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Band-Aid Budget


Gotham Gazette image by Ya-Hsuan Huang

We all were expecting the worst.

Spending slashes that would eviscerate social service programs. Apocalyptic tax hikes. Layoffs and job losses in the thousands. With the city's revenues in free fall because of Wall Street's meltdown, many expected fiscal year 2010 to be doomsday.

But last week, Mayor Michael Bloomberg and the City Council came to an agreement on a budget that is far less devastating than most expected. Firehouses are staying open. Library doors will remain ajar six days a week. And kids will have day care programs at the Administration for Children's Services.

How did this come to pass? For one thing, the city may have simply postponed the bad news.

In the time between the release of the mayor's executive budget in May and the unanimous approval of the city's fiscal plan on Friday, the Bloomberg administration's projections for the deficit for fiscal year 2011 grew from $4.6 billion to $5 billion. Last month, the city's Independent Budget Office predicted the city's deficit next year would be $5.6 billion, and the city comptroller's office reportedthe financial hurdles facing the city in the next few years would be "daunting."

Such projections have prompted advocates and watchdogs to wonder whether the budget the City Council approved last week is a band-aid solution when what New York really needs is open-heart surgery.

As they announced the revised spending plan last week, the mayor and other officials warned the worst may be yet to come. "This may not be the last word on this year's budget," Bloomberg said, hinting that the administration and the City Council might have to reopen the $59.4 billion fiscal plan to revise spending later this year.

Later this year could very well mean after this fall's citywide election.

A Storm Ahead

City Council members Jimmy Oddo and Vincent Ignizio, both Republicans from Staten Island, stroll through City Hall's parking lot Friday evening moments after the council approved the city's 2010 budget by a vote of 50 to 1.

Typically, they would be off to their ritual post-budget Whiffle ball game. Not this year.

"It's an election year," said Oddo.

"It's a tough budget year," Ignizio retorted.

That exchange may encapsulate this year's fiscal process. For the most part, city officials and advocates have described this year's budget as both good and bad.

Advocates had anticipated "doom and gloom" earlier this year, when the mayor released a preliminary budget that threatened to lay off 14,000 teachers. The deal the council and the mayor reached last week, in comparison, said advocates, appeared far better.

"There were more restorations than people expected," said Sean Barry, executive director of the New York City Aids Housing Network. "The mood, maybe jubilant wasn’t necessary, (but) people were pretty excited. They felt much better about it."

In total, the City Council injected $362.3 million into programs the mayor had planned to cut. By far, the city's cultural institutions and libraries were the largest benefactor of that funding -- to the tune of nearly $72 million. Also topping the list, the city’s Fire Department received $17 million from the council to keep 16 fire companies open and retain 400 positions. Approximately $8 million will go toward preserving classrooms at the Administration for Children's Services, and another $3 million will save 100 caseworker positions at that agency, said council officials.

The council also allocated nearly $33 million for senior services, $1 million for playground supervisors at city parks and $24.7 million for education programs throughout the city, including $13 million for teachers to purchase school supplies.

The mayor's executive budget in May called for slashing the city's work force by 13,541, with 9,782 of those jobs coming from attrition. On Friday, a mayoral spokesperson said the administration was not sure how much the city's work force would be reduced now. Last week, though, Bloomberg said to expect work force reductions similar to those in his executive budget.

Where It Comes From

In May, the mayor hoped to generate $1.5 billion in revenue by raising the sales tax, doing away with a sales tax exemption for clothing and negotiating with the city's unions on both health care costs and pensions.

He was partly victorious: The City Council signed off on hiking the sales tax to 8.875 percent from 8.375 percent and agreed to do away with the exemption for clothing sales of more than $110. The city's unions also went along with contributing to some of their health benefits.

Elsewhere, the mayor was not so persuasive. He was unable to secure the creation of a fifth pension tier for new city employees in Albany, and the City Council refused to endorse a five-cent tax on plastic bags. In the end, the fiscal year 2010 budget agreement came up $359 million short.

This also doesn't factor in the uncertain situation in Albany, where the legislature must approve all of the mayor's tax proposals. The state will have to OK the sales tax increase, among other revenue measures, by July 1.

An administration spokesperson said the city will make up the revenue shortfall elsewhere. Conveniently, the city's budget department reported last week that an additional $438 million to help fill the gap was generated thanks to "conservative" revenue projections.

But what some see as faulty revenue projections, others caution is a misleading budget process.

"It amazes me that they find a half a billion dollars," said Councilmember Lewis Fidler. "Surprise, here is a half billion."

"They are not playing all the cards on the deck," added Fidler, who says the administration squirrels away funding to keep the City Council out of the budget process.

Some advocates also question whether the administration is being completely open about its revenue projections.

"If they are not being transparent about where the money comes from it makes me nervous for New Yorkers who rely on programs that are less politically popular, like AIDS housing programs," said Barry. "We aren’t firehouses."

Others wonder about the politics and whether the entire budget process represents an attempt to make the city's fiscal situation appear OK for now, until after the city elections. In an analysis of the mayor's budget, the city's Independent Budget Office not only predicted far higher deficits in future years -- climbing to $5.8 billion in fiscal year 2012 -- but also observed, "Given that this a municipal election year, the difficult decisions about spending cuts and tax increases that lie ahead are unlikely to be addressed until November."

Some advocates fearfully agree.

"People expect these cuts to be back on the table in the November financial plan after the city elections," said Barry.

One-Time Fix

At least $3.6 billion of this year's $59.4 billion budget is one-time only revenue. The city received $1 billion for Medicaid from the federal stimulus package earlier this year, and it was also able to roll over $2.6 billion of surplus from the city's boom years and apply it to this year's budget.

But those days are over. There is no surplus left, according to the mayor's office.

"We do budgets 12 months at a time," said Council Speaker Christine Quinn on Friday. "There is no doubt about it that the 2011 budget holds the real prospect of being more challenging than the 2010 budget."

The mayor's office expects the economic downturn to be reversed by the end of 2010, but many believe that between now and then the city is in for a turbulent ride.

"There is no question that the stimulus money was a one or two-year deal and we're going to take advantage of that," said the council's Finance Committee Chairman David Weprin. "We'll take it when it comes, and we'll worry about next year, next year."

Knowing that the city already faces a $5 billion deficit for 2011, some watchdogs wonder whether the administration and the council could have used this budget to address some of the city's long-term fiscal problems, like pension costs. The city has cut more than $3 billion in spending and every city agency has had to take a hit, the administration argues. These one-time revenue sources, like the federal stimulus package, have weakened that blow.

The mayor and council, say watchdogs, have delayed the inevitable. The real cuts could be coming down the line later this year or next.

"2011 is really bad," said Carol Kellermann, president of the Citizens Budget Commission. "This doesn’t really address any of the underlying structural problems."

Looming on the Horizon

The fate of departments and agencies that lost out this budget season, especially the Department of Education and the Police Department, are bound to be the subject of debate this year -- especially during the election campaigns.

The city's school system is slated to get more than a $1 billion cut, which would dig deep into non-pedagogical personnel. According to the mayor's executive budget, the number of non-teaching personnel at the Department of Education, from crossing guards to assistants, could be reduced by 475.

In response to these cuts, Geri Palast, executive director for the Campaign for Fiscal Equity, put out the following statement: “The budget agreement reached by the City Council and Mayor Bloomberg marks a disappointing retreat from New York City’s commitment to provide adequate funding for all of New York City’s public school children. Cuts to the classroom and elimination of vital programs like the English Language Learners Incentive Grant Program, the Middle School Success Program and the Student Success Center Program will stifle the impressive strides our highest needs students have begun to make.

The Police Department could also see a reduction of 989 civilian employees -- those who are not uniformed officers but do necessary administrative work. Police Commissioner Ray Kelly has said that work will still have to get done and so the reduction in the civilian workforce will lead to fewer officers on the beat.

Already, the city's unions have staged rallies against the reduction of city workers at the Department of Education.

Even advocates and social service agencies who were able to save their programs are looking toward November cautiously.

"We are really pleased given the doom and gloom budget scenario," said Susan Stamler, director of policy and advocacy at United Neighborhood Houses. Programs her group supports, such as home delivered meals for seniors or after school programs, survived this round. "We recognize that needs are only growing. We remain concerned that these dollars are only one-year dollars, and we'll have to advocate next year."

Many advocates say they expect a lot of these cuts to return in November following the city elections.

Next year could be just five months away.

Council and Mayor Reach Budget Deal


The City Council and the Bloomberg administration reached a budget deal last night, which will preserve the city's six-day library service but also raise the sales tax.

Though the agreement, which was solidified with the quintessential handshake, was announced two weeks before the city's budget deadline of July 1, it comes with a cloud of uncertainty since all of the city's proposed tax increases, worth a total of $887 million in revenue, need approval from the State Legislature. Though city officials say the state Assembly is ready to move the legislation forward, the State Senate is mired with political infighting over which party is in control, and it is in the process of settling the dispute in a courtroom.

"The story of this budget won't quite end with tonight's announcement," Mayor Michael Bloomberg told a crowd of reporters in City Hall's rotunda last night. Because all of the tax proposals need an OK from the State Legislature, the mayor added, "that makes approval of these measures in Albany the final step."

When the mayor first released his budget proposal in May, the city's workforce reduction climbed to 13,541 positions -- 9,782 would be from attrition. As of last night, it was unclear how many of those positions were saved or who was being sent pink slips.

The total $59.4 billion budget is a 2 percent reduction from fiscal year 2009, said the mayor. It cut total agency spending by the city, over the course of 18 months, by $3 billion. The cuts and tax increases address the loss of $5 billion in tax revenue due to the financial crisis on Wall Street and nationwide recession.

What's In and Out

According to City Council Speaker Christine Quinn, libraries, the Administration for Children's Services and the Fire Department were all reprieved from the mayor's budget ax. At least 100 positions at the Administration for Children's Services will be kept on from the original 361 positions that were slated to be cut through attrition, according to the council. The council also allocated $8 million to preserve 31 classrooms at the administration's childcare centers.

Also, said Quinn, the city will no longer close 16 fire companies, four of which would have been shuttered in July. The $17 million that was restored to the Fire Department will save 400 positions, according to the council.

"In the budget we reached tonight, I believe, we've sent a message to New Yorkers that even in a recession, government's job is to protect and support New Yorkers," said Quinn.

By far, the largest program the council saved is the six-day library service, which is worth $46.5 million.

Unlike last year, where the council made the city's Department of Education its first priority, the fate of the city's public school system this year was also unclear last night. According to the mayor's proposal in May, the department was slated for a more than $1 billion cut. Council Finance Chairman David Weprin said the agreement reduced that by half.

"On the education cuts, we are not sure what it is going to mean to the classrooms in September," said Weprin. "I think we are going to have an ongoing dialogue with the Department of Education, with the administration."

Also included in the budget, according to Quinn, are cuts to the Police Department's civilian workforce, which is facing a reduction of 989 positions, according to the mayor's May plan. Police Commissioner Ray Kelly has said in the past that the work done by civilian personnel, like paperwork, would still have to be done. Kelly warned he would have to take cops off the street in order to make sure this administrative work was completed.

A Tax Package

On the revenue side, last night's agreement will repeal both a sales tax exemption for clothing sales of more than $110 as well as an exemption for customers who purchase energy from non-utility companies. It will revise the city's corporate tax structure -- no longer basing its formula on property, payroll, and sales, but only on a company's sales. The move is expected to spur companies to headquarter in the Big Apple.

The city also will give a tax break to about 11,000 freelancers and small businesses, which currently fall under its unincorporated business tax.

The council has already endorsed the city's revenue package, voting 48 to 0 to send most of the proposals to Albany for approval yesterday. The council voted 37 to 10, with one abstention, to send the increase in the sales tax to Albany as well. The sales tax increase, likely the most controversial part of the mayor's plan, will raise $518 million for the city.

The plan does not include a five-cent plastic bag tax or the creation of a new pension tier for city employees, which the mayor had been pushing for in Albany.

Despite last night's handshake, there are many questions that remain over the city's budget agreement, not only on what could happen in Albany, but what programs have been saved or slashed and what the effects of those funding cuts may be.

"It is better news, but the concern is these are difficult economic times and these are the programs that see increased demand," said Bich Ha Pham, the director of policy advocacy and research at the Federation of Protestant Welfare Agencies. "When people lose their jobs or have their hours cut, they go to nonprofits to get services."

Council and Mayor Reach Revenue Deal


Photo (cc) Jeremy Brooks

The City Council and the Bloomberg administration have reached an agreement on a tax revenue package, which will increase the city's sales tax by 0.5 percent and put a tax on clothing purchases over $110.

The move represents the first step toward a budget agreement at City Hall. The administration and the council have not yet agreed on a spending plan, which could reduce the city's workforce by 13,541 positions and slash spending at all city agencies, from the Police Department to the Fire Department. The council must approve the budget -- revenue and spending -- by July 1.

In addition to the increase, the administration and the City Council have agreed to expand the sales tax to customers who purchase energy from non-utility companies, which currently are exempt from the tax. The administration and City Council Speaker Christine Quinn also have proposed a number of business tax proposals, expected to generate $167 million. These would close loopholes and bring the city's tax code in line with state policy.

"While we have been forced to make some unpopular choices, this package has a silver lining -- significant tax relief for 44,000 local businesses that will help create and retain jobs for New Yorkers and grow the city’s economy," said Mayor Michael Bloomberg in a prepared statement. "After a lot of collaborative work with the City Council, we now need the state legislature to act quickly."

These proposals are part of an effort to close a $6.6 billion budget gap caused by plummeting tax revenues and the financial crisis on Wall Street.

All of the proposals in the revenue package announced yesterday require approval from the state legislature in Albany. Their fate upstate is uncertain.

When asked whether the administration was confident in support from Albany, administration spokesman Marc LaVorgna said, "We think that everyone is aware of the urgency and the needs created by the financial collapse."

What the Plan Doesn't Do

Excluded from the revenue package were several proposals the administration has lobbied for since last year, including a requirement for the city's unionized workers to pay for some of their health-insurance costs. Most unions currently contribute nothing.

LaVorgna said the administration was continuing to work with the city's labor force to reach an agreement.

As part of the deal between the mayor and the council, the administration agreed to shelve a five-cent plastic bag tax it had been pushing for since late 2008. The idea was politically unpopular among the council's 51 members, many of whom argued the fee would disproportionately affect poor New Yorkers. Others thought the tax would spur city residents to trade plastic bags in for more environmentally friendly canvas ones.

The decision not to pursue the tax is "definitely a disappointment," said Dan Hendrick, communications director for the New York League of Conservation Voters. But, he added, "There is definitely momentum behind this issue. If there is a chance to get revenue for the city, this isn’t the last we are going to hear of it."

The city had estimated it would receive $100 million in revenue from the plastic bag tax.

The Compromises

In total, the tax revenue package, announced at 6 p.m. last night with no press conference, would generate $887 million. The sales tax, if approved by Albany, would increase to 8.875 percent and would bring in the bulk of the new revenue at $518 million. The sales tax on clothing over $110 is expected to generate $119 million in revenue, while the tax on energy customers would bring in $83 million. The new sales tax on energy customers, according to the administration, would affect mostly large, commercial customers.

The business tax proposals would generate $167 million in the coming year, but over the long term the changes would be "revenue neutral," according to the administration. Those proposals include doing away with the unincorporated business tax, which can double tax freelancers and small business owners, and revising the city's corporation tax to keep businesses in the five boroughs, according to the administration.

According to the administration, the city's general corporation tax currently bases its formula on a company's property, payroll and sales. This proposal, which could reduce taxes for 27,000 businesses and benefit those that are headquartered in the city, would just use a company's sales to determine taxable income.

"Switching to the single sales factor will encourage more companies to create jobs here and lead to greater diversification of our economy," said Quinn in a prepared statement.

In this agreement, the council successfully lobbied for the administration to also table a tax on clothing sales under $110, which the administration proposed earlier this year.

Though this agreement is relatively early and could be taken as a sign the administration and the council are ready to reach a consensus, advocates say that the battle is far from over. Not only does this revenue package rely on state approval, which can be a tricky course to navigate at times, but it is also less than the $1.1 billion in tax revenue proposals the administration proposed earlier this year.

"This is a very tight revenue scheme," said Carol Kellermann, president of the Citizens Budget Commission. "None of the (proposals), except the sales tax, is really very large. It's great that they came up with an agreement, but they still have a lot of work ahead of them."

Also yesterday, the city's Comptroller William Thompson Jr., who is the leading Democratic mayoral contender, released a report calling the mayor's budget proposal "risk-laden." The report, which was released before the mayor and council speaker announced their revenue package, predicts the city's budget deficit will grow to $4.578 billion in fiscal year 2011. Thompson does not support an increase in the sales tax.



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