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High Revenue, Obscure Spending

by Glenn Pasanen, Dec 08, 2006
 

City Hall cannot be blamed for boasting about an increase in revenue to government coffers. But it is rightly criticized for obscuring information about how it spends the money -- specifically, its more than $11 billion in contracts with organizations outside of government.

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Good News About The Budget

Recent city budget news promises another happy year for Mayor Michael Bloomberg, with new revenue estimates billions of dollars higher than originally forecast -- “a dramatic change,” according to Ronnie Lowenstein of the Independent Budget Office.

As part of the budget process, every November, City Hall issues an update on its proposed budget for the following fiscal year. The so-called November modification this year is in sharp contrast to the one four years ago, which included three billion dollars in new taxes in order to resolve a looming budget deficit of more than six billion dollars.

Thanks to an increase in real estate transactions and in other business activity, both of which mean higher tax revenue, city officials estimate that the current fiscal year will end in June 2007 with the city government having a surplus of nearly two billion dollars. And though they are still projecting a deficit over the following years, these are expected to be far less than the initial estimates. The estimate for the deficit in fiscal 2008 has gone down from $3.8 billion to $510 million. In 2009 and 2010, the deficits are expected to be far higher -- $4.1 billion and $3.6 billion respectively – but these are less than were projected when the initial estimates were made, back in June.

No one at the city council or city comptroller’s office is reportedly suggesting that those initial revenue estimates had been underestimated by design -- to keep the council and budget advocates from finding ways to spend the now-recognized revenues.

But City Hall is less forthcoming when it comes to issues of how it spends the money.

Obscuring News About Contracts

The annual report from the Mayor’s Office of Contract Services provides raw data about the sheer volume and scale of city purchases -- over 46,000 purchases of goods and services in 2006, worth $11.4 billion.

City Hall’s extensive use of contracts – the subject of an Issue of the Week in Gotham Gazette almost five years ago – is little discussed, but very important. As Seth Forman explained:
Since the 1980s, fiscal conservatives have been touting the use of private contractors as a cost-saving measure, pointing to municipalities that have realized impressive savings. Liberals remain more skeptical about putting such government services as education and prison management in the hands of profit-hungry private businesses. But the issue no longer has the ideological gloss it once did. Most Democrats and Republicans, liberals and conservatives, see contracting as a routine approach to the management of government services. Former New York State Governor Mario Cuomo told the authors of Reinventing Government in 1992, "it is not government's obligation to provide services, but to see that they're provided."

Critics see the problem not with the use of contracts per se, but with the lack of monitoring of them.

The 2006 report from the Mayor’s Office of Contract Services, entitled Agency Procurement Indicators, has little to say about management performance, good or bad, and hides what others see as bad news.

Until 2002, this annual report on contracts was a part of the Mayor’s Management Report, but since then it has been published separately, and it now gets little or no attention. Yet the huge scale of the city’s purchases suggests that the report should be a central document in addressing city management issues.

What the public gets, in fact, is a lot of information but little analysis. It may be useful, for instance, to know that in 2006 there were purchases of:

  • $3.8 billion in human services
  • $1.5 billion in professional services
  • $1.1 billion in goods
  • $885 million in architecture/engineering services

It may also be useful to see the city publicize the scale of subcontracting by agency vendors – the oversight of which is a neglected second layer of city management issues: 2,500 new subcontracts in 2006 valued at almost $1.5 billion.

The report also cites methods of procurement and procedures to ensure competitiveness, and reports on new programs that broaden business opportunities for companies owned by women and minorities.

But missing is a consistent methodology to measure performance over time -– the setting of goals, performance standards, and evaluations.

Also missing is any mention, let alone performance measurement, of some $3 billion in contracting at the city’s department of education. A city council hearing on November 21 highlighted what the Daily News discovered was a “record-breaking” $121 million worth of no-bid contracts last year. The department argued that the no-bid contracts are necessary for rapid, efficient responses to its needs. The city comptroller (whose office reviews and registers other city agency contracts, but not education contracts) says he will propose state legislation to stop the current practice.

Timeliness of Contracts

City government agencies routinely delay the completion of a contract with outside organizations for as long as a year, but on average about four months. One of the reasons why these delays matter, as Susan Buttenwieser pointed out in an article in Gotham Gazette entitled Breaking The Contract With Nonprofits, is that such routine delays in payment force many non-profit agencies who have these contracts to borrow money in order to provide the promised services. These organizations then collectively pay millions of dollars in interest that will never be reimbursed.

One section of the 2006 contracting report is focused on the timeliness of the contracting process, and makes a token nod at a substantive performance measurement. But it devotes only a third of a page to processing times of competitive contracts with sealed bids (only one of many contracting methods). A table shows that in 14 agencies, the process, or “cycle time,” ranges from 58 to 339 days, averaging 125 days, and that this is an increase from an average of 118 days in 2005. The explanation for the increase is cryptic: “year-to-year fluctuations in the size and complexity of awards.”.

That’s it for analysis of processing time.

Yet last year’s report had an interesting five-page analysis of processing times for another method of contracting, requests-for-proposals (or RFPs) in human-service agencies. One of its useful findings (for year-to-year comparisons) was that cycle times for this method were longer than for contracts based on bids – 158 days compared to 118 days.

The 2005 report also admitted that “most oversight agencies lack electronic tracking systems, and none of the systems that exist are linked to one another to permit a fully transparent view into the procurement process.”

Although progress was promised for 2006, there is no update to this analysis in the 2006 report.

He Said, She Said

The other indicator of timeliness in the 2006 report is an update on retroactive contracts, long a sore point for vendors, especially human-service organizations with limited financial capacity that must carry the financial burden until their contracts are registered. But much of its good news is contradicted by the city comptroller’s reports on the same problem.

The city comptroller and the Mayor’s Office of Contract Services, using different timelines and definitions, have for years been at odds in their analyses of retroactive contracts. The comptroller has generally found the problem to be bigger and identified less progress than has the mayoral agency. The Mayor’s Office of Contract Services issues one report a year; the comptroller issues monthly as well as annual reports on retroactive contracts in client-service agencies.

A look at one city agency shows the inconsistencies between the analyses of the city comptroller and the office of contract services. The comptroller’s report identified 1,366 late contracts in 2006 at the Department of Youth and Community Development, compared to only 238 deemed late by the Mayor’s Office of Contract Services.

Percentage of late contracts?
The comptroller says 92 percent, worse than previous years.
Contract services says 73 percent, better than previous years.

Average number of days contracts were late?
The comptroller says 148 days.
Contract services says 64 days.

In its brief text, the report by the Mayor’s Office of Contract Services sees almost exclusively good news. But the bad news overall for analysts and the public is that until this mayoral agency and the city comptroller are on the same page in these analyses of contract administration -- and until education contracting is subject to the same rules as other city agencies -- there will continue to be doubts about how well the mayor is measuring management performance.

Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001. 


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