PEP, June 2010: How to fix broken budgets: Cut contracting, raise revenue

A better way to balance the budget

The mayor fired 63 Pest Control Aides on May 14, claiming the layoffs will save $1.4 million.

Meanwhile, the city has a $5 million contract with USA Exterminators Inc. to provide extermination services for $26 an hour. The Local 768 members earned $15.14 an hour.

“It is unconscionable for the city to throw its own employees into the street while at the same time it doles out taxpayers’ money to a profit-making firm whose employees do the same work at a higher cost,” DC 37 Executive Director Lillian Roberts said.

More than a year ago, the union released the white paper, “Massive Waste at a Time of Need,” which showed how the city could save $130 million by eliminating 10 personnel and technical services contracts at eight agencies. So far, unfortunately, the union’s recommendations have fallen upon deaf ears at City Hall.

Recently, DC 37 released a four-page update on the 2009 white-paper study, “A Better Way to Balance the Budget,” which reveals that the Bloomberg administration plans to raise spending on outside contracts by more than $250 million to $9.5 billion in fiscal year 2011, which begins July 1.

DC 37 has sent copies to the 51 members of the City Council in the union’s campaign for restorations in Mayor Michael R. Bloomberg’s proposed $62.9 billion budget, which would cut spending by $609 million.

As it increases its wasteful contract spending, the city is cutting public services, laying off nearly 500 DC 37 members by June 30 and planning to wipe out over 11,000 municipal jobs through layoffs and attrition over the next year.

“The city could avoid the downsizing and service cuts by eliminating many outside contracts and assigning the work to its own employees,” said Assistant Associate Director Henry Garrido, who heads the union’s white paper project on contracting out. “This would save money, improve accountability and provide civil service jobs in communities citywide.”

Overpaid consultants

The white paper update shows that more than 1,500 computer consultants are averaging $350,000 a year for work city workers do for $140,000 (including benefits and pensions). Replacing the consultants with city employees would save $210 million.

The Dept. of Information Technology and Telecommunication has more than 600 computer consultants. Replacing only 200 of those consultants with city workers could save $55.6 million a year (see chart).

The new report calls attention to three especially wasteful contracts:

the CityTime time-keeping project, whose price tag has ballooned from $68 million to $722 million,
revamping the 911 emergency response system, which is behind schedule, overbudget and employs Hewlett-Packard consultants at over $375,000 a year each, and
a computerized payroll system at the Education Dept. that pays 63 full-time consultants from a Florida firm an average of $250,000 each a year.

“A better way to balance the budget” calls for a consultant hiring freeze and backs a City Council resolution that calls on the mayor to require cost-benefit analyses before contracting out work.

The report also calls for canceling any layoffs of city workers in positions where consultants are doing the same work at a higher cost and banning contracting out where the city is targeting employees for layoffs.

— Gregory N. Heires

By GREGORY N. HEIRES

Faced with plummeting revenue, state governments around the country are squeezing the public and their employees with cuts in services, pay freezes, furloughs and layoffs.

With its $9.2 billion budget gap, New York State is feeling the same fiscal pain as state governments from Trenton to Sacramento. The deficits of the states will total over $350 billion in 2010, said the Washington-based Center for Budget and Policy Priorities.

But while the severe economic downturn and resulting revenue loss have caused the budget crises nationwide, New York State’s financial mess stems mainly from years of ideologically driven tax cuts, which mainly profited businesses and the wealthy.

In the last term of Gov. Mario Cuomo and under Gov. George Pataki from 1995-2006, Albany cut hundreds of billions of dollars in taxes. But now the deep recession has exposed the folly of a public policy defined by tax-cut mania.

“If we have a structural deficit, it’s our own creation,” said Frank Mauro, head of the Albany-based Fiscal Policy Institute.

Conservatives blame the state’s fiscal troubles on bloated bureaucracy and public employees they claim are overpaid and have costly pensions and health benefits. But the truth is, the annual shortfall caused by the huge tax cuts would easily cover the state’s deficit (see graph).

Over the past 15 years, the tax cuts have amounted to $192.3 billion, according to FPI. The value of the tax cuts in fiscal year 2010-11 — $13.66 billion — is substatially more than the state's $9.2 billion deficit.

“The state’s fiscal problems result from years of public policies that have favored the wealthy over the middle class and the poor and encouraged wasteful contracting out,” said DC 37 Executive Director Lillian Roberts. “To ordinary taxpayers, the budget process often seems shrouded in mystery and too abstract to deal with. But in reality, the budget is all about money and power.”

Pols’ self-interest trumps good policy

Politicians are loath to increases taxes during a year when all the Senate and Assembly seats are up for election, and Gov. David Paterson refuses to raise taxes on the wealthy, arguing (against the evidence) that it would lead to a flight of the rich.

No such exodus happened when New York adopted a temporary, three-year tax increase in 2003, and the rich didn’t flee New Jersey after it instituted a permanent tax increase on very high incomes.

DC 37 and other progressive unions and community groups have pointed out that the wealthy overwhelmingly benefited from the economic growth and stock market gains for a generation as well as getting the lion’s share of the state and national tax cuts enacted by Gov. George Pataki and President George W. Bush.

Between 1976 and 2007, New York State cut its tax rate on high incomes by over 50 percent, while working families faced a heavier tax burden as a percentage of their income. At the peak of the tax cuts during the Pataki years, the ultra-rich accounted for about a third of the income-tax cut.

Mauro points out that from 2002 to 2009 all the income growth in New York State went to the wealthiest 5 percent. Compared with rising prices, the income of the other 95 percent of New Yorkers actually shrunk, he said.

Thanks largely to the federal bailout, the financial industry registered record profits of $61.4 billion in 2009. The cash portion of the recent Wall Street bonuses is estimated at $20.3 billion, more than double the state’s deficit. Adding a temporary tax increase on incomes over $1 million would bring the state $1 billion a year.

Other revenue and tax enhancements, supported by DC 37 and the Better Choice for NY! Campaign for fiscal fairness, that could put a significant dent in the deficit include:

temporarily reducing the rebate of the stock transfer tax to 80 percent ($3.2 billion in new revenue),
taxing the management fees of non-resident managers of hedge funds — special investments for the wealthy that start at $1 million ($60 million in new revenue),
refinance state debt to take advantage of lower interest rates ($500 million in savings), and
reduce contracting-out to private consultants ($200 million in savings).