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The Mayor’s Latest Budget: Political Expediency, Future Deficits
by Glenn Pasanen
Mayor Michael Bloomberg’s executive budget for fiscal year 2005, released on April 26, is the mayor’s third budget, far less bold than last year’s but, like most of his budget actions, with large implications. The new plan reports a lot of new revenue and even more new spending, which adds up to much larger future deficits. Like earlier plans, there is an ad hoc, last-minute quality to the changes. Certainly there is no long-term plan, no vision. Last year was all about big tax increases and holding agency spending flat. This year is about modest tax cuts and major new expenses. What larger public purposes link these budgets?
Good practice calls for long-term budget stability. New York State requires the city to publish and manage a five-year budget plan; as a result, most budget monitors expect to see “structural balance” in the plan -- that is, budgets balanced over five years. But Mayor Bloomberg, like mayors before him, takes it one year at a time. The $46.9 billion 2005 executive budget, for instance, shows the city took in nearly $2 billion more in revenues this fiscal year than it projected it would. In spite of the new-found money, estimated deficits for 2006 through 2008 now total an average of more than $3.8 billion a year.
The mayor’s explanation for the growing deficits is that mandated expenses (those he cannot do anything about) are growing faster than the revenues. But why then rebate $250 million of property taxes to homeowners? Why permit the phasing out of hundreds of millions of dollars from last year’s tax increases? The answer seems to be electoral politics. Last year was about stress, with $3 billion in new taxes required simply to hold the city above water. This year is about the political usefulness of tax cuts 18 months before citywide elections.
Political expediency, like fiscal stress, leads to one-year-at-a-time budget balancing. So, big questions like the city’s needs, resources, and lack of equity never get considered. The mayor’s budget summary (In PDF Format), for instance, features an attack on the city council: One table touts the mayor’s $400 rebate to all homeowners, and mocks the $52 per homeowner relief in the council plan. (The council’s lower benefit stems from its benefits for renters and businesses – ignored by the mayor.) Another summary table attacks the council’s progressive tax relief for lower-income seniors, saying the mayor’s plan gives them anywhere from $247 to $400 more than the council’s. The budget becomes a game of political winners and losers.
Big Changes Since January
Because of modest improvements in the city’s economy, tax revenues since January are up by $630 million more this fiscal year and are now projected to be about $500 million higher in 2005. Since last June, total city revenues are up well over $1.8 billion for this fiscal year and are projected to be over $1.6 billion higher in 2005, and over $1 billion higher in each of the following two years.
The problem is that the new projections for spending are much higher than
those new revenues. Here are some of
the biggest increases reported (and total new
increases over the five-year plan):
· Medicaid: $225 million more (and a total new increase of $1.175 billion over 5 years).
· New subsidy to the Health and Hospitals Corporation: $200 million (and $650 million over 4 years).
· Private bus subsidy to the Metropolitan Transportation Authority: $159 million (and $638 million over 5 years).
· New city agency spending: $302 million (and $1.112 billion over 4 years).
· New labor costs: $652 million (and $2.913 billion over 5 years).
Add up all these new projections and the result is that the mayor, only 15 weeks after his last (January) budget plan, is reporting the city needs an additional $6.5 billion of new spending over the 2004-2008 period.
Tax cuts, like new spending, make it tougher to balance a budget. The mayor’ s property tax rebate to residential owners, including co-op and condo owners, would cost $250 million. Over four years, it would cost over $1 billion.
The city council’s two percent, across-the-board property tax rate reduction would cost $236 million in 2005 and about $1 billion over four years, roughly the same as the mayor’s plan. The council has other tax cuts proposed, however. The biggest is property tax relief for lower-income seniors, in addition to the rate cut, that would cost about $50 million a year, or $200 million over four years. With some other minor tax cuts, the council is proposing a $334 million tax cut package for 2005, with a four year cost approaching $1.5 billion.
But there is another, less acknowledged decrease in revenue that is on the horizon. Last year’s budget raised the top rates for the city’s personal income tax, which produced more than $1.5 billion in needed revenue. However, these higher rates are being phased out over the next two years, and will be gone on January1,2006 unless they are reauthorized. Higher-income New Yorkers will once again pay less, and, according to the Independent Budget Office, the city will lose nearly $1.5 billion over the next three years.
Thus, the mayor’s budget includes some $2.5 billion in reduced revenue over the next four years (The council plan would make that closer to $3 billion.)
Yet, in fiscal year 2006, the deficit is projected to be $3.762 billion, with comparable deficits in each of the two years afterwards.
The style of budget disclosure over the past two years has been as interesting as the use of very large shifts in revenues and spending that has been the Bloomberg trademark. On the one hand, the Office of Management and Budget has expanded public disclosure in several ways. Its budget documents are now immediately and exhaustively available to the public via the Internet, and the office provided some useful new budget formats.
For instance, the 2005 executive budget summary (page
(In PDF Format) has a table that shows full
agency costs for 2005. That is, the costs of fringe benefits, pensions, debt
service (for agency capital costs), and judgments and costs incurred by each
agency – normally not included in agency spending – are added on to each
agency’s budget. It turns out some agencies have a much higher share of the
total budget than is conventionally reported:
· Education in 2005 will cost, not $13.0 billion, as usually reported, but $15.4 billion, or 33 percent of the total budget.
· Police will spend, not $3.5 billion, but $5.7 billion, or 12 percent of the total budget.
Social services, on the other hand, with lower salaries and therefore lower
levels of benefits, and with fewer capital costs, have a lower share of
total spending than conventionally reported:
· Social Services will spend in 2005 a total of $7.3 billion (15.5 percent of the total budget).
· Administration for Children’s Services will spend $2.3 billion (5 percent of the total), not much more than the $2.1 billion reported in the conventional format.
The full-cost table provides much additional information: The police department, for example, will be responsible for an estimated $100 million of judgments and claims against the city in 2005, or 16 percent. The Health and Hospitals Corporation, presumably for malpractice suits, will be responsible for $195 million, or 32 percent. Education debt service costs for its repairs and new construction will total $656 million, or 19 percent of total debt service.
The more problematic side of the Bloomberg disclosure style is its use of information in the budget cycle. The late-April disclosure of major new spending is reminiscent of earlier plans – all of which involved multi-billion changes in spending cuts and tax increases essentially at the last minute, minimizing public participation and shortcutting full analysis.
The result is, as now, that there is little time for a full analysis and discussion of major issues raised by the executive budget. Yet at least three different tax policies are at play today – tax reductions in the face of future multi-billion dollar budget deficits. They are worth more discussion than they are getting.
Glenn Pasanen, former associate director of City Project, teaches political science at Lehman College of the City University.
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