Things are going well for Mayor Michael Bloomberg. The city has a surplus of more than three billion dollars, an amount that could grow much larger before the current fiscal year ends on June 30th. And then, when the mayor declared that he will use the surplus in what he calls a financially responsible manner in his proposed new budget for the coming fiscal year, he was praised by both fiscal experts and editorial writers.
Let mine, then, be a voice of dissent. Bloomberg’s financial plan for the coming year is underwhelming, with only one big budget idea, a baffling one at best -- the transfer of $2 billion of the surplus into a “Retiree Health Benefits Trust Fund.”
Yes, the mayor does deserve credit for raising the possibility of a new policy for surpluses. From 1997 through 2001, Mayor Rudy Giuliani surpluses averaged $2.3 billion, but they simply became “one-shot” revenues for the next year, hiding the underlying budget imbalances. The 2001 “one-shot” in fact created a huge problem for Mayor Bloomberg when 9/11 and a recession exposed the risks in this roll-over strategy.
But Bloomberg’s surplus last year was about $3.5 billion. Why didn’t he pursue this new policy then? Why now? And why is he promoting this new idea when there are better ones that have been proposed by members of his own administration?
Why A Health Fund?
Bloomberg has said that he has two reasons for creating a new reserve health fund for city retirees. One is long-term budget stability, the other is in order to comply with a recent rule change of the obscure Government Accounting Standards Board. But that seems far from the whole story.
For one, the accounting rule does not take effect for two years and even then only requires the city to account for its long-term benefit liability â€“ in other words, to show what the city will owe its retirees in the future, not to create a fund, nor in fact to take any other specific budget action.
As for helping long-term budget stability, there are more obvious ways to achieve this â€“ establishing a more stable and progressive tax code is one. But the health fund idea could very well short-circuit a broader discussion of such other ways.
That, cynics could suggest, might be the point of it. Education advocates might see the health fund as a way for the city to be able to cry poverty when the Campaign for Fiscal Equity case is finally settled, and the plan to improve city public schools requires not just funding from the state, but from city coffers as well. City labor unions may see this reserve fund as a way of parking funds so that they are out of reach, part of a “politics of scarcity,” providing leverage for the city in the next round of labor negotiations.
What Happened To A Rainy Day Fund?
It is puzzling that the mayor does not suggest a “rainy day fund,” the usual way of transferring surpluses. The mayor’s own charter revision commission heard a lot of testimony about such a fund. The commission’s August 2005 final reportnoted , “A rainy day fund can provide a source of funds to mitigate negative budget impacts created by changes in the economic cycle. Further, a rainy day fund can provide an accepted mechanism to spread repayment, over a period of time, of a deficit in a particular year.”
But the commission decided it would be legally difficult right now to create such a fund and deferred the idea to another time and another commission, even though it acknowledged “there may be, among the fiscal experts external to the city, a consensus that a rainy day fund is generally a good financial tool for fiscal stability.”
If a rainy day fund is not possible under current state law, then how does a retiree health fund, with arguably the same purpose as a rainy day fund, pass muster? And what is the city council role? One would assume the council would have to sign off on the plan.
What Happened To Property Tax Reform?
A health fund is not the only area where the preliminary budget does not address the full implications of mayoral policy. The mayor promises another round of $400 rebates to residential property owners (a loss of over $250 million), but he doesn’t mention what looks like a big change in the structure of the property tax.
The latest preliminary assessments of city properties have quietly created, in the interests of equity, yet another population of specially-treated owners, according to a recent article in the New York Times. ("Even as Homes Soar in Value, Some Will See Tax Bill Slashed" by Josh Barbanel.) The owners of rental buildings, co-ops and condos with 10 or fewer units have seen their assessments lowered. The estimated cost to city coffers is $90 million.
The intent sounds admirable: equity among, in this case, owners of small rental buildings and units in small co-op and condo buildings. But there are many questions. Does this require new legislation? Does this promote equity across classes? Does it create new inequities? Does it in fact create yet another new class of property in a system that is already Byzantine?
Moreover (as I wrote earlier about property tax reform) , co-op and condo abatements introduced in the 1997 (on a temporary basis, but still in place), were also sold in the interests of equity, but also created a big loss in revenues. Why must equity be equated with a net loss of revenue? As with the proposed health fund, from a public interest point of view there should be a wider public discussion about alternative policies. Why not, for instance, a revenue-neutral property tax reform? And why not a simpler property tax system that has only two classes â€“ residential and commercial?
When Will We See Budget Transparency?
One other general problem with the preliminary budget is the lack of detail about its few budget initiatives. In the beleaguered Administration for Children’s Services, for instance, some $16.5 million of new spending is cited for 2007 (less than one percent in a $2.2 billion agency). But the program areas where the money goes are only vaguely identified, such as $5 million “to expand oversight” in the “intensive family services unit.”
Contrast this with the information available on that same agency from the Independent Budget Office. The Administration for Children's Services is one of 16 city agencies that the budget office has analyzed in an effort to connect dollars spent with results achieved, in its newly-released Programmatic Budget Reviews. Its 32-page presentation of budgeting data for the Administration for Children's Services breaks down that agency's $2.2 billion in spending into 26 program areas. So, we learn that the family preservation program has 211 employees, and the program is spending $9.3 million this year. Not only that, the Independent Budget Office shows five performance measures for the program that measure such results as average caseworker caseload (2.4 in 2004) over four years.
None of this information is available either in the mayor's preliminary budget, nor in the annual mayor's management report. Interestingly, again, the mayor's charter revision commission studied the inclusion of such information, in order to make the connection between budget dollars and agency performance more clear.
Nothing came of this, but the mayor could take the framework from the Independent Budget Office and build on it, in order to inform the public better about its government’s spending and performance.
Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001.Â