The Tax Bill is an Emergency for New York City: How Mayor de Blasio must rejigger the budget on the tax and spending side

The proposed reforms in President Trump’s tax bill may well create long-term chaos for our local economy.

As Warren Buffett notes, when the tide goes out, you see who is swimming naked. New York City residents will soon be exposed.

Any way you do the math, the proposed curbing of state and local tax deductions will deprive New York City residents of billions of dollars annually.

Many New Yorkers will be faced with hard choices: dramatically reduce their spending or leave the city and state entirely. Businesses may be less inclined to locate here too.

Residents and businesses here already pay billions more annually to Washington than the city gets back in return, and this bill will widen that subsidy.

The reforms also expose the vulnerabilities of our local budget, now more than $85 billion a year, and up more than $11 billion since 2014.

The major top-line budget categories such as property taxes, personal income tax, business income tax and general sales tax — that make up 29%, 13%, 8% and 7% of revenues respectively — are likely, over the long term, to tighten and yield declining revenue.

With concomitant reduction of the mortgage deduction to $500,000 and property tax cap to $10,000, the bill may choke the city’s hot real estate market and reduce, over time, the city’s intake of property taxes

The 17% of the budget from the state may decline for the same reasons. As a result, the city will depend even more heavily on the approximate 10% of its budget from the federal government, at a time when we’re anticipating huge cuts from Washington.

Today, the local economy remains generally strong, continuing to set new highs for private sector jobs and city tax revenue, though some signs indicate slowing local job growth.

During Mayor de Blasio’s first term, the city payroll has grown to the largest in the history of the city — paying its workforce, excluding rising health care benefits, $27.3 billion this year compared to $22.7 billion in 2014, a 20.3% increase.

The city also faces $65 billion in underfunded pension obligations and even with $10 billion paid annually into these funds, it is still failing to close the difference.

In an increasingly hostile climate, how do we protect the city going forward?

Focus on economic growth. Top-line growth gives the city greater options to invest in all sorts of ways, from safety to affordable housing to training to other social service programs that, in turn, attracts the talent we need to fuel future growth. The city’s rapid recovery after the 2008 recession has spurred a decade of growth and a broader diverse economic base that has added billions to the budget’s top line. All that money has been reinvested into our city.

Be prepared to cut programs. As noted above, the city’s budget has assumed significant programmatic costs for social programs as well as government operations that need to be addressed. Moreover, the budget keeps kicking major costs down the road and eventually our failure to address our looming pension and health obligations will catch up to us.

Increase the reserves. While the city set aside budget reserves of $1.7 billion, which are relatively high, this amount is still inadequate to address the long-term effects of this tax bill or if the economy sputters. Budgetary gaps in future years have also increased according to the Citizen Budget Commission.

Beware the exodus. This tax bill squeezes far too many city residents from different income brackets. Middle class New Yorkers may face greater financial struggles. And, notwithstanding the need to address growing income inequality, the mayor should be mindful that, with the passage of the bill, the burden for contributing to our budget will fall even more heavily on top earners in the city.

The top 1% alone provide three-quarters of the city’s income tax, making the city highly dependent on them to underwrite important social service programs. As has happened in other high tax regions, if these residents leave the city to live in areas with lower taxes, the city will face significant budgetary gaps.

Make programs work. No doubt, the budget’s additional spending supports many important social programs. But we no longer have the luxury to invest in programs that fail to meet their goals within budget. For example, eradicating homelessness is critical, but the city’s additional $700 million to the budget has had scant impact.

Invest in the future. The city is not keeping pace with critical infrastructure investments needed to distinguish our city in the future. Roads, bridges and the subway system have all been deprived of sufficient investment for decades. Our ordeals today will be nothing compared to the suffering that future New Yorkers will face due to our lack of foresight.