With his sixth preliminary budget, Mayor Michael Bloomberg has taken a big step toward a bold goal: to rid New York City of its reputation as a liberal, tax-and-spend city. How else to explain over a billion dollars of tax cuts, the squirreling away of billions in reserve funds, and a four-year plan that, with the exception of education, caps discretionary city spending? And the only roadblock to achieving the goal – the Democratic city council – thus far seems to buy into the plan.
The January 2007 budget plan carries a distinctly conservative stamp – but only to a point. The mayor, like former Mayor Rudy Giuliani before him, seems unwilling, even in the best of economic times, to take the ultimate conservative step: to offer a four-year structurally balanced budget. That’s something the conservative State Financial Control Board has been pleading for the past 15 years. And with budget surpluses of $3.5 billion two years ago, $3.8 billion last year (actually much more – see below), and nearly $4 billion in prospect this year, the times could hardly have been better to satisfy the plea.
The Bloomberg tax cut program – initially proposed for just one year – is scheduled for all four years of the plan. (Whenever City Hall proposes a budget for the next fiscal year, it also presents a more preliminary plan for the following three years as well.) The costs in lost city revenues from cuts in property, sales, and business taxes for fiscal years 2009 through 2011 make them a substantial cause of the big deficits in those years:
The mayor says the focus of the tax cuts is to give relief to homeowners, but because a property tax rate cut has to be across-the-board, the really big taxpayers get the break too -- approximately $300 million of the total $750 million in cuts. This is true even though the mayor has often said that these big businesses don't make decisions on where to locate based on how much they are taxed; indeed, his budget boasts of how new businesses are eager to move to New York.
At the same time, the tax cuts offer no relief to renters, as I explained in an earlier article. A five percent cut in the property tax for rental properties may help small landlords, but it is unlikely to get passed through to the average renter.
The plight of low-income renters in particular is made clear in the Community Service Society’s December 2006 report, “Making the Rent, 2002 to 2005: Changing Rent Burdens & Housing Hardships Among Low-Income New Yorkers”. The median rent burden for all low-income renter households (those earning up to about $30,000 for a family of three as of 2004) was 44 percent of their income in 2005, up from 39 percent in 1996. One way to help those renters is with some kind of tax credit or rebate. But renters are not among the beneficiaries of the $400 rebate that homeowners will get for the next four years in addition to their five percent property tax rate cut.
The conservative moves that the mayor is likely to be best known for in the future are the reserve funds he has used, especially the retiree health benefits fund that he established a year ago. The city placed $1 billion into the new fund in the 2006 budget, and another $1 billion into the fund this fiscal year. The new January financial plan proposes another $500 million for the fund in 2008. It is important to note that none of these payments, nor the $2.5 billion fund itself, are required.
The fund serves two interests: one, fiscal prudence, and second, mayoral fiscal control. It works as a kind of “rainy day fund,” so-called because the payments to retirees, historically paid directly from the city expense budget, can now in effect be paid through the fund during tough fiscal times. But the reserve fund also serves the no-more-taxing-and-spending goal by simply keeping $2.5 billion out of the hands of the city council, which in earlier days might have spent some (or all) of it.
Other reserve funds exist, and they have masked the enormous size of recent and current surpluses. A report by the State Deputy Comptroller for NYC notes that had payments to just two of these reserve funds not been made in 2006, the 2006 surplus would have been over $5.3 billion, not the $3.8 billion that has become the official surplus. In all, the report indicates, the city generated $6.4 billion in "unanticipated resources" -- in other words, the real surplus by this reckoning was not the $3.8 billion officially claimed by the Bloomberg administration, but $6.4 billion.
The third sign of a conservative financial plan is the flat or reduced city spending in all major agencies, with the exception of education, where city funds will rise from $6.8 billion in 2007 to $8.1 billion in 2011. But beyond that, the police and fire departments remain pretty much at their 2007 levels ($3.6 billion and $1.3 billion, respectively) throughout the four years. Among the human services agencies, from 2007 to 2011:
The flat spending in the four-year plan has been minimized because of all the publicity given to the agreement between the mayor and the council to end the budget dance in cultural affairs, parks, and other agencies -- that is, the budgets for these agencies are now included in the four-year plan, rather than the mayor cutting them each year and the council then restoring them during budget negotiations in the spring.
But a different kind of budget dance continues -- the shuffling of city surplus revenues by the mayor’s budget office during the fiscal year. These unilateral moves may be about fiscal prudence, but there is also politics in the use of reserve funds, untargeted tax cuts and across-the-board caps on spending.
Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001.Â
Norma Munn is happy at last.
Munn, the long-time chair of the New York City Arts Coalition, is usually glum, impatient, outraged starting in January when City Hall presents its proposed budget – and over the next six months, as negotiations over money for the arts move forward to the final budget.
Her objection certainly has been to the level of funding for the arts. She also has criticized the way the funds are allocated among the various cultural institutions – a complicated process with four different funding pools, Byzantine formulas, long-forgotten rationales and lots of politics, which I attempted to explain in an article two years ago entitled Arts Funding 101. “It's inequitable, it's irrational, it doesn't satisfy anybody,” Norma Munn said of the funding process then, and has been saying for years.
But over the two decades she has been following City Hall’s funding of the arts, she probably grumbled loudest about the budget negotiations themselves – which typically began with the mayor (whoever happened to be mayor) proposing cuts in the funding for libraries, parks and cultural institutions. The point of proposing these cuts was just in order to force the City Council to fight to bring the funding back to what it was in the previous year. This cutting and restoring, year after year, was such a regular part of the budget process that it was given a name -- the budget dance.
It is different this year. Looking at the Bloomberg administration’s proposed budget for fiscal year 2008 (which begins July 1, 2007), Munn seems to have one thought, which can roughly be summed up in one word: Hallelujah. All three of her main objections have largely disappeared. The level of funding for the arts has gone up, the means of allocating the funds have been dramatically altered, and the budget dance – just like that -- has come to an end. “This is extraordinary,” Munn wrote in an e-mail to the members of the arts coalition. “Celebrate the change! And, thank everyone….We still have work to do…but…this is a better place than we have been in a long, long time…”
Other arts advocates agree. “I welcome these changes,” says Randall Bourscheidt of the Alliance for the Arts. “I appreciate the intelligence and the good will that the mayor and the City Council have shown on this – and the hard work done by [Cultural Affairs Commissioner] Kate Levin and her staff.”
The Department of Cultural Affairs, as is explained in this year’s budget, “funds and provides support services to the nearly 1,400 art and cultural organizations in the five boroughs, including 375 off-Broadway theater companies, 330 dance companies, 150 museums, 96 orchestras, 24 performing arts centers, 7 botanical gardens, 5 zoos and 1 aquarium. Nearly 950 public schools in New York City have partnerships with these organizations, and together these nonprofits create over $5 billion in annual economic impact for New York City.”
But, though the department bills itself as the largest public funder of the arts in the United States, few of those institutions were completely happy with the amount of funding they were getting from the city government (just a fraction of the money they needed to operate), nor the process to which they were subjected in order to get it.
The proposed expense budget for the Department of Cultural Affairs for fiscal year 2008 (which begins in July, 2007) is $153.8 million. As Munn points out, this is an increase of two million dollars from fiscal 2007 (the current year).
(The Bloomberg administration also presented a separate capital budget, for major construction and renovation projects, which includes 195 capital projects in the works by the Department of Cultural Affairs, more than four times as many as a decade ago. The project for which they are proposing spending the most money -- $173.6 million over the next ten years -- is the redevelopment of Lincoln Center. Other big projects include expansion of the Museum of the City of New York and of the Queens Museum of Art; improvements to Snug Harbor Cultural Center and to the Brooklyn Academy of Music; a new master plan for the New York Shakespeare Festival/Public Theater and for the Brooklyn Museum of Art; the renovation of Wave Hill in the Bronx so that it is fully accessible to the disabled; and the completion of the educational museum at the Weeksville Historical Society, on the location of an early African-American community.)
More importantly, the amount for the Department of Cultural Affairs proposed in the expense budget in January – the so-called preliminary expense budget -- is some $52 million more than Mayor Bloomberg proposed for the agency in last year’s preliminary budget. In other words, the mayor has not done this year what he and his predecessors have done for decades – he has not proposed cutting the budget for the arts.
Arts advocates and the press give four reasons for the end of the budget dance. First, and most importantly, is the good working relationship between the mayor and the new Speaker of the City Council, Christine Quinn, and the fact that Quinn expressed almost as soon as she was selected Speaker the desire to change the system. Second is the good financial shape of the city – thanks (as Joshua Brustein writes in 2008 Budget: Round One) to “Wall Street profits (the $25 billion in bonuses in the security sector were easily the highest ever), and the continued strength of the real estate market.” Third is the steady work of Commissioner Kate Levin. And fourth – the arts advocates (off the record) take some credit themselves for having complained about the dance year after year.
Of potentially more profound significance, the Department of Cultural Affairs has changed the way it will give grants to arts organizations. Critics long have accused the current system of being driven by politics – who you know at City Hall or Borough Hall (or who you knew decades ago) rather than how good or how popular you are – and of being intimidating in its complexity. The department is now simplifying the application process, and distributing more of the funds based on decisions made by “a competitive peer-panel review”, which includes representatives of both the “cultural community” and elected officials. These review panels will be borough-wide for organizations with budgets under $250,000; city-wide (with different panels for the different artistic disciplines) for organizations with budgets over $250,000. In an effort to offer at least some arts organizations greater fiscal stability, the department will also now provide the opportunity for multi-year grants.
“What we’re trying to do is make this a fair process, make it merit-based,” the mayor said at a press conference announcing the changes.
The changes “make the allocation of funds more transparent and more equitable,” Bourscheidt says. The new funding process “gives access to a number of groups that were shut out of the earlier process, which they saw as a closed system and a highly politicized system.”
The new system is still far from child’s play, however, which is why the department offers both a page of information explaining the changes and another page of frequently asked questions about the new funding process, and why the department has scheduled six free "public information sessions" throughout the city during the first week of February.
Though the other funding categories have been, or clearly intend to be, phased out, the so-called Cultural Institutions Group will remain; these are the 34 institutions, from the Metropolitan Museum of Art to the Bronx County Historical Society, presumably “owned” by the city (though it is not completely clear what that means) that traditionally have received the highest and most steady government funding.
If these institutions potentially have the most to lose by any changes in the funding process, they also benefit the most from the end of the budget dance, since they can more or less plan their own budgets now, calculating in the amount of city funding, instead of having to wait (as in all previous years) until the end of June.
At the same time, though, the department is introducing a greater level of accountability to this group, with the creation of CultureStat -- a process by which it will measure the performance of the 34 members of the Cultural Institutions Group, from financial management (“e.g. timely audits”) to public access (“e.g. free hours; clear public information”). Starting the year after next, ten percent of each institution’s funding will be based on the degree to which they achieve satisfactory CultureStat ratings.
If most in the arts community of New York City would see the changes as a positive development, the arts remain in precarious condition.
So, Norma Munn can write to the members of the arts coalition, “It is clear…that both the Speaker and the Mayor expect a decline in lobbying efforts…[T]he new structure should eliminate the need for most groups to spend money and time on individual lobbying efforts.” Nancy Umanoff, executive director of the Mark Morris Dance Group told the New York Times in an article about the change in funding: “I think it’s wonderful that they’re depoliticizing the process. It means that arts administrators can go back to running their institutions and not have to lobby politicians.”
But lobbying is to arts advocates what paint is to painters. Thus Randall Bourscheidt says: “I’m very appreciative that they’ve increased the funding...Of course, it should be larger. It’s one of our major industries. When you see the power of the arts to transform the lives of children, or when you see the power of the artists to attract tourists and improve the city’s economy – these are the reasons to invest more money…to meet both the needs and the opportunities of the arts. We hope to have some respectful conversations with the mayor and the city council.”
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He had good news to share, but Mayor Michael Bloomberg seemed so downtrodden last Thursday that a reporter asked him why he didn't seem happier.
It seemed like a fair question. The question came an hour into Bloomberg's presentation of a $57.1 billion preliminary budget in which he announced that the city's economy had a $3.9 billion surplus – almost $2 billion more than estimated in November 2006. The main proposal was a popular $1 billion tax cut. Compare that to Bloomberg's first few years in office, when huge deficits forced him into a grim game of dramatically raising taxes while cutting services.
Yet the mayor spent most of his time talking about how the good times were going to end soon.
Bloomberg responded to the question by insisting that he was happy, and that the city had reason to be happy. "The way to be happy long term, however, is not to go out and spend everything you have on food and drink," he said. "You have to make prudent investments."
This means setting aside much of the surplus to offset future deficits, and putting millions into a trust fund for future employee health benefits. But some would chafe at the assertion that using the city's surplus to confront current problems is akin to blowing one's paycheck on a fancy meal. A surplus, of course, does not indicate that all is well with the city. One in five New Yorkers are still living in poverty, some point out. New Yorkers still face the country's highest tax burden, say others.
Those hoping for more aggressive tax cuts or ambitious social programs didn't find them. Still, Bloomberg's budget does make gestures on these issues. His budget cuts taxes and increases spending, despite the tough talk. And because there is no pain to spread around, criticism of the mayor has been muted. The mayor has also won over many members of the City Council by granting steady funding to arts programs, parks, and other areas that have historically been the subject of squabbling between the council and the administration in an annual ritual known as the "budget dance."
As a rule good fiscal years are less dramatic than bad ones, said Diana Fortuna of the Citizens Budget Commission.
"It's so much more money than anybody expects, and it makes it not at all difficult to balance the budget," she said. "The challenge of a mayor in this kind of environment is how well he handles the future. He's doing fairly well."
The mayor's budget proposal this year takes the same attitude towards the future as he held throughout his tenure (with the notable exception of the year he was running for mayor, and proposed a tax rebate and a grab-bag of spending proposals). Essentially, he says, it scares him. So Bloomberg is setting money aside; some critics have said that a better use of the large surplus would be to deal with some of the structural challenges that can leave New York in trouble in lean years.
Bloomberg has discussed such actions in recent weeks, specifically in a report he issued with Senator Charles Schumer that discussed how to make sure that Wall Street doesn't lose it primacy on the international financial scene.
But any such bold plans were not part of the plan presented Thursday, when Bloomberg resigned himself to trouble ahead.
"These bad years do arrive. They did arrive," Bloomberg said. "It was only two or three years ago that we were running record deficits."
New York's economy is doing well. Unemployment is at an all time low, the city has added 124,000 private sector jobs since 2003, and overall wages have increased significantly for three consecutive years.
The city has a surplus of almost $4 billion to work with this year. This is due primarily to Wall Street profits (the $25 billion in bonuses in the security sector were easily the highest ever), and the continued strength of the real estate market.
The situation has been the same for the last several years. Wall Street and the real estate market do better than predicted, bringing a windfall in tax revenue to city coffers, but economists say that a slowdown is imminent. In particular, the administration says that the "extraordinary revenue" from the real estate boom will drop by a billion dollars between fiscal 2008 and fiscal 2009. Wall Street profits are also projected to drop 16 percent this year, and even more sharply the following year.
The city's financial obligations, however, will not go away. Medicaid costs, interest the city must pay on money it has borrowed, and money paid for pensions for municipal workers are all expected to rise significantly. The mayor's office sees a $2.6 billion deficit by fiscal 2009, rising to $3.6 billion the year after that.
As a result, Bloomberg wants to use $1.4 billion of this year's surplus to help pay for the deficit in fiscal 2009. He also proposes adding $500 million to the trust fund he established last year to pay for health benefits for municipal employees. Aside from these admittedly un-sexy moves, the main way Bloomberg proposed to spend the money was with a $1 billion tax cut plan.
Fiscal watchdogs describe the mayor's moves as prudent. New York's tax revenues rely heavily on cyclical industries, and while Wall Street and real estate are hugely profitable today, this success simply cannot last. But advocates of tax cuts think that the mayor should have been more aggressive.
"For every measly dollar the mayor is willing to return to the taxpayers in the form of tax cuts, he wants to hoard for the government another two dollars and ninety cents," complained the New York Sun in an editorial.
The Sun and other like-minded critics argue that the mayor himself notes that the city spends more than it brings in, but that when presented the chance to make structural changes, he lets the opportunity pass him by while continuing the city on its current course.
Tax cuts: Bloomberg's biggest budget initiative was announced at his State of the City: $1 billion in tax cuts, including $750 million for a one-year property tax reduction, the elimination of the sales tax on clothing and shoes, new tax credits for small businesses, and an extension of the $400 property tax rebate for homeowners.
Bloomberg says that his property tax reduction is a temporary measure, and makes no promises that he will continue it beyond that. But he has calculated future revenues as though the cuts will continue indefinitely. Many believe that the mayor is doing this to guarantee that if the situation next year is better than expected, the windfall will go to the tax cuts and not new spending.
"I think what he's trying to say to the City Council is don't spend this $1 billion," said Nicole Gelinas of the Manhattan Institute.
Education: For the first time, the city's budget factors in state money for the Campaign for Fiscal Equity – a long-running lawsuit whose recent settlement requires that Albany contribute more to public education in the city. Bloomberg expects the state to phase in its increased funding gradually over four years, from $723 million in fiscal 2008 to $2.3 billion in fiscal 2011.
The city and the state have been at odds for years about how much the city should increase spending in education as part of a settlement to the lawsuit. Bloomberg has resisted increases in the city's contribution. This year, however, he proposes increasing city spending on education, starting with $532 million in the coming year. Some believe this is the mayor's way of pre-empting an effort by the state to determine how much extra money the city should dedicate as part of the final deal on the Campaign for Fiscal Equity.
Poverty Initiatives: Mayor Bloomberg's poverty initiatives got scant mention in his State of the City. Yet his budget proposes spending $65 million in new spending on several initiatives. Among them are:
• a program to help juvenile offenders get GEDs and enroll in college,
• a youth internship program for so-called disconnected youth that the city says will lead to employment for 1,400 people in the coming year
• after school programs for 4,500 young people.
Other related programs that are not explicitly tied to the poverty commission but would receive increased funding include expanding education for young inmates on Rikers Island; developing better statistical models to show how New Yorkers are affected by poverty; and providing employment and training for non-custodial parents so that they will be more likely to pay child support.
James Parrott of the Fiscal Policy Institute said that the mayor's proposals were both encouraging and underwhelming.
"It's good news in that Bloomberg is one of the few elected officials that's doing anything," he said, but added that after the mayor's grand rhetoric on stamping out poverty, they seemed disappointingly modest.
"Some of the things seem reasonable to do, but instead of five or ten, why weren't there 20 things like that?" asked Parrott. He had particular praise for a program the mayor recently announced to help low-income New Yorkers collect the Earned Income Tax Credit, and suggested a tax credit for renters to accompany the tax breaks for property owners.
Capital Spending: In addition to his preliminary budget, the mayor presented a 10-year capital plan. The plan, which is separate from the operating budget, includes $77 billion, a 15 percent increase from the year before. The single largest expense is for educational facilities; at $28 billion, school construction spending makes up about 36 percent of the capital plan. But the plan also includes funding for the Atlantic Yards, the Javits Center, affordable housing, and even $200 million automated water meter readers.
All of this can be taken with a grain of salt. Since it covers such a long period, the plan for capital spending is constantly changing. Much of the spending in Bloomberg's plan won't happen until long after he has left City Hall.
The mayor's preliminary budget sets off a several months of negotiations with the City Council, leading up to a final budget agreement by the beginning of the next fiscal year on July 1. In past years this has been an acrimonious – and rather ridiculous – process known as the budget dance. In the dance, the mayor leads by proposing cuts to programs that he has no intention of actually cutting. He can then use the cuts as bargaining chips, reversing them in negotiations with the council. The programs are eventually restored to their original funding levels.
Council Speaker Christine Quinn (and many others) said the tradition was unnecessary and counterproductive. When she became speaker, Quinn said she would end the dance by convincing the mayor to create stable funding for many of the programs that have been subject to this back and forth. This process, called baselining, sets an amount of money that is automatically included in the budget. In last year's budget, the mayor agreed to put baseline funding in the budget for summer jobs programs for teens and library funding. Because the funding for these programs was always restored anyway, this move doesn't cost the city anything. But it does give a sense of stability to programs that rely on city dollars.
In an announcement the day before he presented his budget, Bloomberg said he would take further steps to end the dance. He set aside $38 million for arts program, $14 million to pay for park maintenance and parks workers, and $10 million for child care programs run through the Administration for Children's Services.
Political observers have seen the agreements as evidence of the warm relationship between Quinn and Bloomberg – which contrasts sharply to the hostility that the mayor felt for (and from) her predecessor, Gifford Miller, who hoped to beat Bloomberg in the 2005 mayoral election.
The deal between Quinn and Bloomberg has also served to endear the mayor to other members of the council.
"That's going to go a long way to us actually discussing some real policy differences that we might have at the end of the budget that we can deal with," said David Weprin, the head of the council's finance committee.
The city government does not control everything in its budget, however.
According to the mayor, over half of the spending in fiscal year 2008 will be on things the city does not have control over. These so-called uncontrollables include
• Medicaid costs, largely set by state policy, and expected to rise 8.9 percent this year);
• Pensions for municipal workers, negotiated between labor unions and state lawmakers, and expected to rise $15.1 percent this year; and
• Debt service, influenced largely by interest rates, and expected to rise 8.6 percent this year. Some argue that debt service is not really uncontrollable, since the city chose to borrow money, and Bloomberg said he agreed. Still, he includes it on his list of uncontrollable expenses.
The revenue that New York City has to work with also relies in large part on what happens in Washington and Albany. New York City sends a total of $22 billion more to state and local governments in taxes than it receives in services, according to the Bloomberg administration. Part of the preliminary budget each year is a series of suggestions about things City Hall would like to see done on other levels of government.
Washington: Bloomberg's requests of the federal agenda includes:
• $905 million to fully fund No Child Left Behind in the city;
• More flexibility for Community Development Block Grants; and
• $9 million in reimbursement for unpaid parking tickets from foreign dignitaries.
In total, the administration is asking for changes that would bring $1.2 billion into city coffers.
Albany: The main thing that New York City expects from the state this year in the Campaign for Fiscal Equity money. Other state initiatives that the mayor requested in his preliminary budget include:
• $50 million in increased child care;
• The repeal of the Wicks Law, legislation concerning construction contracts, that the mayor says will cut capital construction costs and save the city $63 million;
• Action by lawmakers to allowing the city to increase its tax on cigarettes to $2 a pack, while strengthening enforcement.
The negotiations between the city, state and federal governments over spending are a constant part of the political landscape, and the mayor does not believe that he will get everything he asks for.
Still, Bloomberg lays the blame for some of the city's most worrisome fiscal problems at the feet of officials elsewhere. The sharp rise in the cost of pensions was one of the things that had Bloomberg sounding so dour last week. It was also something he touched on in his State of the City address the week before, when he admonished Albany for granting generous pension benefits to municipal workers, then leaving city taxpayers to foot the bill.
"It's time for Albany to stop playing Santa Claus with the city's money," said the mayor.
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