"While the strength of the local economy is helping the city solve many of its near-term budget problems, persistently large projected out-year gaps at this point in the business cycle could be an omen of difficult times ahead," said IBO Director Douglas A. Criscitello. If the city follows its recent practice and uses the lion's share of its 1999 surplus to prepay debt service scheduled for 2000, the projected gap looking two years ahead would be at its lowest level in percentage terms since the 1990 executive budget. However, in 2001 and 2002 the projected gaps remain much larger than the comparable out-year gaps of the mid- and late-1980s, the city's previous period of sustained economic growth. In fact, the 1988 and 1990 executive budgets actually projected surpluses at the end of the respective plan periods.

Those projected surpluses were rapidly transformed into large deficits by the steep recession of the early 1990s. But the city's fiscal situation would have been even more dire had it entered that period of rapidly declining revenues and rising spending needs with significant out-year budget shortfalls. The danger facing the city today is that even a modest slackening of the still-robust growth forecast for the next four years could quickly push projected out-year budget gap percentages back up to the double-digit levels of the early 1990s. Spreading surplus 1999 funds over the entire financial plan period and beyond by reducing the city's outstanding debt would help fortify the city's long-term fiscal position, according to IBO.

With recent data showing that economic growth and tax collections have remained robust, IBO has revised upward its forecast of baseline 1999 tax revenues-excluding proposed tax cuts-by $266 million since March.

Moreover, IBO's baseline tax revenue forecast for 1999 is $505 million higher than the Mayor's due to differing estimates of cyclically sensitive personal and business income taxes. Similarly, for the 2000 through 2002 period, IBO's forecast of baseline tax revenues is considerably more optimistic than the executive budget. IBO estimates that total spending under the policies proposed by the Mayor would decrease overall spending by $600 million from 1998 to 1999; if debt service prepayments are excluded, however, spending rises by $900 million.

The Mayor introduces two changes that would obfuscate certain details of the city's budget. First, it removes from the primary city budget the debt service of the Transitional Finance Authority (TFA) and the personal income tax revenues dedicated to paying that debt service. Second, it similarly moves the expenses of a proposed Sports Facilities Corporation (SFC) and the commercial rent tax revenues that are to be dedicated to SFC out of the city budget. "A unified budget is needed to enable creditors, legislative and oversight officials, and the general public to accurately assess the full scope and costs of city government activities. Any move to make the budget more confusing should be resisted by the City Council," said Criscitello.

Moving TFA and SFC expenses and revenues off-budget distorts the city's fiscal record in several ways:

• The city tax burden is made to look smaller than it is. Total taxes shown in the budget are hundreds of millions of dollars less than the city will actually collect from taxpayers over the next four years.
• The city's debt burden is also made smaller than it really is. With TFA excluded from the budget, the ratio of city debt to revenues seems to level off over the next four years. In reality, the portion of city tax dollars being absorbed by debt will continue to climb.
• Removing TFA and SFC provides a skewed and incomplete picture of the allocation of resources by city government. The executive budget shows larger shares of total city spending going to areas such as health and public safety, and smaller shares going to debt service and stadium finance, than would actually be the case if the budget were adopted under existing accounting practices.

The Mayor's executive budget also proposes no funding for the IBO in 1999 and beyond, despite a provision in the City Charter guaranteeing IBO funding at the level of at least ten percent of the funds allocated to the Mayor's Office of Management and Budget. Based on the Charter and several previous court decisions, IBO's repricing of the executive budget includes $2.7 million each year for IBO.

New Yorkers with questions about the budget now under consideration by the City Council can call IBO's Budget Hotline at (212) 442-8619 or join a Budget Cyber Town Hall Meeting, cosponsored with CitySearch.com, through IBO's website at www.ibo.nyc.ny.us. Copies of the full 38 page report are also available by accessing IBO's website, by calling (212) 442-0632, or by writing to the Independent Budget Office, 110 William Street, New York, NY 10038.

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