Politics

Last Dance: Bloomberg’s Budget Legacy

Outgoing New York City Mayor Michael Bloomberg. Credit: World Bank Photo Collection

Michael Bloomberg gave the final preliminary budget presentation of his mayoral administration last week, signaling the end of an era in New York City politics.

Observers were forced to wonder what would become of the city’s annual “budget dance,” in which fiscally conservative Bloomberg clashed with the liberal City Council over spending and taxes. It has become a familiar, if frustrating, routine.

This final year, at least, the dance will go on. In order to balance the budget, Bloomberg has proposed cutting funds for after-school and childcare programs, reducing the number of teachers citywide through attrition, and shuttering 20 firehouses across the city — proposals that will likely meet strong opposition from city councilmembers.

The cuts that Bloomberg proposed for 2013 resemble his budget proposals of previous years. In the past, his suggested cuts have been restored by the time the final budget is passed in June, but not without months of heated debate, mass rallies, nervous teachers and parents, and sniping in the media.

At last week’s presentation, Bloomberg seemed like he would dearly miss this battle once his term as mayor is over. Asked how he felt about giving his final budget, he responded, “I’d be hard-pressed to come up with anything that I’ve had to do in the last 11 years and almost one month that I didn’t enjoy [and] look at as a challenge.”

Despite Bloomberg’s apparent separation anxiety, the reality is that next year a new mayor will present the city’s budget after having inherited a number of vexing challenges, including a projected budget gap of $1.15 billion for 2014, growing to $2.6 billion by 2016. (This year, the city’s total budget is just more than $70 billion.)

James Parrott, an economist at the Fiscal Policy Institute, pointed out that it is “standard practice” for the city to project budget gaps for upcoming years. For example, despite a projected gap of $3.2 billion for 2012, the city actually ended with a $2.4 billion surplus. “The city typically incorporates a cautious revenue projection in budget forecasts,” Parrott explained.

According to Maria Doulis of the Citizen’s Budget Commission, actual tax revenues were at least $1 billion above the sum originally budgeted in eight of the last nine years. But future years will not be as rosy.

The city’s economy is not expected to grow at the rate that it did during the mid 2000s, meaning that unexpected surpluses may be a thing of the past. Only $114 million in additional tax revenue was collected in 2012. Analysts expect that Hurricane Sandy will have a negative impact on this year’s tax revenue to the tune of $250 million.

“If large unanticipated tax revenues are no longer a recurring part of the annual budget process, then the mayor and the City Council will be obliged to consider fundamental changes in the city’s budget,” Doulis warned.

Other pitfalls await Bloomberg’s successor. Labor contracts for the entire city workforce have expired, meaning that the next mayor will have to find money for any raises. Some 100,000 workers have been without a contract since 2010; Bloomberg’s budget assumes that these workers will settle for zero pay raises to cover the two years since their contract expired. The city’s Independent Budget Office calls this plan “impractical,” estimating that retroactive raises for these years will cost the city between $3 billion and $6 billion.

Both Bloomberg and the unions representing city workers seem to prefer to let the matter of wage increases wait for the next mayor. Unions may hope that whomever it is will be more generous. For his part, Bloomberg has set aside very little money in his current budget for wage increases, possibly with the intent of making it more difficult for the next mayor to agree to large pay raises.

Over the past several years Bloomberg was able to bridge budget gaps through a series of “one-shot” measures. A settlement from SAIC in connection with the CityTime payroll-keeping project provided the city with $500 million. Bloomberg has also drawn down money from the Retiree Health Benefits Trust, a fund that was established during the boom years of the mid 2000s. That trust is now exhausted.

With no assurance of more “one-shot” measures, and with tax revenues expected to grow more modestly, the next mayor may have no choice but to continue Bloomberg’s program of PEGs, or “Plan to Eliminate the Gap.” Since 2008 the mayor has saved $6.5 billion through PEGs. Savings come from headcount reductions, reduced spending, refinancing of debt service and revenue enhancements.

Over the past 11 years, the mayor has managed the city’s finances through the aftermath of 9/11, the tech bubble and the financial crisis. In some instances he fought to raise taxes, like an income tax surcharge on millionaires in 2003. Other times he fought bitterly against those who sought to raise taxes on the rich. He has increased spending on education and police. On the other hand, human service agencies have had to deal with devastating cuts. This is a mixed record that resists concise summation.

Parrott said that Bloomberg could have better used his tax and spending policies to fight poverty, pointing out that the child poverty rate was nearly 30 percent in 2011.

“If reducing poverty were a higher city priority,” Parrott said, “it would be reflected by prioritizing things such as work and family supports, aiding disconnected young adults in getting higher education and skills training, and expanding low-income tax credits.” Instead, spending for the seven human service agencies has fallen by 9 percent since 2008.

At last week’s hearing, Bloomberg was self-congratulatory. “We’ve done a lot,” he said. “You can always do more, but you can only fight so many battles at a time. We’ve gone through Sandy, we’ve gone through Irene, we’ve gone through a mortgage crisis. And yet with all of those things, the city’s budget is still in balance.”

Tags: new york, policy, politics, michael bloomberg, mayors, hurricane sandy, budgets, fiscal policy institute