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Evicting Bears Won't Balance the Budget

by Doug Turetsky, Apr 21, 2003
 

The day after Mayor Bloomberg presented his budget plan for the forthcoming fiscal year, newspaper headlines screamed the bad news: More fire houses could close… zoos could be shut…mountains of trash could go uncollected for days.

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But turn the page past the headlines and take a step back.

The $44.5 billion executive budget released last week shared many similarities with the preliminary budget issued in January. The January plan had few portents of doom, but it did feature a heavy dependence on Albany for help, including a commuter tax proposal for which both the governor and senate majority leader have expressed little enthusiasm. To bridge the city's $3.8 billion budget gap for fiscal year 2004, the mayor's new budget counts on $2.7 billion in help from Albany – roughly 70 percent of the entire gap-closing plan.

What has changed between January and April is time. The clock is ticking rapidly towards July 1, when the new fiscal year begins and the city must have a budget in place. The mayor's most recent budget presentation emphasized the amount of cuts the city already had made and the increasing effects on services that will come with the $620 million in cuts. The $1 billion "contingency plan," to be implemented if the needed help does not materialize, painted an even starker picture of reduced services.

The approach is borne of political tactics and fiscal reality.

Tactically, the mayor is seeking to increase the pressure on Albany, and to do that some of the proposed cuts are designed for maximum impact. Take the plan to close the Brooklyn and Queens zoos to save $5.8 million. It grabbed headlines – and howls of protest from constituents whose voices could quickly echo up the Hudson River Valley. But similar savings could be gained from other, considerably less provocative, cuts. For example, $5 million could be saved if the sanitation department stopped collecting grass clippings.

Fiscally, the city already has taken steps to reduce spending. Most service providing agencies have had their city-funded spending reduced. So far, the city has been able to cut this spending without a significant effect on the provision of existing services. As the budget illustrates, that will become harder to do as the spending reductions mount in the programs and services areas the city can control.

But even under the mayor's proposal to cut an additional $695 million in agency spending, total city spending would continue to grow. That is because some of the key components of the budget are effectively out of the city's control.

One of these out-of-the-city's control components is Medicaid. Based on the Independent Budget Office's most recent estimate, the city's share of Medicaid spending will rise by $330 million in 2004 and total $4.2 billion. Debt service – the interest and principal the city must repay on the money it borrows to build schools, fix roads, buy fire trucks, and other capital expenditures – is another example. Pension and fringe benefit costs for municipal workers also are rapidly growing expenses. Bloomberg's budget estimates that such "nondiscretionary expenditures" will rise 24 percent next year and total $16.8 billion.

That means Albany and the labor unions have to be part of the answer.

How much the city has to spend on Medicaid is determined by policy decisions made in Albany. And in recent years, including the governor's most recent budget proposal, Albany has been adding to rather than reducing the city's Medicaid costs. The state also added substantially to the city's annual pension costs by requiring that pensioners receive cost-of-living adjustments. The mayor's budget estimates that change will cost the city $480 million in the coming fiscal year. Additionally, other changes in the city's contribution to pensions as well as for fringe benefits for its workers must be negotiated with the unions – negotiations that have not yet proved fruitful despite the mayor's plan to lay off roughly 4,000 workers, and the contingency plan of 10,000 more.

Given these circumstances, the options directly under the city's control are limited. If the mayor wants to soften the effect of budget cuts on services – and a significant deterioration in basic services can be as damaging to the city's competitiveness as a place to live or run a business as a spate of tax hikes – then he has to look for outside help.

The most recent budget plan certainly looks for considerable help, but the particulars of much of that help seem ill-defined and increasingly uncertain.

The single biggest portion of that help—a new commuter tax proposal—came with a $1.4 billion figure for how much revenue it would generate but few details on how it would work. Nor did the mayor offer any reasons why the legislators who did not show much interest in his prior proposal would be willing to accept one that seeks even more tax dollars.

This is the third time the mayor has floated a commuter tax plan along with other substantial requests of assistance from Albany – so far without much success. Some might say the third time is the charm. But baseball fans like the mayor also know that on the third strike you are out.

Last February, the Independent Budget Office published a list of nearly 60 ways (available in PDF format) the city could save money or increase revenue. For example: Now that talk of raising the state sales tax is coming from the statehouse, it may be an opportune time to reconsider the idea of swapping part of the local Medicaid burden for a share of local sales tax receipts. This could gain $2 billion for the city. Another option would be to extend the mortgage recording tax to sales of co-op apartments, which could generate $73 million in revenue in 2004.

With the deadline for enacting the city budget fast approaching, it may be time for the mayor to shift his lineup of Albany requests for closing the city's budget gap.

Doug Turetsky is on the staff of the Independent Budget Office.


RELATED ARTICLES:

Mayor Bloomberg's 2004 Budget
The Mayor Is Right to Go After Commuters, Albany, and Labor Unions by Douglas Offerman
Stop the Rhetoric – Raise the Income Tax by Glenn Pasanen


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