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A Bad News Budget

by Courtney Gross, Jan 28, 2008
 

New York City should get ready to lose some weight. This time, though, the target is not New Yorkers binging on transfat-laden fries or sugary soft drinks. No, now it's government that has to slim down.

For the first time since 2004, the city faces, not a surplus, but a deficit, forcing all departments and agencies to cut back or suggest innovative revenue producing proposals. No agency goes untouched. No department has immunity.

Calling recent economic trends "disturbing," Mayor Michael Bloomberg calmly went through financial indicators on Thursday, reminding New Yorkers that the city faces the effects of the national economic slowdown. "It's going to hurt us," warned the mayor, while ticking through a fairly pessimistic Power Point presentation at City Hall.

The question is, how much?

Five months before the City Council must approve a balanced budget, the mayor's preliminary proposal provides some indication of what some New Yorkers might have to do without next year and additional fees they might pay.

photo of men sleeping on subway platform
Photo (cc) 2007, kebella/ Nicole.

Bloomberg contends that essential services will not be cut, but he needs to trim a total of $1.5 billion over the next two years. He plans to cut funding for individual schools and close some homeless shelters among other reductions. He hopes to boost the tax on cigarettes once again. But he still intends to keep the $400 tax rebate and 7 percent property tax cut implemented last year -- though some advocates cautioned against that.

The administration needs to fill in many of the details. City Council members, advocates and others are just beginning to mull over what is and what is not included for fiscal '09. And budget watchers wonder whether the mayor has planned for the future or simply offered a quick fix.

A Foggy Forecast

The http://www.nyc.gov/html/om/html/2008a/pr029-08.html&;cc=unused1978&rc=1194&ndi=1">budget, an increase of 3.7 percent from fiscal year 2008, tops $58.5 billion. Much of the increase is due to contract agreements with city employees, debt services and pensions. The figures announced Thursday incorporate the mayor's departmental directives from last fall, when he required every city department to cut spending by 2.5 percent this fiscal year and about 5 percent in fiscal year 2009. (Bloomberg said last week that agencies had cut a total of 4.3 percent for this upcoming fiscal year - slightly less than he requested.) Unlike in some previous years, schools and police will be forced to cut back along with everyone else.

The city's expenditures are pretty predictable, said Bloomberg, but revenues are not. Almost every expert, though, predicts a downturn from the mortgage meltdown, credit crunch and Wall Street's seesawing.

New York Stock Exchange firms saw their largest losses ever in the third quarter of 2007, said Bloomberg, and the news for the fourth quarter is shaping up to be even worse. Unemployment claims are up nationwide, and housing sales have steadily dropped. Politicians in Washington are so worried that they seem to have put their partisan differences aside to reach agreement on a $150 billion economic stimulus package.

Budget officials estimate the city will receive $660 million less than anticipated in revenue based on the decline in profits on Wall Street.

So, what's the good news? Well, the mayor said, the budget is balanced. (By law, it has to be.) Tourism in the city, and hotel and office occupancy rates remain high. Bloomberg also made sure to give himself a pat on the back for prudent fiscal planning during the city's good times, when he put aside millions to pay down debt in future fiscal years.

Where to Cut

This year's budget poses some quintessential policy questions the city did not have to face during the boom of the past few years: Should the government cut services to preserve tax cuts or should it keep programs at their current level and roll back tax breaks? And if the economy continues on its gloomy trek, what could or should the city do to avoid a far greater economic slowdown?

The answers depend to some extent on how bad things get. Some take a very grim view. Speaking at a forum Friday night, Representative Jerrold Nadler said the country could be facing the worst economic downturn since World War II. Bloomberg, while hardly optimistic, is not that gloomy.

"He's certainly put up big yellow lights, but he hasn't waved the red flag and said everything is falling apart," said Doug Turetsky of the city's Independent Budget Office. "Assuming there are no big local economic surprises over the next few months and things don't get remarkably worse, we're basically still running off the momentum of the good times. What the mayor's clearly showing us is even if things don't get worse, the days of wine and surpluses are over."

Turetsky said keeping the city's $400 tax rebate and the 7 percent tax cut on the table is also a viable option. That is, if the city's economic outlook starts to improve or, at least, not get demonstrably worse.

Some city officials are hopeful. Councilmember Domenic Recchia predicts the markets will recover and funding will be restored before it's time to finalize the budget. "I think that 5 percent is not going to be 5 percent," said Recchia, who chairs the council's Committee on Cultural Affairs, Libraries and International Intergroup Relations, of cuts to the city's cultural programs.

Other experts, though, see the budget as not doing enough to address the tough times that could lie ahead. Bloomberg's proposal uses the city's previous surplus to balance the budget in fiscal year 2009, which runs from July 2008 to June 2009. Then little of the city's surplus will remain. Because of that, some experts see a $4.2 billion gap looming in fiscal year 2010 and want the mayor to think about that now.

Charles Brecher, research director at the Citizens Budget Commission, would prefer to see the surplus money spread out over several years and not used for 2009 alone. "We kind of see this as temporizing and not dealing with the fundamental problems," said Brecher. The commission, he added, will draft alternative options for the City Council and the mayor to consider, including examining premiums in the city's health care system, like requiring employees to chip in, and curbing spending more aggressively.

Doing the Dance

Beyond its effect on spending and taxes, the new economic reality could change the relationship between the mayor and the City Council. The City Council must approve the budget. Over the past few years, with the city's coffers overflowing, the budget back and forth between the administration and council has been relatively congenial. But now that programs are threatened, some members are preparing to strap on their tap shoes.

"Let the dance begin," said Councilmember Vincent Gentile.

This refers to the infamous budget dance, long a mainstay of city politics. The administration cuts certain programs, libraries for instance, knowing the City Council will reinstate them. The mayor takes one step toward a certain program, and the council takes the opposite step back.

City Council Speaker Christine Quinn and Finance Committee Chairman David Weprin have criticized this because it wastes time and accomplishes little. In 2006, both Weprin and the speaker claimed the council had done its last dance. The mayor seemed to acknowledge that last week when he told agency heads that he expected them to suggest genuine savings and not a plan that "takes the most politically popular program and closes it."

That statement aside, the dance already seems to have re-emerged. "It was kind of a back to the future," said Turetsky of the mayor's budget. "Where you had some of the same old litany of cuts to summer jobs, library subsidy, seniors services. ... It seems that they are playing the same tune."

The new fiscal reality could change the tune, Weprin said. "It's a little different. We know we have to do a billion dollars in cuts," he said. Despite that, Weprin said, the council probably would come to the rescue of some of its favorite programs, like libraries and senior and children's programs.

Snipping Away

Library Patrons
Photo (cc) 2007, dihade.

While the mayor did not list precise cuts, some programs teeter on the chopping block.

The 5 percent cut in libraries threatens the effort to have all libraries open six days a week, which was included in last year's budget.

The Department of Sanitation may eliminate leaf collection, which runs for four weeks in the fall in the outer boroughs and costs the city $2.25 million. The department also proposed dropping some supplemental collection in the outer boroughs.

Some single adult homeless shelters are slated to shut, which will save the city approximately $2.5 million. The closures, said a Department of Homeless Services spokesperson, are in response to a decline in the number of homeless single adults. The department's entire financial plan for fiscal 2009 is slated for a 15 percent decrease, primarily because it does not include funding for the increase in homeless families that occurred in fiscal year 2008. In an emailed statement, a department spokesperson said the decrease would be possible because of shorter stays at shelters and efforts to move people back into the community. "As always, DHS's budget is adjusted year-to-year to ensure we continue to serve every family and individual who is eligible for services at any given time," the statement continued.

Other efforts that might see a decrease in funding are senior centers, Meals on Wheels and summer youth programs.

On the other hand, some departments plan to increase revenues. The Parks and Recreation Department hopes people will pay to put their names on public facilities. The program would involve about four facilities -- probably swimming pools or tennis courts within larger parks -- with naming rights going for approximately $750,000 each. The rights would most likely be available to people not corporations. The department is also looking into holding more concerts at in the parks to boost revenue.

However the departments manage to balance their book, some advocates said they would not harbor any hard feelings, partly because the cuts are across the board. "We can't say that it is unfair," said Randall Bourscheidt, president of the Alliance for the Arts. "It would be hard for people in the arts to feel like they have been singled out."

Making the Grade

What is bound to cause some controversy is the proposed cut to the Department of Education.

During his time in office, Bloomberg has increased spending on education by about $4.5 billion. The funding for the Department of Education got an extra boost last year when the state finally settled the lawsuit on school funding brought by the Campaign for Fiscal Equity by pledging to give the city an additional $3.2 billion in education aid over the four years starting in fiscal year 2008.

The Department of Education is expected to spend about $20 billion this year on operating costs, including personnel, pensions and debt service. The mayor's preliminary budget calls for about $325 million in program cuts. It remains unclear exactly where these cuts will come - the Campaign for Fiscal Equity said it is still analyzing the plan. The budget does call for making the food program more efficient by requiring kids not eligible for free meals to pay for their lunch and for greater efficiency in purchasing and in using technology.

Individual principals, who have been given more control over spending at their schools, will see their budgets cut by an average of about $100,000 each, Schools Chancellor Joel Klein told the New York Times. As a result, he said, they will "have to tighten some programs," such as weekend tutoring or after-school programs. "My theory is that they should have some discretion," Klein added.

School cuts almost always attract opposition, though Bloomberg's record of increasing funding and focusing so much attention on schools may work to his advantage. "Everyone knows how important education is to him," the vice chancellor of the state Board of Regents, Merryl Tisch, told the Sun. "So if the mayor is recommending these cuts, you could be sure that he's not recommending them without having thought this through very carefully."

Some of the cuts may even please certain education advocates. The budget scales back the number of standardized tests, which the Klein has sharply increased over the years. "If that's the kind of stuff they're going to cut out of the education budget, count me in," wrote Reality Based Educator.

The State Adds A Little Less

The city schools could face further cutbacks if Gov. Eliot Spitzer's proposed budget becomes reality. Under last year's plan to settle the Campaign for Fiscal Equity suit, the city expected an increase of $530 million in state aid for school operating costs. Now Spitzer has proposed an aid increase, but of about $100 million less than anticipated.

Education advocates last week assailed the governor for reneging on the deal. "More than a generation of public school students in New York have already suffered delays that continue to affect their ability to compete in the global economy and actively participate as citizens," Geri Palast, executive director of the Campaign for Fiscal Equity, said in a statement. And city teachers union president Randi Weingarten said the union "look[s] to the legislature to restore these funds in order to maintain the integrity of the Campaign for Fiscal Equity agreement."

Education advocates are particularly dismayed at the $193 million reduction in so-called Foundation Aid to the city. This money comes with strings attached: In other words, the state - not Bloomberg and Klein - set limits on how it can be spent. The restrictions came out of an ongoing debate about whether the state should hold the city accountable for how it spends state education dollars.

With fewer restrictions on spending of state aid, Leonie Haimson of Class Size Matters, an advocacy group, has written, "the city could instead spend it on more testing, cash rewards tied to test scores, more consultants, higher salaries at Tweed, or really any new fad that strikes their fancy."

The state would also delay payment for new school buildings by about 18 months, which, according to the New York Times, would have a disproportionate effect on the city.

Looking to the State

City officials have vowed they will lobby the state for changes in the budget - on education and other issues - but, like the city, the state faces a difficult budget picture. Spitzer, unlike Bloomberg, set out some major new spending initiatives in his proposal for the fiscal year. Despite that, the $124.3 billion plan calls for less growth - slightly more than 5 percent - in spending than any budget in a decade. Some of the key increases come in money for upstate revitalization and programs for the state university system.

To fund that increase in these shaky economic times - and to avoid raising taxes - the governor looks to some unorthodox revenue sources, including a hefty hike in the tax on malt liquor, "monetizing" the state lottery and collecting taxes on cocaine sales.

Some critics questioned whether Spitzer's projections were too rosy. He even called it "a good news budget." But the governor noted that 20 percent of the state's tax revenues come from Wall Street, making some fear tougher times ahead. "They face coming back for a mid-year correction," Elizabeth Lynam of the Citizens Budget Commission told the Albany Times Union.

Or, as the mayor put it, "Anyone that thinks we're out of the woods is wrong."


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