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Analysis: The Bloomberg Fiscal Legacy

by Glenn Pasanen, Nov 24, 2013
 

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After 12 years in office, Mayor Michael Bloomberg will have left an indelible fiscal stamp on New York City that will present his successor — and any progressive agenda — with formidable challenges.

There is, foremost, a four-year financial plan that looks sound in the short run, but masks future labor cost problems for the new mayor; a more centralized, less transparent budget process that has reduced public participation in making fiscal policy; and a weakened set of City Charter-mandated performance indicators that now obscures actual policy outcomes.

Lastly, and perhaps most importantly, Bloomberg leaves a legacy of a trickle-down theory of philanthropy and privatization that sees fiscal and policy reform as best spun from private, not public sources.

Immediate Budget Prospects

In the immediate case, the mayor leaves a $72.7 billion one-year city budget which, according to a modification released last week, will actually end this fiscal year (in June 2014) with a $1.6 billion surplus. The new modification has even better news. The fiscal year 2015 budget — which in June’s financial plan was projected to have a $2 billion deficit — is, four months later, now balanced. The presumption is that the mayor-elect will inherit 18 months of a balanced budget.

"We’re proud of all we’ve achieved — and now we want the next Administration to do even better," Bloomberg said in his weekly radio address broadcast on WINS-AM on Sunday. "The balanced budget we’re handing off to them now — more than seven months before the next fiscal year begins — will help them get off to the best possible start."

But that June financial plan for fiscal years 2014 to 2017, as well as the new November modification, are disingenuous. Recent reports from all four fiscal monitors — city and state comptrollers, the state Financial Control Board, and the Independent Budget Office – all point to retroactive and future labor costs that could add billions of dollars to the plan. The IBO, for one, has laid out a scenario that could cost the city nearly $12 billion more over the next four years.

Management, Accountability, and Privatization

In terms of managing city finances, Bloomberg has expanded mayoral fiscal power, weakening the fiscal clout of the City Council and frustrating planning in city agencies and nonprofit agencies. At the same time, mandated accountability mechanisms, such as the mayor’s management report, provide little information about the impact of the outgoing mayor’s major priorities, such as education reform, expanded privatization, and reductions in human and social services.

The mayor’s focus on privatization has changed the funding and governance structures of reform in New York City. New charter schools are almost exclusively privately run. Many charter schools have attracted significant private funding, from foundations and wealthy individuals.

Bloomberg leaves a legacy of a trickle-down theory of philanthropy and privatization that sees fiscal and policy reform as best spun from private, not public sources.

The mayor’s own foundation has contributed millions of dollars to city organizations that also receive public funds. Similarly, several small anti-poverty reform programs — introduced late in the Bloomberg tenure — are largely funded by private money and managed in large part by non-city agencies.

The ultimate impact of private funding of charter schools, cultural, social, and anti-poverty programs won’t be known for some time, but the private, philanthropic origins of this — unfolding as the Occupy Wall Street movement dramatized increasing inequality in New York City – have only expanded the financial and governance power of private wealth over public policy in the City. This development promises to be a stout barrier to any public, progressive reform agenda.

The Budget Legacy: Two Crises, Two Different Solutions

The mayor’s budget legacy is the product of 12 years of balanced budgets, crafted, often brilliantly, in the face of two major economic, social, and political challenges — the shocks of September 11, 2001, and then the financial crash and subsequent recession of the late 2000s. Those two crisis periods were, however, resolved in quite different ways, and illustrate the range of choices a new mayor and new City Council will consider.

The post-9/11 financial crisis — which slashed city tax revenues and soon threatened the city with a more than $6 billion deficit — presented an enormous challenge to the new mayor. Bloomberg responded effectively and equitably, in November 2002, with a controversial package of service cuts and new taxes, roughly $3 billion of cuts and $3 billion in new revenues.

The $3 billion in property, personal income, and sales tax increases were unpopular, especially the 18.5 percent increase in the average property tax rate (cut back by the City Council from his proposed 25 percent increase), the first rate increase in ten years.

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But the tax package was reasonably progressive, with higher income taxpayers paying higher rates for three years. (The sales tax, the city’s most regressive tax, was increased by only 0.125 percent and only for two years). Along with additional help from state and federal governments, the budget crisis was rather quickly brought under control. The plan, with its focus on shared sacrifice, in retrospect if not at the time, was a triumph for the new mayor.

The second crisis, the financial collapse of 2008 and subsequent budget crisis, was resolved in a quite different way: the regressive city sales tax was increased from 4.0 percent to 4.5 percent — and made permanent; the other major taxes were not tapped; and there followed a nearly-exclusive focus on reductions in city spending. In what has continued as a five year, nearly year-round series of budget modifications, mostly cuts in city spending, the city “saved” a lot of money.

Today the current budget is over $6 billion less than it would otherwise have been, absent the modifications. The cumulative effect on services, while only marginally documented in mayoral performance documents, has had clearly negative impacts, especially in public education.

The progressive income tax rates in place from 2003 through 2005 (and in place through most of the 1990s) would have been a reasonable alternative to the relentless succession of budget cuts. The mayor, however, has simply argued that wealthy New Yorkers already pay the bulk of city personal income taxes (true) and might well move out of the city (unlikely).

The $12 Billion Gamble

By far the biggest fiscal problem for the new mayor will be the nearly $12 billion “gamble,” as the IBO has put it, that the last Bloomberg financial plan includes. All city labor unions have been without a contract for the last three years, the city’s teachers and school administrators for the last five years.

The post-9/11 financial crisis presented an enormous challenge to the new mayor. Bloomberg responded effectively and equitably.

The IBO’s March 2013 analysis of the mayor’s then-preliminary budget for fiscal year 2014 notes Bloomberg’s “assumptions that the municipal labor unions will accept settlements with no wage increases for contracts that expired after 2010 and that the unions for the teachers and principals will forgo the two years of 4.0 percent raises other unions received [in 2008-2010 negotiations]. With virtually no money set aside to pay for wage increases prior to 2013, the financial plan gambles that the unions and the next mayor will agree to no retroactive raises.”

The IBO estimates that paying the teachers and administrators the 4.0 percent increase for the 2008-2010 period that other unions received, and assuming all union members receive a retroactive annual increase of 2.0 percent for two years after 2010, the cost would be $4.5 billion through last year’s (fiscal 2013) budget, and $1.8 billion annually thereafter through fiscal year 2017. Total potential cost over four years: $11.7 billion ($4.5 billion, plus 4 x $1.8 billion).

More Fiscal Problems for the New Mayor

The just-released November modification shows that there will be a surplus of $1.6 billion at the end of this fiscal year in June, which is used to pre-pay expenses in the next year’s budget. This is much less than surpluses in recent years — and, again, assumes no costs in new labor negotiations. Another fiscal problem is that the mayor has used up the one big reserve fund, his own Retiree Health Benefit Fund (more on this below), which, although it was designed to pay for costs way down the road, he has used as a convenient budget-balancing tool.

As the state comptroller comments in his July 2013 report: “The city has come to rely on the annual surplus and reserves built up during the last economic expansion to balance its budget, and now the city has exhausted most of these reserves.”
Created in 2007 by the mayor and Council to build a long-term reserve fund to pay for the rising future health of city retirees (the city’s liability is now at $88 billion), the fund reached a peak of $3.1 billion. But little more than $100 million is left, according to the state Financial Control Board’s July 2013 report.

As an example of Bloomberg’s fiscal style, the state comptroller points out that the current fiscal 2014 budget “is balanced with $4.5 billion in nonrecurring [i.e., one-time] resources, including $2.7 billion surplus resources and $1 billion in reserves from the last economic expansion.” In other words, the new mayor will have little fiscal cushion should the collective bargaining results (or any surprise events) add major new costs to the financial plan.

The new mayor’s first chance to formally affect the city budget will be in February, when he will release a preliminary budget for fiscal year 2015 (beginning July 1, 2014) and a modified four-year financial plan.

The Question of Mayoral Fiscal Power

While questions about the fiscal health of the city in the short and long run will be paramount in the early months of 2014, there are questions about budget process and management mechanisms that deserve similar attention. For instance, the success of the Bloomberg administration’s 2008-2013 budget-balancing stemmed largely from its ability to change the budget clock and control fiscal information.

In its rush to accumulate an ultimate $6 billion in savings, the mayor telescoped the traditional budget process by overriding the usual February-June budget process set out in the City Charter and made it effectively a year-round process. No sooner were budgets adopted in June than they were effectively modified almost immediately: with public warnings to city agencies to cut back spending in the summer and major modifications announced as early as September.

The February-June schedule lays out formal, well-publicized mayoral presentations — a preliminary budget in February, an executive budget in May — which build in time for City Council hearings, opportunities for public access to the process, and council/mayoral negotiations. Big changes made in the fall don’t permit this full democratic exchange.

A more subtle way in which the mayor has controlled the budget process has been through his budget office’s control of information — much of which is not shared with the public.

The City Council, for instance, could argue that the sudden increase in the budget surplus, announced last week, could have been used to increase city services this year. Autumn modifications don’t get thorough reviews, and the Council is generally ill-equipped to challenge the changes. The early modifications in a budget year also disrupt planning and management in city agencies and the large number of nonprofit agencies that contract with the city to provide public services.

A more subtle way in which the mayor has controlled the budget process has been through his budget office’s control of information — much of which is not shared with the public. There are any number of ways in which the city’s budget office can manage and then explain (or not) its budget planning to the public. The Bloomberg staff has probably not invented any new techniques, but in the scale and sophistication of its close-to-the-vest work, it may be unmatched.

The Budget Dance

There are several ways, for instance, for a mayor to tamp down expectations and maximize mayoral discretion. Revenue projections may be a bit under-estimated; projected expenditures may be a bit over-estimated. Projects can be delayed. Economic projections may be on the lower range of conventional projections. Money put aside to pay for certain anticipated expenses may not be needed. One-time revenues — like selling city land or taxi medallions — can be moved from one year to another.

These techniques are perfectly illustrated in the new November modification. That surprise $1.6 billion surprise stems from several sources. Tax revenues were (four months ago) underestimated by $1.1 billion for the current year. A reserve fund of $450 million was tapped for $300 million, only four months into the fiscal year; and re-financing of city debt — not anticipated four months ago? — will save $535 million over four years.

One of the most effective of tamp-down strategies is the so-called “budget dance” through which the mayor each year cuts a few hundred million dollars from programs favored by the City Council. The mayor and Council fight over those cuts during the spring negotiations and the mayor eventually restores most of the cuts (generally for only one year, to keep the game going).

By thus focusing on less than 0.5 percent of the City’s $70 billion budget, the mayor diverts attention from the remaining 99.5 percent of his proposed budget. Big ideas — like re-introducing progressive tax rates or reviewing a system of housing and economic tax exemptions that cost the city billions of dollars — don’t get a hearing. Instead, the mayor and Council fight over pennies.

Typical result? This past June the mayor proposed a $1.00 increase in the public school lunch fee (to $2.50). The Council negotiated the proposed increase down to 25 cents — although the City Comptroller noted in his July report that the remaining 75 cent increase remains in next year’s budget.

One of the biggest areas of budget savings in recent years has been the low interest rates for a city that borrows billions of dollars each year for capital improvements. The budget office has repeatedly overestimated the cost of borrowing — as they in effect acknowledged last week — which then makes it easier for the mayor to claim there’s no money for new proposals.

According to the state comptroller’s July 2013 report, for instance, the city has refinanced $18 billion of debt (one-quarter of the city’s debt) for cumulative savings of $1.5 billion through fiscal year 2014.

What these budget maneuvers suggest is a consistent political strategy that anticipates and discourages any pressures from the City Council or others to fund new programs or resist proposed cuts. The use of reserve funds, one-time revenues, and the depletion of the health-benefit fund, in particular, have meant that the Bloomberg budgets for the past five years have reflected short-term, opaque planning and an unwillingness to consider alternative strategies.

Budget Accountability: What Else We Don’t Know

Then there is the question of accountability, the flip side of budgeting. What are the effects of 12 years of spending plans? The official answer is ostensibly in the City Charter-mandated Mayor’s Management Report, issued twice a year, in which a mayor is asked, first, to lay out his fiscal and program goals, and, second, to provide indicators that measure the success of those goals.

The Bloomberg administration, however, has stripped the MMR not only of data, but also of language. There is little or no data provided, for instance, on many of the mayor’s biggest policies and programs: education reform, economic development, contracting, and homelessness services. There is no overall analysis of data; there are occasional paragraphs, but mostly a litany of one-line, bulleted comments.

Nobody reads the MMR anymore. An IBO blog, “How the MMR Went MIA,” noted three years ago that there was an almost complete absence of major press notice of that year’s MMR (only 145 words in the Daily News), and concluded that “the report’s stature has clearly declined.” The New York Times, however, did devote 443 words to the last Bloomberg MMR, released in September.

The Bloomberg administration, however, has stripped the MMR not only of data, but also of language.

But the Times found little of substance. More than a fifth of the Times’ report was devoted to the MMR’s summary of 12 years of work with the “perennial challenge” of graffiti. It turns out that getting rid of graffiti was transferred from the Department of Sanitation to the Economic Development Corporation (the mayor’s economic office) in 2011. Who knew? In any case, in fiscal year 2013, the EDC “scrubbed off more than four million square feet of the city’s landscape … the equivalent of 93 acres.”

It wasn’t always so. In 1991, The New York Times reported that then-mayor David Dinkins’ first MMR “painted a dark picture of New York City’s growing social problems and service burdens.” When Harvey Robins, Dinkins’ director of operations whose office produces the MMR was asked by reporters about the tendency of such summaries to ‘cook’ the hundreds of pages of statistical indicators in the most favorable way, he said, ‘Not only didn’t we cook them. This year, we didn’t even put them on the stove.’”

Eight years later, the Times’ Michael Powell said of the Dinkins’ tenure that “through the years of recession, as the city lost hundreds of jobs, [Dinkins] spoke of his successes and failures, often with brutal candor. His successors [Rudy Giuliani and Bloomberg] have pruned the statistical reports of some negative indicators and tend to place a relentless emphasis on the positive.”

The Last Bloomberg MMR: Searching for the Unknown

The September 2013 MMR was the last chance for the mayor to sum up his 12 years in office, but the format remained nearly the same: a lot of raw data, more one-line bullets, and a dearth of analysis. A brief look at three of the mayor’s priority policy areas — including homelessness relief and the NYPD — illustrates the need for a restructured MMR.

Most striking, the MMR does not even mention the mayor’s signature policy initiative: education reform. There is no mention of charter schools, nor of the hundreds of new schools opened since 2002-2003, nor of the 96 schools closed since 2003-2004 — let alone the impact of this significant change.

The education data do include some evidence of the negative impacts of five years of cuts in spending: Class size in grades K-3 has jumped by over three students per class on average from fiscal year 2009 to 2013. The number of teachers has dropped by 5,177, or 6.5 percent in the same period.

But tracing the reality of progress in reading and math in the grade 3-8 range — a long-time key indicator of school success — is impossible because the standardized tests have been changed too many times, by both the state and city. The one respected independent assessment available, the National Assessment of Educational Assessment, is not referenced by the MMR.

The IBO has reported separately that NAEA testing of reading and math, measured from 2003 to 2011, showed progress in grade 4 reading and grade 4 and grade 8 math, but found that there has been no improvement since the 2008-2009 school year in either subject or grade.

The IBO, under a 2009 mandate from the State of New York established when the reauthorization of mayoral control of schools took place, is monitoring Department of Education programs and student progress. (The data available to them, interestingly, does not include data from charter schools or privately-financed special education programs.) One important — and apparently little acknowledged in recent reforms — finding is confirmation that test scores in grades 3 through 8 are “clearly related to poverty.”

On homelessness, which the mayor made a priority in his second term, promising to reduce it by two-thirds, the MMR acknowledges the failed goal, noting that homelessness increased by 34 percent from fiscal 2005 to 2013, to 47,084. It does not, however, suggest why or what comes next. (The IBO in March 2013 noted that since May 2012 16 new shelters have been set up, 11 of them through “emergency declarations,” a fast-track contracting process that skips traditional contracting rules.)

Limited MMR data on the NYPD confirm one often-quoted mayoral point of pride: that major felony crime has declined dramatically during his tenure, down 36 percent from fiscal year 2001 to 2013, with the murder rate down 42 percent. But the most recent five-year trend numbers, during the rush to cut spending, tell a rather different story: from fiscal 2009 to 2013, the total major felony rate remained essentially flat (down 0.7 percent) at 110,099 crimes. And while the murder rate dropped 22 percent (369 deaths), felonious assaults increased by 22 percent (to 19,616) and rapes by 57 percent (to 1,198). There is no comment on these latter trends.

The MMR does not mention the controversial stop-and-frisk numbers. It does provide a link to NYPD data outside the MMR, where it is noted, briefly, that there were 536,000 stops in the most recent year. With 19,800 officers on patrol, that translates into less than one stop per week per officer, a ratio that does not capture the controversy surrounding the policy.

Privatization and Fiscal Policy

One last significant part of the Bloomberg fiscal legacy is the unique brand of privatization of public policy that he has established in New York. He has essentially worked from the premise that reform in the schools and other public policy areas works best from private initiatives, especially with private governance.

This philosophy is most evident in education reform. As the IBO reported this past March, there has been little growth in the Department of Education budget during the fiscal 2011-2014 period, with annual increases averaging only 1.2 percent annually. But during the same period, payments to charter schools —funded by the city, but run by private boards and mostly non-union staff — increased from $572 million to an estimated $1.022 billion, or 78.7 percent. “In contrast, spending on services for traditional schools is projected to fall by $365 million (2.6 percent) over the same three years.”

What those numbers miss, however, is the role of additional private funding for many of those charter schools by wealthy individuals and private foundations. For instance, a $100 million building for a Harlem Children’s Zone charter school and community center was a “public-private partnership,” with $60 million coming from an education department fund and $40 million from private contributors, including $20 million from Goldman Sachs, $6 million from Google, and $6 million from the Oak Foundation.

Then there is the matter of the mayor’s own money and the “public-private partnerships” that he favors and which will continue beyond his mayoralty. The New York Post called this the mayor’s “Shadow Government”, featuring a revolving door by which city officials, like Deputy Mayor Patricia Harris, worked simultaneously for the city and the mayor’s own foundation, or moved to nonprofits supported by both the city and the mayor.

In a recent New York Magazine review of the mayor’s tenure, Kathy Wylde, president of the Partnership for New York City, said, “Mike’s personal money has had a major impact on just about everything he’s done in city government. Education? Huge influence. Health? Huge influence. Cultural Affairs, social services, and the whole anti-poverty thing.”

The “whole anti-poverty thing” is especially interesting. First of all, it’s not a big thing. It is housed in the Center for Economic Opportunity, a small quasi-governmental office, with a listed staff of 16, funded mostly with philanthropic dollars and a federal grant. The Center has done interesting research work on an alternative definition of poverty, but its primary mission has been to oversee a series of very modest pilot programs, coordinating those programs with 20 city agencies and 200 community-based providers.

The small scale of these programs is hinted at in the September MMR, which reports, in a section entitled “Breaking the Cycle of Poverty,” that since 2006 the Center’s employment programs have placed “over 31,000 New Yorkers in jobs.” In a city whose poverty rate was 21.2 percent in 2012 (up from 20.1 percent in 2010) — i.e., 1.7 million poor New Yorkers — that works out to fewer than 5,000 jobs per year between 2006 and 2013.

What Will Budgeting Look Like Under De Blasio?

A brief analysis of the mayor’s fiscal legacy — the city’s fiscal condition and prospects, the extraordinary discretionary powers of the mayor’s budget and operation offices, and the embedded private money and private levers of power that mayor Bloomberg has established — suggests that a mayor de Blasio has his work cut out for him, especially if he pursues his promised progressive agenda.

Collective bargaining, with its potentially huge costs, is the most obvious hurdle. The depletion of surplus and reserve funds that he inherits only adds trouble.

He does have an easier task: after 12 years of highly centralized and opaque practices in the city’s budget and operation offices, a Mayor de Blasio does have an opportunity: He can open up the budget process – providing transparent budget information, sharing with the public the fiscal choices available, making the City Council a more equal partner. He can reimagine the Mayor’s Management Report as a central instrument for an honest fiscal dialogue with the city’s residents.

He could go further and set up a Charter Revision Commission — as Bloomberg did several times — to fill out what a progressive agenda could look like.

The toughest challenge, however, may be redefining what “public policy” itself means today in New York City. The Occupy Wall Street movement tried to redefine it in the context of inequality, but its message got scrubbed out overnight.

In practice, any redefinition now will have to struggle not only with obvious tax issues (too-generous corporate and property tax breaks, a more progressive income tax) as well as with more fundamental issues about just what the city’s “public” commitment to basic city services — education, libraries, cultural affairs, social services, “the whole anti-poverty thing” — should be.

Glenn Pasanen has taught political science at Lehman College, Baruch School of Public Affairs, and Columbia Teachers College, and from 2001 to 2012 he was public finance columnist for the Gotham Gazette.


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Last Updated (Nov 25, 2013)