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Friday, March 30, 2007
 
Rudy Giuliani: Socially Liberal, Fiscally Conservative?

I don't think there is any doubt that the first half of that description fits the bill; Hizzoner is pro-choice, pro-gay rights, pro-gun control. And, I hasten to add, these are positions that should not disqualify one from being the Republican presidential nominee. My objection to Mitt Romney was not that he was a social liberal, but that he was trying to pass himself off as a social conservative.

But we do have to look closely at the second half of that billing. Is Rudy a good steward of the people's finances? Does he put on the green eyeshades, sharpen his pencil and carefully mind the bottom line?

Let's start with a recent piece in Slate.

Perhaps the biggest difference [between Giuliani and his successor, Michael Bloomberg] is on fiscal issues. Giuliani, who lost interest in curtailing the growth of city government in his latter years, left behind a fiscal catastrophe—a $6.4 billion deficit proportionately bigger than the hole that caused the 1975 fiscal shortfall.


That's pretty bad, but of course the question is whether it's 9-11 related. A Business Week article from 2002 indicates that much of it is not:

It's not just because of the terrorist attack on the World Trade Center. Bloomberg has also been forced to confront two dismaying facts: First, New York's economy is more cyclical than the nation's because it depends heavily on Wall Street, whose profits are highly volatile. Second, New York has high fixed costs, including more debt per dollar of property value than any major city except long-suffering Philadelphia and perhaps Detroit. That combination--a cyclical economy and high fixed costs--virtually guarantees a fiscal crisis during an economic slowdown


Translation: You've got to manage spending during the good years. So the question becomes, how well did Rudy manage spending during his tenure?

Answer: Not all that well. According to New York's Independent Budget Office, total budgeted expenditures grew from $31.8 billion in 1995 (Rudy's first budget year) to $44.6 billion in 2003, an increase of 40.3%. By comparison, the inflation rate from January 1995 to January 2003 was 20.89% according to this inflation rate calculator. Thus, New York City's spending under Rudy grew at a rate twice that of inflation.

Now, in fairness, some of this was 9-11 related, but the Manhattan Institute notes that even if 9-11 had not occured, the city was facing a sharp budget shortfall caused by overspending during the good years:

But even if the events of September 11 had never occurred, the next mayor was destined to confront hard fiscal times. Recurring expenditures were on track to exceed recurring revenues by at least $2 billion in Mayor Rudolph Giuliani’s last budget—an operating deficit he temporarily covered with prior year surpluses. Sooner or later, something was going to have to give: spending, or taxes.


Why is the city’s fiscal condition deteriorating again after eight years of a mayor who initially embraced such a fiscally conservative agenda? After a promising start, where and how did his policies go wrong? And what should Mayor Bloomberg learn from Giuliani’s experience?


Answer:

The scope of government was not reduced at all. The mayor abandoned his most visible initiative in this sphere—the proposed sale of the city hospital system—after a struggle with the unions and defeats in the courts. He did cut costs in social services; even before the new federal welfare reforms took effect in 1997, the city had begun to significantly reduce caseloads. But money saved on social services has only helped to subsidize big increases in other categories. Today the array of social services sponsored and partially funded by the city—from day care to virtually guaranteed housing—is as wide as ever.


And:

In 1995–96, the city entered into a series of collective bargaining agreements with its public-employee unions. In addition to granting pay increases that ended up roughly equaling inflation, the city promised not to lay off any workers for the life of the contracts. These agreements were expected to add $2.2 billion to the budget by fiscal 2001. But that estimate didn’t reckon with renewed growth in the number of city employees. After dipping in Giuliani’s first two years, the full-time headcount rose from 235,069, in June 1996 to over 253,000 by November 2000. Thanks largely to this growth in the workforce, the total increase in personnel service costs since 1995 has been $4 billion.


How about debt? The IBO noted back in 1998 that the city was piling up debt:

Over the past quarter-century, New York City has experienced two periods of steep economic decline accompanied by fiscal crisis or stress, followed by two extended periods of growth. In both economic crisis periods (1970-77 and 1989-93) the city's fiscal problems were compounded by rising debt burdens which forced the city to set aside larger shares of shrinking or stagnant budgets for debt service payments. During the two economic expansion periods, however, the city has taken different paths in terms of debt management. Over the 1978-88 recovery and growth period, New York City sharply reduced the mountain of debt it had inherited from the fiscal crisis. In the current recovery and growth period (dating from 1994), the city's debt burden has become heavier relative to ability-to-pay.


The New York Times noted in 2003 that the city's debt per capita was very high compared to other cities:

New York City's debt burden is twice that of other large cities in the United States, and the cost of repaying it accounts for 15 cents of every dollar the city collects, according to a report released yesterday by Comptroller William C. Thompson Jr. Nonetheless, the report said that the city's level of indebtedness, although high, is still $8.5 billion below the legal limit of $40 billion. Municipal debt in New York, which pays for capital projects like school construction and bridge repairs, totaled $5,645 per resident in the fiscal year that ended in June, a 127 percent increase since 1990, the report said. By comparison, per capita debt was $3,600 in Chicago, $1,700 in Los Angeles and $1,400 in Boston.


This despite the fact that New York the most heavily taxed city in the US:

“The 1997 Local Tax Effort In New York City ($7.99 Per $100 Of City Taxable Resources) Was 79 Percent Greater Than The Average Local Tax Effort For The Next Nine Largest U.S. Cities ($4.47).”


How's he on tax cuts? Steve Forbes recently endorsed him, apparently forgetting that Rudy opposed his flat-tax plan back in 1996.

Back in 1996 when he was mayor, Giuliani dismissed Forbes' notion of a flat-tax as a "mistake," saying "the flat tax is not for me" because it would give states and cities more authority but less resources.


Indeed, although Rudy did cut some taxes, he has been extremely resistant to any serious tax-cutting. Consider his 1994 endorsement of Mario Cuomo:



Why did he endorse Cuomo? Because he opposed Pataki's platform of tax cuts for New York State.

The most spectacular maneuver was executed by New York Mayor Rudy Giuliani when he crossed party lines to endorse Mario Cuomo over George Pataki - "giving artificial respiration," as Bill Buckley put it, "to a political corpse far gone in decomposition" - on the grounds that the corpse would aid the city more generously. In so doing, Mayor Giuliani jettisoned one of the chief rationales for his own campaign last year. By pinning the city's hopes on government largesse rather than on reformist tax policies, he embraced the timid, static analysis of former Mayor David Dinkins. If Giuliani is right now, Dinkins was right then; so why should Giuliani be mayor? Mr. Giuliani also dimmed his future in Republican politics at the state or national level. Instead of urging conservative Democrats to join the Republican coalition - the strategy of Richard Nixon and Ronald Reagan - he broke Republican ranks to bolster a liberal Democrat.


Indeed, resistance to tax cuts seems to be a habit with Giuliani. In the late 1990s, Giuliani fought hard against the repeal of a commuter tax on people who work in New York City but live elsewhere.

Over the objections of a furious Mayor Giuliani and city legislators from both parties, the New York state legislature has abolished the New York City commuter tax. The action, done to apparently affect a local legislative race in suburban Rockland County, could cost New York City $360 million.


Commuter taxes are particularly pernicious, precisely because they follow the old gag of "Don't tax you, don't tax me, tax the man behind the tree." Giuliani continued to lobby for reinstatement of the tax over the years, even after leaving office as mayor.

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