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Storm of Bad Economic News Slams N.Y.

Tax hikes, potential bond rating drop remind many of 'bad old days' of 1975.

November 28, 2002|Josh Getlin | Times Staff Writer

NEW YORK — As the first blast of wintery weather hit Wednesday, bringing rain and slush, New Yorkers were already grappling with a different kind of gloom.

Just in time for the holidays, the city has been rocked by a blizzard of bad economic news, ranging from the biggest property tax increase in New York's history, to stories about growing homelessness and the threat of a crippling subway shutdown.

The long-range forecast is for even chillier conditions, with the promise of more tax hikes, painful service cutbacks -- such as public schools, day care and senior centers -- and the possibility that the city's bond rating might be downgraded.

"It sure seems like the bad old days are coming back," said office clerk Anita Thompson, hurrying to catch a train out of town for the Thanksgiving holiday. "Everywhere you turn, there doesn't seem to be much good news about New York."

For the first time in seven years, a majority of New Yorkers have a decidedly downbeat view about their city's future, according to a Quinnipiac Poll released this week. More than 54% said they are dissatisfied with life here, and pollster Maurice Carroll, director of the survey, suggests it's easy to understand why.

"The honeymoon is over," he said, referring both to plunging ratings for Mayor Michael R. Bloomberg as well as the $6-billion budget deficit projected for next year. "When you combine tax increases with so much other bad economic news, people begin to get very unhappy, and the whole tone of the city can begin to change."

New York's fiscal problems mirror those of other cities and states, which are also struggling to plug record deficits. But the troubles plaguing the nation's largest city are heightened by the lingering effect of last year's terrorist attacks and the fact that 20 months ago the economic outlook was so sunny.

Under former Mayor Rudolph W. Giuliani, New York enjoyed a renaissance of economic growth, surging Wall Street profits and a plunge in the crime rate that outstripped all other big cities.

Crime is still down, but as the economy sours, so has the mood of New Yorkers who wonder if these bad times presage a return to the dark days of 1975, when the city flirted with bankruptcy.

For most residents, the most recent spate of bad news began last weekend, when Bloomberg reached a deal with the City Council to hike property taxes 18.5%. The increase will take effect Jan. 1, and it is part of a plan to help close a $1-billion budget gap in the fiscal year ending June 30. The mayor has warned that additional tax increases might follow if the city does not get help from Albany and Washington.

New York's deficit was caused by the terrorist attacks -- which either ruined or drove many taxpaying businesses out of the city -- as well as a major downturn in the national economy and setbacks suffered by Wall Street firms, which traditionally generate fat tax revenues. Although the federal government has earmarked $20 billion in aid to New York, the money is intended mainly for the physical reconstruction of Lower Manhattan and has little to do directly with boosting the city's fiscal condition.

To balance the budget, as required by law, Bloomberg opted for tax hikes instead of layoffs and huge reductions in programs. "New Yorkers won't leave town due to a tax increase," the mayor said, defending the property tax hike he once opposed. "But they will if services are cut."

The city can raise property taxes on its own, but the balance of Bloomberg's bailout plan hinges on legislative proposals that may not pass. Given such uncertainty, the credit-rating agency Standard & Poor's said it might downgrade the city's bond rating, which would make borrowing costlier.

Bloomberg, for example, has asked legislators to reinstate a city tax on suburban commuters. Upstate officials have said that measure would be "dead on arrival." He has asked state leaders to take over the city's $4-billion annual share of Medicaid costs, an idea that has also been dismissed. Failing that, Bloomberg says New Yorkers may have to prepare for an increase in city income tax rates.

"No way!" said Rich O'Leary, a deliveryman fighting his way up Manhattan's 6th Avenue on a bike. "There's just so much pain that this city can take."

For months, the city's doomsday economic scenarios have seemed like abstract threats to many New Yorkers. But now that the property tax hike is real, everyday residents are beginning to feel the pain. Homeowners are looking at an average rise of $500 to $800 in annual payments; the increase could be closer to $1,000 for condominium and co-op owners, according to city statistics. Meanwhile, renters are bracing for hefty increases passed on by landlords.

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