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Budget Offers Little That's New

by Glenn Pasanen, Jul 13, 2006
 

The New York City budget for fiscal year 2007, which began July 1, is a remarkable document on several fronts. It makes creative use of the huge $5.5 billion surplus from fiscal year 2006. Its highlights have won approval from most fiscal monitors. And it garnered praise from the press, which loved the unusually cordial budget negotiations between the new City Council speaker, Christine Quinn, and Mayor Michael Bloomberg. The New York Observer called Quinn "the perfect partner" for the mayor and their work together a "class act."

From a policy and process perspective, however, the adopted budget is less remarkable and more familiar. Once again the council allocated tens of millions of dollars for discretionary grants - so-called "member items," or "pork." (See related article.) More broadly, the adopted budget shows little progress toward a long-term structurally balanced financial plan. While the budget may "strengthen [the city's] financial position," as one fiscal monitor phrased it, the picture for future years remains cloudy. In fact, the plan projects deficits averaging $3.8 billion from 2008 to 2010.

The Budget Numbers

Overall city agency spending remains essentially flat over the next four years, and the $52.9 billion budget for 2007 provides few new programs.

For example, the commitment to alleviating poverty announced in the mayor's January state of the city speech is backed up with little, if any, budget component. A private-public task force is meeting to prepare a plan, and the mayor has promised three pilot programs in high-need communities.

According to the Independent Budget Office's report on the executive budget, social services other than Medicaid are slated to receive an average annual cut of 2.5 percent from 2006 to 2010. During the same period, Medicaid spending will increase an average of 4.0 percent a year, and children's services by 2.2 percent. But over four years, total health and social service spending, according to the executive budget, will increase by just one-tenth of one percent per year.

Similarly, the budget offers no major tax relief. It renews last year's $400 property tax rebate, but that goes to homeowners only, ignoring renters who pay a substantial part of a landlord's property tax through their rent. There is no move toward broader property tax reform.

The one big agency initiative is the hiring of 800 new cops and the transfer of 400 officers from civilian to uniformed jobs, a move many welcome as a sound management reform. Quinn added $10 million to the police department budget to provide bulletproof vests for officers.

Divvying Up the Surplus

In his report, the state deputy comptroller for New York City discussed how the mayor's Office of Management and Budget used the $5.5 billion surplus in 2006. The fund to provide health insurance for city retirees got $1 billion in the 2006 budget and will get $1 billion more in the 2007 budget. The Health and Hospitals Corporation received $385 million in 2006, which in a complicated exchange between the corporation and the city means the city will get back the money in future years, reducing deficits in those years.

The city placed in escrow $350 million it will owe the Transitional Finance Authority in 2008 for debt service on capital projects. This produced $16 million of interest in 2007 and will reduce debt service expenses in 2008 by that same $350 million.

Another $354 million of the surplus will go to pay 2006 and 2007 expenses that would otherwise be covered by money from the nationwide tobacco settlement. The delayed tobacco settlement revenues will then be available in 2008, reducing the projected deficit for that year.

Beyond 2007

These esoteric fiscal moves make for an interesting patchwork of budget-balancing that helps deal with fiscal problems over a one- or two-year period. They do little, though, to better match revenues and expenditures in the years beyond that.

In fact, according to the state deputy comptroller's report, the 2007 budget features its own "operating deficit" because the 2006 surplus paid billions in what would otherwise have been 2007 expenses. Without these prepayments, actual spending in 2007 would have exceeded revenues by $2.3 billion.

Fiscal analysts and monitors disagree about the scale of future budget deficits. The executive budget projected deficits from 2008 to 2010 of $3.6 billion, $4.2 billion, and $3.6 billion, respectively. The state deputy comptroller projected lower deficits: $3.1 billion, $3.8 billion, and $3.2 billion. And the Independent Budget Office was even more optimistic. In May it suggested figures for 2008 to 2010 of $2.5 billion, $2.9 billion and $2.6 billion - about $1 billion a year less than the city's figures.

There are some big uncertainties. The IBO, for example, noted that giving city workers wages increases to keep pace inflation would add $1 billion 2010 deficit. And the estimates do not include any contribution the city might have to make to a settlement in the Campaign for Fiscal Equity case on school funding.

The Budget Process

Although Quinn has said she wants the council to become a more active participant in the budget process, the mayor continues to dominate key decisions.

Quinn has highlighted the cordial negotiations with the mayor and pointed to the council's success in setting a baseline for funding three programs of special interest to council members: extra library hours, 7,000 summer jobs for teenagers, and more frequent trash pick-ups in the outer boroughs.

But as worthy as these programs might be, the $50 million or so they represent is only a fraction of the council-backed programs that the mayor annually cuts.

The city's Office of Management Budget considers these programs one-year efforts, instead of part of a four-year plan. As a result, every year the council and mayor engage in a "budget dance": The mayor makes cuts in the programs, and council seeks to restore those cuts. This year's restorations, totaling about $233 million, do not look much different from those of previous earlier years, despite the $5.5 billion surplus.

Although the budget does include the money wanted for the bulletproof vests, the council did not get much of what it asked for. It requested $45 million for full-day universal pre-kindergarten, but instead got 2,000 more spaces - at a cost of $7 million. A $7.5 million request for child advocacy centers became a $2 million program.

By moving money some of the surplus into the health fund, the mayor, according to the IBO, removed that money from the give and take of the budget process. This apparently did not bother Quinn: The fund, she said, demonstrates "sound fiscal responsibility in planning for future health care obligations." This may be true, but it does give the mayor more control over the budget.

Quinn faces a daunting task if she hopes to give the council a great role in formulating the budget. She has far fewer resources and less staff than the mayor, whose budget office has decades of experience. This year with the previous speaker forced out by term limits, the speaker and the council's new finance division director did not assume their posts until after the OMB essentially completed the January preliminary budget. This may have weakened the council's budget role.

Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001. 

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