Bank taxes buoy New York, but teacher cuts loom

Bank taxes boost revenue 48 percent. But loss of state aid will mean laying off 4,000 teachers.

Edward Reed/New York City Mayor's Office/AP/File
New York Mayor Michael Bloomberg, shown here with an undercover gun video Jan. 31, 2011, is due to release his budget this week. A 48 percent rise in financial industry and bank taxes has buoyed the city's finances, although drops in state aid will force teacher layoffs, aides say.

New York City will have to lay off more than 4,000 public school teachers even though its revenue from bank taxes has leaped about $2 billion since forecasts made last November, a mayoral aide said on Wednesday.

New York City has around 75,000 teachers but the headcount must be reduced because Democratic Governor Andrew Cuomo wants to cut state aid by $2.1 billion, the aide said.

One day before Mayor Michael Bloomberg unveils his new budget plan, Deputy Mayor Howard Wolfson linked the resurgent city economy to the mayor's policies.

"By investing in job growth and continuing to make responsible budget choices, we have been able to keep making New York City a safer and more attractive place to live, raise a family and run a business - and the latest economic news reflects that," he said in a statement.

New York City's economy rests on the shoulders of the financial industry and the city's bank tax collections ran 48 percent above a year ago, sources said on Wednesday.

"Bankers have done alright; that has been a pleasant surprise," a source familiar with the data said.

But Cuomo must close a deficit of more than $10 billion and Bloomberg, a political independent, says the governor has unfairly singled New York City out for cuts.

As a result, the city will have to lay off 4,666 teachers and shed another 1,500 positions through attrition.

The city's mayors have for years conservatively estimated how much tax revenue they can rely on, a policy that pleases fiscal monitors and curbs how much extra money the Democratic-led City Council can add to the budget. So the $2 billion revised revenue forecast might be an under-estimate.

"I'm surprised they are recognizing this much -- which means they have got much more," said a financial source who requested anonymity.

In his new budget, Bloomberg will call on the state to come through with $600 million of so-called "equitable distribution of revenue sharing," and $200 million of school aid, the financial source said.

The mayor also is expected to propose $400 million of new needed expenditures, for budget items such as overtime.

Though New York City is one of the country's biggest issuers of municipal bonds and its approximately $65 billion budget tops that of a number of states, it pays lower interest rates on its debt than fiscally-stressed states such as Illinois, California and New Jersey.

Fiscal monitors give Bloomberg high marks for repeatedly slashing spending to close a string of multibillion-dollar deficits, but some also fault him for negotiating overly generous pay packages with city workers.

The mayor has recently taken a much harder line with the city's work force, demanding teachers relinquish their seniority and police officers give up a $12,000 yearly payment for retirees that he calls a "Christmas bonus."

The deputy mayor echoed Bloomberg's criticism of teacher tenure, saying "The only thing worse than laying off teachers would be laying off the wrong teachers."

With the extra revenue, Bloomberg might modify his demand that both retirees and current police officers give up their yearly bonus, the financial source said.

While the state comptroller said the securities industry might have had its second most profitable year in 2010, the city has yet to see a bonanza in income tax payments from high-flying bankers and brokers.

"The income tax is only up about 2.5 percent," said a source who was familiar with the data.

Bloomberg often stresses the importance of the city's tourism industry because it offers so many entry-level jobs. His new budget plan for the year starting on July 1 will benefit from New York City's success in drawing visitors.

"The hotel tax numbers are very good, up about 18 percent," said the source. New York City for two years in a row has been the biggest tourist destination in the United States.

One of the city's top-performing taxes also got a boost from the free-spending tourists: the city's sales tax is running about 13 percent ahead of a year ago.

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