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Budget Transparency After The West Side Stadium

by Glenn Pasanen, Jun 09, 2005
 

Among the many problems posedby the proposal for a West Side Stadium, were the ways it violated fundamental principles of a democratic budget process – an early failure to disclose funding sources; uncertainty about full public costs; and a lack of public representation in the decision-making about the project.

The stadium is now, apparently, dead. But the issue of transparency in the budget process is involved in several other stories that have gotten much less attention.

2006 BUDGET UPDATE

One story that is being followed less avidly than in past years is the city budget, because Mayor Michael Bloomberg and the City Council seem to be negotiating their differences with little difficulty, and because the city’s short-term fiscal prospects remain bright. The Independent Budget Office in its analysis of the mayor’s executive budget agreed with the city’s projection of a $3.3 billion surplus for the current fiscal year, which ends on June 30th. At the same time, Standard & Poor’s, the credit rating agency, gave the city an A+ rating on its $32 billion of general obligation debt, the city’s highest rating ever. That makes city borrowing easier and cheaper. S & P praised the city’s “steady fiscal and economic recovery since 2001 and strong budget management.”

Standard & Poor’s additional comment that “the outlook is stable,” though, seems contradicted by the $4.5 billion deficit projected for fiscal year 2007, which begins next July. S & P doesn’t seem to be too worried about this, but the Independent Budget Office is worried, labeling as unworkable the mayor’s “wait and see” approach to future budget gaps.

LOCAL LAW 69: TRANSPARENCY IN CORPORATE SUBSIDIES

Questions about deals like the West Side Stadium -- negotiated separately from the normal budget process, and involving millions if not hundreds of millions of taxpayer dollars -- have been around for decades. Few would deny that business incentives have a place, but the problem is how to judge their effectiveness. Local Law 69, passed in 1993, was supposed to make sure that firms receiving tax breaks and other benefits from the city were held accountable. Each year, these companies were required to issue reports explaining how they had used the benefits, and presenting such statistics as the number of jobs they had created.

 

But in June 2001 -- the last year of the Giuliani administration -- a study by the Independent Budget Office, “Full Disclosure? Assessing City Reporting on Business Retention Deals,” delivered a devastating indictment of the Local Law 69 annual reports, demonstrating that they understated the cost and overstated the positive effects of the tax breaks, and that most of the data was unreliable, inconsistent, and not easily available to the public.

Three years later, Good Jobs New York published “Know When to Fold’Em: Time to Walk Away from NYC’s ‘Corporate Retention’ Game,” a study that showed how 13 companies had laid off employees after signing agreements that gave them huge tax breaks to create new jobs. As of June 2002, ten of these companies had actually lost jobs -- a total net loss of 3,000 jobs -- in spite of their use of $120 million in subsidies.

The study reported that between 1988 and 2000, “the city negotiated approximately $2 billion in retention deals worth over $1 million each.” The study goes on to note the Bloomberg administration’s “notable improvements” in the public hearing process with more recent deals. Notices of these hearings are now posted online. The study also notes that the mayor finally killed former Mayor Giuliani’s proposed $1.1 billion subsidy to keep the New York Stock Exchange in the city, an effort that nevertheless cost the city at least $110 million in its preliminary stages.

Errol Louis has reported in the Daily News on the key role of Good Jobs New York in the subsequent council legislation. The newly amended Local Law 69 –- introduced as Resolution 373-A in May and signed by the mayor in late May -- does several things to improve fiscal transparency, including lowering the threshold for the costs of deals that need to be reported (now $150,000).

The new law also requires more detail on the kinds of jobs (including the number of part-time and contracted-out jobs) and wage levels. It also requires the reporting on new deals be extended to the life of the deal, not simply the first seven years as in the original law. Lastly, each report has to be widely distributed and easily accessible.

THE CHARTER REVISION COMMISSION AND BUDGET TRANSPARENCY

As the mayor and council were resolving the issues around an amended Local Law 69, the mayor’s Charter Revision Commissionwas continuing its lengthy deliberations, many of which could affect fiscal transparency, for better or worse. The commission, appointed in August 2004, is chaired by mayoral advisor Dr. Ester Fuchs, and its executive director is Terri Matthews, a deputy-mayoral advisor.

The commission’s sole purpose, according to Fuchs, is “improving city government,” but in practice the commission has stuck with three rather narrow goals:

  • adding certain budget reporting rules to the charter,
  • possible charter changes in the city’s administrative judicial system
  • and new charter rules to increase agency efficiency, effectiveness, and accountability.

This is a somewhat esoteric agenda, which probably explains the sparse attendance at Commission hearings over the past ten months.

Expiring Safeguards From The 1970s Fiscal Crisis
The first priority stems from the fact that the state’s oversight of the city budget –- mandated by state law since the mid-1970s fiscal crisis forced the state to bail the city out -– ends in 2008, and many observers think it would be good to continue current reporting practices by requiring them through the city charter.

Last month, commission staff suggested four fiscal requirements be added to the charter:

  • the city should end the year with a balanced budget with no more than a $100 million operating deficit (as is the case now)
  • the four-year financial plan and quarterly modifications should also be continued
  • there should be stricter limits on short-term indebtedness;
  • updated actual vs. projected financial information should be published for public review.

This sounds good on the surface, but commission members and expert witnesses have raised questions about the depth of information that would be publicly available and whether the full access to information now enjoyed through state mandates will survive. At a March 23 hearing in Brooklyn, for instance, Independent Budget Office director Ronnie Lowenstein said that “it is vital to replicate on the local level [the] strong right of access to information” that the current state Financial Control Board enjoys. This access, she said, “enables [the Financial Control Board] and others to form a sound, independent judgment about the city’s financial condition.”

 

Promoting Efficiency, Or Keeping The Public In The Dark?
On the other budget-related priority of the commission – promoting efficiency, effectiveness, and accountability – the initial staff focus seemed based on an apparent perception that there are too many mandated reports that too few people read. The staff has proposed a commission be named that would review charter-mandated reports and recommend eliminations or other changes in those reports.

This might sound harmless, but the devil will be in details yet to be defined. The structure of the new commission, as outlined at a May 25 meeting, would be nine members: six ex officio (council speaker, public advocate, city comptroller, the mayor’s director of operations, the mayor’s budget director, and the mayor’s corporation counsel) and three appointed public members. The danger here, at least to one reader of many of these documents, is that such a commission –- dominated by elected officials and their appointees -- would be protective of the status quo, or under the guise of “efficiency,” be impelled to reduce rather than expand public information.

More Evisceration of Mayor's Management Report?

To take one example, the one report currently mandated by the city charter that is most relevant to “efficiency, effectiveness, and accountability” in city government is the mayor’s management report, a report that could be vastly more transparent and accountable, as this topic page has pointed out, especially in its mandate to link budget information with actual program performance. A new commission, at least as outlined in May, seems unlikely to be the mechanism of its reform.

"Do No Harm"
As Fuchs wisely said at one meeting, the commission “should do no harm.” But as an esoteric agenda flies under the city’s radar screen, there is as yet no certainty that budget transparency, public access to information, and measures of fiscal accountability will be improved by the commission’s work. The commission staff’s formal preliminary recommendations –- promised for early June -– bear close scrutiny. Several public meetings in Junewill permit public comment on the recommendations.

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

 

 

 

 

 

 

 

 

 

 


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Last Updated (Sep 04, 2014)