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Uncertain Billions In Mayor's Budget Plan

by Glenn Pasanen, Mar 12, 2003
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Three new reports underscore the multi-billion dollar uncertainties facing Mayor Michael Bloomberg and the New York City Council in the next few weeks as they try to craft a balanced budget for fiscal year 2004 by early June. The reports — from the New York State and New York City comptrollers and the city's Independent Budget Office — share the concern that the mayor's budget plan is based primarily on the actions of others. He assumes that actions by the governor, the State Legislature, and the city workforce will fill next year's budget gaps, but the monitors say that's risky. They estimate risks ranging from $2.2 billion (IBO) to $3.9 billion (city comptroller). Governor George Pataki's proposed state budget adds to the problem. It not only rejects the mayor's requests for assistance, but actually widens the city's budget gap by $844 million, according to the city comptroller.

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The reports provide a number of budget insights, including more detail on Rudy Giuliani's many contributions to the current budget gap. They show how budget priorities continue to shift, as mandated costs increase and agency spending drops. In spite of the fiscal crisis, city spending continues to rise overall under the mayor's plan. But the city agencies actually lose funding at the same time as other spending — on pensions, debt service, Medicaid, and fringe benefits — grows dramatically. The new Department of Education, in the throes of major administrative and policy changes, gets hit hard by both the city's and the state's proposed cuts. On the more positive side, two of the reports point out that the actual cuts in city services thus far have been modest, given the depth of the fiscal crisis.

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The huge risks to the city flow mostly from the bizarre, dysfunctional nature of New York State politics and government. The "three man government" in Albany — Pataki, Assembly Speaker Sheldon Silver, and Senate Majority Leader Joe Bruno — has spawned a New York City subtext. Mayor Bloomberg, who has not considered for four months, at least publicly, any alternative to his Dead-On-Arrival-in-Albany budget plan, is now seemingly at the mercy of the three Albany leaders. As much as $2.4 billion of the mayor's budget-gap plan rests on his ability to convince the troika to rescue him one way or another. The only alternatives thus far are further layoffs and service reductions, a route the mayor has made a good case for avoiding.

RISKS

The State Comptroller's March report says the Bloomberg plan has $3.4 billion of risks, $3.2 billion on which are outside the city's direct control. Worse, a projected $962 million personal income tax increase, featuring a new commuter tax five times the value of the commuter tax repealed in 1998, has been dismissed out of hand by Pataki and Bruno. The mayor's request for $275 million to renew state funding of the 20-minute extension of the school day was denied in Pataki's proposed budget, and there has been no acceptance of the city's requests for authority to raise $200 million in new transportation revenues, including the first phase of tolling the city's bridges. Nor is there any guarantee that the $690 million in back and current city airport rent requested of the Port Authority (controlled by the governors of New York and New Jersey) will be forthcoming.

The Independent Budget Office sees $2.6 billion in uncertainties in the Bloomberg plan, including the personal income tax proposal and $400 million of other proposed state actions. The IBO does assume that the city will get $500 million (promised by the governor in his budget release) of the $690 million airport rent request. And their projection of $440 million in revenues over and above the mayor's projections (offset in part by a projection of $125 million in higher expenditures) adds up to $2.2 billion in risks. The City Comptroller's March reportdefines a potential 2004 budget deficit of $3.9 billion, $500 million above the mayor's projection, because of the impact of several Pataki budget proposals. For instance, the comptroller notes the proposed state education aid cut of $478 million, the elimination of state funding for the $275 million increase for teachers initiated last year, $255 million in new Medicaid costs, and $61 million in increased welfare costs. (Restoration of some of the sales tax on clothing and increased fees would offset $225 million of these cuts.) Of the overall plan, the report concludes, "[I]t is unclear as to whether the city can achieve its ambitious gap-closing program."

EXPENDITURES

The Independent Budget Office spells out the major shifts in spending at the heart of the Bloomberg plan. City-funded expenditures increase by $1.6 billion in 2004, to $32.8 billion, primarily because of more than $1.7 billion in escalating pension ($827 million more than in 2003), Medicaid ($212 million), debt service ($550 million), and fringe benefit ($146 million) costs. Pension costs, according to the State Comptroller, will continue to rise because of the stock market plunge, which lowers the value of pension funds and forces the city to increase its contributions. City pension costs will jump from four percent of city-funded revenues in FY 2002 to 14.4 percent in FY 2007. This mandated increase will force further cuts in discretionary areas or the use of new revenues.

The IBO points out that the city's agency budgets will be reduced by more than $1.3 billion. Compared to 2003, the uniformed services lose nearly five percent in funding; health and social services agencies lose a little over one percent.

The State Comptroller report shows that city-funded workforce may be reduced by 5,419 by June 2004, down to a total of 203,873. Most of the cuts are in the uniformed services, where 4,405 jobs will be eliminated in Fiscal Years 2003 and 2004, including 656 in the fire department, 807 in the corrections department, and 877 in the sanitation department. The police department will lose over 2,000 officers, and, after an October 2000 peak of 40,754, be down to 34,774 officers by June 2004. Although little noticed, there have been 548 layoffs in recent weeks, in the education, police (civilians), and sanitation departments. The service cuts in the preliminary budget are very modest, considering the $5 billion gap going into the current fiscal year. The Independent Budget Office says of the mayor's $1.3 billion agency cuts that only about half, or $650 million, represent actual or possible service reductions. The State Comptroller's report suggests the service cuts are only $450 million.

GIULIANI'S CONTRIBUTION TO CURRENT CRISIS

The current squeeze on spending has other roots. The City Comptroller and the State Comptroller, Alan Hevesi, cite some of the lesser-known Rudy Giuliani actions that contributed to the city's current budget crisis. It is now widely accepted that Giuliani's tax cuts ($2.5 billion a year) and repeated rollover of $2 to $3 billion surpluses both contributed to and delayed the crisis (until he was gone).

But there were other dubious actions in the Giuliani years. The City Comptroller notes that overtime costs increased by almost $350 million, or 78 percent, between 1997 and 2002 (from $449 million to nearly $797 million). Hevesi shows how part-time workers increased by 125 percent from FY 1996 to FY 2002, with costs rising from $947 million to more than $2.1 billion. (Because part-timers were not considered in workforce counts, the mayor could in effect hide workforce expansion.) Hevesi also points out that Giuliani made a technical adjustment in pension payments that saved the city $800 million in payments in FYs 2000 and 2001 (adding to the surplus and paying for tax breaks). But, "It also had the effect of removing a cushion against future earnings" — a cushion that Bloomberg could have used this year.

POLITICAL PROSPECTS

The City Council will soon offer its annual response to the mayor's preliminary budget, but since November there has been no progress on the budget actions outside the mayor's direct control. And just as he waited until the last minute to announce his blockbuster property tax in November, the mayor seems willing to wait until the last minute for a big new step. The State Comptroller who, like many observers, thinks that the mayor's billion dollar personal income tax plan is dead in Albany, surmises that restoration of the old commuter tax (which was 0.45 percent) and a new personal income tax surcharge for residents "may be more palatable." He adds that Senate Majority Leader Joe Bruno, while opposing the old commuter tax restoration, supports the surcharge and tolling the city's bridges — a major long-term piece of the mayor's financial plan.

Given the high stakes of the decisions to be made, the likely political process is troubling. In the short run, it looks as if five men (Pataki, Silver, Bruno, Bloomberg, and Council Speaker Gifford Miller) will be privately negotiating a host of significant changes. Yet the public has little or no understanding of what the actual changes might be. The mayor will release his executive budget on April 15th, but the state budget debate may well be as confused then as it is in March, so there may be uncertainty and more private negotiating into May and June.

The governor's slap at the city is particularly vexing. Beyond his devastating education and Medicaid cuts, he has suggested a number of actions that have unknown fiscal, economic, and social impacts and are unlikely to get a full airing in a short budget process. For instance, the governor has offered to use the Battery Park City Authority to produce $200 million for the city through re-funding of its bonds. There is also the possible swap of city airport land for the Port Authority's World Trade Center land. These are important issues that need more sunlight and time.

Public authority deals are always worth a red flag. In 1989, for instance, the city made a deal with the Battery Park City Authority, to use $600 million in surplus authority revenues for the original public purpose of the authority — to fund affordable housing. Rudy Giuliani never lived up to that deal between Ed Koch and the authority. The authority did its part, and now has almost completed the $600 million in annual payments. But not one unit of housing has been built with the money. Further, in 1990, the authority did what the governor is suggesting now. It used bonding authority (also intended for housing) to make a one-time cash payment to the city of $150 million to help then-Mayor David Dinkins solve an earlier budget crisis. Thus, there may be precedents for deals like the governor's, but they recall bad faith more than fiscal relief.

With his budget hopes pinned to others, Mayor Bloomberg is in a lonely spot, and his reticence thus far to build a case for alternative scenarios will make for many surprises before the council's June adoption of a budget. Perhaps the City Council can do the reality check here and begin to develop a more democratic and politically viable process.

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


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