As the state enters its third month without a budget, Gov. David Paterson met with leaders of the legislature yesterday. With no agreement emerging, the governor said he plans to insert budget cuts and even measures to raise revenue into the emergency budget extenders that keep the state running in the absence of a formal budget -- starting next week.
Basically Paterson said he would start implementing his version of the budget piecemeal, and it is unlikely the legislature would vote against these bills because they keep the basic functions of the government running.
"Doing budget piecemeal is a crazy idea but to do no budget is even crazier," said Blair Horner of the New York Public Interest Research Group. "It will increase pressure on the legislature. We know the strategy of his proposal, but we have yet to see the substance."
Paterson and his budget director Robert Megna declined to lay out what cuts they might employ next week. Since April Paterson has introduced bare-bones budget extenders to keep the state running -- they did not include cuts or ways to raise revenues. Now, the governor could shut down entire programs or cut payments to organizations. Paterson has warned that the longer the budget process takes, the harder it will be to find savings, since the cuts will be spread over a shorter period of time.
Paterson insisted yesterday as he has in the past that legislators and interest groups don't grasp the financial situation and are unwilling to present the public with tough cuts. "Every time we cut something it is a prelude to a press conference about restoration," said Paterson. "We are not having an ideological problem here. We are having an inability to face the public and address the fact we have lived beyond our means."
Senate Republican spokesman Scott Reif pointed out that members of his conference have been voting against Paterson's extenders for weeks. If Democrats join the fray to vote against unpopular cuts the extenders could go down to defeat leaving Paterson to decide whether to resubmit them without the cuts.
"We need to cut spending as part of the final budget product, not in an emergency appropriation," said Austin Shafran, spokesman for the Senate Majority Conference. "Our conference has proposed over $5 billion in spending cuts and is ready to cut more as part of a three-way agreement reached through an open conference committee process."
Assembly Speaker Sheldon Silvertold reporters he thinks Paterson should make cuts "where there is common agreement" part of the budget extenders. Asked what he thought about cuts where there is not agreement Silver said, "I would hope there would be a full budget before it comes into play."
A number of legislators declined to comment on Paterson's plan. Others simply said they will consider Paterson's cuts when they see them. "We need a balanced budget this year but the part we are losing sight of is long-term structural balance," said Assemblyman Richard Brodsky, a candidate for attorney general. "We are not really dealing with the problems of the long term. I am neither supporting or condemning what the governor says he is going to do but will view it in that context."
Paterson was dealt a major defeat last week when the courts blocked his plan to save money by furloughing workers. Now Paterson is considering instituting layoffs of state workers starting in the new year -- after his pledge not to avoid layoffs comes to an end and after he will have left office. "A lot of people think they can go to court and have the court bankrupt the government," said Paterson.
With the budget 60 days late, June 1 was supposed to be the new deadline, as the state faces a $1 billion cash shortfall. Like most deadlines in Albany this one also fell to the wayside. Megna told reporters on Tuesday that the state had improved its cash flow position in June by delaying some education payments but added that each time payments are delayed it sets up a bigger "bottleneck" down the road. He said he expects such a bottleneck could occur in August or September if there is no action on the budget.
How far are Albany's leaders from a budget agreement? If you listened to the promises and statements made during yesterday's leaders meeting you might get a sense that they are close -- or not.
"I thought there was a different tone more, more conciliatory than the last two leaders meetings," said Horner. "Maybe they've worked up a head of steam with the parks and charter [schools] bill." The Senate and Assembly did manage to agree on those two major pieces of legislation last week, and some see that as translating into progress in budget talks.
But the leaders' meeting did not totally reflect major unity across party lines or significant progress on the budget.
Senate Majority Conference Leader John Sampson and Silver indicated they are nearing an agreement on a framework of cuts but would give no time line.
According to the Budget Reform Act of 2007 before the budget can be completed conference committees must hash out differences in spending plans between both houses. Individual committees analyze spending on topics like health, education, etc.
Senate Democrats did release a list of members for different conference committees in May but Silver has insisted more negotiations need to take place before conference committees move forward.
Silver said until an agreement is reached on measures to raise revenue, conference committees would not make sense. "When are we going to have a meeting to get that resolved?" demanded Assembly Minority Leader Brian Kolb wondering when the leaders would decide on revenue.
There was dead silence.
"I think this is what they call in literature a pregnant pause," said Paterson.
There was further acrimony when Paterson sided with Silver in recommending that Senate Minority Leader Dean Skelos present his plan for cuts before going into conference committees. "When I was minority leader I put out a plan with specificity," Paterson told Skelos. Democrats say Skelos has avoided putting his own plans for cuts while criticizing the Democrats plans.
Skelos said the law was different when Paterson was minority leader.
"Our approach to conference committees is we will believe it when we see it," said Reif. "The speaker seems to be the only holdout. The Reform Act of 2007 mandated that leaders put out a schedule of conference committees 10 days after the governor releases his executive budget and there is still no schedule."
Despite Paterson's tough talk, and the nasty back-and-forths there remains a sense that the budget process could come to an end shortly.
"I don't think this process needs to go past another two weeks," said Paterson.
"Saying we could be done in two weeks just puts it off again," said Skelos referencing the numerous false deadlines the state has already blown through. "If the Democrats want to fix this, they should do their jobs and pass a good budget," said Reif. Reif said he expects the budget to be agreed upon by the three Democratic leaders in secret and dumped in the laps of legislators with minimal time to consider it before it is voted on and until then he expects leaders meetings to continue. "It's positive. It forces everyone to put their cards on the table. If the speaker refuses to do conference committees then this is for all New Yorkers to see."
Horner remains unsure we will see a budget anytime soon. When asked if he thought the legislature will be out of town by the end of June he responded, "What year?"
The city’s annual January to June budget process, mandated by the City Charter requires the mayor and City Council to do two things to foster a public debate. The mayor must provide useful information about his proposed budget to the council and public, and the council has to make an initial response to the mayor’s proposal.
On both scores, the process we have seen so far this year fails. With less than five weeks to go before the budget deadline, we have seen steep, unexamined budget cuts, little public debate and no City Council alternative. Yet the fate of some 11,000 public-sector jobs and an unknown number of service programs, from libraries to health care to summer youth jobs, remain up in the air.
The mayor’s May executive budget adds only a few wrinkles to the tough January preliminary budget that proposed $1.2 billion in agency cuts and a modest $219 million tax revenue extending the mortgage recording tax to co-ops and the city sales tax to airline fuel. The budget cuts now are up to $1.3 billion, and the tax plan has been abandoned.
The executive budget anticipated some $223 million more in tax revenues for this fiscal year than had been projected in January. It also calls for a draw-down of $213 million from labor-reserve money, dollars set aside in anticipation of future -- and costlier -- labor settlements, and the cashing in of $400 million in unneeded reserve funds this year. But these additional monies do not go toward softening the proposed cuts. Instead they will build this year’s budget surplus, to $3.3 billion.
The 2011 plan hinges on two big uncertainties. First, it is balanced on assumed further labor actions: another drawdown of labor-reserve money ($268 million, meaning no raises absent labor concessions) and nearly $557 million in labor givebacks on health benefits and pensions.
The other is the state budget. The mayor claims -- although Gov. David Paterson's budget director disagrees -- that there will be a $1.25 billion shortfall in state aid to the city, including a $493 million cut in education aid. The state put the shortfall at closer to $700 million. But in making his cuts, Bloomberg uses the $1.25 billion figure.
As a result, the executive budget says that, overall, nearly 11,000 city jobs would be cut, including 6,414 teachers and other staff in the Department of Education.
The city council’s April response to the mayor’s January preliminary budget does not offer an alternative to the mayor's plan: no alternative cuts, no new revenues. It does make the point that the proposed cuts are unequally distributed.
Its "Key Areas of Concern" section is brief and narrowly defined, focusing only on public safety issues, particularly the January proposal to drop nearly 900 police officers from the city’s headcount. The recent Times Square attempted bombing led the mayor to quickly cancel that cut.
The City Council currently is holding hearings on the proposed cuts. But for the most part, there has been little serious engagement between the members and city agency executives who appeared before them. The education committee report in the April response for example, lists some 52 questions asked of the school chancellor, but not a single reply by the chancellor.
When Schools Chancellor Joel Klein appeared before the council earlier this week he faced few tough questions even when he defended creating two new highly paid administrative positions and keeping a multimillion contract to recruit new teachers.
The council seems hard-pressed to get basic information from agencies they oversee. In the response, the economic development committee, for instance, had to ask the department of business services to provide a list of 13 community-based organizations that have received federal stimulus funding, how much each has received, and how many job placements have been made.
Some committees barely make the effort. The committee on consumer affairs apparently asked no questions of the commissioner, and the only exchange noted is a request from the consumer affairs commissioner for help in extending the agency’s hearing authority over businesses.
The council hearings do, however, offer some hint of the impact of recent and proposed agency cuts. The problem the council faces, as its response points out, is that the mayor's preliminary budget, does not itself provide "as required … a detailed and meaningful analysis of the consequences of budget decisions."
In the report, the council's Committee on General Welfare offered the most detailed picture of budget-cutting impacts. It suggests that although the mayor has claimed an "across-the-board" approach to cuts -- a strategy the council objects to -- the actual impacts of cuts are far from equal. For instance, in the Administration for Children's Services, the number of slots for family treatment/rehabilitation services would be cut by over 9 percent and those for general preventive services by 30 percent. A $3 million teenage abuse prevention program is simply eliminated.
A Human Resources Administration food and nutrition program for people with HIV/AIDS is funded at only 50 percent of its current level. Homemaker services to families with preventive services will get 80 fewer hours of help per year.
In the response, the committee also raised a rare question about city contracting, specifically an Human Respurces proposal to save $7 million by "restructuring" employment services, including contracting out English-As-Second-Language services currently provided by city workers.The effect of cuts to contracted agencies is an unexamined part of the executive budget. About 15 percent of the city’s $63 billion budget next year will be spent on over 17,000 city contracts with not-for-profit and for-profit organizations and firms. Yet the 238-page mayor's message in the executive budget devotes only one page to the $9.5 billion contract budget for 2011. Contract reductions presumably will mean a substantial, if unknown, number of private-sector layoffs, in addition to the proposed 11,000 cuts in the public workforce.
The health committee identified a number of disproportionate cuts. Two HIV contracts at the Health and Hospitals Corp. are cut, one by 12 percent and another by 26 percent. Nurse coverage in all elementary schools – private and public – with fewer than 300 students is eliminated (saving $3.1 million).
The Committee on Youth Services notes that with state and federal funding eliminated this year only 18,000 youth can be provided summer jobs, although last year over 149,000 applied.
The cuts to libraries, as reported to the committee on cultural affairs are extraordinary. In Brooklyn 30 percent of the library staff would be laid off, in the New York library, which covers Manhattan, the Bronx and Staten Island, 27 percent. The New York library would be open only 28 hours a week -- a 48 percent cut in hours -- and the Queens library open only 25.
Libraries are a favorite area for mayoral cuts that are subsequently restored by the council, but these cuts are much more severe than those in years past.
Then there are the cuts directly on poor households. As illustrated in testimony before the housing authority committee, the New York City Housing Authorityacknowledges it has two options to deal with a $45 million gap in funds the Section 8 housing voucher program. It could lower Section 8 subsidies for 30,000 tenants, in effect raising their rent in effect, and saving $20 million, or terminate 10,000 tenants’ Section 8 vouchers, saving $45 million.
At least one committee, however, was witness to good news. The executive director of the Conflicts of Interest Board, while asking the committee on standards and ethics for a $400,000 budget restoration for the board, said that the increased numbers of council inquiries to his office in recent years "has resulted in this being the most ethical Council during his long tenure at the COIB."
What the public is left with late in the budget process is an administration apparently fixed on getting as many concessions from city labor as it can: labor reserves used to help balance this year's and subsequent budgets, $557 million in annual health and pension givebacks, and the threat of no raises in future contracts without equivalent productivity savings. In education, the administration also want to change provisions, long fought for by the union that require the most junior teachers be the first to be laid off.
This may well be a bluff. Some skeptics think the administration is pushing for some of its cuts -- particularly the slashing of thousands of teaching positions -- as a tactic to pressure Albany for more aid. There may be more surprises, as often happens in the last few days of the budget process, including more revenues to be found in new projections, sudden new savings or more federal aid. The Independent Budget Office, for example, projects substantially more tax revenues in the future than the mayor does.
The council’s lack of urgency in its response may reflect such anticipation and thus signal that it expects to get its usual modest restorations in the adopted budget.
But the executive budget does have a red flag. The executive budget includes a 10-year table that shows the surpluses that have characterized the Bloomberg administration’s budgeting style. Even in the first tough, post 9/11 years of the administration (2002 through 2004) the city ended every year with surpluses that ranged from $700 million to $2.1 billion.
From 2005 to 2009, surpluses averaged $5.7 billion a year, peaking at $8 billion in 2008. The table notes a $3.3 billion surplus for this year, but no surplus at all in 2011 and a $3.8 billion deficit in 2012. In other words, if the intent in each year has been not so much to balance that year’s budget, but to maximize each year’s budget surplus, then the administration has a long way to go in the next 12 months to meet anything like its recent surplus targets.
Without some good-news surprises, then, the city may soon face a ninth and a tenth notch in what the mayor lightly calls his "eight different belt tightenings over the last three years."
Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001.Job numbers are up, unemployment is down. Consumer confidence is up. Gross domestic product has increased for three quarters. It sounds like the recession is behind us and we're on the road to recovery.
Wait, don’t pop that cork yet. Our economic house may no longer be burning down, but it's not quite ready for us to move back in. It was badly burned and it will take quite a while to make it livable once again.
The country has gained over 500,000 jobs so far this year, but while the Great Recession might be over in a technical sense for the nation and New York City, the recovery path will be rocky and long. It's true that New York City lost proportionately fewer payroll jobs in this recession than in the downturns of the early 1990s and the early 2000s. Yet, by other measures, such as the falloff in total wages or the rise in joblessness among city residents, this recession is every bit as bad as -- or worse than -- the two that preceded it. Also, given the far-reaching changes we've seen in our economy and the finance sector, it is less likely that there will be a quick and steady rebound. This column examines why we are not out of the woods of economic adversity.
Consider the figures below that show major indicators for New York City during this and the two prior recessions, both of which were widely recognized as very severe slumps that took a heavy toll on average New Yorkers.
Wage Declines in New York's Recent Recessions | |||
1991 | 2002 | 2009 | |
Decline in NYC payroll jobs | -6.0% | -2.9% | -2.8% |
Personal income change | 1.8% | -1.0% | -3.0% |
Total wage decline | -1.4% | -5.3% | -10.5% |
Total non-finance wage decline | -2.3% | -1.3% | -4.9% |
Using figures from 2009, the single year decline in total wages outside the financial sector during this recession was almost 5 percent, much greater than the falloff in total non-finance wages during the single worst years of the two previous downturns. Many more workers suffered pay cuts and/or were forced to work fewer hours during this recession than during the last two. With wages dropping that much, households sharply curtailed their spending in neighborhood shops and restaurants.
Unemployment also has increased much more in this recession than in the last two. From early 2008 until December 2009, the number of jobless city residents more than doubled, jumping by nearly 240,000. This was a much larger increase than in the early 1990s or the early 2000s. The unemployment increase this time has been about twice what it was during the 2001-to-2003 recession.
Unemployment Increases in New York's Recent Recessions | |||
1989-1992 Recession | 2001-2003 recession | 2008-2010 recession | |
Loss in NYC payroll jobs | -360,000 | -235,000 | -175,000 |
Increase in number of NYC residents unemployed | 174,900 | 120,400 | 238,700 |
Percent increase in number of unemployed residents | 84% | 61% | 133% |
Increase in city resident unemployment rate | 5.2% | 3.1% | 5.9% |
Decline in city resident household employment | -158,100 | -40,400 | -160,600 |
How can the increase in unemployment exceed the decline in the number of payroll jobs? The "payroll jobs" count comes from a survey of jobs in all businesses, including nonprofits and government, but does not include the self-employed. Even as the economy soured, people kept entering the labor force adding to the number counted as unemployed. At the same time, there have been far fewer opportunities during this recession for people to turn to self-employment when they lost their jobs, and that has boosted the unemployment rate as well.
The other official monthly accounting of the job market surveys households to come up with a "household employment" figure, which includes the self-employed. Household employment among city residents dropped by 160,000 in this recession, slightly more than in the early 1990s recession and four times the falloff in the early 2000s recession.
The household employment figure covers only city residents, while the loss of payroll jobs includes all jobs lost in the city -- whether they were held by residents of the five boroughs or commuters. In the early 1990 recession, the loss in payroll jobs was nearly 200,000 greater than the decline in household employment within the city. This time, though, the gap has been far smaller, indicating that city residents have suffered a much greater share of the city's job loss. In the finance sector, which was spared in part by the bailout, commuters hold 40 to 50 percent of the highest paying jobs. In most moderate- and average-paying sectors, city residents hold 90 percent or more of the jobs.
New York City's employment loss in this downturn has been heavily concentrated in moderate- and middle-income paying jobs largely held by city residents. There is a lot of truth in the argument that the Great Recession has seen a sharp disconnect between Wall Street and Main Street.
Main Street has borne the brunt of the Great Recession in job losses, much higher unemployment and in wage declines far greater than those in the two prior downturns. Wall Street chalked up record profits in 2009 -- three times the previous record and more than the combined profits of the four years of the housing bubble from 2003 to 2007.
For the average New Yorker, the bite of this recession is severe, and there is no end in sight. In certain communities, unemployment rates are much higher than the citywide 10 percent rate. The jobless rates among blacks and Hispanics are 15 to 20 percent in central and south Bronx, central and east Brooklyn, Harlem, and Washington Heights are three or four times the unemployment rates among non-Hispanic whites on the Upper East and West Sides and in brownstone Brooklyn.
Moreover, the standard unemployment rate does not include those who are under-employed or who have given up looking for work because job prospects are so bleak. When such workers are included, the "real" unemployment rateis 17 percent, compared to the 10 percent level based on the standard measure. Many parts of the local economy show the signs of the Great Recession’s severity:
-- Retail sales in New York City, as measured by sales tax collections, dropped by 11 percent in the 12 months following the September 2008 financial market meltdown.
-- Bankruptcy rates among small and medium-sized businesses have soared and are three times what they were in 2006.
-- The disaster of predatory subprime mortgage lending has devastated many minority neighborhoods in New York City.
As bad as this recession has been, it would have been much worse were it not for the unprecedented federal stimulus package -- the American Recovery and Reinvestment Act of 2009. The act has pumped over $10 billion into the city economy so far and has created or saved an estimated 83,000 jobs in New York City and kept 250,000 city residents from falling into poverty last year. The fact that the recession has taken such a heavy toll despite the substantial, beneficial effects of the stimulus underscores the profound crisis represented by the Great Recession.
To get the city's unemployment rate back down close to where it was before the recession, we will need to add 400,000 jobs. That reflects the jobs lost plus what's needed to accommodate growth in the size of the city's labor force.
Given that, it looks like long-term unemployment will stay pretty high for some time. Already, half of unemployed New Yorkers have been jobless for over six months. This means that young adults ages 20-24, for whom unemployment rates are 20 percent (37 percent for teenagers), will face a particularly uphill climb into the job market. Plus, there is already evidence that older workers, many of whom saw their retirement savings devastated by the stock market crash, are staying on the job longer. Prolonged unemployment will depress wages as well, since people unemployed for long periods of time often see their salaries drop when they finally do find work.
Recent economic forecasts call for an unusually slow recovery. The Congressional Budget Office, for example, expects the unemployment rate to still be 9 percent at the end of 2011. Locally, the employment forecast by the city’s Independent Budget Office indicates it will be sometime after 2014 before the unemployment rate would drop below 6 percent.
Although economists were surprised at how quickly New York City rebounded from the early 2000s recession and the effects of 9/11, we now realize that bubble conditions had a lot to do with that resurgence. Since the 1980s, periods of economic growth have been heavily influenced by financial excesses and bubbles.
This time around, it seems doubtful that much of a sustained recovery is in the works. The tenuousness of the current "recovery" was made clear recently when the non-governmental body responsible for dating the turning points in the economic cycle stated that it could not rule out a "double-dip" recession.
We don’t know what will happen when the effects of the big federal stimulus package wind down. Current city and state budget problems could lead to more cuts and layoffs, exacerbating the unemployment situation.
The housing market, usually a major engine of recovery, was crippled by the bubble. Consumer spending that makes up two-thirds of the economy will be dampened for at least the next year or two by weak job growth, stagnant wages, and high debt burdens.
More than anything else, the recovery of the city economy depends on a sustained recovery at the national level. We have an enormous stake in the president and Congress fixing the economy. Meaningful financial reform and additional economic stimulus are critical, but far from sufficient. We need policies to spur job creation and investment, including wage subsidies, public service jobs and more infrastructure spending to build a better foundation for economic growth. We also need an increase in the minimum wage, the Employee Free Choice Act to break down barriers that thwart workers' efforts to form unions, and a reauthorization of national welfare reform that reduces poverty levels that haven't seen sustained improvement since the 1960s.
New York City government and the state can support a real recovery by making sure that they don’t worsen unemployment and the well-being of moderate and middle income New Yorkers by slashing essential programs and services. The city can also use economic and workforce development resources to raise low wages that keep hundreds of thousands of city residents and their families below or near the poverty line. By the city’s reckoning, the 2008 poverty threshold for a four-person family was $30,419. Yet, median weekly earnings for city residents who are not managers or professionals were $504 in the last quarter of 2009. That would make yearly wages of $26,208, 14 percent below the poverty line. Relying on better wages for every New Yorker makes a lot more sense as an economic recovery strategy than waiting for Wall Street bonuses to trickle down.
James Parrott is deputy director and chief economist of the Fiscal Policy Institute. He has been studying and writing about the New York economy since he landed in New York City a quarter century ago.