Testimony Prepared for Delivery before
the Finance Committee of the New York City Council
Fiscal Year 2004 Executive Budget
Council Chambers, Second Floor
City Hall
May 27, 2003
12:00 PM

Speaker Miller, Committee Chair Weprin, honorable members of the Finance Committee, good afternoon.

For much of the last year, New Yorkers have engaged in a vigorous and wrenching debate over how best to solve the City’s most serious fiscal crisis in a generation. Thanks to the actions of this Council, the Mayor and the State Legislature – and despite the obstinance of Governor Pataki – I can report today that we appear to have closed much of what was a projected $3.8 billion budget gap in Fiscal Year 2004.

However, we are by no means out of the woods. My office finds that the FY 2004 Executive Budget still contains $618 million in risks. The level of risk that remains in the budget may appear comparatively low in light of the massive deficit the City just closed. It is, however, because of the dramatic steps we have already taken that those risks still loom large. It simply will not be easy to find the additional $618 million if my projections are correct.

Before we take a closer look at these risks, we should first examine how we arrived at this point.

To close the Fiscal Year 2004 budget gap, the Mayor proposed a wide-ranging series of actions.

They included:
• $1.4 billion in new taxes, including a new tax on commuters,
• more than $1.3 billion in State and Federal aid,
• $620 million in agency gap-closing initiatives, which includes the termination of more than 4,000 municipal employees before the end of the fiscal year,
• $200 million in back rent for the airports from the Port Authority,
• $200 million from transportation initiatives,
• and $75 million from reorganization and consolidation of certain social service programs.

While the State Legislature has approved a budget plan that provides the entire $2.7 billion in gap-closing relief, it is substantially different than the aid plan requested by the Mayor. Rather than the Mayor’s unlikely commuter tax, the State budget includes personal income tax increases on the City’s top income earners. The City estimates this action will produce $645 million in revenues.

Other tax increases include a one-year reinstatement of a sales tax on clothing and footwear, which the City expects to produce an estimated $263 million in revenues, as well as an increase in the sales tax of 1/8 of one percent, which will produce an estimated $118 million. While I have raised concerns that this tax will hurt hard-working families, I understand the constraints with which the Legislature had to contend.

The Legislature’s plan also includes refinancing of debt from the Municipal Assistance Corporation, which will produce an estimated $530 million, and refinancing Battery Park City debt, which will produce a projected $150 million.

As welcome as the Legislature’s assistance is, it is important to note that this budget does not bring the City into balance. What it does is allow the City to achieve balance only if certain assumptions hold true.

[I refer you to the Table to my right.]

A portion of the $618 million in risks comes from assumptions about issues outside the City’s control, such as back rent for the airports from the Port Authority. This does not appear likely to happen in the next fiscal year. Back rent has been the subject of ongoing and unsettled negotiations for many years. The Mayor himself has acknowledged the uncertainty of this item by reducing the FY 2004 revenue amount compared to what he assumed in his preliminary budget.

However, the bulk of the risk lies in the City’s assumptions about issues that are under its control.

My report concluded that the City underestimates, by $172 million, the amount it will need to spend on overtime costs and by $70 million the amount necessary to fund public assistance and Medicaid.

My analysis also found that the City overestimates by $139 million the amount it will collect in sales, income and business taxes.

These risks are consistent with my view of the prospects for both the national and city economies, which is more conservative than that of the Mayor.

In calendar year 2003, my office is projecting a decline in Gross City Product of 3.7 percent. While we project meager GCP growth of 0.8 percent in 2004, the Mayor is forecasting growth of 2.9 percent. My forecast predicts a longer delay between the U.S. and local recovery than the Mayor does.

There is no doubt the national economy continues to falter. My office is forecasting a small increase in 2003 Gross Domestic Product of 2 percent, slightly higher the Mayor’s estimate of 1.9 percent.
For 2004, we project GDP growth of 3.2 percent, well below the Mayor’s assumption of 4.0 percent.

The risks posed by the economic slowdown may raise the possibility that the City will have a deficit to close during Fiscal Year 2004.

These risks will persist into the next Fiscal Year as well. While the Mayor projects a $752 million gap in Fiscal Year 2005, we project a $2.9 billion deficit.

This difference in our projections is a result of two factors: the use of non-recurring actions and resources to balance this year’s budget and the ongoing structural imbalance between revenues and expenditures embedded in the City’s financial plan. We believe the City overestimates tax revenues in 2005 by $113 million, and underestimates the cost of overtime by $170 million and public assistance and Medicaid costs by $70 million.

We also question the City’s assumption that it will collect $583 million in rent for the airports and $600 million from tolling the East River bridges. Not only do I firmly oppose tolling the East River bridges, it is an issue that has not gained any traction in Albany.

Furthermore, the City will receive about $611 million less in State aid than it expects. The bulk of that money relies on one-shots in the Fiscal Year 2004 package that will not recur in Fiscal Year 2005, including the one-year reinstatement of the sales tax on clothing and footwear, the Battery Park City refinancing, the $73 million revenue sharing spin-up, and the $33 million CUNY refinancing.

No matter how we ultimately overcome these budget deficits, we must do so in a fair and balanced way. New Yorkers have proven that they are willing to bear the burden of necessary sacrifices, but only if those sacrifices are spread equally throughout the City.
Yet some of the policies already adopted or still on the table do just the opposite.

For example, City Hall’s budget plan calls for once-a-week garbage pickups in some parts of the City. This is just a terrible idea. First and foremost, fewer pickups will lead to dirtier streets and piles of garbage. And the policy will take effect on July 1 -- just in time for the hottest days of summer. This will have a direct – and obvious -- impact on the City’s quality of life. Second, the way this policy has been proposed creates inequities among communities throughout the City.

The Mayor’s budget also includes cutbacks that if implemented would force the Wildlife Conservation Society to close the Queens Zoo and Prospect Park Zoo in Brooklyn while zoos in other boroughs remain open.

The Mayor’s budget also originally included the closure of eight firehouses -- all but one in boroughs outside Manhattan. Thanks to state legislative funding, two of those firehouses remain open.

On Sunday, the City closed the remaining six firehouses on the Mayor’s list. Four of those shuttered firehouses are in Brooklyn, one is in Harlem and one is in Queens. Again, on its face, this approach appears to create inequities throughout the City.

As part of its aid request to the State, City Hall asked that tolls be put on the East River bridges, a policy I strongly oppose. Such an approach would impose an unacceptable burden on New Yorkers who live outside of Manhattan. I am pleased that the State Legislature refused to include this unfair approach in its City aid package.

Unfortunately, the Mayor’s financial plan still assumes the imposition of these tolls, and the administration appears certain to continue pursuing them.

I am troubled by any approach to solving our budget crisis that creates inequities by favoring some boroughs over others. We must not engage in borough warfare. Such proposals work against the spirit of shared sacrifice that is so crucial to the City’s recovery.

Instead, we must continue to devise and implement creative solutions that ease the City’s financial burden in an equitable way. For example, earlier this year Speaker Miller and I advanced a proposal that called for the creation of a three-month amnesty program to offer individuals and businesses the opportunity to pay outstanding fines imposed by Parking Violations and the Environmental Control Board. My office estimates that businesses and individuals owe the City more than $1 billion in outstanding fines and penalties.

The financial gains to the City of such a program will more than offset the losses of penalty and interest revenue that will be forgiven as part of any amnesty program.

As the prospect of more layoffs loom heavily over the City, we must take any and every action possible to save jobs and spare heartache. Last Thursday, my office released two audits that identified more than $10.5 million in savings. An audit of the Department of Sanitation determined that it could save $5.8 million by hiring civilian employees to fill positions currently occupied by uniformed workers.

And an audit of the Correction Department revealed that it could save $4.7 million by hiring civil service employees to fill hundreds of support and administrative positions. By using this approach, the City can achieve savings through attrition while deploying its personnel more productively.

The City must continue to scour current services for savings and efficiencies. Last week, my office also released the first in-depth evaluation of the Department of Sanitation’s residential refuse and recycling costs.

That study outlined how the reinstatement of a full-scale recycling program could save the City more than $16 million in fiscal year 2004. I commend the City Council for the work it has done on this issue, and for working with my office to bring much-needed attention to this topic. In particular, Councilman Michael McMahon has played a particularly helpful role.

The fact is we must continue to seek out recurring solutions because our budget problems are not yet behind us. For that reason, it is imperative that the ongoing negotiations between the Mayor and the municipal unions produce manageable and real savings for the City.

Only as a result of collective action taken by both legislative and City leaders were we able to address our most immediate and pressing problems. That spirit of cooperation, coupled with a continued sensitivity to fairness, must persist in the coming months if we are to overcome our next set of challenges. In the ongoing budget discussions with the Mayor, it will be up to this Council to ensure that closing the gap is done in a fair and equitable fashion and that the City move forward with a sense of shared sacrifice.

Thank you.