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When I testified here last year on the Fiscal Year 2003 budget September 11th was fresh in our memories.  No one knew if people and jobs were going to flee our City in large numbers. New York City had to close a $4.8 billion budget gap. And we did.

We had to cut City spending $2.3 billion and reduce our workforce by more than 5,500 people.  Sadly, we also found it necessary to borrow $1.5 billion previously authorized by Albany in the aftermath of the horrific terrorist attack at the World Trade Center.

At that moment, our very future was in question.  Few alternatives were available to the Administration.  Public confidence was too fragile to cut more or raise taxes.  So we had to resort to one time deficit financing as part of a comprehensive package.  But using all these alternatives judiciously and working with our partners at all levels of government, we prevailed, and as legally mandated, finished the year in balance.

For Fiscal Year ‘04 we faced what looked like another huge, almost insurmountable deficit -- a budget gap of $6.4 billion.  This presented to the City the most challenging fiscal crisis we have had to face in a generation. But this time, it was obvious that New York had recovered enough to face the additional adversity.  This time we had the resiliency to endure the needed additional cuts and withstand the pain of increased taxes and not borrow to cover ongoing expenses. Difficult decisions, but we struck a prudent balance between maintaining quality of life services and a policy of paying our own expenses rather than leaving them for our children.

Today, I am pleased to report, again, that because of the leadership of the State and Federal Government and the City Council, all working with our Administration, New York has weathered the most difficult part of our fiscal crisis.  We have brought revenue in line with spending and we have cut expenses without relying on fiscal gimmicks or one-shot revenues.

While we still face fiscal challenges, I believe our worst days are behind us.

The future is always impossible to predict accurately and unforeseen events or a further economic slowdown are always possible, but because of the difficult decisions and fiscal discipline that we exhibited last year, New York faces a brighter budget picture going forward.  Even though, the Fiscal ’05 budget gap is serious, I believe it is manageable.

How did we get here?  In the last year we have:

• Reduced the part of City spending that we control by more than $3.1 billion.
  
• Increased the City’s revenue by more than $2.7 billion through a mix of, I hope, temporary, property, sales, and personal income tax increases.
  
• Created a $1.3 billion surplus in FY  ’03 to mitigate the cuts necessary in FY ’04.
  
• Fought for and won $2.7 billion in assistance from Albany including restoration of education assistance.
  
• Imposed a hiring freeze and some painful layoffs that together reduced our headcount by 17,000, thus creating the smallest City workforce since the first Koch administration.
  
• Maintained our “A” Category bond rating throughout the fiscal crisis.

In the midst of this fiscal crisis we have continued to focus on our quality of life:

• Crime is down 6.7% year to date even though we have 3000 fewer police officers than when our administration began.
  
• Welfare rolls are down by more than 41,000 cases.
  
• Our streets are as clean as they have been in recent years.
  
• Our schools have been reorganized and are on the brink of improvement.
  
• The largest housing initiative in New York City in 15 years is underway, building 65,000 units in all five boroughs.
  
• Agency efficiency has improved.  Every agency has managed to do more with less.  From cost effective meal preparations in our City’s jails, to online permitting from the Mayor’s Office of Film Television and Broadcasting, to reducing recent construction costs at the School Construction Authority by 30%, New York City Government is doing more with less.

And to add our optimism, New York’s economy is showing signs of recovery:

• The Federal Reserve says New York’s economy is poised for growth and the Securities Industry Association predicts that Wall Street profits are climbing.
  
• Revenue from economically sensitive taxes is growing.
  
• Home prices have increased by 13.6% in the last 18 months.
  
• Housing permits are up by 10% in the last year and a half.
  
• Wall Street has had its best quarter in two years.
  
• Applications are up at both our private and public colleges and universities in the City.
  
• Employment in City restaurants and bars is growing compared to last year.
  
• The Republican National Convention is coming to town next summer bringing 50,000 people to New York City.
  
• No jobs are leaving our City. In fact, Fortune 500 companies like Pfizer, American Express and Goldman Sachs are expanding their New York operations and Wachovia Bank just made a commitment to open 12 branches in New York City in the next two years.

But the City still faces persistent budget challenges:

• Long-term Medicaid costs continue to climb unchecked by State control.
  
• Pension and fringe benefit costs will increase by a billion dollars next year. This will raise our labor costs by 5% without municipal workers seeing their paychecks grow at all.
  
• The only possibility of raises for our workforce is through collectively bargained productivity enhancements - something that we have been unable to achieve to date.

It is clear the City still faces financial risks, and I am still disappointed that we were not able to convince our labor leaders that they should assist New York in its time of need. This coming fiscal year I will appeal to them again to put aside their self-interest and help their fellow New Yorkers.  

That being said, I believe we have turned the corner on New York’s fiscal crisis.

I would like to thank our partners in government for their assistance to New York City in these difficult times.  Governor Pataki and State Legislative Leaders Silver and Bruno, Council Speaker Miller and their respective bodies have been there when New York needed them.  Comptrollers Hevesi and Thompson have provided valuable guidance.  History will look fondly on them for their service to our City and State. 

These past 18 months have not been an easy time for New York. We rebounded from the terrorist attacks of September 11th and we are rebuilding. In the last months, we have been forced to make difficult decisions, to not take the easy way out, but to find ways to do more with less. Today, I think we can look forward to a brighter future with the knowledge that we as New Yorkers, as we always have and always will, confronted our challenges and prevailed.  Understanding that we still face difficult times, we will proceed with fortitude, diligence and compassion to build upon what we have achieved.