Originally published in Issue 11 - June 16, 1997

Adopted 1998 Expense Budget

The adopted expense budget of $33.4 billion, is $135.8 million, or 0.4 percent, less than the $33.5 billion proposed in the Mayor's executive budget. The $135.8 million net reduction in expenditures consists of $117.3 million in City-funded spending and $18.4 million in combined State and federal-funded expenditures.

With respect to City-funded spending, the $117.3 million decline between the executive and adopted budgets is principally attributable to a net decrease of $310.5 million in debt service appropriations, offset in part by City Council upward expenditure adjustments totaling $175.1 million.

The decrease in 1998 debt service appropriations is the result of additional surplus funds identified in 1997 and applied to debt payments due in 1998, bringing the projected 1997 "surplus roll" to $1.3 billion. A total of $300 million of the resulting 1998 debt service savings has been appropriated to a "budget stabilization" or "rainy day" fund, created through a Memorandum of Understanding between the City Council and the Mayor. The purpose of the fund is to provide additional resources for the City in the event of future economic downturns.

Of $175.1 million in City Council adjustments, the following were of the greatest magnitude:

• An additional $34.8 million for the Department of Business Services, including $30 million for the establishment of an "emerging industries" job development fund. The fund will be established to provide loans to small businesses in targeted industries and will be managed by the Deputy Mayor for Business Services and Community Development.
• An additional $19.4 million for cultural institutions and programs. This restores the majority of a reduction proposed in the executive budget, provides collective bargaining cost increases to institutions that otherwise would not qualify for such increases, and provides funds for various other purposes.
• An additional $18.5 million for the Board of Education, which includes $9 million for additional school maintenance spending, $4 million in additional "Teacher's Choice" funding (for instructional materials and supplies.), $3.5 million for interscholastic sports programs at small high schools and middle schools, and $2 million for other purposes. An additional $16.1 million for public libraries to purchase new materials and support the Connecting Libraries and Students Program (CLASP), the latter of which is intended to enhance student reading by reaching close to one-third of the City's students.
• An additional $15.9 million for the Department of Health, including a $10.6 million restoration of the (executive budget's) proposed cut to a network of 40 health care clinics throughout the City serving some 80,000 uninsured children.
• An additional $10.2 million for the Department of Sanitation, including a total of $5.8 million for supplemental refuse collections at public schools and public housing facilities, $2 million for recycling education and outreach, $2 million for supplemental waste basket collections and sidewalk cleaning in all five boroughs, and $400,000 for other purposes.
• An additional $10.8 million for miscellaneous expenditures, including $5 million for the purpose of increasing (from $348 to $384, annually) the reimbursement rate for Medicare Part B charges that City retirees who are over sixty-five have deducted from their Social Security benefits. The Mayor and the Council also agreed to add $5 million to the 1997 budget for the purpose of retroactively increasing the reimbursement rate so as to make it effective January 1996. (Medicare Part B provides medical insurance for services such as doctor fees, out-patient hospital care, and lab services.)

A number of other adjustments to the executive budget were incorporated into the adopted budget. Of greatest magnitude were the following:

• An additional $175.7 million for the Board of Education, including a $122.9 million rollover of surplus (unspent) general operating funds from 1997, along with a rollover of $28.1 million in surplus textbook funds.
• A reduction of $77.6 million in 1998 debt service appropriations due to refunding of outstanding debt. This amount is over and above the aforementioned $310.5 million reduction in 1998 debt service appropriations due to prepayment of debt service.
• A reduction of $50.9 million for the Human Resources Administration, reflecting savings generated from the recent federal budget agreement to maintain Supplemental Security Income (SSI) benefits for legal aliens who arrived in this country prior to August 22, 1996. The executive budget had included funds to transfer these individuals to the Home Relief (HR) and Temporary Assistance for Needy Families (TANF) programs.
• A reduction of $40 million for citywide pension contributions.

Adopted 1998 Revenue Budget

The adopted revenue budget for the totals $33.4 billion. This amount is $135.8 million, or 0.4 percent, less than the $33.5 billion proposed in the executive budget. (The $33.4 billion adopted revenue budget is [by law] precisely equal in size to the $33.4 adopted expense budget.) The $135.8 million net reduction (between release of the 1998 executive and adopted budgets) consists of $117.3 million in City funds and $18.4 million in combined State and federal funds.

With respect to City funds, the $117.3 million revenue decline (from the executive to the adopted budget) included a net decrease of $295.3 million in "miscellaneous" revenues, offset by an increase of $176.9 million in total budgeted tax revenues along with a small increase in categorical funds.

The most significant component of the net decrease in miscellaneous revenues is the shift of $305 million in anticipated airport back rent payments from 1998 to the out-years (1999-2001). The City and the Port Authority, which leases JFK and Laguardia airports from the City, are currently in arbitration over certain airport revenues which the City claims should be entered into the calculation of the amount of rent due. By shifting the revenues to later years in the financial plan, the City is still assuming that it will prevail in its claims, just not in 1998. IBO's reestimate of the executive budget assumed that the City would not receive any settlement for back rent, although future base rent income was expected to increase.

The $177 million increase in total budgeted tax revenues for 1998 consists of a $212 million increase in projected baseline tax revenues (net of the new tax program and State tax relief), offset in part by a change in the package of tax programs (see below) that is expected to reduce tax receipts by an additional $35 million. The most significant increases in the baseline revenue forecast concern the personal income tax (up $94 million), the general corporation tax (up $57 million), and the real property tax (up $24 million). The revised baseline forecast incorporated into the adopted budget is much closer than the executive budget to IBO's May forecast of City tax revenues; it falls short of IBO's projection by only $48 million.

Finally, the adopted budget agreement includes a number of tax policy changes contingent upon State approval, all of which would reduce tax revenues in 1998 and subsequent fiscal years. Most of the changes are identical to those proposed in the executive budget: the elimination of the City's sales tax on clothing items priced under $500, which is expected by the Administration to reduce 1998 general sales tax revenues by $157 million (the IBO re-estimate is $161 million); increases in the commercial rent tax exemption and a decrease in its rate that are projected to lower tax collections by $30 million; and miscellaneous reforms expected to reduce revenues from the real property transfer tax, the vault charge, and coin-operated amusement devices tax.

The adopted tax program also includes two reforms related to the unincorporated business tax (UBT): 1) a scaled-back (from the executive budget) version of the proposal to increase the UBT credit affecting small businesses, which would decrease UBT revenues by $20 million; and 2) a modified version of the City Council's proposal to allow City residents a credit against their personal income tax (PIT) liability if they also are subject to the UBT. The UBT/PIT reform will allow residents with taxable incomes under $42,000 take a credit equal to 65 percent of their UBT payments starting in tax year 1997, with smaller credits for those with higher taxable incomes. This reform would reduce the City's PIT collections by an estimated $55 million in fiscal year 1998.