Plummeting financial markets have increased the urgency of calls for a federal fiscal stimulus package to provide a temporary boost to consumer and business spending. This comes as the collapse of the housing market, weaker than expected holiday retail sales and declining employment have combined with turmoil in the financial markets to heighten the likelihood of a recession.
On the "monetary policy" side, the Federal Reserve has been taking unprecedented actions, notably dropping a key interest rate last week following stock market swoons around the world as fears spread regarding the global effects of a slowing U.S. economy. On January 24, the White House and the leadership of the House of Representatives said they had reached tentative agreement on "fiscal policy" action by the federal government, hoping to to jump-start the economy. It would feature a package of individual and business tax cuts costing $150 billion - an amount equal to roughly 1 percent of gross domestic product. Since the announcement, though, Bush-House proposal has come under criticism, and some senators have proposed various modifications that should come up for a vote within the next week. There will be intense pressure for the House and the Senate to then quickly reconcile their differences in order to speed passage of a plan in the hopes of moderating the sinking economy.
What's in the Bush-House stimulus package and how might it be modified in the Senate? Will it "work" in turning the economy around? How will it affect New York's economy?
The plan announced on January 24 by House Speaker Nancy Pelosi and Treasury Secretary Henry Paulson would provide tax rebates to households and tax breaks to businesses. Bowing to widespread pressures, President George W. Bush backed away from his earlier plan to link any stimulus to extension of his signature tax cuts, now set to expire after 2010. Under the plan, married couples with incomes up to $150,000 would receive a rebate equal to 10 percent of taxable income up to $1,200; the rebates would then phase out so that very high-income households would not receive anything. For single people with incomes up to $75,000, the rebate would be a maximum of $600.
In a concession to House Democrats, the president agreed to include a rebate for low-income households who owed no federal income tax in 2007 but who had at least $3,000 in wage or self-employment earnings. For these wage-earning couples, the rebate would be a minimum of $600 ($300 for singles). In addition, any household with at least $1 of income tax rebate would receive $300 for each child.
The Treasury Department indicates that rebate checks would not be sent out until late spring at the earliest.
The Bush-House plan to stimulate business investment includes "bonus" depreciation and a doubling of the amount that small businesses can claim as an "expense" and so deduct from annual income. Both measures would lower business' 2008 tax payments by a total of $43 billion. The Congressional Budget Office concluded that such business investment incentives have modest effects at best. The Center on Budget and Policy Priorities has noted that 35 states, including New York, would likely lose revenue from state corporate income taxes if these business investment incentives were enacted since these states base their taxes on the federal definition of income.
While there is broad support for quick action to stimulate the economy, many economists and fiscal analysts have criticized the Bush-House plan on the grounds that it is poorly targeted and will not provide the maximum economic boost given its cost to the federal treasury. Senators are being lobbied furiously to make improvements. New York Times columnist Paul Krugman notes that the Bush-House plan would send "the bulk of the money to those who are doing OK financially." Indeed, the Tax Policy Center estimates that 58 percent of the individual rebates would go to the upper and upper-middle class (the top 40 percent) while the poorest 40 percent would get less than 21 percent of the total. (The middle 20 percent of households would get a roughly proportionate 21 percent of the benefit.)
Most economists agree that a stimulus directed to low-income households will generate a bigger spending impact than one aimed at higher-income households since affluent people are more likely to save the money, rather than plow it back into the economy. In assessing the relative merits of various stimulus approaches, the Congressional Budget Office recently gave high marks for cost-effectiveness for a tax rebate "focused on people who are likely to spend it." And none other than Federal Reserve Chairman Ben Bernanke urged that any fiscal package should be "efficient, in the sense of maximizing the amount of near-term stimulus per dollar of increased federal expenditure."
With the widest income gap in the nation, New York State has large shares of both rich and poor households. A tax rebate that reaches low-income people is more likely to stimulate New York's economy than one aimed at the rich for the simple reason that low-income households are more likely to spend all or most of their rebates than households at the high end of the income spectrum. One important caveat, though: To boost the economy, the money has to be spent on goods and services produced in the United States. If it goes toward the purchase of imported products, the economic benefit largely will "leak" out of our economy.
Any plan will have to win approval from the Senate, some of whose members have other thoughts on how to stimulate the economy. New York Sen. Charles Schumer, chairman of the Joint Economic Committee, said over the weekend that the Senate was likely to add an increase in unemployment benefits to the Bush-House stimulus plan. Greater spending on unemployment benefits would generate "more bang for the buck," said Schumer.
Unemployment insurance is a major "automatic stabilizer," providing partial income replacement for workers who lose their jobs. Most proposals for increasing unemployment benefits involve having the federal government fund benefits beyond the 26 weeks of payments financed through state unemployment funds. This would help New York State since 85,000 New Yorkers will exhaust their state unemployment benefits in the first six months of 2008, according to the National Employment Law Project.
An increase in food stamps to boost spending by low-income households is also actively being considered in the Senate, according to Schumer. Food stamp benefits go almost entirely to households subsisting below the federal poverty line. With rising food prices and reports that many low-income households run out of food by month's end, increasing the monthly allotment would both help low-income households and the economy. Over 1.8 million New Yorkers receive food stamps, including 1.1 million in New York City.
Support for increased unemployment and food stamp benefits crosses the aisle as Republican Senators Susan Collins and Olympia Snowe of Main have pledged to add funds for these benefits, and a bipartisan coalition of Northeastern and Midwestern senators will push for additional heating assistance for the poor. At a Senate hearing January 24, Peter Orszag, director of the Congressional Budget Office, testified that increases in unemployment benefits and food stamps would have a more immediate impact on the economy than tax rebates. "Food stamps and unemployment benefits can affect spending in two months, (while) rebates would affect spending at the end of 2008," he said.
The sagging economy, particularly the housing slump, has already started to be a serious drag on state and local government budgets in many parts of the country. If state and local governments, facing a decline in tax revenues, cut spending or increase taxes, that could further contract the economy. Columbia University's Joseph Stiglitz, winner of the 2001 Nobel Prize in Economics, has urged that any federal stimulus include fiscal relief to state governments. States don't have the luxury the federal government has in that states have to balance their budgets. The housing crash and economic slowdown are already forcing states to "respond by cutting spending, and this acts as an automatic destablilizer," Stiglitz wrote. Federal help could forestall those cuts.
Among others, Republican governors from California, Florida and Minnesota, have called for a temporary increase in the federal share of Medicaid expenditures to help them deal with yawning budget gaps. (Federal and state governments share the cost of providing health care to low-income Americans.)
To counter the prolonged economic weakness coming out of the 2001 recession and the accompanying fiscal pressures on states, Washington enacted $20 billion state fiscal relief stimulus package in early 2003. Half was used to increase the federal matching rate for Medicaid, and half was provided in the form of flexible grants to the states. Given the size of New York's Medicaid program, the increase in the federal Medicaid matching rate was particularly beneficial to New York. Every dollar of federal aid keeps a dollar of spending in the economy rather than forcing cutbacks or tax increases to maintain services and spending.
Increasing spending on public works like roads, schools and other facilities is often considered a way to prime the economic pump. In their $140 billion federal stimulus proposal released earlier this month, the Economic Policy Institute recommended $40 billion to accelerate public infrastructure repairs. Because infrastructure spending would speed up needed investments that support long-term economic growth and are less likely than other kinds of expenditures to “leak” out of the U.S. economy through the purchase of imports, many economists -- and some senators from both parties -- argue that a significant infrastructure spending plan warrants inclusion in any stimulus package.
The depressed state of the housing market could retard the economy's ability to recover. Normally, sharply declining interest rates induce first-time homebuyers to take out mortgages and then spend money on furniture and appliances for their new homes. This time, though, the decline in interest rates might not have that effect. After years of over-heated expansion, the housing slump is likely to continue for some time. Plus, tens of thousands of homeowners saddled with unaffordable sub-prime mortgages will lose their homes through foreclosure, keeping prices and expectations down, slowing any rebound in the real-estate market.
Housing plays a key role in the national economy and shapes consumer expectations, making it essential that the government take action to stave off an epidemic of foreclosures and help the housing market recover. Government actions proposed so far, though, do not appear sufficient to turn around the market.
Just because New York City has not yet seen real estate values plummet does not mean that mortgage foreclosures are not a huge problem. Reckless and unregulated sub-prime lending has been widespread, particularly in neighborhoods of color in Brooklyn and Queens. Data from the Federal Reserve Bank of New York indicate that 20 percent of adjustable rate sub-prime mortgages made in New York City are already in foreclosure with more on the way. The economics consulting firm Global Insight predicts that there will be 50,000 foreclosures statewide in 2008 and that home values in New York will fall by $63 billion this year.
By itself, a federal stimulus package, even if modified in the Senate to provide more immediate and better distributed relief, probably will not resurrect economic growth. But a timely and targeted stimulus package is essential to significantly moderate some of the current downward economic pressures. The economy nationally and in New York will benefit to some degree. A smart fiscal stimulus package that boosts spending could provide an important complement to the aggressive monetary policy moves taken by the Federal Reserve over the past two months to ameliorate the credit squeeze and the decline in the housing market.
Fiscal stimulus would remove some of the burden on the Federal Reserve to bring down interest rates. Former Treasury Secretary Lawrence Summers notes the risks inherent in a policy of "excessively" low interest rates: downward pressure on the dollar likely to fuel inflation and another speculation-induced bubble.
As the home of Wall Street with its out-sized economic role, New York's long-run economic fate also depends on a new regulatory regime that will restrain Wall Street's bubble-making tendencies. Long-time financial market sage Henry Kaufman recently called for a thorough-going regulatory review of what went wrong on Wall Street. The current financial turmoil underlies once again, the need for New York City and the state to develop a set of policies to diversify the local and state economies and need to create more sustainable, good-paying jobs.
James Parrott is deputy director and chief economist of the Fiscal Policy Institute (www.fiscalpolicy.org). He has been studying and writing about the New York economy since he landed in New York City a quarter century ago.Â
New York City should get ready to lose some weight. This time, though, the target is not New Yorkers binging on transfat-laden fries or sugary soft drinks. No, now it's government that has to slim down.
For the first time since 2004, the city faces, not a surplus, but a deficit, forcing all departments and agencies to cut back or suggest innovative revenue producing proposals. No agency goes untouched. No department has immunity.
Calling recent economic trends "disturbing," Mayor Michael Bloomberg calmly went through financial indicators on Thursday, reminding New Yorkers that the city faces the effects of the national economic slowdown. "It's going to hurt us," warned the mayor, while ticking through a fairly pessimistic Power Point presentation at City Hall.
The question is, how much?
Five months before the City Council must approve a balanced budget, the mayor's preliminary proposal provides some indication of what some New Yorkers might have to do without next year and additional fees they might pay.
Bloomberg contends that essential services will not be cut, but he needs to trim a total of $1.5 billion over the next two years. He plans to cut funding for individual schools and close some homeless shelters among other reductions. He hopes to boost the tax on cigarettes once again. But he still intends to keep the $400 tax rebate and 7 percent property tax cut implemented last year -- though some advocates cautioned against that.
The administration needs to fill in many of the details. City Council members, advocates and others are just beginning to mull over what is and what is not included for fiscal '09. And budget watchers wonder whether the mayor has planned for the future or simply offered a quick fix.
The http://www.nyc.gov/html/om/html/2008a/pr029-08.html&;cc=unused1978&rc=1194&ndi=1">budget, an increase of 3.7 percent from fiscal year 2008, tops $58.5 billion. Much of the increase is due to contract agreements with city employees, debt services and pensions. The figures announced Thursday incorporate the mayor's departmental directives from last fall, when he required every city department to cut spending by 2.5 percent this fiscal year and about 5 percent in fiscal year 2009. (Bloomberg said last week that agencies had cut a total of 4.3 percent for this upcoming fiscal year - slightly less than he requested.) Unlike in some previous years, schools and police will be forced to cut back along with everyone else.
The city's expenditures are pretty predictable, said Bloomberg, but revenues are not. Almost every expert, though, predicts a downturn from the mortgage meltdown, credit crunch and Wall Street's seesawing.
New York Stock Exchange firms saw their largest losses ever in the third quarter of 2007, said Bloomberg, and the news for the fourth quarter is shaping up to be even worse. Unemployment claims are up nationwide, and housing sales have steadily dropped. Politicians in Washington are so worried that they seem to have put their partisan differences aside to reach agreement on a $150 billion economic stimulus package.
Budget officials estimate the city will receive $660 million less than anticipated in revenue based on the decline in profits on Wall Street.
So, what's the good news? Well, the mayor said, the budget is balanced. (By law, it has to be.) Tourism in the city, and hotel and office occupancy rates remain high. Bloomberg also made sure to give himself a pat on the back for prudent fiscal planning during the city's good times, when he put aside millions to pay down debt in future fiscal years.
This year's budget poses some quintessential policy questions the city did not have to face during the boom of the past few years: Should the government cut services to preserve tax cuts or should it keep programs at their current level and roll back tax breaks? And if the economy continues on its gloomy trek, what could or should the city do to avoid a far greater economic slowdown?
The answers depend to some extent on how bad things get. Some take a very grim view. Speaking at a forum Friday night, Representative Jerrold Nadler said the country could be facing the worst economic downturn since World War II. Bloomberg, while hardly optimistic, is not that gloomy.
"He's certainly put up big yellow lights, but he hasn't waved the red flag and said everything is falling apart," said Doug Turetsky of the city's Independent Budget Office. "Assuming there are no big local economic surprises over the next few months and things don't get remarkably worse, we're basically still running off the momentum of the good times. What the mayor's clearly showing us is even if things don't get worse, the days of wine and surpluses are over."
Turetsky said keeping the city's $400 tax rebate and the 7 percent tax cut on the table is also a viable option. That is, if the city's economic outlook starts to improve or, at least, not get demonstrably worse.
Some city officials are hopeful. Councilmember Domenic Recchia predicts the markets will recover and funding will be restored before it's time to finalize the budget. "I think that 5 percent is not going to be 5 percent," said Recchia, who chairs the council's Committee on Cultural Affairs, Libraries and International Intergroup Relations, of cuts to the city's cultural programs.
Other experts, though, see the budget as not doing enough to address the tough times that could lie ahead. Bloomberg's proposal uses the city's previous surplus to balance the budget in fiscal year 2009, which runs from July 2008 to June 2009. Then little of the city's surplus will remain. Because of that, some experts see a $4.2 billion gap looming in fiscal year 2010 and want the mayor to think about that now.
Charles Brecher, research director at the Citizens Budget Commission, would prefer to see the surplus money spread out over several years and not used for 2009 alone. "We kind of see this as temporizing and not dealing with the fundamental problems," said Brecher. The commission, he added, will draft alternative options for the City Council and the mayor to consider, including examining premiums in the city's health care system, like requiring employees to chip in, and curbing spending more aggressively.
Beyond its effect on spending and taxes, the new economic reality could change the relationship between the mayor and the City Council. The City Council must approve the budget. Over the past few years, with the city's coffers overflowing, the budget back and forth between the administration and council has been relatively congenial. But now that programs are threatened, some members are preparing to strap on their tap shoes.
"Let the dance begin," said Councilmember Vincent Gentile.
This refers to the infamous budget dance, long a mainstay of city politics. The administration cuts certain programs, libraries for instance, knowing the City Council will reinstate them. The mayor takes one step toward a certain program, and the council takes the opposite step back.
City Council Speaker Christine Quinn and Finance Committee Chairman David Weprin have criticized this because it wastes time and accomplishes little. In 2006, both Weprin and the speaker claimed the council had done its last dance. The mayor seemed to acknowledge that last week when he told agency heads that he expected them to suggest genuine savings and not a plan that "takes the most politically popular program and closes it."
That statement aside, the dance already seems to have re-emerged. "It was kind of a back to the future," said Turetsky of the mayor's budget. "Where you had some of the same old litany of cuts to summer jobs, library subsidy, seniors services. ... It seems that they are playing the same tune."
The new fiscal reality could change the tune, Weprin said. "It's a little different. We know we have to do a billion dollars in cuts," he said. Despite that, Weprin said, the council probably would come to the rescue of some of its favorite programs, like libraries and senior and children's programs.
While the mayor did not list precise cuts, some programs teeter on the chopping block.
The 5 percent cut in libraries threatens the effort to have all libraries open six days a week, which was included in last year's budget.
The Department of Sanitation may eliminate leaf collection, which runs for four weeks in the fall in the outer boroughs and costs the city $2.25 million. The department also proposed dropping some supplemental collection in the outer boroughs.
Some single adult homeless shelters are slated to shut, which will save the city approximately $2.5 million. The closures, said a Department of Homeless Services spokesperson, are in response to a decline in the number of homeless single adults. The department's entire financial plan for fiscal 2009 is slated for a 15 percent decrease, primarily because it does not include funding for the increase in homeless families that occurred in fiscal year 2008. In an emailed statement, a department spokesperson said the decrease would be possible because of shorter stays at shelters and efforts to move people back into the community. "As always, DHS's budget is adjusted year-to-year to ensure we continue to serve every family and individual who is eligible for services at any given time," the statement continued.
Other efforts that might see a decrease in funding are senior centers, Meals on Wheels and summer youth programs.
On the other hand, some departments plan to increase revenues. The Parks and Recreation Department hopes people will pay to put their names on public facilities. The program would involve about four facilities -- probably swimming pools or tennis courts within larger parks -- with naming rights going for approximately $750,000 each. The rights would most likely be available to people not corporations. The department is also looking into holding more concerts at in the parks to boost revenue.
However the departments manage to balance their book, some advocates said they would not harbor any hard feelings, partly because the cuts are across the board. "We can't say that it is unfair," said Randall Bourscheidt, president of the Alliance for the Arts. "It would be hard for people in the arts to feel like they have been singled out."
What is bound to cause some controversy is the proposed cut to the Department of Education.
During his time in office, Bloomberg has increased spending on education by about $4.5 billion. The funding for the Department of Education got an extra boost last year when the state finally settled the lawsuit on school funding brought by the Campaign for Fiscal Equity by pledging to give the city an additional $3.2 billion in education aid over the four years starting in fiscal year 2008.
The Department of Education is expected to spend about $20 billion this year on operating costs, including personnel, pensions and debt service. The mayor's preliminary budget calls for about $325 million in program cuts. It remains unclear exactly where these cuts will come - the Campaign for Fiscal Equity said it is still analyzing the plan. The budget does call for making the food program more efficient by requiring kids not eligible for free meals to pay for their lunch and for greater efficiency in purchasing and in using technology.
Individual principals, who have been given more control over spending at their schools, will see their budgets cut by an average of about $100,000 each, Schools Chancellor Joel Klein told the New York Times. As a result, he said, they will "have to tighten some programs," such as weekend tutoring or after-school programs. "My theory is that they should have some discretion," Klein added.
School cuts almost always attract opposition, though Bloomberg's record of increasing funding and focusing so much attention on schools may work to his advantage. "Everyone knows how important education is to him," the vice chancellor of the state Board of Regents, Merryl Tisch, told the Sun. "So if the mayor is recommending these cuts, you could be sure that he's not recommending them without having thought this through very carefully."
Some of the cuts may even please certain education advocates. The budget scales back the number of standardized tests, which the Klein has sharply increased over the years. "If that's the kind of stuff they're going to cut out of the education budget, count me in," wrote Reality Based Educator.
The city schools could face further cutbacks if Gov. Eliot Spitzer's proposed budget becomes reality. Under last year's plan to settle the Campaign for Fiscal Equity suit, the city expected an increase of $530 million in state aid for school operating costs. Now Spitzer has proposed an aid increase, but of about $100 million less than anticipated.
Education advocates last week assailed the governor for reneging on the deal. "More than a generation of public school students in New York have already suffered delays that continue to affect their ability to compete in the global economy and actively participate as citizens," Geri Palast, executive director of the Campaign for Fiscal Equity, said in a statement. And city teachers union president Randi Weingarten said the union "look[s] to the legislature to restore these funds in order to maintain the integrity of the Campaign for Fiscal Equity agreement."
Education advocates are particularly dismayed at the $193 million reduction in so-called Foundation Aid to the city. This money comes with strings attached: In other words, the state - not Bloomberg and Klein - set limits on how it can be spent. The restrictions came out of an ongoing debate about whether the state should hold the city accountable for how it spends state education dollars.
With fewer restrictions on spending of state aid, Leonie Haimson of Class Size Matters, an advocacy group, has written, "the city could instead spend it on more testing, cash rewards tied to test scores, more consultants, higher salaries at Tweed, or really any new fad that strikes their fancy."
The state would also delay payment for new school buildings by about 18 months, which, according to the New York Times, would have a disproportionate effect on the city.
City officials have vowed they will lobby the state for changes in the budget - on education and other issues - but, like the city, the state faces a difficult budget picture. Spitzer, unlike Bloomberg, set out some major new spending initiatives in his proposal for the fiscal year. Despite that, the $124.3 billion plan calls for less growth - slightly more than 5 percent - in spending than any budget in a decade. Some of the key increases come in money for upstate revitalization and programs for the state university system.
To fund that increase in these shaky economic times - and to avoid raising taxes - the governor looks to some unorthodox revenue sources, including a hefty hike in the tax on malt liquor, "monetizing" the state lottery and collecting taxes on cocaine sales.
Some critics questioned whether Spitzer's projections were too rosy. He even called it "a good news budget." But the governor noted that 20 percent of the state's tax revenues come from Wall Street, making some fear tougher times ahead. "They face coming back for a mid-year correction," Elizabeth Lynam of the Citizens Budget Commission told the Albany Times Union.
Or, as the mayor put it, "Anyone that thinks we're out of the woods is wrong."
New York City should get ready to lose some weight. This time, though, the target is not New Yorkers binging on transfat-laden fries or sugary soft drinks. No, now it's government that has to slim down.
For the first time since 2004, the city faces, not a surplus, but a deficit, forcing all departments and agencies to cut back or suggest innovative revenue producing proposals. No agency goes untouched. No department has immunity.
Calling recent economic trends "disturbing," Mayor Michael Bloomberg calmly went through financial indicators on Thursday, reminding New Yorkers that the city faces the effects of the national economic slowdown. "It's going to hurt us," warned the mayor, while ticking through a fairly pessimistic Power Point presentation at City Hall.
The question is, how much?
Five months before the City Council must approve a balanced budget, the mayor's preliminary proposal provides some indication of what some New Yorkers might have to do without next year and additional fees they might pay.
Bloomberg contends that essential services will not be cut, but he needs to trim a total of $1.5 billion over the next two years. He plans to cut funding for individual schools and close some homeless shelters among other reductions. He hopes to boost the tax on cigarettes once again. But he still intends to keep the $400 tax rebate and 7 percent property tax cut implemented last year -- though some advocates cautioned against that.
The administration needs to fill in many of the details. City Council members, advocates and others are just beginning to mull over what is and what is not included for fiscal '09. And budget watchers wonder whether the mayor has planned for the future or simply offered a quick fix.
The budget, an increase of 3.7 percent from fiscal year 2008, tops $58.5 billion. Much of the increase is due to contract agreements with city employees, debt services and pensions. The figures announced Thursday incorporate the mayor's departmental directives from last fall, when he required every city department to cut spending by 2.5 percent this fiscal year and about 5 percent in fiscal year 2009. (Bloomberg said last week that agencies had cut a total of 4.3 percent for this upcoming fiscal year - slightly less than he requested.) Unlike in some previous years, schools and police will be forced to cut back along with everyone else.
The city's expenditures are pretty predictable, said Bloomberg, but revenues are not. Almost every expert, though, predicts a downturn from the mortgage meltdown, credit crunch and Wall Street's seesawing.
New York Stock Exchange firms saw their largest losses ever in the third quarter of 2007, said Bloomberg, and the news for the fourth quarter is shaping up to be even worse. Unemployment claims are up nationwide, and housing sales have steadily dropped. Politicians in Washington are so worried that they seem to have put their partisan differences aside to reach agreement on a $150 billion economic stimulus package.
Budget officials estimate the city will receive $660 million less than anticipated in revenue based on the decline in profits on Wall Street.
So, what's the good news? Well, the mayor said, the budget is balanced. (By law, it has to be.) Tourism in the city, and hotel and office occupancy rates remain high. Bloomberg also made sure to give himself a pat on the back for prudent fiscal planning during the city's good times, when he put aside millions to pay down debt in future fiscal years.
This year's budget poses some quintessential policy questions the city did not have to face during the boom of the past few years: Should the government cut services to preserve tax cuts or should it keep programs at their current level and roll back tax breaks? And if the economy continues on its gloomy trek, what could or should the city do to avoid a far greater economic slowdown?
The answers depend to some extent on how bad things get. Some take a very grim view. Speaking at a forum Friday night, Representative Jerrold Nadler said the country could be facing the worst economic downturn since World War II. Bloomberg, while hardly optimistic, is not that gloomy.
"He's certainly put up big yellow lights, but he hasn't waved the red flag and said everything is falling apart," said Doug Turetsky of the city's Independent Budget Office. "Assuming there are no big local economic surprises over the next few months and things don't get remarkably worse, we're basically still running off the momentum of the good times. What the mayor's clearly showing us is even if things don't get worse, the days of wine and surpluses are over."
Turetsky said keeping the city's $400 tax rebate and the 7 percent tax cut on the table is also a viable option. That is, if the city's economic outlook starts to improve or, at least, not get demonstrably worse.
Some city officials are hopeful. Councilmember Domenic Recchia predicts the markets will recover and funding will be restored before it's time to finalize the budget. "I think that 5 percent is not going to be 5 percent," said Recchia, who chairs the council's Committee on Cultural Affairs, Libraries and International Intergroup Relations, of cuts to the city's cultural programs.
Other experts, though, see the budget as not doing enough to address the tough times that could lie ahead. Bloomberg's proposal uses the city's previous surplus to balance the budget in fiscal year 2009, which runs from July 2008 to June 2009. Then little of the city's surplus will remain. Because of that, some experts see a $4.2 billion gap looming in fiscal year 2010 and want the mayor to think about that now.
Charles Brecher, research director at the Citizens Budget Commission, would prefer to see the surplus money spread out over several years and not used for 2009 alone. "We kind of see this as temporizing and not dealing with the fundamental problems," said Brecher. The commission, he added, will draft alternative options for the City Council and the mayor to consider, including examining premiums in the city's health care system, like requiring employees to chip in, and curbing spending more aggressively.
Beyond its effect on spending and taxes, the new economic reality could change the relationship between the mayor and the City Council. The City Council must approve the budget. Over the past few years, with the city's coffers overflowing, the budget back and forth between the administration and council has been relatively congenial. But now that programs are threatened, some members are preparing to strap on their tap shoes.
"Let the dance begin," said Councilmember Vincent Gentile.
This refers to the infamous budget dance, long a mainstay of city politics. The administration cuts certain programs, libraries for instance, knowing the City Council will reinstate them. The mayor takes one step toward a certain program, and the council takes the opposite step back.
City Council Speaker Christine Quinn and Finance Committee Chairman David Weprin have criticized this because it wastes time and accomplishes little. In 2006, both Weprin and the speaker claimed the council had done its last dance. The mayor seemed to acknowledge that last week when he told agency heads that he expected them to suggest genuine savings and not a plan that "takes the most politically popular program and closes it."
That statement aside, the dance already seems to have re-emerged. "It was kind of a back to the future," said Turetsky of the mayor's budget. "Where you had some of the same old litany of cuts to summer jobs, library subsidy, seniors services. ... It seems that they are playing the same tune."
The new fiscal reality could change the tune, Weprin said. "It's a little different. We know we have to do a billion dollars in cuts," he said. Despite that, Weprin said, the council probably would come to the rescue of some of its favorite programs, like libraries and senior and children's programs.
While the mayor did not list precise cuts, some programs teeter on the chopping block.
The 5 percent cut in libraries threatens the effort to have all libraries open six days a week, which was included in last year's budget.
The Department of Sanitation may eliminate leaf collection, which runs for four weeks in the fall in the outer boroughs and costs the city $2.25 million. The department also proposed dropping some supplemental collection in the outer boroughs.
Some single adult homeless shelters are slated to shut, which will save the city approximately $2.5 million. The closures, said a Department of Homeless Services spokesperson, are in response to a decline in the number of homeless single adults. The department's entire financial plan for fiscal 2009 is slated for a 15 percent decrease, primarily because it does not include funding for the increase in homeless families that occurred in fiscal year 2008. In an emailed statement, a department spokesperson said the decrease would be possible because of shorter stays at shelters and efforts to move people back into the community. "As always, DHS's budget is adjusted year-to-year to ensure we continue to serve every family and individual who is eligible for services at any given time," the statement continued.
Other efforts that might see a decrease in funding are senior centers, Meals on Wheels and summer youth programs.
On the other hand, some departments plan to increase revenues. The Parks and Recreation Department hopes people will pay to put their names on public facilities. The program would involve about four facilities -- probably swimming pools or tennis courts within larger parks -- with naming rights going for approximately $750,000 each. The rights would most likely be available to people not corporations. The department is also looking into holding more concerts at in the parks to boost revenue.
However the departments manage to balance their book, some advocates said they would not harbor any hard feelings, partly because the cuts are across the board. "We can't say that it is unfair," said Randall Bourscheidt, president of the Alliance for the Arts. "It would be hard for people in the arts to feel like they have been singled out."
What is bound to cause some controversy is the proposed cut to the Department of Education.
During his time in office, Bloomberg has increased spending on education by about $4.5 billion. The funding for the Department of Education got an extra boost last year when the state finally settled the lawsuit on school funding brought by the Campaign for Fiscal Equity by pledging to give the city an additional $3.2 billion in education aid over the four years starting in fiscal year 2008.
>The Department of Education is expected to spend about $20 billion this year on operating costs, including personnel, pensions and debt service. The mayor's preliminary budget calls for about $325 million in program cuts. It remains unclear exactly where these cuts will come - the Campaign for Fiscal Equity said it is still analyzing the plan. The budget does call for making the food program more efficient by requiring kids not eligible for free meals to pay for their lunch and for greater efficiency in purchasing and in using technology.
Individual principals, who have been given more control over spending at their schools, will see their budgets cut by an average of about $100,000 each, Schools Chancellor Joel Klein told the New York Times. As a result, he said, they will "have to tighten some programs," such as weekend tutoring or after-school programs. "My theory is that they should have some discretion," Klein added.
School cuts almost always attract opposition, though Bloomberg's record of increasing funding and focusing so much attention on schools may work to his advantage. "Everyone knows how important education is to him," the vice chancellor of the state Board of Regents, Merryl Tisch, told the Sun. "So if the mayor is recommending these cuts, you could be sure that he's not recommending them without having thought this through very carefully."
Some of the cuts may even please certain education advocates. The budget scales back the number of standardized tests, which the Klein has sharply increased over the years. "If that's the kind of stuff they're going to cut out of the education budget, count me in," wrote Reality Based Educator.
The city schools could face further cutbacks if Gov. Eliot Spitzer's proposed budget becomes reality. Under last year's plan to settle the Campaign for Fiscal Equity suit, the city expected an increase of $530 million in state aid for school operating costs. Now Spitzer has proposed an aid increase, but of about $100 million less than anticipated.
Education advocates last week assailed the governor for reneging on the deal. "More than a generation of public school students in New York have already suffered delays that continue to affect their ability to compete in the global economy and actively participate as citizens," Geri Palast, executive director of the Campaign for Fiscal Equity, said in a statement. And city teachers union president Randi Weingarten said the union "look[s] to the legislature to restore these funds in order to maintain the integrity of the Campaign for Fiscal Equity agreement."
Education advocates are particularly dismayed at the $193 million reduction in so-called Foundation Aid to the city. This money comes with strings attached: In other words, the state - not Bloomberg and Klein - set limits on how it can be spent. The restrictions came out of an ongoing debate about whether the state should hold the city accountable for how it spends state education dollars.
With fewer restrictions on spending of state aid, Leonie Haimson of Class Size Matters, an advocacy group, has written, "the city could instead spend it on more testing, cash rewards tied to test scores, more consultants, higher salaries at Tweed, or really any new fad that strikes their fancy."
The state would also delay payment for new school buildings by about 18 months, which, according to the New York Times, would have a disproportionate effect on the city.
City officials have vowed they will lobby the state for changes in the budget - on education and other issues - but, like the city, the state faces a difficult budget picture. Spitzer, unlike Bloomberg, set out some major new spending initiatives in his proposal for the fiscal year. Despite that, the $124.3 billion plan calls for less growth - slightly more than 5 percent - in spending than any budget in a decade. Some of the key increases come in money for upstate revitalization and programs for the state university system.
To fund that increase in these shaky economic times - and to avoid raising taxes - the governor looks to some unorthodox revenue sources, including a hefty hike in the tax on malt liquor, "monetizing" the state lottery and collecting taxes on cocaine sales.
Some critics questioned whether Spitzer's projections were too rosy. He even called it "a good news budget." But the governor noted that 20 percent of the state's tax revenues come from Wall Street, making some fear tougher times ahead. "They face coming back for a mid-year correction," Elizabeth Lynam of the Citizens Budget Commission told the Albany Times Union.
Or, as the mayor put it, "Anyone that thinks we're out of the woods is wrong."
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