Category Archives: City Budget

City Budget, Debt

The City’s Easiest Savings

Posted by Doug Turetsky, April 12, 2013

Over the past few years, one of the biggest sources of city budget savings has come without any effect on municipal services. It’s involved no reduction in staffing. No cutback in program operations or number of New Yorkers served. The savings has come from debt service, the interest and principal the city pays on the money it borrows to build schools, fix roads, buy fire trucks, and the like.

Record low interest rates over the past few years have enabled the Bloomberg Administration to save a bundle. The cost to the city on money borrowed through variable-rate bonds has been relatively low, and the city also has been able to refinance some existing fixed-rate debt at lower interest rates than when those bonds were first issued. In IBO’s report on the Preliminary Budget for 2013, we estimated that the city had recognized $875 million in savings just on its variable-rate general obligation debt (the city also borrows large sums through an entity called TFA) due to lower than forecast interest rates in fiscal years 2010 through 2013.

Besides the $875 million in savings, there are two additional terms to focus on in that last sentence: “recognized” and “forecast.” When and how the Bloomberg Administration has been building these savings into the city budget is worth a closer look.

Take the city’s current budget plan, for example. The Mayor’s plan assumes interest rates on variable- rate general obligation bonds will be 2.45 percent through the rest of this fiscal year, which ends in June. In fact, as IBO’s Sean Campion points out, interest rates on these bonds (based on a Securities Industry and Financial Markets Association index) have been below 0.50 percent—about one-fifth of City Hall’s forecast—since April 2009.

And the Bloomberg Administration projection for this interest rate in fiscal year 2014? Try 4.15 percent. Yet there’s no indication this rate is poised to rise and the Federal Reserve has made clear its intention to keep interest rates low, at least in the near term.

While some might see the Bloomberg Administration’s interest rate projections as fiscal prudence others might view it as a bit of forecast sleight-of-hand.

Last month in IBO’s report on the Preliminary Budget for 2014, Campion estimated that if the city lowered its interest rate assumption for the rest of the fiscal year to a still-above-market-rate 0.30 percent for variable-rate bonds and issued no more of this debt in the remaining months of this fiscal year, debt service spending in 2013 would be $148 million less than currently projected. That savings won’t be recognized until late in this year’s budget cycle and will likely become part of the end-of-year surplus.

One way to look at these savings is as a cushion in case some revenue source comes in lower than expected, or some form of spending such as shelter costs for the homeless winds up costing more than budgeted. Having this type of savings tucked away in the budget plan can fill a last minute shortfall, although the city maintains a general reserve for just this purpose.

But another way to think about it is $148 million that could have been used elsewhere in this year’s budget. The considerably higher than likely projections of debt service enable the Mayor to “park” money out of sight and out of mind of Council Members and other elected officials who might want to use those funds for new or existing programs. With the much higher than likely forecast for interest rates in 2014, the amount of money that could be “freed up” in next year’s budget by a projection closer to recent trends would be even more substantial.

Despite the record low interest rates and the savings they ultimately produce in the budget, overall debt service spending under the Mayor’s budget plan continues to be one of the city’s fastest growing expenditures. Spending on debt service is projected to increase $1.7 billion from this year through 2017 (adjusted for the use of the 2012 surplus to prepay some of the 2013 cost), when debt service expenditures are expected to total $7.7 billion.

But if past is prologue, debt service costs will not grow by as much as in the budget plan. Still, costs will grow largely because of the plan for more borrowing. The Bloomberg Administration expects that the city’s total outstanding debt will grow from $68 billion this year to nearly $75 billion in 2017.

 

City Budget, Cultural Affairs, Education, Librabries, Youth

The Last (Budget) Dance?

Posted by Doug Turetsky, March 1, 2013

Public hearings on the Mayor’s budget plan get underway next week at City Hall. These hearings are the opening steps in what has become known as the “budget dance” between the Mayor and the City Council. The dance begins with the Mayor proposing budget cuts to a mostly routine group of programs and ends with a typical set of restorations negotiated by the City Council.

While the dance involves funding for services that many New Yorkers find crucial—and are crucial to the budgets of many service providers—there are many who probably wish the annual ritual had faded with the Macarena. For all the angst kicked up by the annual dance, the process revolves around less than 0.5 percent of the city’s $70 billion budget.

That there are cuts in the proposed budget that would affect city services may come as a surprise to those who got their budget information from the city’s social media feed. On the afternoon the Mayor presented the preliminary budget for the upcoming fiscal year, the City of New York’s Twitter feed brightly chirped: “Today Mayor Bloomberg presented FY2014 Budget which will not increase taxes or cut services.” NYCgov’s Tumblr post proclaimed that there’s “no reduction in city services” in the budget plan.

Social media assertions aside, some of potential service reductions in the budget plan were in plain sight. Consider for example, a new $10 million reduction in funding for after-school programs that would eliminate about 3,600 slots from the 2014 budget, the $8.1 million cut in subsidies for cultural groups, or (speaking of plain sight) the elimination of all $2.8 million in funding for eye exams for kindergartners and first graders.

Besides such newly proposed spending cuts that would lead to service reductions, other cutbacks were introduced by the Mayor in previous budgets and embedded in the financial plan for 2014. In most of these cases, the programs had temporarily escaped cuts through City Council-initiated restorations for one year at a time. This is the heart of the dance: the Mayor proposes a cut for the upcoming budget year as well as for the subsequent years of his four-year financial plan; the Council restores the funds only for the upcoming year; but the cut remains in the financial plan for the ensuing years, to be negotiated again and again, sometimes with additional reductions.

Take, for example, the Mayor’s recent proposal to reduce after-school spending by $10 million next year. To offset a cut proposed to take effect this year, last June the Council restored $50.6 million to the Out-of-School Time program for 2013, but only for 2013. (The Council only can vote on changes in the current year’s budget and, come June and the final negotiations with the Mayor, the budget adopted for the upcoming year. The Council has no control over the remaining years of the Mayor’s four-year financial plan). So no money was added to the plan for 2014 through 2017 to cover the funding cutbacks for those years. That means that the new $10 million reduction introduced for 2014 would come on top of the previously scheduled cutbacks. If the new and underlying cuts are not restored, the number of Out-of-School Time slots would shrink from 56,000 this year to 21,500 next year.

Over the past five years, the Council has made changes totaling more than $300 million annually to the Mayor’s budget plan, reversing proposed cuts as well as funding some of its own initiatives. But as the Mayor’s proposed cuts have mounted, the Council’s ability to fully restore cuts or maintain or start new initiatives has become more difficult.

As the partners line up for the opening strains of this year’s budget dance, Council Speaker Christine Quinn has already said she intends to prevent the loss of 2,500 teachers that are part of the Mayor’s budget plan, which will cost about $160 million (although a legal challenge now underway could prevent this cut). She has also announced her intention to restore funding for 20 fire companies ($44 million), once again avoiding a cutback that the Mayor has been pursuing since his preliminary budget for 2010.

Then there are some of the other routine restorations which grow more expensive each year when you count the newly added cuts for 2014. It will take $102 million to avoid a cut to libraries, $78 million for youth services (including Out-of-School Time), and $77 million for child care. Already the list comes to more than $400 million, and that’s without restorations to other Council perennials such as cultural programs, health services, parks programs, legal services, domestic violence programs, and senior services.

This is the last go-around on the budget for Mayor Bloomberg and the current City Council. Only time will tell if it’s the last dance.