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WSJ Opinion Piece Questions if Bloomberg’s ‘Luxury’ City Can Survive

October 16, 2009

In case you missed the Wall Street Journal’s opinion piece by Fred Siegel and Harry Siegel, I thought I would share it with you all.

Can Bloomberg’s ‘Luxury’ City Survive?

By Fred Siegel and Harry Siegel

New Yorkers take pride in their city’s ability to reinvent itself, as witnessed most recently in the bubble-aided recovery from the 9/11 attacks. “While any city may have one period of magnificence,” journalist A.J. Liebling wrote of New York in 1938, “it takes a real one to keep renewing itself until the past is perennially forgotten.”

But as next month’s mayoral election approaches, the city faces an economic downturn and a political reordering that augur badly for the future. Mayor Michael Bloomberg, a two-term incumbent running against Bill Thomson, a lackluster Democratic challenger all but disavowed by his own party, has already spent at least $70 million funding 336 times as many TV ads as his rival through late last month. Yet the incumbent can barely break 50% in the polls.

The standard explanation for Mr. Bloomberg’s weakness is anger at his ham-handed repeal of the term-limits law he had once championed. But underlying that, there’s a growing civic unease, a foreboding that’s remained nameless while the candidates have sidestepped the city’s economic problems. While the city’s unemployment and commercial vacancy rates have both passed 10%, so far the city has lost only 100,000 jobs (compared to the 330,000 lost from 1989 to 1993 under Mayor David Dinkins). But more losses are coming.

President Barack Obama’s stimulus money has blunted the immediate impact of the downturn, and federal bailouts have kept some of the city’s financial players afloat. But at the same time the president’s push for more federal control over Wall Street practices and pay helps ensure the sector won’t regain its previous heights any time soon.

Under Mayor Bloomberg, city expenditures grew 40% faster than the rate of inflation even as he imposed record property-tax increases and the city’s coffers overflowed with revenues culled from the booming stock and real-estate markets. To keep the politically powerful public-sector happy, Mr. Bloomberg bestowed raises two to three times the rate of inflation on the city’s unionized workers. To keep politically wired developers happy, Mr. Bloomberg showered subsidies on economically dubious megaprojects including two new major league baseball stadiums and plans for a basketball arena in Brooklyn. And to keep would-be critics of the megaprojects happy, community groups were plied with government grants, Mr. Bloomberg’s own money, and promises of jobs and subsidized housing in the new developments.

The result is that New York, even as it’s losing the luster of Wall Street, taxes small businesses the way California taxes millionaires.

That dynamic is manifest in Manhattan’s new monoculture. Gone, on their way out or being pushed to smaller, confined spaces are the flower district, the fur district, the garment center, the meatpacking district and the famed Fulton Fish Market. Even the diamond district is being nudged out of its 47th Street storefronts and into a city-subsidized new office tower.

The hollowed out city as “luxury product”—as Mr. Bloomberg once described his vision for a New York in which the wealthy subsidize the city’s work force—is unsustainable because Wall Street’s decline has coincided with the rise of the city’s public-sector unions as the dominant force in local politics. With Albany crippled, and the city’s Democratic Party atrophied by 16 years of backbiting while trying to wait out Mayors Giuliani and Bloomberg, unions have filled the vacuum with a political party of their own: the Working Families Party (WFP).

The WFP’s candidates for comptroller and public advocate (the other two city-wide positions) won easy victories in record-low turnout Democratic primaries, immediately becoming front-runners in the 2013 mayoral contest. The WFP, a party with less than 15,000 voters, has effectively taken control of the city’s three-million strong Democratic Party. The WFP represents the public-sector workers who have been protected in the downturn. And their agenda—higher taxes, a stock transfer tax that would impose a levy on the sale of corporate offerings, paid sick leave for all, free tuition to the city’s public universities, and of course higher wages and benefits for public-sector workers—can only strangle a recovery.

The WFP may prove a convenient rhetorical foil for Mr. Bloomberg in a likely third term, but it represents one half of his luxury city vision, with the wealthy paying to subsidize the city’s oversized and overpaid work force. New York, one-thirty fifth the size of the U.S., employs fully one-seventh as many civilian employees as the federal government. Those workers, easily the city’s most powerful voting base, are in the unique position of electing their own bosses.

Public-sector unions have hedged their bets to be sure they win no matter who is elected mayor. Dennis Rivera, the leader of the health and hospital workers and adviser to the Obama administration on health care, has endorsed Mr. Bloomberg. At the same time, the WFP that Mr. Rivera helped create is backing Mr. Bloomberg’s challenger, Mr. Thomson (currently the city’s comptroller). Either way, the city’s economy and private-sector middle class are likely to lose.

The two preceding New York revivals—the partial rebirth of the early 1980s under Mayor Ed Koch and the robust revitalization of the Rudy Giuliani years—both occurred within that 25-year skein when the financial sector grew to 23% from 8% of the nation’s gross domestic product. Those were halcyon heights for New York, not likely to be seen again.

Both Mayors Koch and Giuliani were propelled into office by a surge of civic engagement, and they leveraged downturns to at least temporarily pare back the overweening costs of New York’s gargantuan public-sector work force. But with the city’s workers ascendant, even the post-9/11 financial and real-estate booms couldn’t keep the middle classes from heading for the exits or withdrawing from the city’s politics.

During the peak years of 2003 to mid-2008, wages outside of Manhattan were essentially stagnant for the middle class, while the costs of housing, electricity, water and phone service rose sharply under Mayor Bloomberg. A report by the liberal Center for the Urban Future, “Reviving the City of Aspiration,” reports that a person can live in Houston for $50,000 a year at the same standard as he or she would in Manhattan with a $123,000 income. “Astonishingly,” the report notes, more residents left the five boroughs for other locales in each of the five years between 2002 and 2006 “than in 1993, when the city,” suffering from staggering job losses and high crime, “was in seemingly far worse shape.”

Meantime, the city’s fixed pension obligations to its workers—which Albany hikes in good times and bad—have hit a projected $6.6 billion at last count, up from $1.6 billion in 2003. Barring a sharp recovery, the city’s tax-funded pension contributions are likely to double or triple over the next five years, with higher taxes on a declining private sector picking up the tab.

“We don’t want to lose people who work on Wall Street,” Mr. Bloomberg said recently, neatly summing up the dynamic in which high taxes on the rich pay for a padded public-sector work force while squeezing out entrepreneurs. “We need the tax base. Our teachers need to get paid.”

New York has remade itself many times before, and betting against Gotham has long been a mug’s game. Back in 1846, Harper’s Monthly noted that “A man born in New York 40 years ago finds nothing, absolutely nothing, of the New York he knew.” But with the financial sector diminished and the public sector politically ascendant, there are few signs to suggest that the city is poised for a new round of successful reinvention anytime soon.

Fred Siegel is a visiting professor at St. Francis College in Brooklyn and contributing editor of the Manhattan Institute’s City Journal. Harry Siegel is an editor at Politico.

One Comment
  1. Sexy Republicana permalink
    October 17, 2009 3:32 pm

    I read this piece earlier. Thanks for posting it!

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