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Preliminary Budget Seeks to Avoid Spending Cuts

by Glenn Pasanen, Feb 12, 2003
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Last November, Mayor Michael Bloomberg waited until the last minute and after the general election to announce a blockbuster 18.5 percent property tax increase. The property-tax hike solved almost half of the then-$6.4 billion gap, but there was no City Council or public debate about the inequitable effect of increased dependence on the property tax.

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This year, it seems the mayor will wait until the last minute again.

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On January 28, the mayor released his preliminary $44 billion budget for fiscal year 2004 and left the city's billion dollar questions unanswered - at least until the executive budget is released in April.

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The good news for most New Yorkers is that the preliminary 2004 budget proposal focuses almost exclusively on revenues, not spending.

The mayor rejected the conventional weapons of his predecessors, such as Rudy Giuliani, and did not offered contingency plans that threaten the poor, the ill and the elderly. The plan has less than $500 million in agency actions for 2004, and most of those are revenue shifts and productivity savings, not service cuts. It also includes nearly $1 billion in proposed new tax revenues, nearly $700 million more in airport rents, $600 million in savings from labor, nearly $500 million from new state and federal aid, and $200 million from transportation revenues, including bridge tolls.

On the down side, not one of these proposals is a sure thing. Given the slumping city economy and the unfriendly budget signals from Albany and Washington, the preliminary plan to fill the $3.4 billion budget gap for 2004, is mostly dead on arrival.

The next draft the executive budget will not come out until April.

Revenues

The mayor's nearly $3 billion revenue plan proposed for next year is, at one level, absurd.

Its key component, a billion-dollar commuter tax, has been rejected by Governor Pataki and State Senator Majority Leader Joseph Bruno.

The plan expects to find $600 million in labor savings next year -- but acknowledges the city will not even get $223 million in labor savings expected this year. Airport revenues are tied up in complex legal and political tangles, and the Bush and Pataki regimes seem more likely to cut than increase aid to the city.

But the mayor has generated some serious discussions about alternative revenue sources. His proposal for "personal income tax reform" would raise nearly $1 billion by taxing commuters at the same rate as city residents and lower the rate by nearly 40 percent by 2007. Not only would this decrease revenues over time, but it would force a 2.75 percent tax rate on commuters who now pay nothing to New York City.

The proposal spurred others to offer their ideas for raising $1 billion, including reinstatement of the 0.45 percent commuter tax.

The Independent Budget Office published a new "Budget Options" booklet that says that going back to that commuter tax would produce $459 million in 2004. The office says that an alternative, more progressive commuter tax with rates one-third that paid by residents would produce nearly $1 billion. Another option is a temporary increase in personal income tax rates. A 10 percent across-the-board surcharge would raise $533 million. Alternatively, hiking the tax rate by 1 percentage point for people earning over $250,000 would generate $595 million.

As in years past, the debate over revenue assumptions about labor savings and federal and state aid will go on for months.

The mayor has said that if he gets no concessions, he will lay off 12,000 employees. Further complicating things this year is the uncertainty about if and when the city will get federal funds from the World Trade Center. The New York Times reported on February 7 that a tentative agreement would give the city $630 million in federal funds to fill its budget gap. This would be a one-time payment only.

An increase in airport rents is a more realistic target only because the interests of Governor George Pataki and Bloomberg may coincide this year. For years the city has complained that the Port Authority shortchanges the city on the annual rent it pays on city-owned LaGuardia and Kennedy airports. Rents that reached $100 million a year a decade ago sank to $3 million a year in the 1990s, and more recently have ranged from $25 million to $31 million. The city has been trying to re-capture the higher rents. But with many questions on the table about long-term control of the airports and the World Trade Center site, and with the governor already offering a $500 million settlement for the city’s airport claim, this just might be the year for a substantial payment.

In general, the mayor deserves praise for having rejected non-recurring, one-shot revenues in his plans for next year. This represents something of a turnaround from 2003, when, according to the State Financial Control Board, the city budget included $3.2 billion in one-shot revenue sources. Aside from federal aid, next year's budget seems to have no significant one-shots. Yet even the very conservative Financial Control Board has said a few hundred million dollars of one-shots are acceptable in a budget the size of New York's. So some may be on the way help cushion the blow if any of the mayor's other revenue ideas fail to come to fruition.

Expenditures

In his January budget, Bloomberg mostly lived up to his December statement at a Citizens Budget Commission's conference: "The fact of the matter is we have cut as much as I believe we can. More cuts risk adversely affecting New York City's quality of life and reducing the ability to grow our way out of this problem." And so there are very few of the ritualized cuts in youth, senior, legal, health, and other services that Giuliani (and Bloomberg last year) threw out in winter for the council to mostly restore in the late spring.

In his $3.4 billion gap-filling package, savings in agency spending -- technically called PEGs (Program to Eliminate the Gap) -- total only $357 million, little more than t10 percent of the total budget actions. The Department of Education will produce by far the biggest savings -- $130 million. The mayor says these will not affect classroom services, but it is hard to determine the real impact on students.

Two other big cuts are in libraries and cultural affairs - areas where the mayor seems to think the private sector can pick up the slack. The libraries are cut another 3 percent for next year, a total of nearly $7 million. With the November cuts, this adds up to a 12 percent cut in less than a year. The Department of Cultural Affairs takes another 6.2 percent cut for 2004, about $6.5 million. With the November cuts, the department will have taken a 15.6 percent cut for 2004.

Cuts in a fourth agency -- the Department of Youth and Community Development -- are reminiscent of the old days -- large cuts in council-sponsored after school programs. These cuts would no doubt cause significant damage to existing programs. As in previous years, the intent here seems to keep the council busy fighting for restorations - a curiously small target for a mayor who mostly thinks big.

The most positive detail in the plan may be the restorations in the Department of Aging. By transferring some federal funds into the agency to replace city funds, the mayor was able to restore seven contracts for senior retirement communities, keep senior centers open five days a week, cancel center consolidations and rescind plans to charge seniors more for meals.

Otherwise, the service cuts are nominal. That does not mean that the loss of staff in many agencies through attrition, early retirements and severance packages -- will not indirectly affect services, but it is good to see contracted human services apparently held harmless for the near future, in spite of the city's hard times.

Politics and Equity

The mayor's commitment to revenues and maintaining basic services is bold and optimistic. But how his reluctant partners -- George Pataki and George W. Bush -- will respond is the big political unknown. In a good cop/bad cop pairing, the mayor and Council Speaker Gifford Miller are playing different political games with the governor and the legislature – the mayor more conciliatory, the speaker tough. Who can predict how such an act will play out?

The mayor and the speaker need the commuter tax. They need Pataki to pull back from nearly $500 million in education cuts and to enhance, not cut Medicaid funding. They need authority from the state to increase city taxes. But with that authority, they also need to take a more progressive approach in structuring those inevitable new taxes. While the focus on revenues is wise for the long term, what is really missing in the January preliminary budget is any definition of sacrifice, any sense that tax burdens will be distributed fairly among renters and owners, among high-income and middle-income New Yorkers.

Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.




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