Don't Believe the Hype: Fiscal Woes Manageable;
Suspect Alarms Orchestrated
By MEL LEVY

New York State and New York City are now predicting large deficits, like Chicken Little crying that the sky is falling. The claim is that spending is up while revenue is down. They even show you the charts and other exhibits to back up their hypothesis.

Mr. Levy, a retired veteran of 35 years in the transit system who monitored the structural integrity of the subway system's below-river tunnels, is the former chairman of the Civil Service Technical Guild's New York City Transit chapter.

In response I offer the following:

1. In the past, to back a need for a transit fare hike, the Metropolitan Transportation Authority had two sets of books: one for the public and the other showing an extra $600 million in cash on hand.

2. In negotiations with the Transport Workers Union (in the late 1980s), the MTA books showed a deficit of $232 million. My review came up with a surplus of $97 million and the TWU got a raise.

3. The IRS (last week) stated that there is over $58 billion in uncollected Federal taxes. New York State and New York City forms are tied to the Federal forms. The Internal Revenue Service does not reveal who owes and how much.

4. Religious institutions and colleges buy property and stop paying real-estate taxes even though the property is not necessarily used for the institution or school. I know of one such property bought by a religious institution which has not paid real-estate taxes for at least five years while the building is not used for religious purposes.

5. The Governor says that the banks only paid $5 million in taxes (on profits) the last quarter vs. $197 million last year. What is not mentioned is that banks made $17.5 billion on overdraft fees in 2006 (up from $10.3 billion in 2003 and 2004). Bank ATM fees are up. Bank credit-card interest is up. Bank interest on your savings is down while mortgage rates are steady or up. Foreclosures are up, and the banks make money on this or they would not foreclose.

6. Wall Street makes money on the volume of transactions. These are up, by 41 percent compared to a similar period last year.

7. Small homes are selling for 12 percent more than last year, and condos are up by 21 percent in New York City.

8. State and county (city) sales tax on gasoline and diesel are 8 percent. With the increased cost per gallon, state and city revenue has gone up.

Yes, there is some downside. People have lost jobs on Wall Street. But with volume up, I think these job losses were due to increasing computer use, thereby increasing profits. When banks claim problems, the Feds are right there to help (see Bear-Stearns), with the banks somehow making money.

Other jobs are being lost due to the North American Free Trade Agreement (NAFTA). Debt service is up.

But on balance, with the removal of debt service, I believe both the city and state are in the black. To solve these so-called problems, the usual solutions are being offered. Reduce spending, order layoffs, and privatize. That will not work, as government has certain responsibilities to deliver services.

We now have an opportunity to really solve budget problems short- and long-term. The big nut in budget deficits is debt service (interest). Most debt service comes from Capital Bonds which finance large projects with no look at whether they cost too much or are needed at all. Most of these projects are engineered by highly overpaid private consultants who do not care about cost, since the higher the cost, the greater their fees (see Big Dig in Boston, 2nd Ave. Subway in Manhattan, the East Side Connection, and the Fulton Street complex in lower Manhattan). Judicious use of government and agency (MTA and Port Authority) engineers would lower the engineering and construction costs, thereby reducing dead money. To reduce (and eventually eliminate) dead money, I propose that capital projects only be done with available funds. For example:

1. The MTA, by going to Zero Fare, could bring in an additional $3 billion per year. This would provide dedicated operating and capital funding. This plan (with its own internal funding) would save passengers and the system money.

2. The Port Authority is a cash cow. Its surplus is continually used to expand in unneeded real estate (purchase and construction). Their operating profit should be given back to New York and New Jersey. They should also pay the correct real-estate tax. With the infusion of money, we could pay down (and eliminate) our debt and not have cyclical budget crises.