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Billion Dollar Questions About Next Year's Budget

by Glenn Pasanen, Jan 08, 2003
 

One year into his mayoralty, Michael Bloomberg has resolved his first major budget crisis. But his success so far raises as many questions as it answers about how he will handle the next budget crisis. The next one is in late January, when he releases his preliminary budget for the next fiscal year. On the one hand, Mayor Bloomberg has proved to be bold and pragmatic. The 18.5 percent increase in the city's property tax rate and approximately a billion dollars in other budget savings has reduced a previously projected $6.4 billion deficit for next year by more than half. On the other hand, the details of his November budget modification, now examined by several fiscal monitors, raise billion dollar questions about next year.

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There are questions about revenue – about the mayor's tax revenue estimates for next year, and the source of new tax revenues. The Independent Budget Office projects tax revenues for 2004 that are about $1.2 billion higher than the mayor's November estimate, suggesting a smaller deficit problem for next year than the mayor projects. And several monitors are dubious about the political prospects of the mayor's plan to raise about $1.1 billion in new personal income tax revenues next year by expanding that tax to commuters who work in the city.

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On the expenditure side, the mayor's dramatic service cuts proposed for next year raise big questions about his priorities in two broad areas: uniformed and human services. In the police department, for instance, postponement of a new police class of 1,900 member and attrition will lower the number of police officers to the 1993 level. And in contrast to the mayor's brave rhetoric recently about the need to maintain services for economic as well as social reasons, proposed cuts in education, libraries, cultural affairs, health, and social services are considerable.

Another big question is one the mayor has sidestepped for a year: How broadly will budget burdens be shared, on both the revenue and expenditure sides? In terms of new taxes, Bloomberg promised that the huge increase in property taxes would be off-set by a reduction in personal income taxes. That argument has been widely attacked both as inaccurate and politically naĂŻve. The best information available at the moment suggests that the mayor's preliminary plans for next year disproportionately burden lower- and middle-income New Yorkers through higher taxes and lower services.

Revenue Questions

At this point there is over a billion-dollar difference between the most optimistic and most pessimistic projections of next year´s deficit, primarily because of different tax revenue projections. For example, in its fiscal outlook report, "Despite Property Tax Increase, Large 2004 Budget Gap Remains," the Independent Budget Office now projects next year's deficit at $2.3 billion, about $800 million less than the mayor's projection. Yet the State Financial Control Board, in its December report, projects next year´s deficit at $3.5 billion, about $400 million more than the mayor.

Such a disparity in tax revenue projections is unusual at this stage of the budget process.

The other billion-dollar question is about the single biggest element in the mayor's budget-gap plan for 2004, raising $1.1 billion in additional personal income tax revenues by broadening its tax base through taxing commuters at the same rates as residents. This proposal is odd in at least three ways. First, no one thinks it has any chance of gaining support from the state legislature nor the governor. Second, as a revenue producer, it is a nonrecurring, one-shot -- or, more specifically, the first of a series of declining one-shots, since the proposal lowers rates over time. By 2006, according to the Independent Budget Office, the city would actually lose $232 million. Lastly, the budget office points out in its December report that the proposal "would shift the combined burden of the two taxes from higher income households towards those with lower incomes….[M]ost households with incomes over $200,000 would see net savings…."

Expenditure Questions

One year into his mayoralty, Bloomberg has yet to express a budget vision. Budget decisions have been bold and pragmatic, but they also look ad hoc. There have been many contradictions. Education has ostensibly been a top priority, yet the new Department of Education took a $200 million cut in November, a cut which recurs in subsequent years. Libraries and cultural affairs took major cuts, while senior, youth, and homeless services took relatively minor cuts. Next year may determine what the mayor's priorities really are.

The November modification has some clues. The uniformed services, often protected and expanded during the Giuliani terms, are now projected to be significantly reduced. According to the December 2002 report of the Office of the State Deputy Comptroller for NYC, uniformed staffing levels will be reduced by 4,443 employees during Fiscal Years 2003 and 2004. Police officers would number 34,774 by the end of 2004, nearly 6,000 fewer than the peak force in October 2000. Given the fact that crime numbers continue to fall almost across the board, the mayor's timing here could be very effective. (Some may quibble that a full commitment to police productivity savings requires more initiatives in overtime savings and more civilianization in the department -- not less as the State Deputy Comptroller reports is now projecting.)

If projected uniformed savings are ambitious and justified, the projected savings in a variety of human services are another story. Savings here will come after huge cuts in several agencies during the Giuliani years. The State Deputy Comptroller's report adds historical perspective: Between Fiscal Years 1991 and 2002, staff in parks, health and welfare agencies were reduced by 16,350 employees, or 43 percent. Put another way, these agencies, which represented 17 percent of the City workforce in 1991, were only 10 percent of the workforce by 2002. Yet parks staffing will be reduced by another 213 -- more than 12 percent -- in Fiscal Year 2003, to 1,509. And health and welfare agencies will lose nearly 1,800 employees -- or nine percent -- more by the end of 2003. The impacts of the cuts in these agencies need to be measured quickly, to ensure these moves do not compound the human-service failures of the Giuliani administration.

Beyond these projected workforce reductions is the not so subtle threat implicit in the mayor's plan to get $600 million in unspecified "productivity" savings from the same workforce. The implied alternative is the reduction -- through further attrition and layoffs -- of an additional 12,000 employees. Since the mayor has more than once suggested that further cuts in services are not smart economically, there is another contradiction here, especially if such cuts emerge without sufficient debate at the last moments of the budget process in May and June.

The Vision Question

Bloomberg bought time with his November modification. The monitors are comfortable that the budget problems that developed for this fiscal year are solved. In fact, the Independent Budget Office points out that the property tax increase generated an estimated $500 million surplus for this year, that will help prepay some of next year's expenses. But the outlook for Fiscal Year 2004 remains full of uncertainties about billion dollar decisions, particularly about what priorities are driving the decision-making.

Because the mayor has been slow and contradictory in defining priorities, and because he has been disingenuous in defining who carries the current and future burdens of his budget decisions, the most important question may be whether a comprehensive vision emerges in the January preliminary budget for next year. Given the high stakes surrounding the big budget deficit, it is a good time for a powerful vision. It is also a good time to identify those who will need to sacrifice -- in higher taxes and/or lower services -- in order to realize any bold vision.

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


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