NEW YORK, NY November 20, 2002 — As Mayor Bloomberg grapples with closing a 7 and a half billion dollar budget deficit over the next 2 years, New Yorkers may be wondering how the city got into this mess. September 11th was obviously a huge factor. Fiscal monitors say the city is also suffering from the slowdown on Wall Street and the recession. But as WNYC's Beth Fertig reports, decisions by the city and state also played a big role leading up to the fiscal crisis.

Just before leaving office, last December, Mayor Rudolph Giuliani assured New Yorkers that despite the trauma of September 11th, the city was still in better fiscal shape than he found it.

GIULIANI: When I came into office we had a 2.3 billion dollar current year deficit. Right now the new mayor will take over with a surplus of what looks to be a billion dollars (applause)

But Giuliani left something out. That surplus was about to end. Because Wall Street revenues were already down. In fact, the city was projecting a deficit of 2 point 7 billion dollars even before September 11th. And that was partly a product of Giuliani's own fiscal management says EJ McMahon, of the Manhattan Institute - a conservative leaning think tank. Instead of using the surplus to pay off the city's debt, he says the mayor merely paid off debt service.

MCMAHON: It is very similar to a household enjoying a couple of really strong years where the employer is giving you a lot of bonuses and yet you're still making the minimum payments on your credit card balance. You're carrying the balance and not trying to pay some of it down. In fact, you're accepting some new credit cards in the mail when they come in.

Giuliani's former budget director argues the city wouldn't have saved very much even if it did pay off more of its debt. And despite warnings that the city's fiscal health was starting to slide, he says no one could have predicted how badly.

Still, there's no denying city spending did GROW under Giuliani's watch. That might sound strange, given the Republican mayor's reputation for budget cutting. But - according to the Independent Budget Office - the city was spending seven billion dollars more of its own money last year than it was in 1993. An increase of nearly a third.

Of course, one might say the city got what it paid for. Crime went down. There were more police, and raises for teachers. But some of Giuliani's priorities were hard to justify says Harvey Robbins .. who served under former Mayor David Dinkins.

ROBBINS: He continued to give out enormous amounts of tax breaks in a time of prosperity to businesses, over 2 billion dollars he gave at height of what I'm calling the last gilded age of the late 90s. He closed Fresh Kills where city's garbage was dumped for decades without a plan and it's costing us over 300m a year now to cart garbage outside of the city.

And he says police overtime soared- tripling to 350 million dollars even before September 11th. But the former mayor is hardly the only political leader to blame for the city's fiscal problems.

BOWLES: I think you can't understate the role of Albany in putting the city in this fiscal crisis right now.

Jonathan Bowles is research director with the Center for an Urban Future, which takes a more liberal view. It was Albany that repealed the commuter tax, he says, costing the city 400 million dollars a year. Governor Pataki and the legislature also approved higher pensions for government workers, and rising Medicaid costs.

BOWLES: I did a study a few months ago that showed that a handful of actions undertaken by the legislature and the governor cost the city about 2 billion dollars in lost revenue a year.

Mayor Bloomberg wants Albany to help the city out of its mess. He's proposed making commuters pay a personal income tax. And he's asking the City Council to pass a property tax increase of 25 percent. Some budget watchdogs say Bloomberg should have acted sooner - before Governor Pataki was re-elected. They complain he didn't seek enough labor concessions in his first budget plan, and relied too heavily on borrowing. But the mayor says he deliberately avoided asking for higher taxes and deeper service cuts until the city was ready.

BLOOMBERG: Because the truth of the matter was we were coming out of 9/11 and everybody was very worried that people, residents and companies, employer would leave this city.

Now Bloomberg is asking everyone to share the sacrifice. Meaning, the political leadership in New York City and Albany will both have to solve a crisis they played some role in creating. For WNYC I'm Beth Fertig.