Bonds News

UPDATE 1-NYC mayor: tax hikes will stall Wall St revival

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NEW YORK, Jan 22 (Reuters) - New York City will be forced to raise taxes and lay off thousands of police officers, firefighters and teachers under the governor’s budget plan which will cost the city $1.6 billion, Mayor Michael Bloomberg said on Thursday.

The state should not raise taxes on people who can afford to move elsewhere, he said in a copy of his speech to the state legislature. That was a reference to Democratic legislators’ plans to raise income taxes for millionaires, and Bloomberg has repeatedly pinned the city’s future on keeping Wall Streeters from pulling up stakes.

“Make no mistake about it: Raising taxes on those with the flexibility to move their businesses -- as was done in previous crises -- will lead to an exodus that will hurt us for decades and have devastating consequences for the entire state.”

“We are now in a global financial crisis centered in our city,” the mayor said of the crisis that began on with mortgage-related assets on Wall Street and spread around the world.

Wall Street, the most important taxpayer for both the city and state, has lost over $36 billion in the last two years, and may eventually shrink its work force by a quarter, according to a copy of the mayor’s speech to the state legislature.

By November, New York City’s securities industry alone had laid off 17,100 workers from a year ago, pushing the total down to 170,100, according to New York state’s labor department.

But these companies have announced tens of thousands of layoffs, and the state figure might be an undercount because many of these workers do not join unemployment lines until their often lengthy severance payments run out. The figure also excludes layoffs by other financial industry companies, such as insurers.

Bloomberg, who is seeking a third term, said he plans to cut city spending by $3.6 billion in his new budget. The mayor, an independent, warned the plan he unveils next week will “forecast a smaller work force,” though he offered no details.

After inheriting a multibillion-dollar deficit from former Republican Mayor Rudolph Giuliani when he took office in January 2002, Bloomberg temporarily raised both income and sales taxes. Now, he is boosting property taxes six months earlier than planned, in January 2009 instead of July.

Wall Street’s crisis has given the state a $15.4 billion, 14-month deficit. New York City, which the mayor said pays the state 50 percent of its tax revenues, must close a $4.3 billion deficit next year, followed by a $7 billion gap the year after.

Though Democratic Gov David Paterson’s new budget includes some “smart proposals,” the mayor faulted it for using its cash crisis to shift costs to New York cities, towns and counties.

Saying he was not giving the “typical ‘tin cup’ speech mayors make in Albany” by requesting more aid, Bloomberg noted that the state already gets $1,300 a year from each of the city’s more than 8 million residents.

New York City is the only city losing revenue-sharing, at a two-year cost of $656 million or enough to pay 9,000 police officers, he said. City schools, which have 1.1 million pupils, will lose $770 million, and its public hospitals would take a $300 million cut.

Just last week Bloomberg promised voters he would safeguard the social network, needed more than ever during the downturn, but the governor’s budget would slice $200 million from programs that aid juveniles, the homeless, and other needy individuals, he said.

Reporting by Joan Gralla; Editing by Chizu Nomiyama