For all the hue and cry about the ”cuts” needed to close New York City’s $4.9 billion budget gap, a funny thing happened on the way to the 2003 fiscal year: the first adopted budget of the Bloomberg era does not reduce overall city spending.
In fact, after adjusting for rollovers of prior-year surpluses and excluding state and federal grants, the portion of the budget financed by the city’s own revenues and borrowing is up nearly $800 million for the fiscal year that began July 1. This 2.7 percent increase—well above the projected inflation rate—is the key to understanding why New York City continues to face massive budget gaps for as far as the eye can see.
Topping the list of new city-funded spending for fiscal 2003 is an additional $285 million for the Board of Education—along with $206 million to be financed by special state loan. These increases, plus another $194 million in state aid, will bring the total public school operating budget to about $12.4 billion, up 6 percent (more than triple the inflation rate) from 2002. Virtually all of the new spending reflects the cost of the new teachers’ contract and other labor agreements.
Pension contributions for city employees will rise by 24 percent, or $324 million, largely as a result of three factors: the fall of the stock market, the rise in city workers’ salaries under recent contract agreements, and various pension benefit increases enacted by the State Legislature since 2000. And this is just the start: Pension costs are projected to rise by another $500 million to $600 million a year in each of the next three fiscal years.
During the roughly two and a half months between the Mayor’s April proposal and his final deal with the City Council last month, the 2003 budget grew by more than a half-billion dollars—at least two-thirds of which could be attributed to the teachers’ contract settlement. The compounding effect of this added spending in future years is the primary reason why the Mayor’s officially projected 2004 budget gap has grown in the last three months by $1 billion, to a new total of $3.7 billion.
A tale of two mayors
Bloomberg’s first spending plan presents a stark contrast with the first budget adopted under Rudolph Giuliani. Consider the following table of city funds spending since 1994, adjusted to smooth the distortions caused by bookkeeping transactions involving budget surpluses.
Faced with a budget gap of $2.3 billion upon taking office in 1994, Giuliani reduced spending by nearly $700 million. This was the first (and is still the only) year-to-year cut in total city spending since the 1970s. As shown in the table, Giuliani continued to hold down spending through his third year in office, laying the groundwork for a series of surpluses that grew to over $3 billion as the economy finally rebounded in the late 1990s. Since 2000, however, city spending has grown much faster than city revenue, rapidly depleting the accumulated surplus and creating much of the problem Bloomberg inherited.
Differing mayoral philosophies
Giuliani’s first-term fiscal restraint stemmed from an outspoken commitment to reducing the size of city government, which he said had grown far beyond affordable levels. He adopted an adversarial stance towards city unions and used the threat of layoffs and of competitive contracting for city services as leverage to achieve his savings targets (although, in the end, he actually increased the payroll).
Bloomberg, however, has described the city’s large workforce and heavy spending as evidence of New York’s “compassionate” philosophy of government. His preliminary budget, issued in January, ruled out layoffs and called for minimal staff reductions to be accomplished entirely through attrition and early retirement. The Mayor’s subsequent Executive Budget actually called for a net increase in the total number of full-time city workers, although that seems highly unlikely to actually occur even under the increased spending levels in the updated financial plan.
The city-funded portion of the adopted 2003 budget does call for significant nominal spending decreases in a handful of large agencies, particularly the Police Department (down $113 million, or 3.4 percent), the Fire Department (down $53 million, or 4.7 percent) and the Department of Parks and Recreation (down $12 million, or 6.3 percent). Most of the remaining budget “cuts” actually represent reductions in baseline projections—i.e., spending increases that would have taken place this year if there had been no change in prior-year budget policies and programs. In fact, city-funded spending on everything other than schools and pensions will still increase about $300 million this year.
If the new mayor had duplicated Giuliani’s first-year achievement and reduced city-funded spending by 3 percent (instead of increasing it by nearly 3 percent), he wouldn’t have needed to borrow $1.5 billion to close to close his 2003 budget gap—and next year’s gap would far smaller and more manageable. Instead, the city’s failure to significantly curb spending this year means that next year’s problem will be that much worse.
POSTED: JULY 10, 2002