Testimony by Moshe Adler, Ph.D. Senior Economist Fiscal Policy Institute

Hearing before the City Council of the City of New York Committee on Finance

Int. 248 - By Council Member Weprin (by request of the Mayor)

A local law authorizing an increase in the budgets of twenty business improvement districts.

New York City

September 12, 2002



Good morning, my name is Moshe Adler, Senior Economist at the Fiscal Policy Institute (FPI). At this time of worsening budget gaps and service cuts the proposed law before you, to increase the budgets of twenty Business Improvement Districts (BIDs) by anywhere from 10% to 47%, carries a very reassuring message. It is important to know that landlords and their commercial tenants believe that increasing the amount and quality of city services is preferable to cutting city services, even if the increases involve higher taxes. It is also very important to know that the Mayor endorses this message, since he is the one who proposed the law before you. We believe that this message is correct.

The city faces a $4-5 billion gap in next year's budget. The mayor and the City Council will have to balance the budget without making the on-going recession worse. The mayor is obviously agreeing with Nobel prize-winning economist Joseph Stiglitz who argued that, in a recession, cuts in public services are more harmful to a local economy than increasing taxes on high-income households (http://www.fiscalpolicy.org/10-30-01sfp.pdf). This is because a dollar in service cuts drains more spending from the local economy than a dollar increase in taxes does. In fact, our own research, that I am enclosing with testimony, shows that the fear that higher taxes cost jobs is not supported by NYC's historical experience.

Let me repeat that we believe that the message is correct. But we don't believe that a city in which a few select neighborhoods experience an improvement in the quality of services they get while the rest of the city sees a deterioration of these services, is a good city. We don't believe that city in which a few of the few select neighborhoods see an increase in their BIDs' budgets of 35% or more, while the rest of the select neighborhoods see an increase of only 10%, is a good city. In fact, we believe that this is a sure path for the creation of two cities. This is why we recommend that you work instead to protect and improve the quality of life for all New Yorkers, and not just a few.

The myth of the BIDs is that while they add services in some neighborhoods they detract nothing from the rest of the city. The creation of a BID requires political initiative on the part of landlords and business leaders. Thus, what the BIDs do is redirect the positive energy of civic minded leaders from a concern with the well being of the city at large, to concern with their individual neighborhoods. When key neighborhoods are clean and safe, the political pressure on the city to provide clean and safe street everywhere is greatly reduced. When business leaders see that they can bring the quality of services in their neighborhoods up while their city taxes go down, why would they ever support general tax increases?

We've also seen that BIDs have been used to degrade labor standards. Many workers employed by BIDs work for the minimum wage, $5.15 an hour, with no benefits. City sanitation workers doing similar jobs start at $13 and get full health and pension benefits, giving them a chance to support their families. Data from the 2000 Census shows that over the last decade median family income in New York City decreased while the poverty rate increased. Our analysis shows that one of the main reasons for this negative development is that all levels of government together cut their workforce by almost 57,000 jobs, and the city took other actions that lowered labor standards. Clearly, cost-cutting at the expense of decent wages and benefits is not efficient or cost-saving in the larger sense at all. Workers making sub-standard wages can't make ends meet and end up turning to government for benefits.

We strongly recommend that the BIDs be required to pay their workers a Living Wage. This wage, $8.10 an hour with health benefits, or $9.60 if health benefits are not provided, can't be onerous for BIDs, or if it is, they clearly shouldn't be in the business of providing public services.

Two studies by the staff of the City Council Finance Committee, “Cities within Cities” (1995), and “Managing the Micropolis” (1997) revealed that only a minority of commercial tenants support the BIDs. We recommend that you instruct your staff to revisit the issue and, most importantly, investigate the impact of BIDs on the quality and quantity of citywide public services in NYC.

We believe that the law before you is an opportunity to examine the merits of the BIDs.

Thank you for the opportunity to appear before you today.