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Council Starts to Maneuver on Budget


New York City budget
Photo (cc) Edward ReedEdward Reed
Mayor Michael Bloomberg presented his executive budget on Friday.

This time the billionaire mayor means business.

For the 10th time, Mayor Michael Bloomberg stood in the Blue Room at City Hall, clad in a sharp, dark suit, and unveiled his executive budget proposal. After 10 rounds of budget cuts since 2008, totaling $5.4 billion, Bloomberg proposed to make reductions in every department. The $65.7 billion fiscal plan would slash 6,166 teachers, about 2,000 of them through attrition, close four swimming pools this summer and shutter 20 fire companies. The City Council has vowed to fight the teacher layoffs.

Bloomberg blamed the cuts on the state and federal governments. This year's budget represents a steady stream of divestment in the Big Apple by Albany and Washington, the mayor said. Now we will lose services because of it, he added.

"Both places are keeping our tax dollars to close their budget deficits," the mayor said on Friday. "If the state was paying 50 percent or close to it [for the Department of Education], we would not be talking about laying off teachers."

For the first time since the fiscal crisis of the 1970s, the city could lay off large numbers of teachers -- 5 percent of all instructors. The state's share of aid has dropped by 20 percent, the mayor said. To make up for the loss, Bloomberg said the city would use up all of its surplus and nearly $700 million from its health care trust fund, a reserve used to pay for retirees' health benefits.

Immediately following the mayor's morose budget presentation, City Council members and advocates blasted the administration for slashing services for the city's most vulnerable. Others questioned whether the third term mayor was bluffing.

"I am sick and tired of this administration's use of teacher layoffs as a threat to unions and continued attempts to balance the budget by direct cutting services to the neediest among us," said Councilmember Margaret Chin in a statement.

Officials accused the mayor of playing politics. Some saw his threat to lay off teachers as another attempt to pressure Albany to approve certain education changes, specifically legislation to allow the city to lay off teachers based on merit not seniority. The mayor also wants to convince Albany to approve a new pension tier for new city employees.

For these reasons, council members wonder whether these slashes are symbolic or serious. Either way, council members are trying to come up with plans to save their favorite programs.

The Battleground

This is the second time in as many years the mayor has threatened to lay off teachers. It is the seventh time he has proposed closing fire companies.

None of those cuts ever materialized.

This year, say City Hall observers, is different.

"This is a zero sum game, and every year the restoration list gets longer and our ability to restore it doesn’t get larger," said Councilmember Lewis Fidler. "It's going to be a tough year."

Even members of the administration aren’t holding their breath on getting extra funds.

"Until July 1, I'm hoping that something does turn around," said Fire Commissioner Salvatore Cassano. "If it's 20 [companies], the whole city will be impacted."

In addition to the teacher layoffs and the fire companies, the administration has proposed to increase parking rates and fees for inmates to make telephone calls on Rikers Island. It also would reduce the amount of condiments and number of bread slices inmates receive.

Administration officials are exploring whether to start charging nonprofits and churches for garbage collection in 2013. The mayor has proposed to move forward with a plan to house small homeless families in shared apartment style units.

At the budget announcement, the mayor reversed an earlier decision to eliminate 16,000 child care slots. Instead, he said, the city would make sure those kids receive day care through an after school program. The city also plans to increase minimum child care copayments from $5 to $15.

Advocates criticized the move, saying the after school program does not offer the same amount of service.

"Working parents need child care support in order to remain in the workforce, and it is vital for children to receive quality care and early childhood education. Partial restoration of this funding is a step in the right direction. We are hopeful that the mayor will recognize that more funding will be required to prevent irreparable damage to the city's subsidized child care infrastructure and system," said Fatima Goldman, the executive director and chief executive officer of the Federation of Protestant Welfare Agencies.

Beyond child care, the mayor's plan would eliminate outreach contracts for homeless youth and slash more than 2,100 summer youth employment slots.

Senior centers have been held harmless, but the Bloomberg administration would decrease funding at the city's library system by about $40 million. The parks department will also take a hit with reductions in seasonal staff and increased fees at recreation centers and for tennis permits.

The Council's Options

Already the council has identified teacher layoffs as its top priority. In order to stave off any staff reductions in the classroom, the council would have to come up with $435 million in funding.

"Since the recent financial crisis and recession, the City Council has worked aggressively to control spending and manage the city's budget in a fiscally responsible manner while protecting vital services," said Council Speaker Christine Quinn and Finance Chairman Domenic Recchia in a joint statement. "That's why we have grave concerns about a budget that allows for teacher layoffs, which would be immensely damaging to our education system and children's opportunities for a quality education. Make no mistake, we will do everything in our power to prevent teacher layoffs."

But it's unclear where the council will get the money to do so.

Last year, the council was able to save $397 million in cuts. If the council were to successfully negotiate to save teachers this year, it could likely be the only restoration the city could afford.

"It's a big lift," said Doug Turetsky of the Independent Budget Office. "It pretty much takes up all the funds they typically get to work with."

The council identified keeping fire companies open as well. According to the Bloomberg administration, keeping the companies open would cost $55 million.

No matter what the cuts the council looks to save, it will have to identify other areas of the budget to cut back. Both Quinn and Recchia have said they would not raise taxes. On Friday, Quinn took aim at the administration's outside contracting, arguing if contracts were held flat this year the city could save $100 million.

Meanwhile the council's progressive caucus is urging the State Legislature to extend the state's millionaire's tax and close tax loopholes for hedge fund managers. According to the caucus, those two measures could bring in $570 million.

Other budget experts predict some council members will push for the city to drain its health care trust fund -- now at $2 billion.

On Friday, Bloomberg warned of a projected $5 billion budget deficit in fiscal year 2013. He warned using the fund to stave off cuts this year would be irresponsible and said he would not consider raising taxes to create more revenue.

"I liked his emphasis on how important it is not to spend the rest of the money in the retiree health benefits trust," said Carol Kellermann, the president of the Citizens Budget Commission of the mayor's budget. "I think that's where the battleground will be. He was warning the council that that's an irresponsible thing to do."

Bloomberg's Budget Ignores Untapped Revenue


Photo (cc) Tracy O

Mayor Michael Bloomberg’s preliminary budget for fiscal year 2012 and five year financial plan overstates the immediate need to eliminate over 6,000 teaching positions, close senior centers, reduce summer jobs for youth and cut many other human services. The proposed budget ignores a number of untapped revenues that could maintain both current services and budget balance for next year.

At the same time, the financial plan understates the city’s long-term “structural balance” problem. Annual budget surpluses -- projected to be $3.2 billion this year -- disappear come July, and in later years projected city expenditures far outpace projected revenues. So the mayor and City Council can erase the cuts in the short run, but in the long run they need to find the political will to tap into the city’s tax base. If not, the city will see three more years of the serial budget cuts, which started in January 2008.

Finding the Money

It’s important now, in other words, to see what revenue sources the city can tap into. In the short run, it’s likely the mayor will find additional revenues -- just as he found in November to project ending the current fiscal year with a large surplus. That surplus was built from budget cuts, new Wall Street generated tax revenues, and what the city comptroller calls “budget maneuvering.”

Commentary
 

The Independent Budget Office’s analysis of the preliminary budget and financial plan provides some clues to what the short-term “maneuverings” might be. It also helps us, for the longer-run, to understand the city’s current tax base, including its evolution, inequities and inefficiencies.

The mayor has the power to estimate tax revenue forecasts, tax audits and debt-service savings. Under Bloomberg, they have generally low-balled. According to the Independent Budget Office, taxes collected a year or more after they were due have averaged $800 million a year for the past six years. Yet the city assumes only $500 million in these collections for next year. The $300 million difference would go a long way toward saving 6,000 teaching positions currently on the cut list (an estimated savings of $350 million). More realistic assumptions about debt-service savings would also make additional millions available for service restorations.

Tax Breaks and Management Savings

For the long term, the administration could start with the city’s property tax exemption programs. As the Independent Budget Office's analysis shows, three of these programs alone cost the city over $2 billion a year in lost revenues. They also create inequities, favoring certain businesses and homeowners at the expense of others, like two-thirds of New Yorkers who rent.

Two of these long-time property tax exemption programs are up for re-authorization in Albany: the 421a exemption program for residential construction, which will cost the city $920 million in fiscal 2011, and a commercial abatement program that cost $623 million in 2011. Perhaps because of the political power of housing and commercial development interests in the city and state, the IBO assumes both programs will continue.

An abatement program for co-ops and condos, introduced in 1997, is also costly. It was supposed to be temporary, until the disparities between what homeowners pay in property taxes, on one hand, and coop and condo owners pay, on the other, were fixed. (See the IBO’s Twenty-Five Years After S7000A: How Property Tax Burdens Have Shifted in NYC for the history.) Fifteen years later the inequities remain, and the “temporary” abatement will cost the city $450 million this year. The IBO assumes this tax break, too, continues.

Another big revenue option, noted by state comptroller's office, is the mayor’s Retiree Health Benefits Trust fund has $2 billion in reserve. This is the same fund -- originally designed for long-term health-benefit liabilities -- that the mayor drew down by $1 billion to help balance the 2012 budget.

There are bigger revenue options. Excessive overtime has been a problem for years. The city comptroller’s report estimates that overtime next year will be over $1 billion, nearly $200 million more than the mayor currently projects. The State Financial Control Board says it will be $216 million more in 2012 than the mayor projected, and $240 million more in 2013.

The mayor has belatedly, with the help of Deputy Mayor Stephen Goldsmith, recognized the need for better agency management, and they hope to save more than $50 million in 2012 doing so. But what about this year’s $538 million in police overtime cited by the city comptroller ($465 million to uniformed officers, $73 million to civilians!), which comprises nearly 12 percent of the NYPD’s $4.645 billion 2011 budget? The IBO notes that 621 high-paid uniformed officers are doing work usually done by lower-paid civilians.

The IBO analysis notes also that the central office of the Department of Education will have a budget 10 percent higher next year. The office will add 218 positions and spend over $39 million in contracts for administrative professional services, not to mention $36 million in contracts for computer services.

The Property Tax

The property tax structure, which accounts for about $17 billion in city revenue, is immensely complicated -- often bizarre. In a recent study from the Independent Budget Office, the tax was called a “very stable revenue source,” even as the real estate market slumped in recent years.

The main reason for the tax’s stability is the way in which assessments – the city’s valuation of a property for tax purposes -- work. Increases in assessments for commercial and large residential properties are phased in over five years. Other properties, like one-, two- and three-family houses, are also phased in over five years, but with limits on total increases. So even when assessments begin to go down as market values fall, there are left-over increases from previous years (called a “pipeline”) that keep taxes growing.

A small increase in the property tax rate raises a lot of money. A one percent rate hike would raise about $170 million. (A homeowner’s $4,000 tax bill would be only $40 higher.) And the property tax is the one major tax rate that the city can authorize by itself without state approval.

Sales Tax

The 4.5 percent city sales tax, a regressive tax, has risen in recent years. In August 2009, the mayor and City Council agreed to raise the city sales tax rate from 4 percent to 4.5 percent (added to the state’s 4 percent sales tax and the 0.375 percent metropolitan transportation tax, the total rate is 8.875 -- a historic high).

Politically, for Bloomberg and the council the sales tax was apparently the easiest route. The Independent Budget Office's March analysis says the rate increase brought in $521 million in 2010 and will raise more in later years. A similar amount of money could have been raised by restoring progressive, higher personal income tax rates in effect during Mayor David Dinkins and Rudy Giuliani’s and Bloomberg’s first term. (See the Independent Budget Office's budget options for details.)

Personal Income Tax

The conservative shift in city tax policy is most obvious in Bloomberg and the City Council’s refusal to use the city’s mildly progressive (higher-income earners have slightly higher tax rates) personal income tax rate to fill budget gaps for the past three years. Of course, the same conservative shift has been obvious in President Barack Obama and Congress’s extension of Bush-era tax cuts, and in Gov. Andrew Cuomo and the state legislature’s refusal to extend the so-called millionaire's personal income tax.

The state’s conservative shift has enormous consequences for New York City. As the Fiscal Policy Institute points out, the expiring tax will mean a loss of $5 billion in state revenue in calendar 2012 at a time when “the wealthiest 1 percent of New York taxpayers are receiving an average windfall of $124,000 from the extension of the Bush tax cuts.” An extension would have likely wiped much if not all of the current cuts in state aid to city education, health, housing and other essential services.

Thus Obama, Cuomo and Bloomberg tax policies have created a tax cut trifecta for the city’s wealthiest residents. This is a group that the mayor says would flee the city were they to pay city personal income taxes at rates Bloomberg -- the wealthiest of them all -- set himself from 2003 to 2005. The city’s own tax-policy history contradicts his claim.

What’s Next?

The elephant in the room continues to be that over 90 percent of the city workforce is working without a contract, and a two-year contract dispute with city teachers and administrators has yet to be settled. The preliminary budget has no reserve fund for contracts over the next two years -- any raises are supposed to be self-funded by labor through benefit concessions and productivity measures. The state comptroller points out that settling teacher/administrator contracts and future wages for all city workers at projected inflation rates could cost $1.4 billion in 2012 and nearly $2 billion in 2013.

The city itself at this point projects budget deficits averaging $4.9 billion for the next three fiscal years, while the city comptroller sees deficits averaging $5.7 billion during the same period. (The Independent Budget Office, reflecting its projection of more robust tax revenues than the mayor, projects deficits averaging $3.4 billion.) Unless the mayor and council adopt a more reasonable, more equitable revenue policy, labor settlements may trigger another round of budget cuts much sooner than the preliminary budget suggests.Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001.

Bloomberg Loses Budget Battle


Photo (cc) Kristen Artz. Mayor Michael Bloomberg and Senate Majority Leader Dean Skelos after the state of the state in January.

On Wednesday, hordes of protestors poured into the New York State Capitol in Albany chanting, "Hey ho, hey ho, these budget cuts have got to go!"

Simultaneously, legislators worked to pass the $132.5 billion fiscal plan -- most ignored the chanting as much as they could.

But it wasn't just the protesters who weren't being listened to.

Mayor Michael Bloomberg stamped his feet and gnashed his teeth about how the state budget hurts New York City. It wasn't enough to shake the will of the Cuomo administration. The newly minted governor convinced legislators to vote for almost the exact same budget the governor presented to them -- except for a few small restorations. All told, it looks like the city lost just under a half billion dollars in education aid.

Expecting cuts, Bloomberg didn't do the traditional lobbying in Albany. Rather than focusing on restorations, he pushed Albany to reduce state mandates and give the city more flexibility in negotiating public contracts.

Unfortunately for Bloomberg, and some would say the city, he didn't get any of it.

What He Wanted

Bloomberg's biggest request was for the state to do away with "last in, first out," or LIFO. Rescinding the policy would allow the city to lay off teachers based on performance, not seniority. He made his case in Albany during budget hearings, as did Schools Chancellor Cathie Black. The issue was pressed in editorial pages and through like minded legislators in the Capitol, but in the end Bloomberg struck out; LIFO is not part of the budget agreement.

There is a possibility that Senate Republicans and the governor will continue to work with Bloomberg to reach a deal on LIFO after the budget is voted on, but at the moment it just seems that Bloomberg's agenda utterly failed.

Bloomberg's other gripe was a cut out of millions of dollars in revenue sharing funds that the state gives to localities every year. New York City sends more money to the state than any other locality, yet for the past two years the state has proposed eliminating the local aid. The Cuomo administration argues it didn't zero out those funds -- the cut was made in budget extenders last year under Gov. David Paterson. Cuomo just didn't go out of his way to restore aid to the city. New York City was singled out by Albany and eliminated from the revenue sharing program, while other localities took no more than a three percent cut.

"We appreciate that some of the cuts in education aid were restored. But make no mistake: the final budget still cuts New York City more than ever before," Bloomberg wrote in a statement. "The restorations are merely a fraction of the $600 million necessary to avoid additional layoffs and cuts in the city's budget -- beyond what was announced in February -- for the upcoming fiscal year."

Cuomo's spokesman, Josh Vlasto, blasted Bloomberg, saying the budget "restores tens of millions of dollars in additional education aid, millions to keep senior centers open and millions to protect the homeless. AIM aid to the city was not cut 100 percent. AIM aid was eliminated last year, so it is a zero percent decrease for fiscal year 2011-2012. Prudent budgeting would not have counted that as an increase. In addition, the City Department of Education has a surplus of over $300 million and the City revenue position has improved, so they have much less pressure on their overall budget."

Bloomberg, however, sent out a mailer blaming Albany for cuts and painting himself as a champion for the working class. His literature read: "Albany budget cuts will hurt our families. That's why Mike Bloomberg is standing up for us." The flyer also says that Bloomberg is "protecting vital services like police and fire that keep our neighborhoods safe."

In response to the flyer, Councilmember Jimmy Oddo asked Bloomberg in a letter if his planned cuts to fire stations still stood. "Respectfully, I ask that the appropriate individual within your administration publicly state whether the aforementioned direct mail piece does, in fact, signal a change in administration policy eliminating the threat of closing any fire companies as part of the FY 2012 budget."

The council's progressive caucus made it clear that they think Bloomberg has been fighting the wrong battles in Albany. Rather than pushing for changes to last in, first out and other labor concessions, they say Bloomberg should have been focused on restoring cuts to education and Medicaid funding and joined them in calling for the renewal of the state's millionaire’s tax.

Since the state budget does not reauthorize the millionaire’s tax, the progressive caucus is calling on Bloomberg to support the creation of one on the city level. The odds of accomplishing that are extremely low; Bloomberg hasn't even supported the state version.

"We urge Mayor Bloomberg to keep the millionaire’s tax for New York City. If Albany won’t look out for the over 1.8 million New Yorkers who live below the poverty line, the one-third of city residents who rely on Medicaid, the 17,000 children who stand to lose daycare, and the one out of every four working New Yorkers who rely on food stamps -- then we must," wrote the Progressive Caucus in a statement.

Another major way the city lost out in the budget talks, according to a number of Democratic legislators, is rent regulations were not renewed as part of the package. The laws are set to expire in June. Cuomo and Senate Republicans have close ties to the real estate lobby that opposes stronger laws for tenants. At one point in negotiations it seemed that a deal might be made to include a property tax cap along with a renewal of the rent laws, but that fell apart.

Meanwhile good government groups, including Citizens Union, the sister organization to Gotham Gazette's publisher, are decrying the fact that the budget continues funding for the Legislative Task Force on Demographic Research and Reapportionment -- the group of legislators that decides district lines. Groups such as NY Uprising and Citizens Union have been pushing for legislators to pass independent redistricting to prevent gerrymandering. A majority of legislators pledged to support the move, but by continuing to fund the old system, it becomes less likely a new one will be instated before the redistricting process begins.

The Senate finished passing bills late on Wednesday night. The Assembly was still working past midnight--meaning Cuomo did not get an early budget, but likely one that will be on time.



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