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PEGging Efficiency:

More Savings Needed Under Mayor de Blasio

March 05, 2018

Finding budget savings is a time-honored tradition in New York City government. Under previous mayors, this process took the form of the Program to Eliminate the Gap (PEG), in which agencies were required to meet savings targets. Mayoral proposals were often the subject of controversy and negotiation with the City Council, particularly in the final years of the Bloomberg Administration.

Mayor Bill de Blasio came into office in January 2014 and disavowed PEGs. There was no savings program in his first budget, the Preliminary Budget for Fiscal Year 2015, released in February 2014 shortly after his inauguration. The Preliminary Budget for Fiscal Year 2016, released in February 2015, also did not include a savings program. A savings plan, called the Citywide Savings Program (CSP), was later introduced in the Executive Budget for Fiscal Year 2016, released in May 2015.

Mayor de Blasio’s approach differed from PEGs in two ways: (1) agency participation was voluntary; and (2) there were no savings targets participating agencies were required to meet.

This analysis compares the CSP in the recently released Preliminary Budget for Fiscal Year 2019 and Mayor de Blasio’s two previous Preliminary Budget CSPs to the PEGs in Mayor Michael Bloomberg’s three final preliminary budgets, released in 2011, 2012, and 2013. This comparison is appropriate because it spans a period of economic growth in New York City that began in 2010.

There are three things to note about the analysis. First, it is focused on savings proposed in the preliminary budgets released in January or February. Thus, it captures savings proposed in the November modification to the budget, but not savings later proposed in the executive or adopted budgets.1 It also does not account for subsequent action to alter or rescind any savings.

Second, savings are compared for the entire financial plan period, not the first one or two years. For example, the recent Preliminary Budget for Fiscal Year 2019 includes a financial plan that spans fiscal years 2018 to 2022. For simplicity, savings for the total five-year period proposed in this financial plan are referred to as the “Fiscal Year 2019 CSP.”

Third, the analysis relies on what mayoral administrations themselves identify as part of the savings plan.2 For example, the Fiscal Year 2012 PEG includes an extraordinary $2.4 billion in anticipated State actions to increase revenues.3 While State actions may have been anticipated in other years, they were not identified as part of the PEG or CSP and would therefore be excluded from this analysis. Similarly, most debt service savings realized as part of the Preliminary Budget for Fiscal Year 2012 were not counted as part of the PEG, and so are excluded from this analysis.

This analysis finds three major differences between Mayor de Blasio’s CSPs and Mayor Bloomberg’s PEGs:

  1. CSP savings tend be a smaller share of the city-funded budget than PEGs;4
  2. Efficiency savings make up a smaller portion of CSPs than of PEGs; and
  3. While most City agencies participate in the CSPs, fewer are contributing efficiency savings, and the size of savings is smaller than under PEGs.

Savings Plan Size and Share of Budget

The Fiscal Year 2019 CSP totals $3.3 billion in savings in fiscal years 2018 to 2022. This is less than the Fiscal Year 2018 CSP, which totaled $3.8 billion, and more than the Fiscal Year 2017 CSP, which totaled $1.8 billion. The dollar value of these plans is comparable to the Fiscal Year 2013 and Fiscal Year 2014 PEGs. The Fiscal Year 2012 PEG was particularly large due to State actions anticipated to increase resources available to the city in the amount of $2.4 billion.5(See Figure 1.)

Figure 1: Size of Savings Program in Preliminary Budgets for Fiscal Years 2012 to 2019
Figure 2: Total Preliminary Budget Savings Programs, Share of City Funds Budget,Fiscal Years 2012-2019

Mayor de Blasio’s CSPs have been smaller as a share of the budget than Mayor Bloomberg’s. (See Figure 2.) The Fiscal Year 2012 PEG was 2.8 percent of city-funded expenditures. The Fiscal Year 2013 and 2014 PEGs were 1.2 percent and 1.1 percent of city-funded expenditures, respectively, while CSPs for fiscal years 2017 to 2019 have been 0.6 percent to 1.1 percent of city funds. The City’s budget has grown 22 percent since fiscal year 2014 and savings have not kept pace.6

Composition of Savings

Savings initiatives have been grouped by CBC staff into four broad categories:

  1. Re-estimates and funding shifts are savings due to underspending, vacant positions, delays, changes in federal and state reimbursement, and shifting costs from city funds to state or federal sources;
  2. Debt service savings come from refinancing high-interest rate bonds at lower rates and from savings on debt when interest rates are lower than anticipated;
  3. Revenue raisers include fee increases, sale of city assets, and initiatives to increase enforcement;7 and
  4. Efficiency savings come from changes in agency activities that lower the cost of operations.8

In each of the six savings plans examined, re-estimates and funding shifts consistently make up more than half the total savings, ranging from 53 percent in the Fiscal Year 2012 PEG to 65 percent in the Fiscal Year 2018 CSP. (See Figure 4.) These savings, which are often one-time, are substantial and exceeded $1.7 billion in all but the Fiscal Year 2017 savings program. (See Figure 3.)

Figure 3: Value of Preliminary Budget Savings Program by Type, FY2012-2019
Figure 4: Share of Preliminary Budget Savings Program by Type, FY2012-2019

Debt service savings are 24 percent of the Fiscal Year 2019 CSP and 26 percent of the Fiscal Year 2017 and 2018 CSPs. In fiscal years 2013 and 2014, debt service savings included in the PEGS were 11 percent and 8 percent of the total, respectively. In fiscal year 2012, the Bloomberg administration included only $8 million of $781 million in debt service savings in the PEG.9 Persistently low interest rates have provided opportunities to continually recognize large debt service savings and have bolstered the overall CSP totals.

Revenue and efficiency initiatives are smaller in dollar terms and as a share of total savings in the CSPs than in the PEGs. The PEGs for fiscal years 2012 to 2014 had revenue initiatives that ranged from 7 percent to 13 percent, while CSP revenue initiatives ranged from 0 percent to 8 percent of total savings.

Efficiency savings were 21 percent and 28 percent in the Fiscal Years 2013 and 2014 PEGs, respectively, compared to 7 percent to 15 percent of total savings in the CSPs.10

Agency Participation

While participation in the CSPs has been voluntary, most agencies contribute savings. There are 23 agencies with annual operating budgets greater than $150 million; six did not participate in the Fiscal Year 2017 CSP, NYC Health + Hospitals (H+H) did not participate in the Fiscal Year 2018 CSP, and H+H and the City University of New York (CUNY) did not participate in the Fiscal Year 2019 CSP. Participation of H+H and CUNY had also been sporadic in the PEGs.11

Although agency participation has been similar, fewer agencies are contributing efficiency savings, and the magnitude of these savings is smaller in CSPs than in PEGs because there are no mandatory savings targets. Twenty agencies provided efficiency savings in the Fiscal Year 2012 PEG; 15 in the Fiscal Year 2013 PEG; 13 in the Fiscal Year 2014 PEG; 12 in the Fiscal Year 2017 CSP; 11 in the Fiscal Year 2018 CSP; and 8 in the Fiscal Year 2019 CSP.  Similarly, the value of efficiency savings declined from $394.9 million in the Fiscal Year 2012 PEG to $40.7 million in the Fiscal Year 2019 CSP. (See Tables 1 and 2.)

Fifteen of the 23 agencies contributed efficiency savings in more than one of the PEGs. (See Tables 1 and 2.) Four agencies did not contribute any efficiency savings in any of the PEGs: H+H, the Law Department, the Department for the Aging, and the Department of Youth & Community Development.

Only 9 of the 23 agencies contributed efficiencies in more than one CSP and 6 did not contribute any: the Law Department, the Fire Department, the Department for the Aging, the Department of Buildings, the Department of Sanitation, and the Department of Parks and Recreation.

Tables 1 and 2 show agency efficiency savings in the CSPs are smaller in dollar terms and as a share of the agencies' city-funded budgets than in PEGs. Exceptions include the Department of Correction (DOC) in the Fiscal Year 2019 CSP and the Department of Homeless Services (DHS) in the Fiscal Year 2017 CSP, where the savings are related to policy changes.8 Figure 5 shows efficiency savings contributed by each group of agencies as a share of those agencies’ city-funded budgets. In each category, efficiency savings rates are lower in CSPs than in PEGs.

Figure 5: Efficiency Savings as Share of City Funds Budget, by Agency Type, FY2012-2019

Mayor de Blasio established a Citywide Savings Unit within the Office of Management and Budget to find savings across agencies beginning in November 2016. Citywide initiatives first appeared in the November 2016 Financial Plan and included efforts to better manage procurement, space occupied by City agencies, and overtime. Citywide initiatives have supplemented agency endeavors and increased total efficiency savings significantly in the Fiscal Year 2018 CSP; however, the magnitude of savings is still significantly below the level and rate of efficiency savings in the PEGs.

Table 3: Efficiency Savings from Agency and Citywide Initiatives in PreliminaryBudget Savings Programs, Fiscal Years 2012-2019

Conclusion

The aim of the CSP should be not only to offset the cost of new needs, but also to balance the growing costs of personnel and bolster the City against possible risks to the budget. Going forward, the Mayor’s savings plans should focus more on efficiency savings across all agencies.

If the de Blasio administration had found efficiency savings equal to the minimum PEG level achieved, 0.3 percent of the city funds budget, an additional $2.0 billion in savings would have been achieved in CSPs for fiscal years 2017 to 2019. If these savings had also been made in the prior two years, when there was no CSP in the preliminary budget, an additional $1.7 billion could have been saved.

Mayor de Blasio has said the Executive Budget for Fiscal Year 2019 will contain an additional $500 million in savings over the first two years of the financial plan. This target should be raised and achieved with efficiency initiatives.

Footnotes

  1. Savings programs generally grow with each update to a budget. The de Blasio Administration tends to add more to its savings programs at the time of the Executive Budget than did the Bloomberg Administration. When the Fiscal Year 2019 Executive Budget is released, we will assess how comparable the savings are to those in previous executive budgets.
  2. The City releases documentation for the PEG or CSP. See the most recent: City of New York, Office of Management and Budget, February 2018 Financial Plan, Citywide Savings Program (February 2018), http://www1.nyc.gov/assets/omb/downloads/pdf/csp2-18.pdf
  3. This consists of $600 million annually over four years. City of New York, Office of Management and Budget, February 2011 Financial Plan, Financial Plan Summary (February 2011), p. 6, http://www1.nyc.gov/assets/omb/downloads/pdf/sum2_11.pdf
  4. The de Blasio Administration intends to add its savings programs in the Executive Budget for Fiscal Year 2019; when it is released, we will compare the savings to previous executive budgets.
  5. This anticipated revenue was reversed subsequently in the Fiscal Year 2012 Executive Budget.
  6. City-funded expenditures are adjusted for prepayments; prepayments, withdrawals and deposits to the Retiree Health Benefits Trust Fund; and reserves.
  7. Revenue initiatives proposed in these savings programs did not include tax rate increases.
  8. CBC’s methodology to categorize savings has been updated for greater consistency and may not tie back to previously published CBC analyses.
  9. In addition to $8 million in the PEG, $773 million in debt service adjustments were recognized over five years. See: City of New York, Office of Management and Budget, February 2011 Financial Plan, Financial Plan Reconciliation (February 2011), http://www1.nyc.gov/assets/omb/downloads/pdf/feb11_fprecon.pdf.
  10. The Fiscal Year 2012 PEG included $1.3 billion in cuts to the Department of Education tied to the loss of state aid. 
  11. H + H has been pursuing savings as it implements its strategic plan, One New York: Health Care for Our Neighborhoods
  12. The Fiscal Year 2019 CSP includes the planned closure of the George Motchan Detention Center on Rikers Island, producing $231 million in anticipated efficiency savings for DOC. DHS estimated initiatives providing HIV/AIDS services and supportive housing to shelter residents would generate $156 million in efficiency savings in the Fiscal Year 2017 CSP.