Chapter 1

The Independent Budget Office:Enhancing Official and Public Understanding of the Budget

The City of New York possesses by far the largest municipal budget in the United States. In fact, only the federal government and a very small number of state governments - including California and New York - have larger budgets. Both the federal government, with its Congressional Budget Office (CBO), and California, with its Legislative Analyst's Office (LAO), have created organizations designed to provide expert, non-partisan fiscal analysis to the decision-makers in those governments. Each of these organizations has proven its worth over time---the LAO was established in 1941 and CBO in 1974---and they are now among the most highly regarded governmental entities in the country.

In order to replicate the successes achieved by CBO and LAO, the Independent Budget Office (IBO) was established through revisions to the City Charter approved by voters on November 7, 1989. Notwithstanding this Charter mandate, IBO implementation was delayed more than five years because several officials who exercise substantial control over the City's pursestrings opposed the establishment of the agency. In fact, IBO was not formally established until so ordered by the Supreme Court of the State of New York on November 16, 1995. Since that date, the officials who had opposed the agency's creation have complied with the Court's order.

The IBO is now up and running. The IBO's first director was appointed in February 1996 and appropriations were provided the following month for agency start-up costs. To date, the agency had secured office space, procured equipment and begun to hire staff in order to meet its Charter mandate to:

... provide to the comptroller, the [public advocate], the members and committees of the council, the borough presidents, and the community boards information which will assist such officials and bodies in the discharge of their responsibilities which are related to the budgetary process... complete fiscal impact statements of proposed local laws... [and] from time to time publish such reports as may be appropriate to enhance official and public understanding of the budgetary process and of the budget documents published. (New York City Charter section 260).

This language emphasizes IBO's role as a resource to public officials of the City on all matters pertaining to the budget. While the primary focus of the agency will be to concentrate on issues involving the budget, such as conducting fiscal impact analysis of proposed local laws, IBO will regularly issue reports on broad policy issues with significant fiscal effects. Examples include reports on the impact of federal reforms to health or welfare programs, the privatization of municipal services, the planning and financing of NYC's infrastructure, and the fiscal relationship between the New York State and City governments.

As required by the Charter, IBO's director was appointed without regard to political affiliation and solely on the basis of fitness to perform the duties assigned by the Charter. The first director's selection was based on the recommendation of the IBO advisory board, by an appointment committee consisting of the Public Advocate, the City Comptroller, the Speaker of the City Council, and the Bronx Borough President (representing the other four Borough Presidents). The members of the advisory board, who are chosen jointly by the Public Advocate and City Comptroller, include former directors of city and state budget offices, deans of area urban planning, public policy, and economics graduate schools, national and local experts on budgeting, and representatives of labor, business and civic groups. The IBO director serves a four-year term.

Annual funding for the agency is guaranteed in the Charter to be not less than ten percent of the appropriations available to the Mayor's Office of Management and Budget. The Mayor's Executive Budget for 1997 contains a request of $2.5 million for the IBO. This level of funding would support a staff of about 36 and would provide nearly $700,000 for expenses such as rent, communications, printing, and equipment.

Charter Mandated Annual Reports

The following section provides an overview of IBO's plans to complete three distinct annual reports required by the Charter. Although these plans reflect agency's vision at this time, certain changes and refinements are inevitable over the coming months.

Report on Spending and Revenues, Budget Priorities, and Alternative Allocations

On or before February 1st of each year, the agency will:

...publish a report, for the ensuing fiscal year, with respect to expected levels of revenues and expenditures, taking into account projected economic factors and the proposals contained in the preliminary budget...Such report shall also include a discussion of city budget priorities, including alternative ways of allocating the total amount of appropriations, expenditures and commitments...taking into account how such alternative allocations will meet major city needs and effect balanced growth and development in the City. (New York City Charter, section 237).

This report will serve as a resource to public officials throughout the City as the annual budget process gets underway. The IBO will undertake this report by developing an independent projection of City finances assuming adoption of the plan laid out in the Mayor's preliminary budget (submitted annually in January). This projection will include an estimate of the budget gap, if any, and will provide an assessment of the risks contained in the Mayor's plan. Further, a discussion of the Mayor's budget priorities will be included in an objective, non-partisan manner. Finally, alternative allocations of City funds will be offered through the inclusion of a number of revenue and spending options developed by IBO throughout the year.

Analysis of the Mayor's Preliminary Budget

On or before March 15th of each year, IBO will publish a comprehensive report analyzing the preliminary budget for the coming fiscal year. Perhaps the most important of the Charter mandated work products, this report will provide decision-makers and the public with extensive information at a critical time in the annual budget process. Given the fact that final spending and revenue decisions for inclusion in the Mayor's executive budget are reached during the months of March and April, it is vital that understandable and objective analysis be available in a timely fashion to officials responsible for crafting and adopting the City's budget.

This report will look critically at the Mayor's preliminary budget plan with an eye toward identifying more cost effective ways of achieving program objectives. For each major program area the report will identify significant issues facing the City government, provide a discussion of the Mayor's plan to address these issues and to the extent practicable, recommend funding levels and/or reforms to programs.

Analysis of the Mayor's Executive Budget

Finally, by May 15th of each year, IBO will publish a report analyzing the executive budget (which is released in late-April) for the coming fiscal year. It is the intention of IBO to translate the executive budget into a form that is more useful and understandable to officials responsible for the budget's adoption. The May report will provide a detailed breakdown of the budget and will focus on significant fiscal and policy changes from the preliminary budget.

Areas of Emphasis for Annual Reports

Emphasis will be placed on the following items for the above three reports:

• Performance measurement. The IBO will concentrate on measuring not only inputs expended and outputs realized, but will measure the outcomes and impacts over time of the City's programs and agencies. For instance, an evaluation of an emergency housing assistance program should consider not only the amount of funds spent in providing such assistance (inputs) and the number of individuals or families housed or the cost per family housed (outputs), but should consider:
  • intermediate outcomes (such as safety and cleanliness of the shelter), and long-term outcomes (whether the program is serving its intended purpose of providing shelter consistent with the requirements of law); and
  • impact (such as the effect the program is having on reducing homelessness).

• Detailed line-by-line analysis. The March and May reports will provide a detailed description and assessment of the Mayor's budget beyond the information that is readily referenced or available. For example, IBO will provide explicit breakdowns of activities within particular departments to illustrate the impact of proposed funding reductions or increases. The precise nature of this detailed analysis will evolve as IBO continues to gather and analyze pertinent budget information.

• Historical trends. There is a tendency for budget documents to focus almost exclusively on the budget year in question. The IBO reports will add value to the budget process by providing readers with an historical context within which to consider and analyze funding decisions made by the Mayor. The amount of funding requested for a program or agency can be better understood through an analysis of real dollar and performance-based trends. The IBO will provide information that helps readers focus on major changes from previous years' actual funding levels.

• Geographical information. The IBO will illustrate the geographical distribution of City resources. Such information is critical to officials representing portions of NYC, so that these individuals are informed about the impact of a proposed program reduction or expansion in their home district.

• Crosscutting issues. While much of the information and analysis contained in the reports will concentrate on departmental matters, emphasis will also be placed on issues that cut across agencies or jurisdictions. Examples might include labor and management productivity concerns, the funding of "indirect" City employees through the contract budget, pension issues, or financing the health benefits of City employees.

Other Work Products

In addition to the mandated reports discussed above, IBO will undertake studies and issue reports pursuant to various authorities contained in section 260 of the Charter. This section directs IBO to provide the Comptroller, the Public Advocate, the members and committees of the City Council, the Borough Presidents, and the Community Boards with:

...information with respect to the budget, appropriations bills and proposed local laws with fiscal implications... information with respect to estimated revenues and receipts and changing revenue conditions; and... to the extent practicable, such other information or analysis as may be requested by such officials and bodies.

Further,

...the [IBO], upon request of a Borough President or the [public advocate] for a proposed local law introduced by such official, or the chair or ranking minority member of a committee of the council for a proposed local law being considered by such committee, shall complete a fiscal impact statement of such proposed local law[.]

Under this authority, IBO will prepare a wide array of work products ranging from informal responses to questions about the budget to comprehensive economic and fiscal analysis of major policy issues confronting the City. Written products of the agency will typically fall into one of the following categories.

• Reports will be prepared for issues in need of in-depth study, such as the fiscal and programmatic impact of federal health or welfare reform on NYC or the privatization of certain City services.

• Fiscal policy briefs will be completed for issues requiring analysis that can be completed in a relatively short period of time. A brief might assess the impact of a proposed budget reduction on the level of services provided by a City department or might consider the fiscal effect of a federal or State budgetary or programmatic initiative.

• Fiscal impact statements will be prepared as requested by certain public officials. As stated above, the Charter stipulates that IBO is to complete fiscal impact statements of proposed local laws at the request of Borough Presidents, the Public Advocate, or the chair or ranking member of a Council Committee. Statements will also be prepared, to the extent practicable, at the request of other members of the Council, Community Boards, or the Comptroller. Such statements will include a discussion of the status of a proposed local law, its purpose and effective date, a discussion and estimate of its fiscal impact (along with a discussion of the basis for the estimate), State and federal implications, and a comparison with any other estimates that have been prepared.

• Special publications will be produced to meet the informational needs of the public and the agency's constituent officials. Examples might include periodic publications on the status of the budget and related issues and a profile of City programs and finances.

Public Education

In addition to the powers and duties described above, the Charter contains a requirement that the agency:

...from time to time publish such reports as may be appropriate to enhance official and public understanding of the budgetary process and of the budget documents... [and] publish such reports as may be necessary or appropriate to provide such information, data, and analysis as will enhance official and public understanding of matters relating to city revenues, expenditures, financial management practices and related matters.

This critical task will assist the agency in meeting one of its primary objectives: that is, to open up the City's budget process and to make it more accessible and understandable to both public officials and the public at large. Examples of publications might include: a comprehensive citizen's guide to the budget; a newsletter that provides information on the status of recent budget developments; press releases; and summarized versions of technical IBO work products.

In addition to publishing such reports, IBO will conduct seminars and budget briefings for the public as part of this educational process. Other possible activities include press briefings; presentations to Community Boards and civic organizations; budget training for the public; the production of informational television and radio shows; creation of an internet website for IBO publications; and establishment of a computer database of user-friendly budget information.

Office Organization

As shown in Figure 1, IBO's organizational structure is relatively non-hierarchical. The agency will operate in a manner emphasizing teamwork and results. Of the 36 full-time positions envisioned, 33 individuals will be professional staff. While most staff will be assigned to the Budget Analysis staff, the exact size of each group will expand and contract as workload requirements dictate. The office continues to evolve but at present is structured along the following lines:

• Budget Analysis comprises three work groups focused on: 1) health and social services; 2) uniformed services; and 3) housing, education, and infrastructure. This division will take the lead on all matters pertaining to the expenditure side of the budget. Work products will include preparation of the March and May annual reports on the Mayor's preliminary and executive budgets, fiscal impact statements of proposed local laws with expenditure consequences, and other such reports and fiscal policy briefs as may be appropriate.

• Economic Analysis consists of a group of economists and policy analysts responsible for both the development of revenue estimates (along with possible alternatives) and the analysis of broad policy issues with fiscal implications. Work products will typically include reports and fiscal policy briefs involving economic and policy analysis.

• Public Services contains both the agency's intergovernmental affairs duties along with public communications and education responsibilities. This group is responsible for enhancing official and public understanding of the budget and its related processes. It will serve as IBO's liaison to elected officials, Community Boards, civic and neighborhood associations, the media, and other interested organizations. Work products will consist of special publications and related outreach and educational activities.

The IBO has assembled a senior staff (see IBO Directory) of highly analytical individuals with diverse professional experience at institutions including the Congressional Budget Office, California's Legislative Analyst Office, both the federal and City Office of Management and Budget, the Mayor's office, the Federal Reserve Bank of New York, the City Council Finance Division, and the New York City Finance Department. Virtually all entry and mid-level staff possess a graduate degree in public policy analysis, business, law, or economics.

Responding to Requests for Information and Analysis

The IBO will respond to requests for information and analysis by the Comptroller, the Public Advocate, the members and committees of the Council, the Borough Presidents, and the Community Boards. Requests for information and suggestions for areas of study are also welcome from the public, not-for profit organizations, businesses, and elected officials (including the Mayor, Governor, State Senators and Assembly Members, and U.S. Senators and Representatives). Please contact IBO's Public Services division at (212) 442-0632 for information.

Publications

All IBO publications are available to the public by contacting (212) 442-0632. In the near future, the agency intends to make all publications available through IBO's home page on the World Wide Web which is presently under development.

Chapter 2

The NYC Budget: An Historical Perspective

While New York City has suffered other fiscal crises, the 1975 crisis - when the City effectively went bankrupt - is the event against which our recent fiscal difficulties are inevitably measured. Although the 1975 crisis was precipitated by the City's inability to refinance its huge run-up of short-term debt, the underlying cause of the crisis is attributable to a complex mix of longer term demographic, economic and political forces.

Fortunately 1997 is not 1975. The prospective budget shortfall for 1997 is a considerably smaller share of total spending than the comparable gap in 1975. Moreover, unlike 1975, the City is not burdened by short term debt problems. Equally important, thanks to fiscal reforms instituted in the wake of the 1975 crisis, the City knows the magnitude of prospective shortfalls -- not just for 1997 but also through the end of the decade.

However, there are discomforting similarities between 1975 and 1997. In recent years, the use of nonrecurring resources has allowed the New York City to postpone politically-difficult expenditure and tax decisions, thereby allowing shortfalls to accumulate and grow into more serious problems - a practice disturbingly similar to the run-up of short term debt during the 1970's.

Prelude, 1960 to 1969

The fiscal crisis that brought New York City to the brink of bankruptcy in 1975 was caused by financial markets' unwillingness to continue financing the City's enormous run-up of short-term debt. But the causes of the 1975 crisis go well beyond simple fiscal mismanagement and can be traced to a complex web of longer-term demographic, intergovernmental, economic and political forces that dramatically increased the size of municipal government. Inflation-adjusted New York City government spending rose at an average annual rate of 8.3 percent during the sixties -- far beyond the rate of increase even a growing City economy could support. [Figure 2-1]

Total non-agricultural employment in New York City increased at an average annual rate of 0.7 percent over the decade and reached an historic high of 3.8 million in 1969. The City's growth was fueled by a bull market which boosted securities industry employment, a boom in office building and apartment construction, and public sector expansion. City revenues grew strongly, fueled by the economic expansion and the imposition of new, cyclically-sensitive personal income and business taxes.

New York City's economic growth during the 1960's was not sustainable, however. Perhaps the best evidence of the City's economic vulnerability is the fact that nearly 80 percent of its employment growth during the 1960s occurred in the public sector, with most of the increase concentrated in local government.

As New York City's economy expanded, the City's changing population mix put upward pressure on government spending. Middle income households moved to the suburbs in record numbers. Their place was taken by an influx of generally lower income, less well educated individuals with fewer job skills than the out-migrants they replaced. As a result, the share of population dependent on government spending increased, while the share of those providing the tax dollars to support government spending declined.

The out-migration to New York City's suburbs was facilitated by federal policies, including favorable treatment of owner-occupied housing under the U.S. tax code. But changes in federal policies also had a more direct impact on new York City spending. Federal aid under the rubric of the Great Society programs which sought to improve the lives of the poor - particularly in urban areas - soared. These new categorical aid programs boosted spending for social services, both in absolute terms and relative to such basic municipal services as police, fire and sanitation. However, New York State's requirement that the City match aid payments, particularly for such open-ended programs as Aid to Families with Dependent Children, decreased New York City's ability to control its own spending and exacerbated its already considerable fiscal problems.

Despite rapid increases in intergovernmental aid and strong revenue growth, budget shortfalls began to appear. Instead of making the difficult political decisions required to eliminate the shortfalls, City officials increasingly relied on short term fixes to achieve budget balance - fixes made possible by inadequate accounting procedures and the lack of long term financial planning. For example:

• In 1965, the City resorted to the use of short term debt to cover a deficit in its operating budget -- a technique that would become common over the following decade.

• Organized City workers received substantial compensation increases in the form of pensions, which did not require immediate funding and simply delayed the day of reckoning.

Retrenchment, 1969 to 1975

For decades before 1969, New York City's recessions were generally less severe than for the nation as a whole. This pattern was reversed in 1969, however, when "the U.S. caught cold and NY nearly died from pneumonia". Instead of participating in the national recovery following the 1969 downturn, the City's economy began a long slide, losing nearly 450,000 jobs - twelve percent of total employment - over the next six years. New York City not only lost jobs, but for the first time in modern history began to lose population as well.

There are a number of reasons why the City's economy contracted so sharply. The sixties' private sector sources of job growth evaporated with the collapse of the bull market and the end of the construction boom. The U.S. downturn caused employment in NYC's corporate headquarters and business services to fall, and accelerated the City's long term decline in manufacturing. At the same time, technological advances in automation and communications allowed firms to eliminate some jobs and transfer others to less costly locales. This combination of cyclical and structural change intensified the City's job losses.

• To cite just one example, securities industry employment was halved within a few short years by the combined effects of the downturn and the installation of new technology that reduced back office needs.

As the economy contracted, revenue growth decelerated. In response, the City slowed inflation-adjusted expenditure growth to an average rate of 4.5 percent annually by cutting basic services. In addition, tax rates were increased to bolster revenue growth. Both the cutbacks in services and the increase in taxes worked to hasten out-migration and the City's longer term decline.

Despite service cuts and tax increases, the City ran large deficits in every year but one during the 1969 -75 period. Deficits were "papered over" with accounting gimmicks. The City not only used long term debt to finance daily operations, but also borrowed short-term on the basis of questionable receivables and then rolled over the short term debt rather than repaying it -- in effect, mortgaging the City's future.

By 1975, the City's outstanding short term debt had grown to equal a full year's revenue from City taxes - so large that there was little hope of repayment. A shortfall of roughly $2 billion was projected for the following fiscal year -- an incredible one-sixth of total spending. Ultimately, banks refused to underwrite additional New York City debt issues, thereby closing the City out of the market and precipitating the fiscal crisis.

Why didn't the City didn't prevent the crisis by retrenching even further? Two possible explanations stand out. One is political: there was no effective check on the politically powerful coalition of groups that promoted spending. The other is economic: because the City had grown so robustly for so long, it was easier to assume that the imbalances were primarily cyclical and would disappear once economic growth (inevitably) strengthened.

Restoring Balance, 1975 to 1983

With the onset of the crisis, fiscal policies in New York City were dramatically - and permanently - changed. The State and federal governments, municipal unions, the financial community, and the general public all contributed to the solution.

New York State took control of the City's day-to-day financial management through the creation of the Municipal Assistance Corporation (MAC) and the Emergency Financial Control Board (EFCB):

• An immediate moratorium was declared on the repayment of the City's short-term debt.

• The EFCB approval was required for the City's annual budgets, its multi-year financial plan, all contracts, and most financial management procedures. The City was to rapidly adopt generally accepted accounting principles.

• The City was required to balance its operating budget within 3 years and to immediately remove operating expenses from its capital budget.

The federal government authorized the U.S. Treasury to lend short-term funds directly to the City, with repayment within the same fiscal year. As a precondition for federal loans:

• New York City was required to impose temporary tax increases - which were strongly opposed by State and City officials as detrimental to the City's economy;

• NYS was required to assume a larger share of City spending, including responsibility for the senior colleges of the CUNY.

• Municipal employees and their unions accepted postponement of salary increases, reductions in fringe benefits and large-scale layoffs.

• New York banks and municipal employee pension funds agreed to invest substantial sums in MAC and City bonds.

• The general public accepted that reductions in public services and postponement of capital spending were necessary to resolve the crisis. Real New York City spending declined at an average annual rate of 2.7 percent from 1975 to 1983. Further capital spending was insufficient to maintain, let alone expand, public facilities.

Fiscal recovery was also aided by national and local economic factors. Nationally, high rates of inflation during the late 1970s boosted City revenues. Locally, the City's economic slide ended in 1977, followed by modest growth in the late 1970s and more rapid growth through much of the eighties.

By 1978, the City's budget was nearly balanced, MAC was borrowing with little difficulty, and New York City's economy had once again begun to grow. Despite these improvements in the City's fiscal and economic conditions, a new three year federal loan guarantee program was enacted to replace the Treasury Department's direct loan program as it expired. But the crisis was over.

Economic Expansion, 1983 to 1989

New York City's economy -- driven by rapid growth in the financial services and construction industries -- boomed during the eighties. Total non-agricultural employment increased at an average annual rate of 1.2 percent, considerably faster than employment growth during the 1960s. Economic growth generated revenue growth; receipts from the City's cyclically-sensitive taxes responded to the upturn, while property tax receipts were boosted by the sharp run-up in real estate values.

Rapid revenue growth permitted the expansion of government spending and a renewed commitment to some of the "good intentions" of the sixties. Inflation-adjusted City spending rose rapidly between 1983 and 1989, increasing at an average annual rate of 4.0 percent. Pressure to increase spending came from a number of sources. Much of the increase was driven by the desire to restore basic services, which had been severely cut back during the crisis period. Similarly, capital spending surged in order to make up for the long period of deferred maintenance and the lack of new investment. New and costly problems -- including crack cocaine and AIDS -- also increased spending pressures. Moreover, the City took on such new roles as constructing low-income housing as the federal government cut back on its support for redistribution. Finally, federal mandates to expand health care services for the poor had a major impact on City spending because New York is one of the few states that require a local contribution to Medicaid.

New York City had come a long way from the dark days of 1975. During the boom years of the eighties, budget surpluses became routine. But some of the lessons of the fiscal crisis were forgotten. For example, the City sharply increased capital spending, but used bond refundings to defer payment until the 1990s. Perhaps more troubling, the City acted as though the good times would never end. But as the decade drew to a close, New York City slid into recession.

The Nineties

In 1989, New York City entered a recession that was both longer and steeper than the national downturn. Total City employment declined by 340,000 jobs between 1989 and 1993, entirely eliminating the employment gains of the eighties. More recently, economic growth has resumed but remains weak, with job gains in the private sector largely offset by public sector job losses, there has been virtually no net employment growth in the City during the current fiscal year.

Learning from hard experience, New York City officials resisted the temptation to bolster revenues by raising taxes during the downturn. Moreover, although the pressure to increase spending -- particularly for social services -- intensified, expenditure growth was slowed. Between 1989 and 1996, inflation-adjusted spending increased an average of just 0.8 percent per year.

Despite the resumption of economic growth (however weak) and the City's considerable success in slowing the rise in government spending, budget shortfalls have persisted and are projected to increase sharply over the next several years. The City has relied on unrealistic assumptions in its enacted budgets, and has used nonrecurring resources (so-called "one-shots") to remedy the mid-year shortfalls that arise when its assumptions fail to materialize. But one-shots are only a temporary fix.

As the City once again struggles to enact a budget, it is worth taking a moment to look back at the legacy -- and the lessons -- of the 1970s' fiscal crisis. First, the good news -- 1997 is not 1995:

• Unlike the 1970s, we now know the size of the prospective shortfall, not only for 1997, but also through the end of the decade.

• The prospective 1997 shortfall, although serious, comprises a considerably smaller share of City spending than the 1975 shortfall. The projected 1997 gap is eight percent of projected spending as compared to sixteen percent in 1975.

• New York City is no longer burdened by a large overhang of short-term debt that needs to be refinanced; In fact, if the City were to end a fiscal year with a deficit in excess of $100 million, control of its budget would revert back to the State Financial Control Board.

• Finally, the City is currently in a different stage of the business cycle than it was in 1975, with its economy slowly recovering from a prolonged downturn rather than in the midst of sustained decline.

However, there are several discomforting similarities between 1975 and 1997:

• In recent years, New York City has used one-shots to postpone the politically difficult fiscal decisions that have to be made, thereby allowing relatively small shortfalls to accumulate and grow into more serious problems -- a practice disturbingly similar to the run-up of short-term debt during the 1970s.

• Just as in the 1970s, it is easier to assume that imbalances are cyclical and will disappear once economic growth (inevitably) resumes. But in both the 1970s and the 1990s, the deficits are primarily structural rather than cyclical in origin.

• Despite the use of multi-year fiscal planning, there is once again an unfortunate tendency to "buy now, pay later". Due to debt refinancings, the eighties' surge in capital spending has just begun to significantly impact the City's operating budget. Similarly, labor contracts that grant generous wage increases in the outyears of the financial plan not only postpone the pain but also decrease the City's ability to negotiate increases in productivity.

Finally, some of New York City's fiscal problems are more difficult in 1997 than they were in 1975:

• The fiscal burdens associated with such State and federal mandates as Medicaid are even greater today than they were in 1975.

• Moreover, the City currently receives far less unconditional State and federal aid than it received in the 1970s; federal revenue sharing payments to local governments were eliminated in October of 1986, while State revenue sharing has declined sharply in recent years.

References

Charles Brecher and Raymond D. Horton, et. al., Power Failure: New York City Politics and Policy since 1960, (New York: Oxford University Press, 1993).

City of New York, Comprehensive Annual Financial Report of the Comptroller. (Fiscal year 1995 edition).

Aaron S. Gurwitz, The Fiscal Outlook for New York City: A Longer View, (Goldman Sachs, Fixed Income Research, July 1991).

Dick Netzer, The Economy and the Governing of the City, in ..., pp.27-59.

New York State Financial Control Board, Financial Planning in the Nineties: Building on New York's Pioneering Efforts in the Seventies, June 1992.

Charles Morris, The Cost of Good Intentions, fill in.

Martin Shefter, Political Crisis, Fiscal Crisis: The Collapse and Revival of New York City, (New York: Columbia University Press, 1992).

Temporary Commission on New York's Finances, City in Transition: Prospects and Policies for New York, (Final Report of the Commission, 1977).

U.S. Congressional Budget Office, New York City's Fiscal Problem: Its Origins, Potential Repercussions, and Some Alternative Policy Responses, Background Paper No.1, October 1975.

Chapter 3

The New York City Budget Process

A city's budget process can be defined as the allocation of public resources, usually scarce, to accomplish public purposes. The New York City budget process, established by the City Charter, occurs in an environment that provides opportunities for public participation with the elected officials and their staffs who prepare, negotiate, adopt and administer the budget.

In theory, citizens -- those who fund and receive public services - should determine the services their local government will provide and how much they will pay in taxes for such services. Citizens should also evaluate the quality of public services they receive and decide whether they are worth the price they pay. In practice, however, the budget process tends to be obscured by highly technical financial information, partisan rhetoric and legal requirements. This often leads to budget documents (and public discourse on the budget) that is difficult for citizens to understand.

The inability of many New Yorkers, as those who fund public services, to understand how the City spends their taxes, keeps them from being able to communicate effectively with elected officials about what services they think City government should provide and in what amounts. In addition, the inability of New Yorkers, as users of services, to see clearly the link between taxes paid and the quality of the services they receive, keeps them from being able to hold their public servants accountable.

An analysis of the City's budget is an analysis of New York City itself and the key to understanding the fiscal condition of the City -- both present and future. Armed with accurate and relevant information, citizens can more effectively participate in determining how the government spends their money.

In order to further public understanding of the budget, this chapter will describe the City's annual budget process and the accompanying budget documents in a relatively straightforward manner. The process is fairly complex but it is hoped that the following information will serve as a user-friendly guide.

Budget Documents

Components of the Budget

The City's adopted budget consists of three distinct components: the expense budget, the capital budget and capital program, and the revenue budget. The adopted budget is effective for the City's fiscal year, which begins on July 1st of each year and ends on June 30th of the following year. While there is a separately adopted contract budget, it only restates by agency and programmatic categories appropriations for contractual services included in various other than personal services appropriations in the expense budget.

The City Council adopts the expense and capital budgets as resolutions, not as local laws. The budget resolutions are expressed in unites of appropriation. In a unit of appropriations, the city Council authorizes spending a specific amount of money for a particular agency program, purpose, activity or institution, either for personal service (PS) or other than personal services (OTPS).

The units of appropriation are the lowest level of detail in the budget resolutions, and are intended to be highly descriptive in order to facilitate the public's understanding of government spending and performance. To the extent the Mayor and city council believe that a unit of appropriation should contain more than one agency program, purpose, activity or institution, the City Council must append to the appropriate budget resolution another resolution that describes the programmatic objectives of the multiple activities within the larger units of appropriation.

The table below describes the documents used by the Mayor to present his proposals during the budget process and the legally operative budget documents adopted by the City Council. A timeline for the budget adoption process will follow.

Summary of Budget Documents

Presentation Documents

The proposed budget is presented in two forms -- one preliminary and one final -- each year before adoption. The preliminary version of the budget contains proposed expenditures by units of appropriation which the agencies have shown are needed in accompanying departmental estimates, a forecast of revenues and a plan to ensure balance between the two for the upcoming fiscal year. With the preliminary budget, the Mayor presents a financial plan which estimates expenditures and revenues for the next four fiscal years.

The Mayor presents the final version of his proposed budget, known as the executive budget, with a budget message. While the budget message is not a legally operative part of the executive budget, it is nonetheless an important document. This message of the Mayor contains explanations of major programs, projects, emphases and objectives of the budget, along with other information summarized in the above table.

The Mayor's management report presented twice each year, attempts to link budget decisions with agency outputs and outcomes. The management report is presented twice during the fiscal year. The preliminary management report discusses the actual performance of each City agency for the first four months of the current fiscal year against stated program performance goals and objectives established for the year. The report also proposes changes to program performance goals and objectives for the upcoming fiscal year reflecting decisions in the preliminary budget. The final management report is issued almost three months into the next fiscal year and lists program performance goals for such current fiscal year. It also reports on the actual performance for the just-completed fiscal year.

The Budget Cycle

Adoption

The budget adoption process involves nearly every elected official of the City and provides ample opportunities for citizen participation at public hearings. However, the Mayor, as the City's executive officer, and the City Council, as New York City's legislative body, play the most extensive roles in the budget adoption process.

Public Official Participation the Budget

Described below are the steps the budget participants have taken through May 28, 1996, and the remaining steps they must take to adopt the 1997 budget.

January 31 (January 16): The Mayor submitted the preliminary budget to the City Council, with copies to the Borough Presidents, Community Boards, Borough Boards, City Planning Commission and Department of City Planning. The Mayor develops and prepares the preliminary budget with the staff of his Office of Management and Budget (OMB) and executive agency heads. At the beginning of the budget development process, agency heads prepare departmental estimates detailing the respective agencies' estimates of their requirements. These estimates form the building blocks of the budget.

February 1: The IBO, had it been fully operational, would have published a report on expected levels of revenues and expenditures for the coming year, taking into account projected economic factors and proposals contained in the preliminary budget. The report would have also included a discussion of City budget priorities, including alternative ways of allocating the total amount of available appropriations.

February 15 (January 30): The Mayor submitted the preliminary management report to the City Council. The report measures actual performance of each City agency for the first four months of the current fiscal year against stated program performance goals and objectives that were established for the year. The report also proposes changes to program performance goals and objectives for the upcoming fiscal year reflecting decisions in the preliminary budget.

February 29 (February 25): Community Boards submitted statements of their assessment of the responsiveness of the preliminary budget to their earlier statements of budget priorities (which were sent to the Mayor, City Council, Director of OMB, and appropriate Borough President and Borough Board). At least one month before agencies submitted their departmental estimates to the Mayor, the Community Boards held public hearings and developed statements of budget priorities.

In addition, the Commissioner of Finance submitted an estimate of assessed value for the upcoming fiscal year and a statement of real property taxes due for the current fiscal year to the Mayor and the City Council.

Also on this date, the Mayor submitted a tax benefit report to the City Council. The report includes a listing of all exemptions or other exclusions against City tax liability.

March 11 (March 10): The Borough Boards submitted comprehensive statements on the budget priorities of their respective borough to the Mayor, City Council and Director of OMB, having held public hearings in connection with the preparation of these statements.

March 15: The IBO, had it been fully operational, would have published a report analyzing the preliminary budget. A detailed description of IBO's plans for the report is included in Chapter 1.

March 25 (March 10): Each Borough President submitted, to the Mayor and City Council, proposed modifications of the preliminary budget, taking into consideration related community and borough board priorities. These borough modifications to the proposed executive budget are limited in amount to the borough's formula shares of certain discretionary expense and capital budget amounts. These modifications to the Mayor's executive budget are limited in amount to the boroughs' shares of certain discretionary expense and capital budget amounts that are determined by formulas set forth in the Charter. In his preparation of the executive budget, the Mayor consulted with the Borough Presidents.

March 29 (March 25): The City Council submitted, to the Mayor, its findings and recommendations on the preliminary budget after public hearings by Council Committees had been held. These hearings were held from March 7 through 18, 1996, and covered the preliminary budget, statements of budget priorities of the community boards, the Borough Presidents' recommendations, among other items.

April 17 (April 8): The City Council held a hearing on the preliminary management report. The findings and recommendations will be issued shortly from the public hearing held on the proposed agency program and performance goals and measures in the preliminary management report.

May 9 (April 26): The Mayor submitted his proposed executive budget to the City Council.

Time Line for 1997 Budget Adoption

May 19 (May 6): Borough Presidents submitted their responses to the Mayor's proposed executive budget to the Mayor and City Council.

May 28: The IBO is required to publish a report analyzing the Mayor's executive budget. In order to meet this mandated requirement, IBO has prepared the document that you are reading. A description of IBO's plans for the report in future years is included in Chapter 1.

May 17 - May 31 (May 6 - May 25): The City Council holds public hearings on the Mayor's proposed executive budget.

June 10 (June 5): The City Council adopts the 1997 budget, subject to veto of the Mayor and override by the City Council. The City Council can alter the Mayor's proposed executive budget by increasing, decreasing, adding or omitting any unit of appropriation and adding, omitting or changing any term or condition related to any appropriation. The Mayor has the power to veto any increase or addition to the budget or any change in a term or condition adopted by the Council. The Mayor's veto is then subject to an override by a two-thirds vote of the Council.

After the Council adopts the expense and capital budgets, the Mayor estimates the probable amount of all revenues (taxes, fees and other moneys) except real property taxes. This is known as the revenue estimate. The City Council then adopts a real property tax fixing resolution establishing annual tax rates on real property for the upcoming fiscal year. The Council must set the tax rates so that the amount of real property taxes to be generated, when added to the amount of the revenue estimate, equals the amount of expenditures appropriated in the budget. State law requires that the City prepare and maintain its expense budget so that its results will not show a deficit when reported in accordance with generally accepted accounting principles.

The State Constitution limits the amount of City general obligation indebtedness used to finance capital projects to ten percent of a moving five-year average of the total market value (or full valuation) of the City's taxable real property. The Constitution also limits the amount of revenue the City can raise from its real property tax for operating purposes to 2.5 percent of such five-year average.

While the Charter specifies a date certain for budget adoption, the City Council has, in the past, adopted after such date. As long as the budget is adopted by June 30 (the end of the fiscal year), the adverse implications form this technical non-compliance are minimal.

Administration

The next step in the City's budget cycle is budget administration, which begins immediately commencement of the new fiscal year. Circumstances constantly change from the date of adoption and since the City, unlike the federal government, cannot run a deficit, frequent actions are need to resolve problems as they arise. For example, financial assumptions do not bear out; the local economy and revenue base could exceed expectations producing unanticipated revenues or they could fall below expectations producing a need to cut expenditures or raise revenues; policy considerations require changes to programs with resulting fiscal implications; or it snows more than expected.

The Charter provides for mechanisms (such as those described above) during the fiscal year. While both the Mayor and the City Council have roles in the budget administration process, the Mayor has a larger role to play than the City Council. This reflects the fact that, for the most part, budget administration is often a ministerial function left to the executive's budget staff. The Council does, however, have oversight responsibilities to review on a regular and continuous basis the activities of City agencies, including their service goals and performance and management efficiency.

Upon the adoption of a budget, the Mayor, through OMB and the agencies, establishes quarterly spending allotments for each unit of appropriation. Further, aggregate position and spending limits are set for each unit of appropriation. These allotments and limits restrict the pace of agency spending so that money will remain available to fund authorized programs throughout the year. The agencies or the Mayor may, however, make limited changes to these amounts.

The Mayor possesses additional tools to administer the budget to manage changes in circumstances that appear to have negative consequences for the City's cash flow or the projected gap between revenues and expenditures during the fiscal year. To manage short-term problems, the Mayor may set aside specified sums within the allotments and limits as necessary reserves which the agencies cannot spend until he releases them. For more serious problems, the Mayor may unilaterally impound - prohibit the spending of -- appropriated funds as long as he notifies the City Council of a determination to impound and lists implications and consequences for service levels and programmatic goals affected.

Certain changes are of sufficient magnitude to require City Council participation. While the Mayor may unilaterally transfer part or all of any unit of appropriation to any other unit of appropriation, he must notify and seek approval from the Council when he wishes to transfer funds from one agency to another or when a proposed transfer would result in any unit of appropriation having been increased or decreased by more than the greater of 5 percent or $50,000 from the adopted budget amount. Although the Mayor cannot transfer such funds without the Council's approval, the Council may not change the proposed transfers within the expense budget - it can only approve or deny the Mayor's request. However, if the Mayor wishes to propose an amendment to create new units of appropriation, to appropriate new revenues from any source (except for certain non-discretionary revenues), or to use previously unappropriated funds received from any source, the procedures for budget adoption, as described above, would apply. These procedures provide a larger role for the City Council and include the power to change the proposed modification.

The Mayor submits, and the City Council acts on, budget modifications throughout the fiscal year. Historically, the Mayor proposes substantial amendments to the adopted budget following the City's modification of its financial plan submitted to the New York State Financial Control Board. These financial plan modifications, often referred to as quarterly modifications, reflect actual results of operations from the date of the financial plan and changes to remaining projections and assumptions, in light of current information.

The Role of the Independent Budget Office

The IBO's role in the budget process is described in detail in Chapter 1. The agency will closely track and participate in the City's annual budget process and analyze the related budget documents. As part of IBO's mission to enhance official and public understanding of the City's budget and related processes and documents, the agency will provide a user friendly link to this technically complicated process.

Chapter 4

Sources of City Revenues and Expenditures

As was outlined in Chapter 3, the Mayor's executive budget, introduced on May 9, 1996, is a critical step in the City's process. This process involves the efforts of many dedicated public servants in both the executive and legislative branches of government, as well as private citizens. More than three months before the executive budget was submitted to the City Council, the Mayor submitted a preliminary budget that would serve as a starting point for the 1997 budget process.

The preliminary budget presented a plan for 1997, including a program to close a projected budget gap of $2,035 million. Stated simply, a projected "gap" results if estimated revenues are insufficient to support projected expenditures. The projected budget gap increased from the January plan by $637 million. As a result, the proposed executive budget contains a program to close a $2,672 million budget gap.

In order to eliminate the projected gap, the executive budget proposes a number of actions (called the "program to eliminate the gap" or "PEG") including: the reduction of agency program expenditures; a revision of the (e.g. extension of the personal income tax surcharge and delay of the real property tax cut for co-ops and condominiums); asset sales (e.g. the sale of WNYC); rent recovery from airports; and other items. The proposed program to eliminate the gap consists of agency expense and revenue initiatives of $942 million and $203 million, respectively, along with City-wide expense initiatives of $575 million and City-wide revenue initiatives of $952 million.

While the gap is a major issue and topic of discussion and concern, it is only a part of the story of the budget. The following is a brief discussion that provides a broader context within which to consider the City's budget documents and related processes discussed in Chapter 3. The purpose of this chapter is to shed some light on where the City's money comes from and where it goes.

Where the Money Comes From:

Summary of Revenues

The Mayor's 1997 executive budget proposes total revenues from all sources of $32.7 billion. These revenues are spread among various categories shown in Figure 4-1. The source categories representing the general property tax and other taxes (which includes the personal income tax) are the largest sources of revenues in 1997 with estimated receipts of $17,437 million. Figure 4-1 provides information on the level of revenues from all sources proposed in the executive budget and presents data from 1991 through 1997 for comparison purposes. Some of the major source categories are described below.

• The general property tax is applied to taxable real property in the City. Taxable real property is assessed each year, and property owners pay the tax based on the types of property and its assessed value, among other things. In 1997, the executive budget estimates general property tax revenues of $7,095 million.
• Other taxes include a number of taxes including the personal income tax, the sales and use tax, and the general corporation tax. The executive budget estimates revenues of $10,342 million from this category. The major source of revenue in this category is personal income tax. The personal income tax is based on the taxable income of residents, trusts, and estates. Federal adjusted gross income is the beginning point for determining taxable income under personal income tax.

• Miscellaneous revenues represent the gross non-tax revenue portion of funds collected by the City. This category includes items such as licenses, permits, and fines and forfeitures. The executive budget estimates miscellaneous revenues of $4,437 million in 1997.

• State and federal categorical grants represent funds received from the State and federal governments for a defined category of activity. Categorical grants typically serve some identifiable State or national interest and are disseminated by legislative formula (i.e., formula grants) or by competition under agency guidelines (i.e., project grants). The executive budget projects funding form these sources of $9,786 million.

Figure 4-1. 1997 Executive Budget Revenue Summary ( $ in millions )
	Actual*					Forecast	Exec. Budget
	1991	1992	1993	1994	1995	1996	1997
Revenues
Taxes:
General Property Tax	$7,196	$7,687	$7,759	$7,424	$7,104	$7,176	$7,095
Other Taxes	8,198	8,735	9,128	9,595	9,470	9,929	10,342
Tax Audit Revenues	444	528	525	570	602	647	659
Criminal Justice Fund	55	132	238	348	314	335
Tax Reduction Program	-	-	-	-	-	-	(98)
Miscellaneous Revenues	2,730	2,686	3,011	3,214	3,386	3,293	4,437
Unrestricted Intergov. Aid	700	826	707	667	603	655	523
Anticipated State Aid	-	-	-	-	-	-	100
Other Categorical Grants	56	95	129	128	143	327	292
Inter-Fund Revenues	217	214	213	238	233	241	260
Less: Intra-City Revenue Disallowances	(524)	(452)	(585)	(639)	(669)	(644)	(646)
Total City Funds	19,040	20,379	22,949	21,099	21,727	21,388	21,944
Federal Categorical Grants	3,147	3,422	3,610	3,960	4,006	4,646	3,767
State Categorical Grants	5,511	5,435	5,661	5,903	6,430	6,223	6,019
Total Revenues	$27,698	$29,236	$30,370	$31,590	$31,824	$32,813	$32,735
* Actual: Comptroller's Reports (audit of the respective fiscal year excluding subsequent restatements).

To further understand where the City's money comes from, the major source categories can be broken down into more specific receipt types. Figure 4-2 shows a distribution of revenues from all sources by receipt type.

The amount of revenue derived from some of the major receipt types are as follows: the property tax is the largest single source of revenue with $7,095 billion, or 21 percent of all expected funds for 1997; State categorical grants are projected to provide receipts of $6,019 million, or 18 percent; the personal income tax and federal categorical grants are each estimated to provide 12 percent of 1997 funds. The sales and use tax applies to such things as sales and use of tangible property and services, sales of gas and electricity, and food and beverages sold by restaurants and caterers. This tax is estimated to provide $2.823 billion, or 9 percent of funds in 1997.

Figure 4-2.

*Excludes intra-city revenues.

Local Tax Receipts

The discussion of revenues in Figure 4-1 and Figure 4-2 includes all sources of revenue to the City: local, State, and federal. Figure 4-3, however, focuses only on the local tax revenue program proposed in the budget. It should be noted that, with the exception of the property tax, the City cannot increase or decrease the rates of its taxes without State legislative action.

The real property tax and personal income tax account for 62 percent of estimated local imposed tax receipts in 1997. The next major source of receipts is sales and use tax, which is estimated to provide 16 percent of the locally-imposed total.

State and Federal Aid

Two major sources of revenue to the City are realized through intergovernmental funds transfers from the State and federal governments. These principally take the form of categorical grants, thereby helping to explain why the events in Albany and Washington, DC have a significant impact on the City's budget and budget process. Such grants typically serve some identifiable national or State interest and are distributed by legislative formula (i.e., formula grants) or by competition under agency guidelines (i.e., project grants).

Most of these funds are earmarked for education and social programs such as Medicaid and Aid to Families with Dependent Children. While categorical grants are a valuable source of funding to the City, rules earmarking the funds for specific purposes limit the discretion of local officials in spending funds received.

As can be seen in Figure 4-4, State ($6,019 million) and federal (3,767 million) are projected to total $9,786 million in 1997. These amounts are uncertain, however, given the possibility of legislative changes in Washington and Albany (e.g.., Medicaid or welfare reform).

Where the Money Goes:

Summary of Expenses

The Mayor's 1997 executive budget proposes total expenditures of $32.7 billion, an amount that is (not coincidentally) identical to estimated revenues. These expenditures are spread among broad categories of spending shown in Figure 4-5 and described below.

• Personal services represents salaries and fringe benefits of City employees. This category contains the funds request to pay the costs associated with police officers, school teachers, sanitation workers, and other City workers who provide various services. This is the largest category of expenditures, with estimated spending in 1997 of $16,191 million.

• Other than personal services includes not only things like office furniture, telephones, and computers, but also other items such as contracts-for-services in areas such as public and medical assistance. This is the next largest category of expenditure, with estimated spending in 1997 of $13,872 million.

Taken together, these two categories comprise $30 billion, or 91.8 percent of the amount of spending proposed in 1997. Most of the discussions about the City's expenditures focus on these parts of the budget in one form or another.

Other categories, however, continue to comprise a significant part of the budget even though they make up a much smaller share of the City's expenditures. Debt service and MAC (Municipal Assistance Corporation) debt service represent the payments of principal and interest associated with City borrowings from various sources. These expenditures are analogous to the payments a family makes when it borrows money from a bank. Among other things, these are important items of expense because to the extent funds must be used to pay off debt, they cannot be used for other operating priorities and services. The general reserve is required pursuant to State law in order to guard against potential shortfalls during a fiscal year.

To further understand where the City money goes, proposed spending can be divided among the more specific program or activity areas represented in Figure 4-6 and listed below. This division allows one to see the relative share of the budget devoted to various services and activities.

Education will account for $8,139 million, or 25 percent of proposed expenditures in 1997. This amount includes spending for both the Board of Education and the City University of New York.

• The Board of Education (BOE) is responsible for elementary and secondary education for school age children and provides basic education instruction, special and bilingual education, and vocational training. It also provides various support services including breakfast and lunch services, and free and subsidized transportation. The BOE will have estimated expenditures of $7,751 million in 1997.

• The City University of New York (CUNY) includes the Hunter Campus School, six community colleges, a technical school, ten senior colleges, and a graduate center, law school, and affiliated medical school. The executive budget proposes CUNY expenditures of $388 million in 1997.

• Social Services will comprise $7,363 million, or 22 percent of proposed expenditures in 1997. This program area includes the Department of Social Services (DSS), the proposed Administration for Children Services (ACS), and the Department of Homeless Services.
  • The DSS responsibilities include cash and medical assistance to needy individuals, child care, and shelter and support services to victims of domestic violence, people with AIDS, and the elderly. In July 1997, however, most services for children are proposed to be moved to a new ACS. The executive budget proposed total DSS expenditures of $5,632 million in 1997.

  • The proposed ACS will be responsible for programs providing care for neglected and abused children, including protective, foster care and adoption, and child support enforcement services. Total expenditures for the ACS are estimated to be $1,348 million.

  • The Department of Homeless Services provides food, shelter, clothing and other services to homeless families and individuals. The executive budget proposes total expenditures of $383 million in 1997.

Uniformed services includes Police, Fire Departments, the Department of Corrections, and the Department of Sanitation. This area will account for $4,465 million, or 14 percent of proposed expenditures.

• The executive budget proposes total spending of $2,278 million for the Police Department. This amount reflects the merger of the Transit and Housing Bureau forces into the Department in 1995.

• The Fire Department will have estimated expenditures of $886 million, an amount which reflects the merger of Emergency Medical Services into the Fire Department.

• The executive budget also proposes spending levels of $751 million for the Department of Corrections and $550 million for the Department of Sanitation.

The following other areas comprise the remaining 39 percent of City spending.

• Health includes the Department of Health, the Department of Mental Health, and the City's cash subsidy to the Health and Hospitals Corporation and represents expenditures of $1,329 million.

• Pensions includes the contributions to the various pension funds for City employees and represents expenditures of $1,358 million.

• Fringe Benefits include the health insurance costs associated with City employees and represents expenditures of $1,756 million

• Debt Service (including MAC debt service) is comprised of the payments of principal and interest associated with City borrowings from various sources and represents expenditures of $3,119 million.

• All other includes various remaining City agencies and represents expenditures of $5,025 million.

Figure 4-6.

Headcount:

Whether it is classroom instruction, crime and fire prevention, or collection of garbage, the services provided by the City are primarily delivered through its employees. Headcount measures the number of City employees and is an important indicator of the size and composition of the City's government. Stated simply, headcount means the number of full-time employees of the City. Figure 4-7 displays the distribution of headcount based on all sources of funds using the program areas from Figure 4-6 above. The executive budget proposes a total headcount of 231,946 in 1997.

• Education, comprised of the BOE and CUNY, is the largest area with a projected headcount of 90,417 employees, or 40 percent of total headcount. The majority of the employees in this area are in the BOE which has a headcount of 86,830. Of this total, 80,053 are teachers and 6,777 are non-teachers. By comparison, CUNY has a headcount of 3,587. Faculty represents 2,202 and non-faculty represents 1,385 of this headcount total.

• Uniformed Services (uniformed and civilian) is the next largest category with a combined total of 79,830, or 34 percent of total headcount. Uniformed employees represent 65,170 of the total, while civilian employees, at a level of 14,660, comprise the remainder. Police Department uniformed employees comprise the largest category within uniformed services with a headcount of 36,722. The Fire Department has a uniformed headcount of 10,996 and the Department of Corrections has a projected uniformed headcount of 10,817. The Department of Sanitation has an estimated uniformed headcount of 6,635.

• The remaining 61,699, or 26 percent headcount total is distributed among all other which includes various City agencies and social services and health, which includes the Department of Social Services and the Department of Homeless Services.

Figure 4-7.

These headcount numbers represented in Figure 4-7 are based on all sources of funding: City, State, and federal. Headcount totals do not include the employees of separate legal entities receiving subsidies from the City, such as Health and Hospitals Corporation, New York City Transit Authority, and libraries. Persons who perform services for the City under contract (indirect employees) are not counted in these headcount totals. The fiscal impact of such indirect employees, however, can be seen in the contract budget. Contract Budget

The contract budget sets forth by agency each major category of contractual services and each multiple purpose category for which appropriations are requested. Contracts in this part of the budget are for professional, consultative and technical services.

The contract budget can be divided into the following categories: (1) health and social services which include home care, child welfare, family services and senior citizen programs; (2) youth and student services which includes transportation of students and payment to contract schools; (3) other services which is comprised of items including custodial and security services; (4) maintenance and operation of infrastructure; (5) maintenance of equipment which includes data processing, office equipment and telecommunications; and (6) professional services and consultants which includes accounting, auditing, investment analysis, and legal services.

Figure 4-8.

In 1997, the contract budget proposes total expenditures of $4,050 million. Figure 4-8 shows the distribution of proposed contract budget expenditures by six major categories in 1997. The largest category is health and social services accounting for $2,333 million, or 58 percent of estimated contract budget expenditures. The next largest category is youth and student services representing $910 million, or 22 percent of estimated contract budget expenditures.