out by firms moving to the suburbs, and more portentously, to the sunbelt.

We now know that industrial capital’s search for the ideal business climate did not end with the sunbelt. The garment makers, the metal shops, and the electrical assemblers that first moved to South Carolina, Georgia and Texas in search of cheaper and more docile labor, lower taxes, and lax environmental standards later found even more favorable locations in Bangladesh, Mexico, and China. Those manufacturing firms have moved on and so has the city, and only the most stubborn industrial revivalists would still argue that manufacturing mens’ and boys’ outerwear is key to New York City’s economic future.

What appeared to many in 1975 as the city’s death throes now appears more like a molting, with the city shedding activities that would not be essential to its regeneration to make way for those that would. The first energy crisis and resulting recession caught the city during that extremely vulnerable time, a vulnerability compounded by some admittedly sloppy budgetary practices resulting in the humiliating fiscal crisis. But the fiscal crisis wasn’t the result of a fundamentally misguided vision of the role of government in a modern metropolis. In fact, it was that expansive vision of urban government that created the cultural, intellectual and physical conditions for revitalization.

Making Deficits Great Again

After 2010, when Republicans gained control of the House of Representatives and later the Senate, the U.S. essentially pursued a policy of fiscal austerity.  President Obama sought to roll back the Bush-era tax cuts for wealthy households and was partially successful during the “fiscal cliff” standoff at the end of 2012. Meanwhile, the Republican Congress steadfastly refused to allow Obama to stimulate the economy with federal spending.  As a result, total federal budget outlays (including Social Security) grew at only a 1.9% annual rate from 2010 to 2016, far slower than the 6.5% annual rate of increase during the Bush years.

That American-style austerity was an under-appreciated contributor to the slow recovery from the Great Recession. However, the budget deficits of the U.S. government fell in both absolute dollars and as a percentage of GDP during most of Obama’s tenure, in 2014 and 2015 even reaching a level that produced stability in the ratio of overall debt to GDP. There was some slippage in the deficit at the end of Obama’s tenure, primarily because of a lapse in the economic growth rate in 2016. Responsible fiscal management would have suggested an attempt by Obama’s successor to get the deficit back to parity with the rate of economic growth, which would have required shaving it by about one-third, or by $250 billion.

Of course, after the Republicans held on to both houses of Congress in 2016 and unexpectedly found themselves with a Republican President to work with, there was no reasonable prospect that stabilization of the debt-to-GDP ratio would be made a policy priority. It is undeniable that cutting taxes, regardless of the fiscal implications, is the core policy goal of the modern Republican Party. Two intertwined factors are behind that inversion of Republican political philosophy. First is the widespread acceptance among conservatives of the “starve the beast” strategy for reducing the size of government.  The second was the creation of a much more cohesive, purposeful and sophisticated political apparatus by conservative mega-donors to the Republican Party, who out of ideological conviction and personal self-interest orchestrate anti-tax pressure and insist that their  elected dependents deliver. The two previous times Republicans took over the White House (Reagan and George W. Bush) they immediately enacted huge tax cuts and the deficits swelled. There was never any chance that, in the unlikely event Trump was actually elected, this time would be any different.

So the tax reductions Senate Majority Leader Mitch McConnell and House Speaker Paul Ryan engineered in December were entirely out of the Republican playbook and should have been fully priced in to any economist’s or investor’s forecasts.  If there was anything surprising about the tax changes, it was the gratuitous and vindictive targeting of voters in high-cost, coastal Democratic strongholds (by imposing new limits on the mortgage tax deduction and the state and local tax deduction), an unprecedented use of the federal tax code to punish political opponents.

The McConnell-Ryan tax cuts will raise the cumulative federal deficit by $1.268 trillion over 10 years, according to Tax Policy Center estimates.  That represents a 14.8% increase over the CBO’s June 2017 baseline estimates. 

Then in early February things took an unexpected turn. Instead of pressing for more spending stringency, a smiley McConnell suddenly agreed to a two-year budget deal with Democratic Senate leader Chuck Schumer that called for large increases in both defense and non-defense discretionary spending. The deal, subsequently approved by Congress and signed by the President, is expected to add another $419 billion to the cumulative deficits through 2027.

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Time for an SUV Tax

There is no question that New York City is not viable as we know it without its mass transit system, so the snowballing problems of the Metropolitan Transportation Authority should be of concern to everyone who lives or works in the city, whether or not they are regular users of the system.

Increased funding for NYC Transit (the subsidiary of the MTA that operates the subways and buses within NYC) may not be a sufficient step for improving the system but it is certainly a necessary one. Finding additional funding in an already heavily taxed city will not be easy, however, and already the Governor and Mayor are at war over whose responsibility it is. In addition to each arguing that the other already has money in their budget that can be used to help, Mayor de Blasio has proposed an income tax surcharge on tax filers earning in excess of $500,000, while Governor Cuomo is considering some version of the congestion pricing system originally proposed by Mayor Bloomberg.

When Bloomberg made his push for congestion pricing in 2007, I was working as the Chief Economist for New York City Comptroller William C. Thompson.  The Comptroller is an independently elected citywide official who frequently serves as the chief antagonist of the Mayor, and at that time Bloomberg was maneuvering to have the city’s term limits waived so he could run for a third term. Thompson, who was planning to run for Mayor in 2009 all along and now faced the prospect of opposing Bloomberg, was casting about for an alternative to Bloomberg’s proposal. As it happened, I already had drawn up an alternative as a think piece and Thompson was intrigued.  He eventually adopted it as the position of the Comptroller and as a plank in his 2009 and 2013 Mayoral campaigns.

Before describing my proposal I should note that residents of New York’s “outer boroughs” have a deep-seated suspicion of schemes to restrict access to Midtown Manhattan, whether they be in the form of tolls on the East River bridges or the more high-tech congestion pricing plan Bloomberg sought. I share their suspicion. There is, of course, a distributional effect, as a congestion pricing regime would disproportionately charge residents of the outer boroughs in order to improve a subway system that disproportionately serves Manhattan residents. But I think outer borough residents have a more visceral objection as well. Many of them work in Manhattan, study in Manhattan, play in Manhattan, and have family roots in Manhattan. They see Manhattan as the city’s commons, not as a separate borough to which its increasingly wealthy residents should have privileged access. It’s that possessiveness that all New York residents feel toward Manhattan that underlies their hostility to bridge tolls and congestion pricing. It was ultimately outer borough opposition that sunk Bloomberg’s congestion pricing proposal, and that Thompson was seeking to appease.

The proposal I devised for Thompson would impose a registration tax on motor vehicles registered in the five boroughs according to the curb weight of the vehicle. Thompson modified the proposal only by expanding it to all 12 counties of New York’s metropolitan commuter transportation district. Passenger vehicle registration fees in New York State average only about $20 per year and neither the State nor City imposes a personal property tax on vehicles as many states do. As proposed, a vehicle weighing up to 2,300 pounds (think Toyota Yaris) would pay an annual registration fee of $100, and the fee would increase by $.09 per pound above that weight, bringing the annual registration fee for, say, a Lincoln Navigator SUV to about $430.  The registration tax could generate about $350 million annually just from the 2 million automobiles and trucks registered in the city.  The revenue generated could be adjusted, of course, by adjusting the weight formula.  More precise estimates of the revenue could be made beforehand using data on the makes and models of vehicles registered, which we did not have access to at the time.

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A Good Tax

Gina Bellafante, who is usually an acute and sensitive observer of New York’s community life, wrote a somewhat misdirected column about the city’s retailing environment for Sunday’s Times.

The column portrays sympathetically several long-time Manhattan retailers who have been forced to close shop, or might soon, because of the high cost of rental space.  And they are sympathetic! However, the column identifies the City’s Commercial Rent Tax (CRT) as a contributor to the rent inflation retailers have faced and hence to the corporate homogenization of the city’s streetscape. There are several problems with this premise, not the least of which is that the CRT probably doesn’t contribute much, if at all, to the high rents for retail space.

The CRT, initially imposed in 1963 and modified a number of times since, effectively imposes a tax of 3.9% on commercial rent payments that exceed $300,000 annually.  The tax applies only in Manhattan below 96th Street and phases in beginning at the $250,000 benchmark.  The tax raised $816 million in the City’s 2017 fiscal year which, somewhat astonishingly, represented only about 1.5% of its tax revenue.

A savvy newcomer might ask why levy this tax at all, doesn’t it do more or less what a conventional property tax on commercial buildings does? The answer is yes, it does, but its origins and continued usefulness lies in New York State’s constitutional limit on how much property tax revenue municipalities in the state can raise.  In New York City’s case, that limit is 2.5% of the 5-year average of the full value of real property within it (with some complicated adjustments). The City has periodically bumped against that cap, so having a revenue source that is similar to a property tax, but which is not subject to the cap, is fiscally useful.

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The Perils of Private Infrastructure

It is becoming increasingly obvious that the Trump Administration is incapable of pursuing any coherent, sustained legislative strategy. The Administration was unable to play any useful role in fashioning a viable “repeal and replace” health care bill, and it seems equally clueless on the other big agenda item, tax reform. Seeing the Republican legislative machine stall out on those two priority items does not auger well for a third Trump initiative that was once thought to hold some bipartisan appeal: infrastructure spending. That is probably just as well, since any wide-ranging infrastructure bill coming from this Administration and Republican congress would likely be an ideological monstrosity that would entice little Democratic support.

An infrastructure program is, however, more suitable to a piecemeal approach than is health care or tax reform, so it is likely that some sort of  new infrastructure policy emerges over the next eighteen months. Trump’s first budget programmed $200 billion over ten years to implement his infrastructure program (while cutting the Department of Transportation’s budget for the coming year by 13 percent). A fact sheet outlined some of the principles that will guide infrastructure policy.

The Trump infrastructure program will invariably seek to maximize the private-sector role, although the Administration’s fact sheet only hints at that direction with proposals such as removing the cap on private activity bonds. Administration officials are also touting the concept of “asset recycling,” whereby government agencies sell existing public infrastructure to private operators and use the proceeds to invest in new infrastructure projects.

The notion of private firms providing public infrastructure is polarizing, with conservatives portraying public agencies as inherently corrupt and inefficient and the left portraying private operators as inevitably predatory. In reality, the economic infrastructure of the United States has always been a patchwork of private and public operations and whatever prevails in a particular region tends to be taken by its residents as the natural state of affairs. Most passenger rail transportation, for example, was originally developed by private firms but virtually all of it was eventually taken over by government entities. Similarly for water supply systems, although about one-quarter of the U.S. population is still served by private water. Conversely, about 70 percent of American households buy their electricity from private, investor-owned firms. Roads and highways, and commercial airports, have always been developed and operated primarily by governments.

In recent years governments have explored privatizing, or re-privatizing, some infrastructure or contracting with private firms to operate it. Encouraging privatization appears to be a key part of the Republican infrastructure agenda, and that will be controversial enough. Even more problematic, though, will be efforts to incentivize the private creation of new economic infrastructure. In that regard the development of Florida’s long-distance passenger rail network is instructive, highlighting both the opportunities and perils of relying on private firms to develop new infrastructure.

The Florida High Speed Rail Project

Efforts to reestablish intercity passenger rail links in Florida have a  checkered history reaching back decades. In 2000, Florida voters approved a constitutional amendment mandating the establishment of a high-speed intercity rail system. In order to implement that mandate, the Florida legislature established the Florida High Speed Rail Authority (HSRA) in 2001. However, Florida Governor Jeb Bush was opposed to the idea of a constitutional mandate for transportation infrastructure and was skeptical of the endeavor’s cost. He managed to get the rail mandate repealed in 2004, although the HRSA remained in existence and oversaw the completion in 2005 of an EIS for the Tampa-Orlando segment of a proposed system that was envisioned to eventually run from Tampa to Miami.

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The New Trumpian Landscape

When I created this site, the policy landscape for urban America seemed fairly predictable– continued divided national government, with a centrist Democrat in the White House and a Republican majority in the House and probably the Senate. That alignment would provide, as it has in the recent past, opportunities for incremental improvements in the quality of urban life and some hope for reversing the mounting inequalities that threaten America’s economic and social stability.

The 2016 election upset that projection, to say the least, and I have followed very closely the staffing and emerging governing philosophy of the Trump Administration. Putting aside the thousands of subplots and and nth-order considerations, I believe you’re left with two basic conditions that define the new landscape:

  1. America’s now has a President who is profoundly ignorant and has serious personality disorders, and;
  2. He will enable right-wing extremists to pursue a reactionary domestic legislative agenda and belligerent foreign policy goals unimpeded.

The first of those realities was obvious to many, maybe even a majority, of Americans before the election and has only become more obvious since. I think that as the country gets to know him better we will only become more astonished at the vastness of his ignorance and the severity of his personality flaws. Being a New Yorker I have been exposed to a constant dribble of Donald Trump for most of my life, and I have never seen him do or say anything that contradicted my basic assessment of his character. That he didn’t know who Frederick Douglas is, or was, comes as absolutely no surprise. Perhaps his ignorance results from having Adult ADHD, I cannot say, but there is plenty of circumstantial and testimonial evidence that he has read few if any books in his adult life.

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