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Testimony Before the Joint Legislative Fiscal Committees

January 28, 2002
Remarks as Prepared for Delivery


Chairman Stafford, Chairman Farrell, distinguished members of the Senate Finance and Assembly Ways and Means Committees…

I want to thank you for the opportunity to address the joint Fiscal Committees regarding the proposed Executive Budget for State Fiscal Year 2002-2003.

First of all, let me take this opportunity to express the thanks and gratitude of all the citizens of New York City to the people of our State for their support, their prayers, and all the help we received in our hour of need.

Whether it was donated blood, contributions to the funds for survivor families, material, or just moral support, I would like to express to your constituents our appreciation.

For the great lesson we learned after September 11th, this is one State, one people. The pain and suffering in my city was shared throughout this State and this country by all Americans. There were no artificial divisions, no partisanship, no regional or sectional interests. We were all in it together.

It is in that spirit of solidarity that I appear before this Joint Committee today. My comments on the Executive Budget will of course represent the interests of my city. But I would start by making one thing crystal clear…a strong, vibrant economy in New York City benefits all of our state. A city that is working and thriving will generate the revenue that is needed at all levels of government to provide the services that our citizens need and expect.

For 24 years in the Senate, and now through academic institutions that carry on this work, Senator Daniel P. Moynihan documented the facts that New York State pays the federal government billions of dollars more each year than we get back. In fact, New York City pays $8 billion more each year than we get back. This imbalance of payments exists for a number of reasons, but primarily it makes the case that what helps New York, helps the nation. That same rationale applies to the State. When New York City is working at full capacity, excess revenue is spun off to the State Treasury. Therefore, it is my contention that it not only warranted by the circumstances of September 11th, but it is also both good politics and good policy to assist New York City in getting back to a full economy as soon as possible.

Over the last few years our economy has been on the rise. State and local governments were flush with cash and in many cases these governments generated large surpluses and created stabilization or general reserve funds for a "rainy day". Government resisted tax increases and a robust economy spurred further development.

Tragically, the September 11th attacks on the World Trade Center delivered a crushing blow to our City, our State and our Nation. Thousands of lives were lost, workers were displaced and downtown Manhattan was transformed forever. As a result of this attack, we are presented with new fiscal challenges. I am confident that with the collective help of Albany, Washington and the people of New York, we will soon see the economy rebound and the fiscal health of the City and State restored. I look forward to forming a new partnership with each of you, and I promise to look beyond partisan differences. This is not the time to discuss political relationships and party politics, but a time to work together to provide the necessary resources to rebuild our City.

The City cannot embark on this road to recovery alone. The assistance and resources of the State and Federal Governments will be required. On September 11th, there was an attack on America. This evil act was not just an act against the City of New York, but had a profound impact on all Americans. It goes without saying, that rebuilding our great City, will be our way of carrying forward the American people's war against terrorism.

At the end of 2001, the City submitted its 1st Quarter financial plan modification which focused on ensuring that the City Fiscal year 2002 budget remained in balance after taking into account the significant costs and major economic changes brought on by the events of September 11th. This year's budget remains balanced, yet we are faced with out-year gaps of over $4 billion annually. The City has now turned its focus to our Fiscal Year 2003 budget which begins on July 1st.

Closing a gap of over $4 billion in 2003 requires that all sectors of City government do more with less. Specifically, I have asked City agencies to prepare and submit budget reduction proposals equal to 20% of their 2003 City funded budget. Similarly, I have asked the uniformed agencies and the Board of Education to submit budget reduction targets of 5% and 10% of their City funded 2003 budgets. In preparing our City's budget for the upcoming year I will examine all possible options, while prioritizing critical government functions.

Reductions in agency budgets alone, however, will not enable us to reach a balanced budget for 2003. In addition to 20% agency cuts, I have asked each agency to submit proposed reductions to their capital budgets of 25%. Reducing our capital budget and prioritizing projects will be one of the ways that I intend to reduce the growing debt burden facing the City. I also intend to propose legislation that will reduce that debt burden through proposals to modernize our capital budget financing.

In just over two weeks, I will present the City's preliminary Financial Plan for CFY2003 and the years to come. This plan will balance the City's budget in 2003 and address the impact of out-year gaps. Through agency reductions, capital reductions, the restructuring of City debt and other budget savings proposals we will preserve the fiscal health of our great City. At this time, we should not hinder the process of retaining and attracting business to the City of New York by raising taxes.

Economic Development/Infrastructure
In the aftermath of September 11th we must work together to revitalize Lower Manhattan and attract new businesses to the downtown area. I was very pleased that the Governor appointed John Whitehead as Chairman of the Lower Manhattan Redevelopment Corporation, and especially pleased that the Federal Government has begun to fulfill its pledge to rebuild New York by providing that agency with over $2 billion for recovery efforts.

The Governor's Executive Budget wisely creates new technology initiatives to create jobs and development in areas around the State of New York. His plan calls for a new Empire Opportunity Fund which will serve as a catalyst for economic development. This new fund will support major infrastructure projects that lead to the creation of new jobs, including high-tech and biotech research and development facilities, incubators, brownfield redevelopment, high tech communications, public water facilities, parks and recreational facilities and tourism destination. Even in these difficult times I am glad to see that the Governor has found room in his budget for new investments.

The Governor has also proposed additional spending for Centers for Excellence and the establishment of a Security through Advanced Research and Technology Program (START) a new program that will help colleges and universities secure Federal and other research funding.

However, the Governor's plan does not direct any of these funds to redevelopment in New York City. The needs of Lower Manhattan are expected to be taken from Federal dollars; however the needs of the rest of the City must be met as well. I would urge you to expand these proposals to include the Bronx, Brooklyn, Queens, Staten Island and Upper Manhattan.

I would also like to express my support of the Governor's proposal to avoid fare increases and cuts in services provided by the MTA. This year, especially when transit riders have faced so many difficulties due to the destruction of so much of our transit infrastructure, is not the time to impose a fare increase or drastically cut back service.


Education
Reform of our education system continues to be one of the City's most critical issues and creating a system of accountability is vital to meeting the high academic standards we set for our children. I was especially pleased to hear that the Governor reaffirmed his commitment to advancing legislation that places the control of the City's school system in the hands of the public, through the Mayor. We need a school system that serves all communities and all the people of the City. Fundamental reform of our school system is essential if we are serious about educating all of our children. Mayoral control of the City schools will provide a system of accountability and control. This proposal is long overdue in the City of New York.

I urge Speaker Silver, Majority Leader Bruno, all members of the Legislature, the teachers, the business community and parents to work with me to transform our educational system into a high quality school system we can all be proud of.

In times of fiscal instability and enormous budget gaps, I was pleased to hear that the Governor had attempted to preserve education spending in the State of New York without major spending cuts. His plan is a great start to the upcoming budget negotiations and I call upon the Legislature to ensure that the City receives its fair share of education funding.

The City educates approximately 38% of all students in the State and has historically received only 36% of the aid. Just last year, a Supreme Court Judge ruled in the Campaign for Fiscal Equity v. the State of New York that the State has shortchanged the City in education aid for years and required the State to address this issue immediately.

In the Governor's Executive budget, formula aid increased statewide by $80 million, with approximately $35 million to New York City Schools. This formula aid increase for the City, 44% of the total add, represents a good start to achieving education equity. However, we must look at the entire picture. Total education aid, including categorical funds, increased statewide by only $6 million, a relatively flat amount. But the total education aid to the City of New York decreased by $15 million. Although the City receives 44% of the total increase in operating aid in the Governor's plan, the City's categorical funding decreases by $50 million over last year. By all accounts the City's fair share of education aid is dropping under this proposal. Categorical cuts to teacher support aid and teacher centers should be restored and the City should receive an equitable share of any increase to education aid.

Although State funding fails to incorporate any additional education aid, the Governor makes several proposals that advance the goal of accountability. First, the Governor's budget sets aside $7.5 million for school wide performance incentives, of which approximately $7 million is dedicated to New York City schools. This program is especially important and creates an incentive for effective teaching. This new pilot program is designed to reward teachers that show the most improvement in meeting the State's high learning standards. Second, the Governor continues to advocate for his flex-aid formula which collapses 13 state grants into one formula aid, thereby simplifying the complicated state aid formulas for education.

In addition, the Governor's new initiative to provide prior-year education aid appears to be a creative way to reduce the risk of write-offs of over $200 million of prior year aid on the City's books. This new proposal will finally provide the City with cash that has been owed for almost 10 years. However, this initial bond issuance will not result in a net increase in City revenue, since this money has already been spent, specifically in 1993, 1994 and 1995. Receiving prior year aid has been a perennial and important issue for the City of New York and this proposal addresses this problem. After further evaluation and possible modifications, this plan could benefit the City of New York if all prior year claims are approved by the State Education Department and bonds are issued by the Municipal Bond Bank. I look forward to working with the Legislature in exploring this new financing mechanism.

Health
I applaud the Governor and Legislature on a successful non-partisan partnership in passing the health care worker training and retention bill. As a result of this legislation, health care workers throughout the state will receive much-deserved salary increases over the next three years. Our workers are an integral part of this state's exceptional health care system, and this budget recognizes their important contribution and continues to support high quality care. As you know, our hospitals are in a financial vise as they work to provide the most advanced medical care to some of the most indigent populations while at the same time attempting to control escalating costs. I am pleased that the Governor and the legislature have raised the issue of the gross inequity in Federal Medicaid funding. As you all know, the 50% share that the Federal Government pays to New York is the lowest share in the nation and it is time for the Federal Government to treat New York more equitably. The City will join in your effort to lobby in Washington for equity in Federal Medicaid funding. An increased Federal Medicaid match to 53 percent, as proposed, would provide the State and localities much needed fiscal relief this year. New York City would save approximately $200 million annually if the Federal government agrees to this proposal.

I think it is important to note that the Federal Government has the resources to provide this equity. Reallocated State Child Health Insurance Program (SCHIP) funds could be used to provide the first year increase in the Federal Medicaid Assistance Percentage. New York State is one of a few states which used its entire allotment of federal SCHIP funds for health insurance and is scheduled to receive a reallocation of unused funds from other states. This would allow the Federal government to provide fiscal relief without any additional cost.

Criminal Justice
Together the City and State have made a great deal of progress in reducing crime. Over the last decade, the City has achieved record drops in violent crime. However, we must continue to reduce crime and address the recent increase in "quality of life" offenses. That is why I have worked with Police Commissioner Ray Kelly to create a new "Quality of Life" initiative known as Operation Clean Sweep. This plan includes targeting quality of life violations, aggressive policing of low-level offenders and creating a crime-tracking system for the City's homeless shelters.

In addition, we must continue to work to protect our City and its resources through counterterrorism training and new security enhancements. The Governor's commitment to increasing security by providing an additional $200 million is a necessity. Providing new safety equipment for first responders, personnel service and overtime costs for additional security details and communications and data systems enhancement will help the State and localities bolster anti-terrorism efforts throughout the entire State.

However, we must expand this vision of public security to include and protect our public health. The lessons of the September 11th attack demonstrate that our hospitals are the first line of defense. When the tragedy occurred, when anthrax was discovered in the City, and even when the West-Nile virus turned up in our City, our hospitals were there to react. They reacted immediately to this crises. What better way to prepare for counterterrorism, biological threats or other public health crises then to support our hospitals and our health systems. I look forward to working with the Governor and Legislature in securing additional aid from State and Federal resources for our public and private hospitals to enhance their abilities to respond to emergencies. Let's make an investment in defense and security and provide the necessary resources to defend against threats to our public health.

While the Governor has indicated his support for local security, we must work together on all aspects of the criminal justice system including correctional services. I commend the State's commitment to accelerate acceptance of state-ready inmates. However, for the last 15 years the state has only reimbursed the City of New York and all localities $34 per day for housing state-ready inmates and parole violators, even though the costs for detaining these inmates far exceed that amount and actually cost $252 per day. The City has certainly not received its fair share for detaining these state prisoners. The State should provide equitable reimbursement to cover the actual cost.

In addition, the Governor outlines a proposal allowing counties to increase the existing wireless phone surcharge from seventy cents to one dollar. This new surcharge would be in addition to the seventy cents that is already collected and deposited to support the State Police and E-911 services throughout the State of New York. Before we consider this proposal, I would like to take note that the current surcharge of seventy cents does not support services in the City of New York. This surcharge, which is paid by all wireless users is used to support the E-911 service in every county and locality except in the City of New York. Approximately 50% of all cell phones are registered in New York City, and it is likely that even more are being used in New York City everyday. The City and State should work together to insure that any surcharge being paid by City residents to support a 911 system or to support domestic security, as the Governor has proposed, benefits the people of the City of New York. It is within that context, that I will consider the Governor's proposal.

New York's Children's and Families
The Governor's budget demonstrates his commitment to New York's children and families by providing open-ended financing for children's preventive services. Providing open-ended funding will ensure that the State will provide enough resources to child welfare. This should be the first step in reforming New York's outdated Child Welfare Block Grant. The State should provide open-ended funding for all areas of child welfare, including open-ended Foster Care. This is especially important given the State's recent increase in the PINS (Persons in Need of Supervision) maximum age, which is expected to burden the foster care program in New York City.

I would like to raise one issue at this point. As the Governor and his aids have expressed, New York did not just get hit with a "rainy day", it got hit with a "monsoon". I think it is perfectly appropriate to tap into reserves as the Governor has done in order to deal with a portion of the burden of the new economic conditions. One of these reserves, of course, was the TANF reserve. As you are aware, that reserve would not be there if it wasn't for the dramatic success that localities, especially the City of New York, had in reducing public welfare caseloads. Localities have substantial needs for that reserve as well, and although the Governor uses the entire TANF Reserve fund to supplant State funding, there are no shared savings with localities. However, his plan to maximize Federal dollars through a waiver of the local spending requirement is a more equitable proposal. Obtaining a temporary waiver from the TANF Maintenance of Effort for this fiscal year will also produce budget savings for the City of New York and all other localities.

I also want to note that the Governor restored last year's cut of $10 million to fund adult shelters in the City of New York. Together we will continue to provide clean and safe homeless shelters for the people of New York City.

Environment
Last year New York City was able to close the Fresh Kills Landfill before the statutory deadline of December 31, 2001. I want to thank the Governor and Legislature for their commitment of $75 million from the 1996 Clean Water/Clean Air Bond Act to assist New York City with closure costs. New York City received approximately $40 million in funds last year and is expecting the balance of payment this year.

In addition, the Governor's budget includes a $14.5 million appropriation for Municipal Recycling under the same bond act. When these funds are appropriated, the original $50 million authorization for Municipal Recycling will be fulfilled. At the inception of the 1996 Bond Act, New York City was promised half of this $50 million authorization. This final appropriation of $14.5 will assure that the City receives its full $25 million.

I would also like to commend the Governor for proposing to refinance the State Superfund program. Funds from this program can be used to for remediation at landfills in New York City that have been closed. New York City supports the continued reauthorization of this program.

New York City also supports the inclusion of Environmental Protection Fund (EPF) money and the new and redirected 1965 Pure Waters Bond Act and 1972 Environmental Quality Bond Act (EQBA) funds. These funds can be used by New York City for recycling projects, the Long Island Sound Comprehensive Conservation Management Plan and upstate community wastewater treatment projects, among other projects.

Equity
Over the last few years, while both the State and City have achieved budget surpluses, and the City has sent billions of dollars of revenue to the State coffers, the State has continued to reduce general government state aid and eliminate programs financially beneficial to the City of New York. In just a few years, state actions added over $1 billion in financial burdens to the City of New York. As recently as last year, State actions cost the city almost $300 million. The State completely eliminated the Stock Transfer Incentive Fund Payment which cost the City $114 million annually. Due to this action, the City's share of Local Government Assistance decreased from 47% of the total local government assistance to 38.9%.

In addition, last year the State completely eliminated Consolidated Highway Improvement Program (CHIPs) Operating and Maintenance Funding, which cost the City $13 million and eliminated the Aid to Local Law Enforcement Grant, which provided $5 million to the City. This CHIPs money was vital to the City of New York and was used for engineering and arterial maintenance. The Aid to Law Enforcement funding was used to fund approximately 70 detectives in the Fugitive Enforcement division.

Additional recent cost shifts from the State to the City include approximately $20 million for PIT Administration and almost $23 million for Administration of the Rent Regulation program. Additional increases, totaling $3 million were proposed in these two categories in this Executive Budget. The increase in the PIT administration cost is especially difficult to understand given that with the elimination of the commuter tax, the number of New York City filers is lower than ever.

These recent state actions have contributed in part to the City's budget gaps we face today.

In general, I must note that at a time when the State is facing budget gaps of over $6.8 billion, the Governor has not attempted to shift the deficit to localities. Through strategic uses of Federal funds and "rainy day " reserves, the Executive Budget makes the necessary reductions in order to achieve a balanced budget in SFY2003. With this reality in mind, the City requests that the Legislature review a number of "no-cost proposals" that would significantly benefit the City of New York.

First, it is important that the Governor and the Legislature work to enact an early retirement incentive as quickly as possible. Both the Governor and I have expressed a strong interest in balancing this year's budget without layoffs. A carefully crafted early retirement incentive plan will prompt enough retirements to achieve the necessary workforce reductions. Providing the City with the ability to offer early retirement is a no-cost proposal to the State of New York. Over the last few years, the Legislature has generously increased pension benefits to retirees at the City's expense. It is now time to enact pension legislation that will actually provide budget savings.

Second, the City is currently preparing a new Debt Finance Reform proposal for the Legislature's review in the upcoming session. As mentioned before, the city's debt service in the upcoming year will exceed $3 billion and the City has been working to prioritize capital projects and find new ways to refinance debt. This new proposal will take advantage of current market rates and allow for greater flexibility in the repayment and use of City debt. As I continue to prepare the City's financial plan, we will certainly be looking to reduce our debt service, and I look forward to sharing this new proposal with you in the coming weeks. I ask that the Legislature carefully review this proposal and note that the city will be able to achieve significant savings, with no cost to the State.

It is time for far-reaching tort reform in New York. The civil justice system in New York State provides larger awards and more money for lawyers than almost every other state in the nation. New York City pays out almost half a billion dollars every year in tort claims. A decade ago this amount was $150 million, which today does not even account for the tort liability of the Health and Hospitals Corporation. The amount New York City will pay out in 2002 is more than most other large cities will pay out in a decade.

The City's omnibus tort reform proposal includes several initiatives that will produce savings for both the City and the State. Setting a reasonable cap on pain and suffering awards will enable the City to compensate truly injured parties and their attorneys fairly. Additionally, establishing a medical expense threshold would prevent the City from paying substantial damage awards to claimants with only minor injuries. At a minimum, jurisdiction should be extended to the Court of Claims to include any actions brought against a local government or quasi-government entity. Currently the Court of Claims has exclusive jurisdiction over the claims brought against the State. The transfer of all tort claims against local governments or governmental entities would continue to protect the rights of individuals, while relieving municipalities of open-ended financial exposure, at no cost to the State.

Just as the Governor has used available reserves and surpluses, we can work together to maximize available resources. The State currently allocates over $1 billion of Federal TANF surplus funds in any given year. The City is currently reviewing proposals which will allow the City to share in proposed budget savings, with no cost the State.

In addition, the City proposes to eliminate the Wicks Law. This law requires that municipalities hire four separate contractors for many public construction projects when only one is needed. This is an antiquated and needless law. The Governor's proposal to provide school districts with an exemption from Wicks Law requirements is just the first step in eliminating this law completely. We estimate the savings of such a repeal would be approximately $2.9 billion over the ten years of our capital plan.

Finally, the City is currently reviewing the financing of the City's actuarially funded pension system. Over the last few years, the State has provided generous pension benefits including an automatic cost of living adjustment for retirees. Providing these benefits at a time when the funds were achieving significant gains, softened the blow to the City's contribution. However, these benefits cost the City hundreds of millions of dollars and with the sudden downward turn in the market we must carefully review these plans to determine if we can finance them in the same manner. Any change in the financing of the system will have no cost to the State and absolutely no impact on actual pension benefits.

Conclusion
In general, I must note that at a time when the State is facing budget gaps of over $6.8 billion, the Governor has not attempted to shift the deficit to localities. Through strategic uses of federal funds and "rainy day " reserves, the Executive Budget makes the necessary reductions in order to achieve a balanced budget in State Fiscal Year 2003. With this reality in mind, I look forward to working with the Legislature on a number of "no-cost proposals" that would significantly benefit the City of New York. In just a few weeks I will present my Preliminary Financial Plan, which will include a more detailed State and Federal Legislative Agenda. I urge you to carefully review these proposals, and with your assistance we can rebuild the City of New York.

I know first hand how hard it is to close large budget gaps in such a short period of time, and I look forward to working with each one of you in helping me achieve that goal. I will return to Albany, as many times as it takes, in order to achieve this new partnership.