At Least He's Clearer

By Doug Turetsky

Amid the clamor surrounding last week's release of Mayor Michael Bloomberg's first preliminary budget, one could easily lose sight of an important change: a step towards truth-in-budgeting. The change could be seen both in terms of style and substance.

Take, for example, one of the more controversial elements of the budget plan, the proposal to borrow $1.5 billion to pay for day-to-day expenditures. This kind of maneuver, known as deficit financing, typically makes fiscal watchdogs stand up and bark. Indeed, it is the sort of scheme, done many times over, that led to the city's fiscal collapse in the 1970s. In presenting his budget proposals Mayor Bloomberg not only called attention to this borrowing plan, he articulated why it was not necessarily a fiscally prudent thing to do. But given the city's staggering $4.8 billion budget gap, the mayor suggested it may be less onerous than some other options.

Bloomberg is not the first mayor after the fiscal crisis to propose this kind of long-term borrowing to get cash for current operating expenses. Mayor Rudy Giuliani did something similar in 2001, though on a smaller scale; the city borrowed $345 million on behalf of he Metropolitan Transit Authority after it received the same amount from the transit agency for the sale of the Coliseum. But Giuliani kept it hush-hush -- and this at a time when the city had a budget SURPLUS of $3 billion.

Not long ago even a most basic part of the budget -- how much the city planned to increase or decrease spending -- became shrouded in smoke and mirrors. Over the past five years the city would use its surplus to prepay some expenditures that would come due in the following year. When presenting his budget proposals, the mayor would use these prepayments to mask how much more the city planned to spend in the coming year. One of the Independent Budget Office's standard procedures became the reversal of these prepayments in order to provide the public with an accurate accounting of year-to-year spending changes. Mayor Bloomberg has happily made that exercise unnecessary. (Of course, the lack of any budget surpluses in the next few years also would have accomplished this.)

The new mayor also did not hesitate to call something a cut when that was in fact what he was proposing. Last year's budget contrived to hide a reduction in the amount of funding that could be spent by the city's schools. While ostensibly allocating a bit more funding to the Board of Education, the budget put some money into an escrow account controlled by the mayor -- meaning some of the funds might never wind up in the schools. When coupled with an increase of funds put into another account reserved for a contract settlement with the teachers union, the budget actually provided $141 million less in funds immediately available for school spending. Regardless of what one thinks of Mayor Bloomberg's decision, he made his intentions on school spending clear: while helping to make up for some lost state aid, the mayor has told the Board of Education to reduce its spending by $344 million and cut capital commitments by $252 million.

These examples do not mean the budget plan presented by Mayor Bloomberg is without some serious question marks. While earning credit for critiquing his own deficit financing proposal, Mayor Bloomberg may have not fully detailed how much would be borrowed. In the wake of September 11th, the state gave the city the ability to borrow long-term as much as $2.5 billion to cover costs stemming from the disaster. The city already borrowed $1 billion last October (short-term borrowing that can be converted into long-term debt), and the mayor is proposing to borrow another $1 billion next fiscal year, which brings the real total to $2 billion. The budget makes clear the intent to use $1.5 billion for deficit financing. Less clear is the fact that the remaining $500 million is available for World Trade Center-related costs not being covered by federal aid -- raising the possibility of more deficit financing. And in what amounts to another instance of deficit financing, the budget proposal includes a $250 million loan from the Municipal Assistance Corporation.

Details are at best sketchy on some other critical parts of the budget proposal. The $100 million plan to "transfer tax benefits relating to a City-owned asset to a private party" is short on specifics. The budget also omits important details on the plan to refinance some existing city debt. As analysts from the Independent Budget Office scour the budget proposal, it is likely that other concerns will materialize.

Truth in budgeting is important because it is the only way we can get an accurate picture of the city's fiscal condition. Practices in the recent past masked the city's lack of structural balance -- in other words spending growth outpacing revenue growth. Now that we no longer have the large surpluses to cover up the imbalance, a huge budget gap, worsened by the events of September 11th and the national recession, must be bridged.

Mayor Bloomberg made an effort to demystify his budget proposals. Budget mavens, good government-types, and all New Yorkers should welcome this refreshing step towards clarity and candor.

Doug Turetsky is on the staff of the Independent Budget Office

Read "Shaky And Sacrificial" by Glenn Pasanen
Read "Bloomberg's (Misplaced) Compassionate Side" by E.J. McMahon


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