"Our economy - which was written off three years ago - is back, and it's back in a big way," Mayor Michael Bloomberg announced in his third State of the City address. The truth is, that at the very moment he was making his speech, midway through the city's fiscal year, the news is actually far more mixed.
The city's immediate budget prospects have brightened a bit, and the city's economy looks a little more upbeat. The latest reports from several fiscal monitors suggest that the city will end its current fiscal year (in June) with a substantial and unexpected surplus -- as much as a billion dollars.
But long-term budget deficits continue to worry the city's fiscal monitors. And one big cause of those deficits - increasing city debt service - is news again, highlighted in the city comptroller's new report on total city debt and dramatized in the mayor's West Side financing plans.
DUBIOUS DEFICIT REDUCTION PLAN
The mayor's preliminary deficit-reduction plan for next year has several risks, according to City Comptroller William Thompson's latest report (In PDF Format) on the city economy and finances:
The most troublesome may be the city's assumption that federal and state aid will increase by $950 million.
The mayor's decision to eliminate his plan to pay cash (pay-as-you-go) for capital projects will save money in the short run, the comptroller says, but may add long-term debt-service costs.
Labor costs and overtime costs may be underestimated.
The city's financial plan still contains no city funding at all in the Campaign for Fiscal Equity case - even though estimates of the city's likely share (23 percent) would add $330 million to next year's budget alone.
The comptroller's report on the economy lists several long-term worries for the nation and the city: higher oil prices, the war in Iraq, a weak job recovery, and higher interest rates. There is also a half-trillion-dollar national trade deficit and a federal budget deficit approaching the same number. All of this threatens city tax revenues as well as federal and state aid.
HIGHEST DEBT PER CAPITA
The city is far and away the nation's biggest capital spender on a per capita basis, according to another report (In PDF format) by the comptroller, on the capital debt. By June 2004, the city owed approximately $50 billion for the schools, bridges, hospitals, etc. that it has financed and built. That is over $6,200 per New Yorker. Chicago, the closest to the city in spending, owed $3,920 per person (in 2003). In a sample of selected cities, New York's spending is almost double that of the other cities, on average.
The capital debt report also shows how elected officials use all kinds of mechanisms to get around limits to conventional borrowing (that is, borrowing through the city's capital budget process, where the city council gets a vote). For instance, the $50 billion does not include the $13.4 billion that the Water Finance Authority owes (for water-main and sewer construction) or the nearly $20 billion that the Metropolitan Transportation Authority owes, even though regular New Yorkers pay both debt services - the Water Finance Authority's debt through fees and charges to city property owners, the MTA debt through transit fares.
WEST SIDE PLAN
The financing for all three parts of the mayor's West Side plan - the Javits convention center expansion, the Hudson Yards residential/commercial plan, and the Jets Stadium -- was designed to by-pass the city's capital budget process.
But the January 10 city council vote on the Hudson Yards re-zoning and financing plan by its land use committee (full vote of the council is scheduled for January 19) marked a significant change.
The council insisted on the city's paying for the up-front costs of the Hudson Yards plan over the first ten years through the city's capital budget. The mayor had proposed that short-term borrowing pay the initial debt service costs of the long-term bonds necessary for the #7 subway extension and other infrastructure costs. This would have added $1.3 billion in extra costs, according to the Independent Budget Office.
Left out of the new agreement between the mayor and the city council over the financing of the West Side plan was the question of the Jets stadium. Here, big political, legal, and fiscal questions remain, as discussed in an earlier Finance topic page update. The fiscal questions are especially important. On the construction side, the actual cost of the stadium is in dispute. The mayor's estimate -- $300 million for a platform and roof for the stadium - has been disputed by, among others, Public Advocate Betsy Gotbaum, who argues that the project's costs could exceed $2 billion, payable by city taxpayers.
On the financing side, a crucial question remains: how much revenue is the city giving up by ignoring alternative uses of the site and simply giving control to the site - and its property tax revenues -- to the privately owned Jets.
The Regional Plan Association's December 2004 alternative plan (In PDF Format) for the site, for instance, shows how a residential/commercial project, similar to the adjoining Hudson Yards plan, would generate hundreds of millions -- perhaps more than a billion dollars -- of city and state property, income, sales, and other tax dollars over a 30-year period. These revenues could be split among the city, state, and Metropolitan Transportation Authority (which owns, and will continue to own, the stadium site).
The potential tax-benefit bonanza of a new Manhattan riverside mixed-use development is illustrated by Battery Park City, where the commercial part, the World Financial Center, sits on another Hudson River site, similar in size to the stadium site. One projection, by the consulting firm CB Richard Ellis, estimates that the World Financial Center will generate property taxes for the city over the next 30 years of more than $2 billion.
The City Council's deal with the mayor to revise the Hudson Yards financing plan shows how the democratic process is supposed to work. Recognizing the mayor's strategy to blur the connections between the stadium and Hudson Yards plans, council members insisted that the Hudson Yards financing be distinct from the stadium's. Councilmember Christine Quinn said in the December 11 New York Sun, the deal "very clearly states not a penny of the financial resources, not one dollar generated by this rezoning can be used west of 11th Avenue."
Whether the Jets stadium proposal, especially its financing scheme, gets an equally open and democratic airing remains to be seen. The plan is scheduled to more or less disappear from public view, with planned votes by the Empire State Development Corporation and the obscure New York State Public Authorities Control Board. The plan could be delayed by two state court suits filed last month against the stadium on environmental grounds.
Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.