What de Blasio, City Council should do with $800 million
Crain’s New York Business
Read original op-ed here.
The City Council is holding hearings on the $92.5 billion executive budget that Mayor Bill de Blasio proposed in April and will adopt a final budget next month. While de Blasio and Council Speaker Corey Johnson have both stressed the importance of preparing for an eventual economic downturn, the mayor's proposal falls short of what's needed.
The two highest priorities should be to add all newly identified money to the city’s reserves and offset any added spending with dollar-for-dollar reductions.
While gathering storm clouds threaten an economic recovery that already is longer than most in history, the reserves in the executive budget remain flat. The administration did implement its first mandatory savings program, projected to yield nearly $500 million in fiscal year 2020 savings, but still increased fiscal year 2020 city-funded spending by 3.6%. For its part, the council recommended a $250 million increase in reserves and identified approximately $650 million in savings and re-estimates, but also proposed $1.2 billion more in spending for its priorities.
More money will be available than was projected in the executive budget, primarily for two reasons: Personal income tax revenues came in $474 million higher than expected through the end of April, a trend that will likely hold until the end of the fiscal year in June. Spending also likely will be lower than budgeted in the current year; in the last three years, this underestimate has freed up an average of $317 million between the executive budget and the spending plan that is ultimately adopted.
The city could have nearly $800 million to play with going into budget adoption. These funds would be a needed boon to the annually budgeted $1.25 billion in reserves. Still, this money pales in comparison to the potential three-year revenue shortfall totaling $15 billion to $20 billion that a recession could cause.
The city usually reports it has larger reserves than this, but that is because it includes in that number the money in the Retiree Health Benefits Trust fund. Although the administration deserves credit for adding to that pot, it should be saved for its designed purpose—to pay future retiree health costs—and not be considered reserves to be used if the economy contracts.
In its negotiations with the mayor, the council is likely to win more spending for its priorities. This year the council's spending requests total $1.2 billion. Over the last four budget cycles, council initiatives have added an average of $364 million per year (not including $106 million for half-price MetroCards in last year’s budget).
These initiatives, and any the mayor might propose, should be funded only if spending offsets can be identified. Yes, cutting or even restraining growth in spending is challenging. But there are several areas of opportunity.
Now that the administration has completed its first mandatory savings program, continued collaboration between the Office of Management and Budget and the agencies can identify even more savings. Also, not all of the savings identified by the council identified were reflected in the executive budget, so more may be available.
Furthermore, there is more money to save in areas the administration has already identified. The city has nearly 30,000 more full-time equivalent employees than five years ago. The mayor’s budget eliminated 1,600 vacancies, but the budget should wipe out more of the 4,700 full-time vacancies still remaining. The city also has 5,000 more vehicles than it did five years ago, and it likely could save more than the $20 million identified in fiscal year 2020 from a more extensive fleet reduction.
The Citizens Budget Commission has identified other possible savings, including $80 million by centralizing procurement and $160 million by consolidating and centralizing union welfare funds. This last option needs to be collectively bargained, but reducing administrative costs is a much better option than cutting public services.
Adopting a budget that puts every additional dollar in reserves and offsets any additional program spending with efficiencies would still allow spending to grow at twice the rate of inflation, but could stave off some of the worst future cuts and lead to a more efficient government to serve New Yorkers.
Andrew Rein is president of the Citizens Budget Commission.