Mayor Wants To Extend Sales Tax

By GRACE RAUH, Staff Reporter of the Sun
December 12, 2007

Mayor Bloomberg is urging state lawmakers to block a reduction in the city's sales tax that, if it takes effect as scheduled in July, would save consumers more than $1 billion a year.

Rules dating back to the city's fiscal crisis of the 1970s call for the sales tax charged in the city to drop 1 percentage point, to 7.375%, this summer. Mr. Bloomberg is working to make sure the scheduled tax cut never happens.

The Bloomberg administration is asking Albany legislators to authorize a tax increase that cancels out the reduction so that the tax remains at 8.375%.

"We are working with the State and we anticipate that they will provide the necessary authorization," a spokesman for the mayor said via e-mail.

During the fiscal crisis of the 1970s, the state raised the city's portion of the sales tax to four cents on each dollar of goods sold from three cents to create a revenue stream dedicated to bailing out the city from its financial troubles. When the law that imposed a financial control board on the city expires on July 1, 2008, the sales tax increase also is set to dissolve.

Some say the city should let the extra penny of sales tax expire and learn to live without the extra revenue. They cautioned against the practice of turning temporary taxes used in times of fiscal crisis into permanent ones.

"There are some of us who believe we still spend too much in this town and if we can't find the means to control ourselves, then maybe we need an extraordinary event like this," the leader of the City Council's Republican minority, James Oddo, said.

He plans to press other council members to oppose the increase, but said he is not optimistic, since his past efforts to combat tax increases have not gone far.

"Each and every time we run into the brick wall," he said.

The chairman of the Finance Committee on the City Council, David Weprin, said that he didn't anticipate widespread opposition to Mr. Bloomberg's plan because the city is bracing for a tight budget next year.

Earlier this fall the Bloomberg administration instituted its first hiring freeze since 2002 and asked city agencies to find areas in their budgets to cut.

The city's Office of Management and Budget has projected a $2.7 billion shortfall for the next fiscal year.

"I think we have to be cautious because of projected budget deficits," Mr. Weprin said. At the same time, he added, the city should take the expiration of taxes seriously.

"If we say a tax is temporary, we should look at it," he said.

The research director at the Citizens Budget Commission, Charles Brecher, said the commission always considers it a tax increase when a tax set to expire is kept at its previous level.

The 8.375% sales tax charged in the city is divided into three parts: 4% goes to the state, another 4% to the city, and .375% to the Metropolitan Commuter Transportation District.

According to a Preliminary Official Statement from the city sent to prospective bond buyers on December 5, the city projects that if it is unable to push through the tax increase, sales tax revenues in the city would drop by approximately $1.19 billion in the fiscal year 2009, $1.25 billion in 2010, and $1.31 billion in 2011.

"On July 1, 2008, the local sales tax, which is currently imposed by the State at the rate of 4%, will expire and, absent legislative action, a 3% local sales tax imposed by the City would be in effect. The Financial Plan assumes that the City will receive the legislative authorization to continue the local sales tax at the rate of 4%," the document states.

A senior fellow at the Manhattan Institute, Nicole Gelinas, said that when the sales tax was first increased to 4% from 3% in 1974, city and state officials promised it would last only one year.

"So, beware of anything billed as a 'temporary' tax hike, because the city's history shows that they'll often become permanent," she said via e-mail.

The man who served until 2006 as chief economist in the city comptroller's office, John Tepper Marlin, defended keeping the tax at the 4% level, citing the lack of a groundswell of support for its removal. "If it's already there and nobody is agitating to have it reduced, and there are no demonstrations in the street, why would you want to cut it?" he asked.

Mayor Wants To Extend Sales Tax

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