New York City Council
Fiscal Year 2004 Preliminary Budget Hearings

Tuesday, March 4, 2003

Good afternoon, Chairman Weprin and members of the Finance Committee. My name is Diana Fortuna, and I am President of the Citizens Budget Commission. Thank you for the opportunity to testify on Mayor Bloomberg's Preliminary Budget.

Let me start by noting that the CBC released an analysis today of the City's 2004 budget gap. The analysis outlines the factors that created the gap, and summarizes the current plan to close it. What emerges most prominently from this analysis are four facts:

· First, while lost revenues from the recession and the aftermath of September 11 are usually cited as the major cause of the City's gap, rising expenses are actually a more significant factor. The tax revenue loss has been $2.4 billion since June 2001, but expenses have grown by $3.1 billion.

· Second, the $3.1 billion in spending growth is driven by rising costs associated with the City's workforce, including pensions, collective bargaining agreements, and health insurance, along with growth in Medicaid and education spending.

· Third, revenue increases play a much larger part in closing the budget gap than spending cuts. Revenue increases total $4.8 billion in the Mayor's plan, while lower city-funded spending totals $3.4 billion.

· Finally, most of the $2.8 billion in budget reductions identified by City agencies will have no effect on city services. Rather, $1.7 billion or 60 percent of these savings result from actions like cost shifts to the State or federal governments, fee increases, efficiencies, and revised cost estimates. Service cuts total about $600 million.

New York City remains in dire fiscal health, but so far the City's leaders have taken decisive steps to respond to the crisis. We did not agree with the decision to institute an across-the-board property tax increase, but we salute the Mayor and the Council for acting promptly to close the gap in 2003, and narrow it significantly in 2004.

Although we have some concerns about Mayor Bloomberg's preliminary budget, we find much of it worthy of support. First, the Mayor has vowed to avoid additional borrowing, a position that the CBC applauds. Borrowing to support operating expenses is a serious mistake, because it forces future generations to pay for the services we consume today. As you know, the City borrowed $2.1 billion this year to cover operating expenses. We are pleased to see the Mayor advocating the fiscally prudent path by avoiding borrowing in 2004.

Second, the CBC supports the Mayor's plan to negotiate $600 million in productivity and other cost savings with the City's unions. The City should make it a priority to pursue sensible efficiencies with its workforce in order to maintain services. Worker health insurance co-pays and more flexible pension plans are the norm for public sector employees elsewhere. Furthermore, a 40-hour workweek and other measures proposed by the Mayor are reasonable ways of improving workers' efficiency. And, because productivity measures cannot be implemented retroactively, the Mayor's goal of only granting raises prospectively and having those raises tied to productivity improvements is a sound one.

Third, having responded immediately and aggressively to its fiscal problems, the City is right to look to Albany for the authority to take additional steps to close the rest of its gap. The CBC has often been concerned about New York City's high tax burden relative to its competitors. The Mayor's personal income tax reform plan currently before the State legislature not only spreads the cost of City services to more of their users, it reduces New York City's overall tax burden, thus bringing us closer to our competitors.

In addition, giving the City fiscal relief by relying on user fees to finance the bridge and highway system is a good idea. Roads and bridges are better maintained when more of the cost of maintaining them is borne by their users. Fees that can cross-subsidize other means of transportation could help to improve substantially our transportation network. However, achieving the fiscal and service gains will require structural changes in the transportation agencies, not just diverting new toll revenue to the general fund.

There are nonetheless significant causes for concern in this budget.

As you know there are large risks in the preliminary budget, along with a gap of $1.5 billion in the following fiscal year, 2005. For these reasons, it is clear that City spending remains at a level well beyond what the City can support. The current spending level was reached when an unprecedented bubble caused revenues to pour into the City's coffers. Since the bubble burst, large one-shots permitted that spending to be largely maintained in 2002 and 2003 - through the use of the accumulated surplus in 2002 and through borrowing in 2003.
If Albany fails to deliver the substantial assistance the Mayor is requesting or negotiations with the labor unions fail, additional spending cuts will be necessary and they will involve difficult choices. Although the Council's budget mandate doesn't extend at this point beyond fiscal year 2004, the choices you make today on spending affect our ability to achieve balance in future years. I would like to urge the Council, as you develop your budget proposals and negotiate solutions with the Mayor, to make those choices that promote recurring savings on delivering services.

The most desirable way to cut spending is to improve productivity, because a more productive workforce can provide the same services for less money. Last year, the CBC released five research papers that identified $1.2 billion in possible savings through productivity and efficiency measures, including procurement reform, increasing the civilian workweek to 40 hours, sensible changes to special education, police staffing improvements, and energy efficiencies. We are pleased that the Council and the City are pursuing some of these ideas. However, we believe that many other opportunities to achieve productivity and efficiency savings exist across City government. It is our hope that the Mayor and the Council will act to identify and capture them.

Thank you very much, and I would be happy to take any questions.

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