Testimony By Mayor Michael R. Bloomberg Before The Joint Legislative Fiscal Committees
February 3, 2003

Chairman Johnson, 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 2003-2004. 

But first, I would like to take a moment to reflect on what both the city and state have accomplished together over the last year.  Just 12 months ago, I sat here before this very committee and promised to look beyond partisan differences. 

I promised not to discuss political relationships and party politics, but to form new partnerships with each of you to rebuild the great City of New York.   

I was confident that with the help of Albany, Washington and the people of New York, the City would be able to address the challenges we faced in 2002.

Thanks to the assistance of all levels of government, and all of the dedicated people who were there for the city of New York, we can be proud of what we have accomplished since then. 

New York City’s spirit has recovered.  We continue to be the safest large city in the nation, despite a nationwide rise in the crime rate. Serious crime in the big apple fell by 5% in 2002, and has continued to go down through the first month of this year.

In spite of the national economic downturn, the City’s welfare rolls continue to decline as well.  In 1996, some 1.1 million city residents received public assistance; today that number stands at just over 400,000. 

This is a tribute to our collective commitment to replacing the dependency of welfare with the dignity of work.   

Our city’s economy is poised for recovery.  The fact that some 3,500 new hotel rooms are under construction or are planned in our city attests to that.

So does the fact that, dire predictions to the contrary, no major employers have left the city. There are 11 million square feet of commercial space under construction in New York City right now.

The Republican party’s decision to host its 2004 national convention in New York demonstrates that we remain the premier location for world-class events.  And our selection to carry the nation’s bid to host the 2012 summer Olympics is a tremendous vote of confidence in our future.

I want to thank the Senate and Assembly for the part that you have played in helping New York City realize these achievements. You have been there for New York City every time we have needed you. And the leadership of Governor Pataki, Speaker Silver and Majority Leader Bruno was instrumental in providing the City with the additional resources we needed to balance our budget.

Now we share the challenge of overcoming our current short-term fiscal problems—at both the State and City levels—while also building for our long-term future. This is a democratic process and there will be a variety of views on how to approach these challenges.

But by working together with you here in Albany, with the Bush Administration in Washington, with our Congressional delegation, our municipal labor unions and the other county and municipal governments of the Empire State, we will succeed in meeting our financial responsibilities for everyone.

Twenty-five years ago, during New York City’s last fiscal crisis, that of the mid-1970s, the city government—Governor Carey—the municipal unions—the private sector—and the members of the Senate and the Assembly—all played their parts in putting the city’s finances back in order. 

And by helping out the City, they assured the prosperity of the entire state and region. Our situation today is nowhere near as ominous, but our shared risks and responsibilities are just as clear.

And I am confident that together we will rise to the challenge of meeting them.

The city is valiantly trying to shoulder its own burden to the extent possible.  Since January 2002, we have reduced the expenditure of city tax dollars by $2.6 billion.

To illustrate just how much that is, consider that that figure represents approximately 18% of the budget over which we have discretion. And when Mayor Giuliani took office, the budget deficit he faced in his first year was $2.3 billion, $300 million less that what we’ve already cut.  He and you got us through that then—and you and we will do it again this time.

Through better management and innovative use of technology, New York City has maintained essential services; in fact, by many measures, delivery of key services has improved. 

To continue that progress, in coming weeks, I will name a charter revision commission and give it the task of recommending changes to further improve efficiency through the merger and consolidation of city agencies and by streamlining our $7.5 billion procurement and contracting system.

Last November, I released a plan to close an estimated $6.4 billion gap in the City’s budget for fiscal year 2004.   It did not include any long-term borrowing for operating expenses, nor did it depend on non-recurring sources of revenue.  We did not make the terrible mistake of closing our budget gaps by postponements that mortgage our children’s future. 

Instead, we in the City made the painful but necessary decision to pay its own way by raising the property tax rate.  I would not have asked the City Council to take this action if any practical alternative had existed.  But the choice to destroy critical services, thereby leading to a decline in the quality of life for all New Yorkers, would have been far worse. 

This past week, I submitted an updated financial plan that calls for reducing city agency spending by an additional $550 million. We have worked hard to continue economizing some more—and still keep New York City “the World’s second home.”  Through shared sacrifice and perseverance, we believe we’ve been able to cut the budget again—without meaningfully cutting services.

We are also in the process of negotiating new collective bargaining agreements with our municipal unions.  In order to close the City’s budget gap and avoid layoffs, we must work together to reduce the city’s labor costs. 

That’s why our financial plan calls for $600 million in labor productivity and fringe benefit cost containment—the only way with today’s fiscal problems we can afford to keep employing all those city workers who do such a great job in serving eight million New Yorkers as well as the millions who visit us daily. 

There are many different options for meeting this target, but meet it we must. 

Comprehensive employee health insurance reform would make employees partners in controlling costs by instituting payroll deductions for basic health insurance, raising co-pays and by achieving benefit provision efficiencies in union administered “welfare funds.” Labor productivity gains could also be achieved by reforming the rules governing overtime, termination pay and union business time. 

I know many in Albany have over the years built strong relationships with various New York City municipal trade unions and fraternal organizations and that they will be urging you to help the City – their employer.  When you work to balance the budget, please remember the impact of the choices you make on their members, and the taxpayers.

And I ask that you take a comprehensive look at a new pension structure for city employees. After years of benefit increases mandated by the state, it is time that we reexamine this plan and determine if the resources needed are still available.  Sadly, the city can no longer continue to pay benefits, legislated but not funded, by others.

In releasing the City’s most recent financial plan early last week, I noted that the Governor’s Executive Budget would be extremely important in helping close our budget gaps.  I understand that you have limited resources and the Governor has done what he must to present a balanced budget.  I am very sympathetic to the needs of the entire State of New York and the fact that you need to select revenue sources and fund programs in ways that you feel meet the state’s goals. 

I am confident that as you start working with the Governor’s proposal and begin the democratic process of budget negotiations, you will remember that helping the city of New York will help everyone. New York City is the economic engine for the empire state.

Overall, the City contributes 48% of all of the state’s revenues and over 51% of the state’s personal income tax is generated in New York City—a far greater amount in both dollar and percent terms than is returned to the big apple.  It is clear that what helps New York City, helps New York State.  Our recovery will fuel the state’s recovery as well.  Without a City recovery, the State will not have one! 

Education

Let me turn first to school funding.  Last year, because of the leadership you showed, you took the historic step of placing accountability and authority for New York City’s public schools with the Mayor. 

By doing that, you have provided us the opportunity to bring about substantial system-wide change and put the emphasis where it belongs: the classrooms. With the educational system now a true part of the democratically elected city government, the Mayor can for the first time in decades be the representative for our most vulnerable and needy:  the children of New York.  That is one of the main reasons, I am here today.

While I am up here in Albany testifying, Chancellor Klein and his team at the Department of Education are in New York continuing to make enormous changes that will pay off in better student performance in the future. This has included eliminating hundreds of millions of dollars in waste and inefficiency. 

Bottom line: we’ve reduced city funding to public schools by $684 million since January 1, 2002 without affecting classroom services—and we were able to do that in large measure because of the additional $200 million in state school aid that the legislature approved.

That will unfortunately not be the case, however, if the proposed reductions in state aid are enacted. As you all know, there is the possibility of a substantial cut to education—a proposal to reduce school funding by $1.2 billion statewide. 

As part of that, the City of New York’s level of education aid will be cut by $478 million over last year, an overall reduction of 8.8% in state aid.  While the proposal to make the aid more flexible is of course beneficial, that step alone will not make up for this substantial decline in funding.

For example, a cut of $152 million in formula aid will translate into a direct 2% cut in funding to schools.  In addition, the elimination of universal pre-K will affect 44,000 four- year-olds, and the elimination of class size reduction funding will reduce the number of teaching positions in kindergarten through third grade by about 1,900. 

Targeting education cuts to reduce ineffective administration and other bureaucratic waste is a laudable goal, and we all appreciate any cost savings in these trying times.

But reducing funding to the classroom will have significant long-term effects on the education of our children—in fact, the effects will probably last for their entire lives.

The legislature’s help has been instrumental in avoiding cuts to the classroom in the past.  Your assistance was also vital in extending the school day by 20 minutes.  The financing of that initiative, with an annual cost of $275 million, was accomplished primarily with a one-time cash infusion from the Municipal Bond Bank. 

At this point, the cost of maintaining this longer school day for next year remains unfunded.  I am confident that once again you will, with the governor, use his proposal as a starting point— and that you, together with him, will find ways to prevent all cuts to the classroom and provide us with the additional $275 million necessary to fund the longer school day.

Medicaid

The difficulty of balancing the city’s budget is exacerbated by the fact that most of our spending is not within local control. Exhibit a: Medicaid. 

The Medicaid program is one of the largest and fastest-growing expenditures in the City budget—and in every county budget in the state. In the current fiscal year alone, New York City is expected to spend $3.79 billion on the State Medicaid program, a figure that is projected to increase by 10% in the next year.  By comparison, the New York City expenditures that the city controls, grew at less than one per cent in the same time period. 

With Medicaid and its out-of-control growth, the State mandates the provider rates, program eligibility and the level of services. City taxpayers just foot the bill.

Over the past few months, I have met on this issue with the county executives of our neighboring counties of Nassau, Suffolk and Westchester.  We have found common ground with the New York State Association of Counties on the Medicaid problem. 

There are many different options, but one thing is clear: we must provide our poorest citizens with the highest quality of medical care and access to the drugs they need, and simultaneously we must contain the exploding costs of Medicaid to localities.

I applaud the governor for setting the stage for Medicaid reform.  However, we must make sure that all counties, and also the City of New York, share in the savings that the state achieves.  To relieve the City’s Medicaid migraine, remember that when you consider what kind of reforms to implement, we need more than the aspirin that prescription drug cost relief itself would provide. 

One idea advanced by the governor is a program swap. The state will take over 100% of the non-federal share of the cost of prescriptions, and in return, the local share of hospital and clinic rates will increase from its current level of 25% to 37%. 

The underlying philosophy behind this plan is that the state will take over the rapidly growing costs of drugs, while localities will have an incentive to increase enrollment in managed care, where there is a lower county share. 

Rather than help us, this proposal, which provides savings to some counties, would be extremely damaging to New York City in two ways.  First, rather than reducing our expenses, it would cost us $250 million in the first year alone because of the unusually high cost of in-patient hospital care in New York City. 

And second, because many poor people in New York City have serious chronic illnesses, they are ineligible for enrollment in managed care—which means that the city would realize few if any savings from this feature of the plan. 

We need a plan that would allow all counties to assume savings in the prescription drug program and would spread the containment measures to all areas of the health care industry.     

The problems with the program swap are exacerbated by its cost containment measures.  These provide some net savings to some local governments, but would adversely impact New York City’s hospital systems. 

The public hospitals and clinics in New York City’s Health and Hospitals Corporation are a lifeline for many New Yorkers. Over the last few years, patient care at HHC facilities has improved dramatically; recent accreditation surveys have rated the care at these hospitals as better than the care at some of our most prestigious teaching hospitals. 

Cutting more than $100 million in Medicaid reimbursements and forcing HHC facilities further into debt would undermine this excellence and the economic viability of hospitals that are a safety net for our most vulnerable people.  

Because the budget proposal specifically targets Medicaid reimbursements to teaching hospitals across the state, these institutions also would suffer hundreds of millions of dollars in losses.  Some of the hardest-hit institutions would be such eminent teaching and research hospitals as Beth Israel Medical Center, St. Luke’s-Roosevelt Hospital Center, New York-Presbyterian Hospital, Montefiore Medical Center, and Mt. Sinai Hospital--hospitals that also constitute the front line of defense against possible incidents of bio-terrorism. 

In recent years, you and the governor have increased Medicaid eligibility, enhanced services, increased rates to providers and ensured that our health care industry can recruit and retain quality health care workers.  While beneficial, these changes also have increased Medicaid costs for local governments beyond what we can absorb. 

Maintaining quality of care provided under Medicaid requires long-term planning that weighs the effects of cost containment on hospitals and patients.  At the same time, Medicaid relief for all counties and for New York City is needed now.

The cap on local Medicaid costs proposed by the New York State Association of Counties would provide the most effective immediate relief to taxpayers while such long-term plans are developed. And such a cap would help every locality in a fair and equal way.

I also am asking you to conform the City’s personal income tax to the same way taxes are imposed by the state itself-- that is, to tax all who work in the City at the same rate. 

Some say that taxing people who work in the five boroughs but who live elsewhere is unfair.  I ask them to remember that the livelihoods, property values and standard of living of those who live in our neighboring states and counties are to a large extent a function of proximity to New York City.   And when our police officers, firefighters and emergency medical technicians respond to calls, residency does not matter.  Everyone should pay equally for the police, fire, sanitation and other services they benefit from.  

New York State taxes everyone that works in New York State whether they live in the state or not.  New Jersey taxes everyone that works in New Jersey whether they live in the state or not.  Yonkers taxes everyone that works in Yonkers whether they live in Yonkers or not. 

New York City, the largest city in the United States, with hundreds of thousands of non-resident workers, should be able calculate its personal income tax in the same way.  It’s a matter of simple equity. Not to allow us to reform our personal income tax in this manner is unfair to city taxpayers and municipal workers who alone are shouldering the costs of services that their co-workers benefit from every day in New York City. 

Tax reform will support the city’s long-term economic growth.  So will the regional transportation initiatives we are proposing. Throughout New York City’s history, development of fast and efficient transportation has been crucial to its growth and prosperity.  Providing the necessary support for improving our transportation infrastructure and streamlining its management is essential to a vibrant economy.

We are proposing to modernize and rationalize the regional transportation system in a way that will benefit the entire metropolitan economy while it also brings new revenues to the City--$200 million in the next fiscal year, increasing to $800 million in recurring revenues.

On the subject of tort reform, I want to thank the Governor for including a number of significant proposals in his budget.  This is an issue whose time has come. At the rate that the City’s tort costs are growing, it is estimated that this year alone the City will pay out over $500 million dollars in judgments and claims.  Without reasonable state limitations on tort payouts, the City’s limited resources will continue to be drained by outrageous jury awards. 

For this reason, the Governor’s inclusion of these items in his budget is truly a significant and praiseworthy action.  Transferring jurisdiction for personal injury actions against local governments and quasi-governmental entities to the court of claims, as the governor proposes, is fair and reasonable.  This is the way that claims against the state are treated; there is no reason why claims against local governments should be handled in a totally different manner. 

Trials in the court of claims will be heard by an experienced, specialized jurist—nominated by the governor and confirmed by the senate—who will treat individuals injured on city streets or in accidents involving city vehicles in the same manner as those injured on state highways, or in accidents involving state vehicles. 

This transfer will result in less costly court administration while adequately compensating injured individuals. 

There are many other reforms, new initiatives, efficiencies and innovative approaches to helping our citizens we could talk about. But let me leave you today with the following thoughts. 

Over the past few weeks, the Governor has outlined many ways in which to help the City’s financial plan by supporting certain city legislative items and by supporting certain discrete funding programs to help the City budget. 

Expanding the red light camera program, selling additional taxi medallions, and our debt finance reform bill will provide significant relief while improving traffic safety and streamlining the structure of debt financing. 

The Governor’s efforts in restructuring debt of the Battery Park City Authority could generate at least $200 million in new monies for New York City. 

In addition, the Governor announced his support for a quick resolution of the airport rent dispute that is due to the city from the port authority.  These negotiations are currently underway, and we appreciate the Governor’s support.  In fact, we have already included $600 million in back rent and $90 million in new lease payments in fiscal year 2004 and for each subsequent year in our most recent financial plan. 

Unlike the aforementioned incremental items the Governor proposed to help us with, these monies are already spent.  But we particularly appreciate the governor’s offer of assisting should negotiations stall.

All of this is helpful. I know that the Governor and you are committed to helping New York City meet its legal obligation to balance the budget every year. We should not lose sight of the fact, however, that to do this, we must find additional ways to provide the City with recurring revenues. 

Stable, year-in, year-out income for the City is needed. We have cut our expense budget by more than $2.6 billion in just the last 13 months.  After all that sacrifice, we still have an approximately $3 billion deficit. 

You and the Governor are required to balance the state’s budget for both the current fiscal year and the upcoming one, as we are mandated by law to balance the city’s budget.  And as we both know from experience, these are not easy tasks. 

Still, while we in the city have only one option for increasing revenues—amending the real property tax rates—fortunately the state has much flexibility in revenue-enhancing actions.  

One of them is the ability to satisfy our request for tax reform to share the burden equally among those benefiting from our city’s great resources. This is an absolute necessity for the City going forward.  It is another way that the people of New York City—both residents and those who make their living here but live elsewhere—will pay the cost of what we enjoy without asking the rest of New York State to do so.

During an economic slowdown, all levels of government experience tough fiscal times.  But in the long-term, our future is bright—if we make the right decisions now.  That means not repeating the mistakes of the 1970s, when borrowing attempted to solve our problems. In New York City, we are still paying almost $500 million a year in MAC debt that was issued over thirty years ago.  We have learned the hard way the lesson that that is not the way to balance a budget. 

Preparing a plan that is fair, direct and clear of non-recurring infusions of cash is the only way to get through tough fiscal times.

New York City’s financial plan is based on increasing the efficiency of our government.  It includes ending labor contracts with expensive practices differing from those in the private sector.

We hope to receive $200 million of additional assistance from the federal government—not an unreasonable request for the financial center of the world—and a city that is “target one” for this country’s enemies. 

Further, we’re counting on some of the itemized hundreds of millions of dollars of state actions that would help New York City without costing the state a dime.  

In summary, I am asking you to do what is fair and in the interests of every state resident.  Let us share the burden across all beneficiaries. Let us help those in need, and those who are our future. Let us match legislative funding with legislative mandates so each can be in control of their own destiny.