Budget Driven to New High
By Mandated Expenditures,
Clash Seen On Tax Rebates

By Henry J. Stern
May 4, 2004

I promised that I would write about the mayor's executive budget, which was submitted to the City Council last week. On April 24, I described the budget process. My April 27 article linked to the daily newspapers' articles and editorials covering the budget.

To summarize, the 2005 budget is relatively unexciting.

It is a matter-of-fact statement of the city’s financial condition and prospects. It proposes no new taxes and includes a modest rebate in the real estate tax increase approved two years ago. Although it is balanced, as the law requires, it anticipates a $3.7 billion deficit next year (FY 2006).

If you want to know more, I will give you some specifics on the budget, its inclusions and omissions, and a forecast of the controversy that probably lies ahead. But there are about 1,450 words to go, and the budget, although very important, does not dance with excitement. So, if you wish, take a pass. On the other hand, I'd be happy if you stayed with it, and maybe even let me know how you feel about it.

The Executive Budget, the Budget Summary, the Capital Budget, the Message of the Mayor and their supporting schedules are substantial written documents, consisting of thousands of pages. (You can link to them here.) The higher the stacks of documents, the less likely the reader is to learn what the issues really are. The Budget Summary is the best introduction to the subject, since it shows financial highlights in large type.
 
The bottom line on expenses is that the budget for fiscal year 2005 will increase by $1.2 billion to $46.9 billion, a record high. Although city spending by mayoral agencies is rising rather modestly, the cost of mandatory items such as pensions, interest, and Medicaid, over which the mayor has little or no influence, is increasing rapidly.

The city's economy has made a decent recovery, but the mayor's report says the future remains uncertain, which it generally is, although this week's data is quite positive. Revenues exceeded estimates this year, but expenses have risen at a faster pace than income. This is a common problem in both municipal and personal budgets.
 
In fiscal year 2005 (which starts July 1, 2004), we will have a balanced budget for the 25th year in a row, as required by state law. For next year (fiscal 2006), assuming present trends continue, the budget will show a deficit of $3.7 billion. Mayor Koch points out that every year for the last 25, substantial budget gaps have been projected. Some gaps yawned more than others, but all were filled. This year's gap will have to be closed by the time the mayor presents the new budget next April. $3.7B (for short) is a lot of money to find in a relatively short time. Increased employee costs or declining economic activity could add to the gap, which is usually estimated conservatively.
 
Fiscal critics say the budget is still too high, and that the mayor has not made sufficient reductions in the city workforce. But even in the private sector, when his own money was at stake, Mr. Bloomberg was known to be averse to firing people. Unlike today’s world, where dismissal of employees is a source of televised entertainment, the mayor does not find any satisfaction in letting employees go if their work has been satisfactory.
 
The expense budget contains the usual cuts in cultural agencies, parks and senior citizen programs, which the Council is expected to restore, thus demonstrating its reason for existence. There is a significant conflict on real estate tax relief, the Bloomberg plan is skewed to favor small homeowners with $400 rebates, while the Miller plan for percentage reduction gives the largest rewards to substantial property owners and provides lower reductions for middle class homeowners.

This is a reversal of their usual positions; customarily the speaker attacks the mayor from the left, opposing America’s foreign policy, adopting a costly lead paint lawsuit bill, raising wages for employees of businesses that deal with the city, and imposing various strictures on city contractors which will lead to higher costs to be passed along to the taxpayers. The speaker’s view is that this legislation is consistent with New Yorkers’ historic reliance on state action to eliminate all forms of injustice.
 
Hopefully, this taxing dispute will be resolved by compromise, in which there will be some reduction in the 18.5 percent property tax increase enacted in December 2002 (one month after Governor Pataki was re-elected), in addition to added relief for local homeowners, who are already highly favored by city tax rates. It may also develop over the next few months that either the mayor or the term-limited speaker will seek a showdown on this issue, on the assumption that whoever prevails in a test of strength will gain political advantage.
 
The outcome could depend on how many councilmembers will vote against the direct financial interests of their homeowning constituents because of their loyalty to the lame-duck speaker or their antipathy to the mayor. Many councilmembers from boroughs outside Manhattan represent districts with thousands of small homeowners. Speaker Miller’s district is the Upper East Side, where private homes are townhouses owned by well-to-do people, to whom a $400 rebate would be less than they would receive in an across-the-board percentage reduction.
 
The prospect of confrontation between the mayor and the speaker will not be helpful to the city or its fiscal reputation. Just as truth is the first casualty in war, the public interest is often the first casualty in a political war whose outcome is seen as bringing personal advantage to one individual and loss of prestige to the other. The media assist by stirring the pot; competition in politics, like sports, arouses public interest.

It is not unusual for a less-important guy to pick a fight with a more-important guy, especially if the challenger finds new allies who may previously have been unimpressed by his legislative predilection for tight regulation of people trying to do business in the City of New York.
 
As far as agency management improvements, reorganization, systemic change, privatization of some functions, and elimination of unnecessary regulations and bureaucratic processes, 2004 has, sadly, not been the year for substantive reform. Actually, this should be the year, because next year is an election year and no candidate will want to ruffle any constituents' feathers. Reform is off to 2006, at least, but first the authorities will have to discover what it is.

The law requires the preparation of a budget, and OMB does a thorough, workmanlike job with the figures. But no law sets specific standards for management analysis; there are no precise requirement for the shrinking Mayor's Management Report (MMR) and no mandates for the constant surveillance of agency operations that should take place.

This is a result of the emasculation of what is now the Mayor’s Office of Operations (MOO), which in the Wagner and Lindsay administrations was headed by a deputy mayor-city administrator. Nonpolitical management was a reformist idea that was popular at mid-century.

Here is one example, already discussed in an Independent Budget Office report (released April 29), of the need for continuing oversight. Police overtime last year was $345 million. Was all of it necessary? Was anyone outside NYPD involved in making that judgment?  What will overtime cost in the new fiscal year, barring an unforseen event?
 
The capital (i.e. construction) budget, largely ignored in the media, contains substantial expenditures that should also face detailed scrutiny. The mere enumeration of capital projects does not provide the public with sufficient data to evaluate the proposals.

In my years at Parks, my deputy Alan Moss and I would visit sites of substantial renovations, often costing seven figures. We found that a good number of projects included in the capital budget could be done directly by the agency, at a far lower cost. When we did that, we reallocated the funds we saved to other sites within the districts of the councilmember who had added the item to the budget, so he/she could rightly claim credit for two parks that would be improved and rededicated.

But playgrounds are small potatoes in the capital budget. Water and sewer facilities cost nine or ten figures, and the fact that they are user-funded does not mean that they should be exempt from public review.

How many projects in other agencies have been looked at physically by "boots on the ground," people capable of making an independent evaluation of the necessity for each aspect of enormous expenditure being proposed?

J.P. Avlon wrote a column in the April 29 Sun about the very large capital budget titled “A Cleaver and Good Sense.” Many of the projects Avlon mocks are worthwhile, or even necessary, but not every one of them can pass the test: should we borrow money in order to build this? If it were private money being spent, it is widely believed that diligent inquiry prior to construction would have resulted in meaningful savings.

The city has what is called "value engineering" under OMB, a process which could be helpful if properly administered. What we need is a modest influx of bright people, unencumbered by loyalties to either city agencies or private contractors, to make high-caliber recommendations to the mayor about capital projects and priorities. This is particularly true with regard to the off-the-chart costs of school construction, which is surely the most sacred of a herd of pampered cows, and threatens, under court direction, to expand substantially regardless of cost.

It appears that April showers continued into early May. Let us hope that they are behind us, and that we can continue with the spring weather we enjoyed this afternoon.


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