We have in this City a financial problem for the next few years, and I am going to show you how we got into this situation, and a solution to work our way out of this situation. It is by no means the only solution to our problem; the budget process starts with the Mayor making a proposal it winds up with the City Council approving a budget. This is called the preliminary budget, that's called the executive budget there are months between and (we) are going to have lots of discussion, and there may well be better ideas that we have come up with.
But what we are proposing is a broad outline and a solution to the fact that today our revenues do not meet our expenses. We have to solve this problem while at the same time reassuring that their future is best being in New York. We want people to stay here; we want people to come here. And while there will be some pain in getting through this problem, unless we are successful in convincing people that the streets will remain safe, that the streets will stay clean, that the public health is being improved all the time, that the education system is being fixed, that the City is not living beyond its means, and in fact is not going to be raising their taxes, and it's not going to be more difficult doing business here. Unless we can convince people of that, we will never work ourselves out of this problem.
So on one hand I want to paint to you a realistic picture of how severe our financial problems are. And I don't want to paint the picture that there is no hope.
In fact what has happened to us is something that we should have been predicting for a long time. The public constantly wants more services, and as the as the economy has been growing the government has been able to provide those. But the economy is a cyclical thing, and eventually what happened was the economy slowed down, exacerbated by 9/11. Expenses, which are less controllable, continued on up and we went from a world where we were generating a budget surplus every year, to a world where the tax revenues at least for the next few years do not come close to paying for the services that the public wants and deserves to have.
So let's start taking you through some of that and show you first why we're in the situation we are (in), and then how we get ourselves through the situation, by compromising and sharing and not damaging the fundamental reasons why people want to come and live here.
And let me say, if you read some of the press what people are speculating, you don't get a realistic picture. We're not cutting the size of the police department, we're not cutting the size of the fire department, in fact they'll be more police in the street than there are today, there will be more firefighters on the rolls than there are today.
We are not walking away from the future of this city; we are going to continue to build the infrastructure that we and our children and our grandchildren need.
This is from our PR department I suppose but I probably did say that, and I think that it is a summary of what I just said. But if you think about it, those other parts of the world and parts of the country that some people say, "oh that looks more attractive, I'm moving there," that's not being realistic. Those cities that try to hire away our staff at much higher salaries are themselves in such trouble they will probably have to lay off the very people that they stole from us. Those cities that have lured some of our businesses away by promising no taxes are finding themselves in such severe financial difficulty they are going to have to pay for the services that their public survives and people that moved are going to have to pay the freight, there is no free lunch, and on balance I would rather live in New York City than any place else even with our financial problems.
What we are going to show you is how we're going to have this next year, fiscal 2003, which starts July 1, fiscal 2003 we are going to have a deficit of approximately 4.8 billion dollars now whether its 4.7 or 4.9, 4.6 or 5.0, is immaterial, there's no way you can tell exactly. It is very hard to predict the future. And when you talk about what kind of gaps we are going to see in 2004 and 2005, you get less and less confidence in the numbers. The economy may get better, the economy may get worse. We may have one time terrible events like 9/11, we may have nothing but good times, you can't predict. We are trying to make realistic assessments of the revenues that are going to come into the City, and of the expenses. And if it turns out that our revenues are greater than we forecasted nobody is happier than we will be. But prudence says that you have to take realistic assumptions and then have a plan based on that. Not on the worst-case scenario, not on the best-case scenario.
We will react even after we adopt a budget to changing times, but what we can't do is deliberately go into a period planning to spend more than we have any realistic expectation of getting, we can't depend on a "hail Mary" pass. Whether it's an enormous upturn in the economy or monies from Washington or Albany that we are unlikely to get. Doesn't mean that we wouldn't like to get them, doesn't mean we wouldn't like the economy turn in to a big boom, but we are here to be prudent and find grounds that we can justify or assumptions on what the professionals expect.
So we are going to show you how to balance $4.8 billion dollars deficit with no new taxes. If we raise taxes in the city you are going to drive people out. There is one exception to that, and we are going to ask for a dramatic rise in the cigarette tax. Cigarettes are killing our children and all the studies show that the only real effective way to stop consumption of cigarettes is to tax the heck out of them. And I will work as hard as I can to get that piece of legislation passed. Everyday you walk down the street and you see a child (with a cigarette) in his or her mouth that child is doing something that is damaging their health and we cannot as human beings walk by and not try to do something about it.
We are going to have reductions and efficiencies. We are not going to rely on one-time things, we can't rely on one time shots. We don't have a budget deficit for just 2003. The budget deficit that we think we're going to have in 2003 is about $4.8 billion. 2004 has a bigger one, and 2005 is an even bigger one than that. If you try to balance your budget by one-time shots and postponing your expenses, it is just going to make the next year worse. So we have to face reality, this is fundamentally a different process in balancing a budget, than what we've seen in modern times.
Recently whenever there was a problem you could grow your way out of it the next year and you could pray a little bit and the prayers were answered. This time the prayers are not going to be there, and in past times games were played. People presented numbers trying to achieve a desired output rather than reflect reality. The games that were played was I'll cut here knowing that a legislative body, whether it is at the city, state, or federal level will come back and fill in over there.
Mayors have had their projects, they're trying to move monies to, and then the legislatures are trying to move some money back. That's not what's happening here. There are no new projects. We're trying to balance a budget. And, I don't have all the good ideas; I am happy to have suggestions from the City council, from the public, from the press, from the Borough Presidents, and the Comptroller, and the Public Advocate, from legislative bodies and every place. The only thing I ask, if you come up with a cut that you don't like, just tell me where else you're willing to have us cut to satisfy your needs, and explain to me why the person whose ax is getting gored is going to be willing to put up with that.
The budget that we're going to show you hurts everybody, we don't think it hurts anybody fatally, but it's a spread your pain, no "sacred cow" kind of a solution to our problem. We do need some help from our state and federal government. I'm going to describe that to you. We are not going to them and asking for monies that we are unlikely to get. It would be great if the federal government said, "Let's be nice guys and send New York, in addition to the 20 plus billion dollars that the President has talked about, and promised us, and that we will get to rebuild, let's send them the 15 to 20 billion dollars to help them balance the budget." That'd be great. But I think realistically that is unlikely.
The same thing from the State, the State has its own budgetary problems. I think the Governor said they have a 6 or 7 billion dollar deficit and who knows down the road, they are very reliant on sales taxes and personal income tax; two taxes that are very volatile, move very closely with the economy. And predicting the future of the economy is not a science, it's an art at best. So we're not going to sit here and say, "Let's count on monies that we're unlikely to get. What we've done is we have come up with a bunch of revenue enhancing and expense reductions that we would institute if it were up to ourselves, but in fact, we need approval in Albany or in Washington to do it.
We've come up with a list of $2.1 billion worth of items, of which $1.3 billion would not cost the state or federal government one penny. We're going to ask them to give us some relief, authority to do things, whatever. And hopefully we will get $800 million of the $2.1 billion that we've identified or out of the $1.3 billion that wouldn't cost them anything, but I think it is realistic to expect a combination of relief in small packages that would add up to the amount that we have in the budget.
We are asking for the municipal labor force to help. I said when I was campaigning that I believe that the 250,000, and you'll see that it's really over 300,000 people that work for the City, are the solution to our problems down the road. If they can find ways to do things more efficiently then we will work our way out of the problem. If they work hard and cooperate and think about how the needs of this City change and adapt with it, we will all be great beneficiaries.
And so the way you're going to keep them working hard is to protect them. We will not have any layoffs in the fiscal year 2003. Unless something were to happen that we don't know about now. And 2004, 2005, it's so far down the road, I don't know. If we do a great job in 2003 we'll be able to do the same things in the out years. We will try to shrink the size of the municipal workforce by five or six thousand people through attrition and through an early buy-out plan. But we are going to ask the labor unions to help us to make changes in pensions and fringe benefits to the tune of $500 million, which will solve our budgetary problems now. Half of that is something that we do require state approval for it is finding a COLA over ten years rather than 5 which would not affect the monies that anybody works for the City or is retired is taking home, it just gives us some relief in timing, some of the other things are more direct.
And then we are going to have to balance the budget with the cuts that I talked about, most of which are not one-time shots there's $1.3 billion that's reoccurring.
Now we are also going to have to borrow some money. The State Legislator authorized after 9/11 a temporary financing authority line of credit if you will, the ability for the city to go and borrow 1 and a half billion dollars. We could pay that back under the law over the 30 years, we will promise to pay that back over 20 years, and faster if we can.
The rating agencies do not like to borrowing to pay for ongoing expenses, neither should we. On the other hand this is clearly a unique situation; 9/11 is not the sort of thing that you can normally be planning for. When something like that happens, it's an extraordinary event, and you have to take extraordinary measures; and so we are proposing one time, to borrow one and a half billion dollars. We already have the authority to do so from the State Legislature. It was designed to help us in this particular situation and we're going to avail ourselves of that. But we will not be borrowing to balance the out year budgets in '04 '05 and so forth.
We are also going to try to give the public more information. There are things which I think aren't as clear as they could be in terms of showing the public what we owe, showing the public what programs do what, showing the public who works for the City and how much they get paid. There are issues of Per Diem, versus Per Annum, versus temporary, and you will see the end of the presentation I will show you why 300,000 people for the city is a more realistic number than 250,000 and in fact that probably isn't everybody. And when you say, "How many people work for the City?" It is not something that is easy answer- it is that kind of question that we are working towards being able to answer in the future much more clearly much more quickly and let you see what's really happening to the government that you have elected and are paying for.
We will commit to keep the City, as I said before, while we're doing the budget cuts, while we are balancing the budget; really keep the city the greatest city in the world. That does require safe streets, that does require clean streets, that does require a good educational system and all of those things. And we think that the budget cuts that we're proposing continue to do that. Does it do everything we would like to do? No. Does it do everything we've been doing? No. But, I do think that it is the appropriate balance between getting us back to live within our means, and providing the services that the public expects.
Let's show you why we are in the current situation. The green lines are tax revenues of the city in the yellow bars are the expenses and if you notice all through these years of green lines are greater than the yellow lines. What the government did was kept providing more services, and it was able to do that because the tax revenues kept growing. And in fact that is what government is there for; to provide services to the public. And you can certainly argue that they kept increasing services and they did it prudently because every year tax revenues exceeded the amounts that they spent. Now, you have got to understand that through the looking glass world of government accounting, sometimes things are presented in ways that may be more realistic for one purpose but are less realistic for another.
What the City did every year, and will still do in the future, if we ever get a surplus again, is we take the surplus and we roll it into the next year. And the way that is done is you prepay interest on the City debt, because there is a law that says you can't have a rainy day fund. That law comes out of the 1970s and it says basically you must spend money in the year your bring it in. But when you have a surplus you want to save it for a rainy day. And so quite legally you prepay an expense that you know you're going to have next year, or the most predictable large expense you know we're going to have is interest costs.
So on December 31st you pay the interest bill that would be due on January 1. And what that meant was that in year 2001, where you see the yellow line is slightly greater than the green line, in other words expenses were slightly greater than revenue because we had all of these surpluses here, here, here, and here being rolled forward, it would appear if you look at books kept on that basis, which is an appropriate basis, it's just a different basis, it would look like this line is much less, and it would look like your expenses were less than your revenues.
But the fact of the matter, you can make the argument that the music stopped in the fiscal year '01, that was the first year on a stand-alone basis that our expenses were greater than our revenues. Now we had prudently saved all this money so we were able to cover it and in fact had some built in to be rolled into 2002. But 2002, because of the national economy, now remember this was forecast was nine months ago, long before 9/11; this was June of last year. The administration then was forecasting an actual increase in expenses exceeding revenues by this amount. But they had had this money to roll in and there was only a small deficit that they thought they had to plug and that was beginning of the Peg Program.
Remember they did forecast larger gaps in the out years, there are the three out years, but remember they also said back here that they would be out year gaps, and every year we never got the point where the out year gaps arrived. Why, because we had this growth in revenue. The economy was booming; it kept going. So the government did exactly what the public wanted, it kept providing services and it said "well someday things will slowdown, and then we'll face the music then." and that's appropriate; and that's what we're doing here, we're here to face music. That does not mean that they shouldn't have done what was back here, the federal economy, which is what you see here, those gaps, that's the federal economy slowing down and its effect on New York City.
This was back nine months ago, now what happened in the year, the fiscal year, 2001 that was totally unperceived; 9/11. And what is the effect of 9/11? Here is the effect of 9/11, is let me go back and forth between the two so you can see, here is before 9/11's forecast here's after 9/11's forecast. Before, and after. You'll see some of the expenses continue to go up but look what happened to the forecast. In fact this is not even a forecast; it's the actual in revenue; all of a sudden instead of these gaps of this order of magnitude, we have these gaps of much bigger orders of magnitude.
That's why we are standing here today talking about how to close big budget gaps. There was the federal economy slowing down, there was the effect of 9/11 which increased expenses and also decreased revenue, and there was the natural growth. Expenses continued to go up, and we'll show you what those expenses increases are, but there are just some built-in things that if you run an organization, you're expenses are going to you to go up if you don't do anything else.
Here are the numbers behind that chart so you get a feel of the size of the order of magnitude. Back in June there was a forecast for $345 million surplus, but the out years had 3, 2.6, and 2.2 billion dollar gap. Now, what's happened since then after June 1, expenses going up, I'm going to show you what those are, state and federal didn't come through with the monies that we need, mostly the state. Some things that we thought we were going to do, like sell Off Track Betting just did not happen, and so based on 9/11, the gaps grew from a surplus of $345 million to a deficit of $660 million, a deficit of 3.1 billion to 3.8 billion.
But something also happened because 9/11, remember we said the revenues went down, and that's what you see here. That is the effect of 9/11 on the tax revenues to the City. You combine all of that, then there is his personal income tax cut which is actually was not enacted, that actually helps the city by bringing more money than then had anticipated back in last June, this is where you wind up with these current gaps.
$1.3 billion for 2002, that's been closed, remember that we have to balance the budget. $4.8 billion, which is what we're going to talk about mostly today. And then $5 or $5.3 billion for these those two-out years in 2006 doesn't get much better. Now how accurate are these numbers? Not very- that's the order of magnitude so there's 4.7 or 5.3 billion, it's going to be something like that. But the point is that you can't solve your problem by rolling your expenses into the next year; you can't solve your problem by taking a one-time solution because you've got these other years which are staring you in the face 12 months later and we've got do something about that.
Let's go take a look at the individual things for example, why are these expenses continuing to go up? OK here, you see pension fringe benefit costs continue to go up, now we're going to try to suggest ways to mitigate some of these things but this is just what's happening. Collective bargaining settlements that we've already made, tort reform would help us here, we'll talk about that but you're going to have judges and claims against us that are some other things like debt service which we are just mandated to do. So if we did nothing our expenses would be going up here more than what we predicted.
Why is all of this happening? We said- expenses up, we just talked about that, revenues down. Why are the revenues down? Well here's one answer: 94,000 jobs disappeared since 9/11. And some of these jobs were high-paying jobs like these - generated a lot of tax revenue to the City.
We still have 3.2 million people working in this City and we've got to make sure they have great jobs and they can get to work safely and quickly and that sort of thing but, there's 94,000 people less working and here is a graphic representation with our guess of our how we're going to get back- but take a look here- this is where 9/11 was - we're about here, we would have been about there. That gap, that difference in the number of people working in the City is what would have generated a lot of that revenue that all of a sudden we're not going to get.
Will we grow out of this based on, by the third quarter of 06'? Well it's a reasonable expectation based on forecasts that we can buy from professionals, but nobody knows whether it will be faster or slower. What is clear is, it isn't going to happen right away, we're not going to go straight back that way, so this part of the deficit is for sure going to be with us. And whether it is out here, if people want to give you estimates of higher revenues down the road, I hope they're right. But it may very well the Arthur Anderson accounting as well, nobody really can predict whether this is going to grow at this rate, or faster or slower rate, but that is the rate we have gotten from outside professionals whose job it is to predict the future, and there's a rational basis on which we should be making our projections.
Here you can see what's happened to hotel occupancy down but look what happened to room rates, taxes lower that's the way this translates; bigger deficits. Now there are some very good things that happened in January- hotel occupancy in New York City was much better- it was 63 percent compared only 67 percent in January year ago. But will it continue? Nobody knows, and all parts of the economy don't recover together.
Here's Wall Street, I talked about Wall Street losing 25,000 jobs, Wall Street also made awful lot less money. The effect of Wall Street streets profits going from 21 billion to 8.5 billion means that the revenues in this City in taxes goes from 2.6 to 1.8. That's $800 million in less revenue. You're budget deficit instead of being 4.8 billion would be 4 billion if Wall Street hadn't had a slowdown. Will Wall Street comeback, yes. When? Nobody knows. It's a cyclical business, its profitable business for New York City because its profitable business for New York for people that own shares in those companies or work in those companies, but it goes up and down the with things beyond the City's control.
The value of real estate, down. The results are lower property taxes property taxes aren't as volatile as personal income tax or sales tax because it takes a long time to get reflected in the tax rolls the change in the valuation of a property. Nevertheless it is not going in the direction we need. And here you see very graphically what has happened to the revenue side, those lines that I showed you before and what even the forecast, a rational forecast is. Basically the tax revenues kept going up and when we had a problem here, here, here, they're sort of onetime and you can grow your way out of them.
This is where we are, and even this kind of our rate is a pretty aggressive rate bringing you back. So you can see that were not likely to get back to this for awful long time was going to have to learn how to make due with less. Now when I say make due, one of the things that you should understand is these are incremental make dues. We are still growing, the budget for the city of New York for fiscal year 2003 will be, with all the cuts greater than the budget for 2002; it's just not as great as it would've been. The total amount of services we provide go down slightly, but because debt service and pension costs grow, we're going to actually spend more money after all these cuts in fiscal 2003, then we did in fiscal 2002.
Now you say, "OK we gotta cut $4.8 billion, let's cut it out of the City budget, the City budget is $42 billion." Well it is and it isn't. It is true that $42 billion come through the City's books and records every year. But 27.2% of it is fundamentally monies from the State and the City that we have no control over. They are to provide a service to the public and if the monies aren't there we don't provide the service, if we don't provide the service and the monies aren't there. There's nothing we can do. You can't divert those monies to anything else- that's what it's there for. And it is not the monies that we can cut $4.8 billion out of.
What we have that's discretionary and controllable is really 14.9 billion and you can see how that's split up. The Board of Education gets 4.6, actually the Board of Ed is also gets 6.7%up here. But police does not have money up here, they are fully funded by our tax base down here, as is fire. And when you say "well don't touch fire, police, and the Board of Education," take a look at how much of the money it is of the amount of money, and I'll show you when we look at the labor, you cannot go and manage the budget without having everybody move up in the good times and share the pain in the down times.
What we've got to do is we've got to figure out a way of balancing the City budget where only $14.9 billion is controllable. And I will show you in the budget, we are recommending $1.8 billion in cuts of which $1.3 billion is recurring. There is $500 million of fundamentally what you could argue are one-time shots, but $1.3 billion We will save in 03' and the same cuts will work in 04' and 05, and that's important because we can't walk away from our responsibility to worry about 04' 05' and 06'. And that's probably a pretty high percentage of anybody that's ever cut really recurring. The recurring ones are the ones that really cut services.
So if you want to think about it we're cutting 1.3 billion out of 4.9 billion. That's probably a more realistic way, or roughly 8 percent of the monies that we can control that we spend for services for the public. That's what we've got to do. Now the $1.3 billion is awful lot less than the 4.8 billion that we really have to save and I'll show you how we go and do that, but if you want to sort of look at what the effect is on the services we're providing that is probably a reasonably fair comparison. The 27.2 million stuff isn't going to get changed, and this 14.9 is what - we're going to have do more with less and in some cases where that's not possible, we have to do less.
How do we close it? Here's the deficit we talked about, this is history, this is what we're talking about, finding a way, $4.8 billion we talked about, the out years. Here's the $1.8 billion of which you'll notice $1.3 billion is in the out years and that would continue on- I'm going to show you the detail on that. This is the last administration's Peg Program, we are trying to get the state and federal government, not to give us lots of monies, but as I said before, give us control of our own destiny, we've identified $2.1 billion of things that we think we could cut if they would let us do it, or enhance revenues. $1.3 billion I told you, doesn't cost them anything, what we're trying to do is get $800 million of which $500 million would be recurring.
This where I talked about the pension funds stretch-out fringe benefit program with the unions - we're going to need cooperation, that is recurring. An early retirement program puts $100 million back in, and this is the one-time deficit financing that I described before, and I'll comeback to each of these and we can talk about them.
But you'll notice that we are talking about deficit financing only in this year and the reason the argument for this year as opposed to the others, deficit financing to pay current expenses is a terrible idea, that's how you get into trouble. But two things are true: one, 9/11 was just five or six months ago, and second we've just started the process the new administration of trying to find ways to do things more with less. So we don't need this- we'll find other ways down the road but this $1.5 billion deficit financing we will take advantage of, and in all fairness the State Legislature voted that after 9/11, for exactly this reason they expected us to do so, and I hope that the rating agencies understand and people who are worried about our future; we're not trying to mortgage our future.
But we are going to close a budget deficit with four different actions. One is to reduce expenses, one is to raise revenues where possible, one is to defer to the future things we'd like to do now, and the fourth one is to spend some of the monies we're going to get later today.
Let's talk about this one line of where these cuts come, because that is what is going to be really contentious and a day-in and day-out basis over the next few months as we look for whatever the best ideas people have, but using this as a baseline. And we're going to see where these $1.8 billion cuts are, and the recurring parts of it. And here are, and you'll get this in charts, percentages of each department, some cases they can cut expenses and they can increase revenues which helps save money so in the case of police they can get some more fines, but they're going to spend less, you add those two numbers together and its $212 million out of this budget, or this is after it's out of this budget and it's 7 percent. Let me just give you an overview of -and here you can see the next and you can look at these numbers later- and we'll go over some of the detail and answer some of the questions.
But you can see the effect on each department and you can question, you can call the commissioners and you can talk to them. Is everybody happy about it? No. But they took the jobs knowing that we were going to have a problem and I selected them because I thought they were the best managers we could possibly find, and I think they will find ways to do more with less. Will we do more than what we are talking about here? I hope we can do a lot better, but if it comes down to it, these are the cuts we're going to need if our tax revenues aren't higher than we predicted or other events take away deferred monies, or if we can't get monies that we're owed, than we're gonna have to adjust.
Budgets are just that, you've got to remember, not only is there a big difference between the preliminary budget and the executive budget, which is the democratic process, that ends in a practical sense or in a finite sense with the City Council approving the City budget, but after that, it's just a budget. You're always changing things. Things don't always, in fact never play out exactly, the way thought. There may be some pleasant surprises; there may be some very disappointing surprises.
I did include here just so you can see, because one or two of you were nice enough to write about it, and I really appreciate it. I did say the Office of the Mayor would lead the way with some cuts, and I will show you we have in fact cut 20% of the people and 20% of our budget, the other elected officials have not done it but I've asked for these cuts from them. District Attorneys I put at 7% because they are part of the law-enforcement process, and that was the amount that we asked the police department to cut. The others, 20 %, because that's what I did, and I see no reason why everyone can't do that. This is just me as a parenthetical, we had 531 employees on the City budget, these are police officers and that sort of thing which are paid by other departments besides City Hall. This number before did have some people on loan- that really shouldn't have been characterized as being from another department. They're were working full-time here and I have directed our staff, we will not have, with the exception of things like police officers where it really is appropriate, we're not gonna have lines, if you will from other departments.
The 531 or whatever the number, is all the people that work in City Hall, and they all will be on the Mayor's budget. What did we do with the total? We've cut 127 so the Mayor's head count right now is 497 - that is a 20 percent cut and here you can see the numbers-that is a cut in dollars. And the way that we're asking all of the other departments to make their cuts on a consistent basis is if you save money in '02 that's it is recurring, we count it in 03, we've done the same thing, and we have cut our 20 percent and we will every month put out on the web the number of employees in the Mayor's Office and the Mayor's budget.
If it goes up you can ask me the next time we're together why, and if I don't have a good reason I shouldn't have done it, and if I do have a good reason, whether you like it or not, that's what I was elected to do, to make decisions but I don't want anybody to ever think we done something one time as a PR stunt or to get us through whatever difficult period and we didn't live with it; we're going to be consistent.
These are the kinds affects that the cuts will give us. In the case of the police department and you can talk to Commissioner Kelly afterwards, we are doing a few things; the total number of police officers on the streets will go up, and the total size of the police force will be maintained at what it is today. Now today we have 39,100 police officers that will, through attrition, decline through June 30, on July 1 the Commissioner has authorization to have a class big enough to bring us back 39,100 level and then the process will be continued. We're going to hire 800 civilians to move 800 police officers who are behind desks, out on the streets, that will get you more police officers on the streets and to some extent mitigate fact that between now and July 1, and a next July 1, and the following July 1 through attrition the size of the police force normally does shrink.
We are committed to keeping this City safe, and I will authorize the Commissioner do whatever it takes. If crime starts going up he can, I will change the hiring limits, I will find money elsewhere, I will let him spend more money in overtime. But anybody that thinks that they can go out and be a bad guy is just wrong.
We are going to keep these City streets safe. I just think that we have shown at current levels that we can do that and this city doesn't have excess money. It would always be nice to have more police officers, but you have to pick a rational basis. At the moment the Commissioner and all 39,100 uniform people or a total of about 50,000 that work for the NYPD are doing a spectacular job, crime has continued to come down, and if they can do it deal with smaller size workforce that's exactly what the City needs. If they have to have more resources I will get them the resources.
Fire department, we are not reducing, as one of the newspapers said today,
the size of the fire department. Quite the contrary: we have already replaced
at least in numerical terms, we can replace in terms of skill sets and experience,
in human terms those who we lost. But Commissioner Scoppetta has already sworn
in the class -that I was at- of firefighters roughly the size of the number
of people who we lost and he is authorized to, in fact, increase the number
of firefighters in the fire department by seventy-three firefighters. Why are
we increasing it? Because that will let us spend less in overtime and net net,
we will be able to provide better protection for the public for less money.
The less money, we have to do; the better protection for the public, that's
what they want and that's what they deserve. And as the world changes, remember
each Commissioner you want them to move around their resources and retarget
their efforts to the constantly changing new reality. There are fewer fires
in this City and one of the reasons there are fewer fires is that the firefighters
have spent their time in educating and inspecting to prevent fires.
That's exactly what we like, wouldn't it be wonderful if all the firefighters spent and all their time keeping people from ever having a fire and never had to respond? That's a great objective to have. Well, to the extent that we've gone in that direction, Commissioner can be re-deploy assets and use them to do more with less.
When it comes to correction, one of the nice things that's happened to us in the City is the total number of people incarcerated in City prisons has been declining for long time. It is now at of modern-day record low, as roughly 14,000, not that many years ago it was at 20,000 level. We don't need all the facilities that we have; there is a facility in Brooklyn called the "Brig" and it has been empty for a while, but it has never been closed down. We're going to mothball that facility if we ever need it again fine. But we have a staff there everyday. We can't afford that kind of thing, we're going to take that staff and use it elsewhere. Corrections is one of those departments where the retirement rate has exceeded their ability to attract people and so we need those people elsewhere within the correction facility to continue the job that they have been doing.
Sanitation. The sanitation department has been doing a great job to if you take a look at it. Costs of sanitation have gone up dramatically since the fresh Hills landfill was closed. One of the things we want to work on as hard as we can is to find the way to get those marine transfer stations back into service so we don't have all these trucks going across the bridges tearing up the roads. We want to be able to do things more efficiently. But we have gone from a world in sanitation where we used to dump the garbage on the landfill in Staten Island, to a world where we are paying other cities to take our garbage, and that is an expensive proposition, in the hundreds of millions of dollars. I do not for a second think we should go and refill or reopen the Staten Island fresh Hills landfill. That would be a terrible mistake; there's no reason for us to have our garbage here when others are willing to take it. But there is a cost to that. And the cost you see in the expansion of the sanitation department's budget over the last 5 years from roughly $650 million to $1 billion and $50 million, numbers like that.
Now, one of the things we can do however to reduce the sanitation costs and they've got to make their cuts as well, we have two recycling programs, one that works, and one that does not, and we're going to propose closing the one that does not temporarily, until we can find a better solution, but keep the recycling program that works going. We recycle paper. Most of the paper actually gets recycled. It really does benefit the ecology of this country. It costs us $87 a ton to pick up paper and then we sell it and all in the cost of collection, less the revenue we get is about $87 a ton. Let me tell you how that compares to normal garbage. Normal garbage costs us about $130 a ton. So recycling, not only does it help the ecology of the world, it also saves us money. But when you come to metal, glass and plastic, that unfortunately is not true; 40% of all of all that we collect, metal, glass and plastic, gets thrown back into a dump down the road. It's just that we spend roughly $230 per ton to do it. If you take a look at how much actually is getting recycled, and the benefits to the ecology of this world based on that, we are not doing a good job and until we can, it's just not worth it.
Now we have a solution for that problem and the solution basically is to instead of have the current process that encourages people to recycle, you pay a nickel deposit and get it back when you return the bottle, and a lot of those bottles and cans either aren't returned or are not returned by the people, they are taken out of the garbage in a process that I know it benefits some of the homeless, but if we're going to help the homeless, there are better ways than having them go through our garbage, thank you very much.
We have got to find a better way, and the better way is we will try to get
a user fee enacted so that you automatically get charged a nickel when you buy
a bottle, a can, and that user fee will go to pay for a recycling program that
really works. We can have more advertising to get people to actually separate,
we can find better ways of collection, we can find ways of separating out with
the monies the colored glass and the clear glass, which would make all of that
much more practical. Right now, a lot of the glass doesn't go back into bottles,
at best, it's used to make roadways, because it's just not coming to us in a
way that we can use. So we have a program where we're going to suspend metal,
glass, and plastic collection but continue the paper recycling.
Health Department; three million dollars, sounds like a small amount of money and it is, except that three million dollars is real money. The Department of Health has given grants for three million dollars for research. Nobody is more in favor of medical research than I am, or of grants. I have a record I think I can show you that I really do care. But it's not an appropriate thing for the Department of Health to do. The Department of Health is there to help people when they get sick and to keep people from ever getting in that situation. Others just have to go and fund research.
Senior citizens centers; we have 340. Seven of them are barely used and are within a few blocks of others. We just cannot afford to keep these 7 centers open where they're not getting any use and by consolidating them into the others, we would not be hurting anybody. They have to go to a new place that is true. But the new place is close, and the new place already probably provides a better service. So while people will scream, we cannot continue to spend money, on services that the public does not benefit, just because we always did.
That's one of the things, we are always willing to put in new things, but we're never willing to stop old things that are no longer appropriate or needed and we don't live in a time today where we can afford that kind of thing.
There are expansion things which we're just going to have to postpone, there's a subsidy to the library, that number represents 15% of the library, perhaps we can find other ways to raise monies. Parks, we can try to raise monies. I've had a number of companies come to me and say they would love to help the parks if they could get some recognition. Cultural affairs, we just have to go out and find alternative sources.
We want parks, we want cultural affairs, we want libraries; we just don't have the money, so let's not sit around and complain, let's try to do something about it.
I talked about this line, that's what we were just talking about. $1.8 billion in cuts of which 1.3 is every year, ongoing. Let's talk about this $800 million of which $500 million a year, half a billion dollars is recurring. These are the things that I said we need some help from the State and we need some help from the federal government. We have I told you, identified $2.1 billion of items of which $1.3 billion would not cost either of these two governments any money at all. What are they? Well, you can see this is the amount of money we raised, this is the amount of money that comes from the State, this is the amount of money that comes from the federal government, and we need some help.
What's been happening to us? In the State, the amount of money that the rest of the State has been getting in unrestricted monies from the State has gone up, been going up, but look what's happened to New York City. The amount of monies that we get from the State that we can do anything with and close the gaps have gone down. At the same time, everybody else is getting more. I'm trying to build the case as to why the state should help us. And here are things that the state has done. Not the Republicans, not the Democrats, not the legislature, not the government. Collectively, Albany, working together, for good reasons, probably but nevertheless these are the things and here you can see when it's done. State fiscal year starts April 1, so it's slightly different than City fiscal year. But in the state fiscal year '99-'2000, they did the items here you can see, that's the effect of the commuter tax having gone away. Regardless of what you thought it was a good tax or a bad tax, our budget is now missing that money. And the same thing was done here, and the same thing was done here. These are things, which add up to a billion to a billion and a half dollars, we would have had that money except that the State collectively took these actions that you see here. And we also have a problem in educational aid. This is that lawsuit that the city, or some private individuals won against the State that the State is appealing. Where we have a bigger percentage of the students in the State than we get our share of State aid to education. So we should be able to make a case, based on these things to the State legislature.
We're not asking for a lot of money. We're just asking for some relief so we can do our own thing. Now, the State says, we'll give you some money.
The Governor very generously did offer in his budget to give us a few hundred million dollars to help us pay teachers more. Nobody would like to see teachers paid more than me. I really do believe that they are underpaid. I really do believe that if we paid more money for teachers, we'd have a better product; we'd educate our kids. But the first $242 million that we get from the State for educational aid has already been spent, folks. And we legally can't get out of that fact. The first $242 million they gave to us, we already spent it, we booked it, we billed it and we've just got to put it in the bank. We borrowed and we can pay off that debt, that's what happened to it, but the first $242 don't give us money to do anything else. In fact, there's another $190 that they really do owe us but we haven't billed them. You can argue that after the $242 maybe we could defer this for a while.
But what we've got to be very careful is to understand just because someone offers you money, it's not sometimes usable. This is a case of the monies are not usable, what's more, the one thing we cannot do is we can't accept well-meaning help that leaves us in a worse situation down the road. If you offer to give the city some money that helps us this year, that's great. But if the money has to be to increase our expenses this year and there's no money in the following years, we're going to have a worse problem in the out years. And you saw, we're not going to grow out of this easily; we're going to have some real problems. So we can't go and fall into that trap of a one-shot revenue enhancer with long-term recurring expenses.
Tort costs; back in this period, tort cost the City $28 million. Look what it costs today, $542 million a year. People sue the City, these are the judgments, that's cash going out. Would you rather send it to the people suing, or use it to get more cops, firefighters, teachers, whatever. Take your pick; we can't have it both ways. We don't have the monies to do both.
What can we do about it? Well, you can argue we could keep fixing the streets and do a better job and we're trying to do. But the real world is we are always getting sued and you say oh well, you know, the State probably gets sued too. Well, it does, but it's very different if you sue the State. If you sue the State, you go before the court of claims and get a non-jury trial. And look what's happened in the last four years to judgments against the State when they didn't have a jury trial. It's gone from 117 to 84 and if you believe the math here, that says a 28% decline. But take a look in four years what's happened to New York City. It's gone from $350 million to $550 million, $200 million per year more and look at the trend-not healthy. Up here you'd think it's way out there.
Why, we need some help from the State in having a fairer way to compensate people who deserve to be compensated but in a way the City can afford and that based on these kinds of arguments are probably fairer in terms of compensation for risk. Unfortunately there are risks in the world and this says that in New York City, we pay regardless and the State level we don't.
Here are things that the State could do to help New York City and this whole group here doesn't cost them a dime. We could get $992 million up to $800 million in '06 if they would just let us do the following things. One thing, the biggest one, is raise the cigarette tax. New York State taxes cigarettes $1.50 a pack. New York City taxes 8 cents. Now I would like to have that revenue, but if you wanted to have one dream to save society, raise taxes to a buck and half and have that go to zero, wouldn't it be wonderful if people stopped smoking? The numbers are clear-you raise cigarette taxes, the kids smoke less. Doesn't solve your whole problem but it goes a long way towards doing that and we need the money.
And you can look and see, this is something where, this is where labor has to help us, but we do need the State to go along. Some of these other things, you can go through and we would be happy to explain each one.
These are things that do cost the State a little money. All told, the State could give us a billion three, to a billion one, in relief, increased revenue, decreased expenses. And they could do most of it without hurting themselves. Now, that's the State part of this $800 or $500 million.
What's the federal part? Well, let's take a look at our relationship with the federal government.
Newt Gingrich used to complain that there was a "tax and spend" attitude in Congress. Quite honestly I could never figure out what his problem was, because we paid the taxes and monies were spent in his state of Georgia. And this shows exactly that. We sent to Washington $49.1 billion in taxes and we only get $41 billion back in services. So we can say to Washington, we're not getting our fair share; this difference is going elsewhere in the fifty states, not to New York City.
In fact, I'll show you one or two examples. Reimbursing for Medicaid. Mississippi, the federal government reimburses ¾, 76% of all of their Medicaid claims. You have to look very carefully but here's New York, folks. That is an enormous difference and I'll show you that on a chart. We're not getting our fair share. Now these are things the federal government could do to help us-no cost, they could help us to the tune of a few hundred million dollars. That's real money. And we need some legislation. We need some rule changes.
They can also help us down here. Here's a 3% increase in the federal share. Just 3%, look at the impact. This is getting a fair share of the homeland security funds. This is getting some help. Ray Kelly's got to provide protection when we have dignitaries here. It's good for our economy. We want to keep the UN here, and we want to keep diplomats coming here, but if we could get a little bit of help from the federal government, particularly when the President visits and you tie up my house and that sort of thing, this is where the money would come.
So you can see, this money's here, this $800 million along with the State,
adds up to $2.1 billion, the non-cost part out to $1.3 billion and all we are
budgeting to show that we are trying to be realistic is we think we've got a
very good chance of getting $800 million of which $500 million would be included.
And remember, this $500 million was what I talked about before-the fringe-cost
benefits containment, that's where we need some help from the municipal workforce,
we also need some help from the state in terms of legal changes in the pension
laws and that was on that chart I showed you before.
Now let's take a look at the last part of how we balance, we cover the $4.8 billion deficit. And that's this $1.5 billion in temporary financing authority that was authorized after 9/11. We have to show in order to be able to borrow that money that the effect on New York City is greater than the amount we borrow. This is just the effect of tax revenues in fiscal '02 and fiscal '03 directly attributable to 9/11 and you can see it is much greater than the amount we propose to borrow. So we are within the purpose of what the money was authorized for and I think we can make a good case that it is an unusual circumstance that caused the need and that we are not trying to use this kind of mortgaging the future, for anything other than this one-time shot.
What do you do in the out-years? Well, we said this is history, this we just talked about how you get to that zero, remember, that's the cuts with the ongoing, that's the 800 with the ongoing, that's the 500 that repeats every year, the one hundred, and the one time here. It still leaves us with finding a way in fiscal '04 to come up with another $2.5 billion, $3 billion, $3.1 billion, who knows above 2007. We still after all of what I've talked about, have the problem, of coming up, which what on it's own, these would be record deficits. Just on it's own and that's after all of the good work we've done back here.
What are we going to do? Well, we can cut some more. Now let me tell you, if you think the cuts up here are onerous, and if you don't let us, you being, the City Council, the legislatures, the public; all of us, if we don't make these cuts, these are going to be an awful lot harder. They're going to be harder already because some of the cuts up here are from re-allocating expenses, from cutting overtime, from stopping programs that really aren't helping anybody. Once you go through that, there isn't an easy thing to do the next time. The next time, it is a much more serious cut. So these are really scary cuts. We have to do it; the law says we have to do it. There are some other things-we think we can get a little more out of that $2.1 billion list. There are some other things, possibilities, in re-pricing transportation services. And there are lots of these kinds of things; here's the effect of the nickel tax on glass, metal and plastic when you buy it, you can see, it's real money.
We've only been in office for six weeks but with time I really do believe we
can come up with efficiencies and find ways to do more with less and I think
that's a realistic amount of money that as we get into it we can save going
into the out-years. And somehow or other, that is going to get us down to closing
those gaps. How realistic are these things? Well, if we do this, they are possible.
If we lose our will here, we just cannot continue. You know why we're in this
situation and you see how we're going to get out of it for the immediate term.
We've only had a short period to address the issues and the issues have only
been there for a short period. Longer term, different, maybe more severe problems,
we have a strategy and we will over a period of time, implement it. And if you
want to write, well, they don't know specifically what, yes you can write that.
Nobody knows specifically what. That's what the process will be. The democratic
process will adjust these things and a lot of people working very hard over
many months will find ways to do this.
Capital budget; we cannot continue to spend what we've been spending. At the same time, we are New York; we're the "big apple." We don't want to mortgage our future. So if you take a look, these are commitments. For a long time, we didn't commit to build anymore. We kept the commitments and the actual contracts letting and building and financing follows a year or two behind this. But we kept basically committed to building about $4 billion a year. Then in '01, partially I think in fairness, because we hadn't done or had a lot of growth here, the pressure built I assume on the previous administration, and they committed to jump the level to here and to here for the future. The forecast are June '01. And why does it tail-off here? Well maybe because you built the stuff here but also because you haven't identified what the needs are down the road. That's a normal process.
What we're suggesting to do is to cut 20% not the 25% that was in the paper. Which means cutting out this white line and I'll show you what the projects are. It would still leave our 2002 capital commitments greater than 2001, so if you think we're cutting back and mortgaging our future, we are not. We're just not building as fast as you would like us to build. But that's the reality of the financial situation we find ourselves in. And even if you go to let's say 2003, which is roughly $6.5 billion. $6.5 billion is $2.5 billion more, that's better than 55% or 60% greater than what it was in '00. So we are slowing down some projects but we're not mortgaging our future. We're just being realistic.
Now what is in the things we're still going to do? And you'll see these in
your charts. These are different capital projects that we have to do. Would
you like to build more schools? No argument. But it's probably a good thing
to figure out why it costs twice the amount to build a school in New York City
than it costs across the river. And if you could figure that out, with the same
dollars, we could build twice the number of schools. So it's not all unhealthy.
What are we going to do with schools? I can tell you, there are five schools
that we will continue with, two are well along, three the contracts have already
been let. They all happen to be in one borough. But if you look at the numbers,
that is where the biggest shortage of classrooms are. This is not a political
game of everybody's got to get something. Those days have come and gone. We've
got to look at the needs, particularly the needs of our children and wherever
they are, whichever borough they are in, we've got to do the best that we possibly
can afford to help those children.
And this here is a way to look at if you decrease the capital commitments; you see how much you decrease the borrowing between this period. The reason this number is smaller, is some of these you would have had to borrow after '06. And you can see that it does save some money. 0.39 is a $390 million. It unfortunately does not come for a while. Because the way a capital project works, is you commit to do it now, you borrow here, the interest costs are down the road but eventually, it does add up to real money.
And this shows you how each of these entities that have been doing the borrowing, over a period of time have done and what the forecast is going off into the future. In your books that you will get, are the details of different kinds of taxes and different kinds of expenses.
But let me show you one chart that you'll see there that is something that is interesting. I talked before about how you get a feel for what's really going on in the City and our attempt to give the public more information than they've ever had before. This is not perfect but it gives you an example why everybody talks with different numbers. If you look at December '01 which is not very long ago, couple months. One number you can use is 250,000 employees. But if you actually look, there are another 56,000 logical employees, that could be 112,000 people working alternate weeks, it could be people some working almost full time and some filling in. but if you take the salaries and you divide out the average salary, there are another 56,000 people working in this City. So one number is 306,000 not 250,000 and you can go and look at it going back in time. Now how does that 306 get split up? Well look, the Board of Ed had a 137,000 of them, the police department has 54,000 everybody else has 115,000. In that 115,000, of roughly 15,000 for the fire department. So the 306,000 people if you talk about education, police and fire, they are 206,000 out of the 306,000, and it just goes to show you how you can't sit there and have a few big sacred cows because you would take everybody else to zero and that's not a practical thing to do. We do have to continue all parts of city government even if some of them operate at a reduced rate.
Now the answer to the question of how many people is even more complex. If you add these are employees who are paid by the City, but not on the City payroll, okay they're non-city employees but in all or part the City does pay and they work for the people of New York City. That's another 57,000 so your number has gone from 250,000 to 306,000, here's another number you can use, 363,000 people work for New York City and incidentally while this says full time and full time equivalents, some of these we haven't been able to find out how many full-time equivalents there are. The number is invariably bigger than that. How does that number stack up? Well the 363,000 people serve 8 million New Yorkers. The federal government without the military has 2 million people to serve 280 million people. So it just shows you that the City is more compassionate. We do more things for our citizens than any other place. But there is a cost and these people are dedicated servants of the public, but we've got to pay for it. That is where we stand. That is where I think we will wind up. I would caution you that there is not going to be no pain. Anybody that thinks that gimmickry or a "hail Mary" pass is going to bail us out is just being so totally unrealistic that it's not worth considering.
I hope that the revenues are better than forecast, I hope the expenses are less than forecast, but even if that happens, the basic problem is there and is there for multiple years, and so the solutions that we have recommended have to be implemented. Now that doesn't mean that every cut or every revenue enhancement has to be exactly the way it is, but I have said to the City Council that if they want to change something, and I am perfectly willing to listen to other ideas, all they have to do is show me if they want to restore a cut, where we cut someplace else. Because the law requires us to come up, at the end of this process, with a balanced budget, and that means finding a combination of revenue increases, of expense decreases, of postponements, of using future monies today, that add up to approximately $4.8 billion.
If anybody has any questions, I have all the people here to take the grief.