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PR- 095-04
April 26, 2004


Improving Economy Increases Revenues, But Out-Year Budget Gaps Demand Fiscal Restraint

Mayor Michael R. Bloomberg today presented his $46.9 billion Executive Fiscal Year (FY) 2005 New York City Budget.  New York City's economy continues to strengthen; revenue from economically sensitive taxes is rising, and the City's fiscal prudence is paying dividends.  Unfortunately, spiraling non-discretionary spending is dampening the City's recovery and creating significant problems for FY '06. 

"Although this budget is balanced, realistic and responsible, we face significant and troubling out-year gaps, which demand that we continue to restrain spending wherever, whenever possible. And we must set our priorities based on need, not political expedience," said Mayor Bloomberg.  "New Yorkers have managed this fiscal crisis with fortitude and compassion, and our sacrifices are starting to pay off.  New York's economy is growing: employment is rising and commercial vacancy is falling. Unfortunately the growth of fixed costs and non-discretionary spending is outpacing revenues and creating serious budget challenges in the near future.  Now is the time to address the escalating increases in pensions, Medicaid and other fixed costs before they overwhelm our City's operating budget."

New Yorkers have made painful sacrifices over the last two and a half years and their commitment to the City has been instrumental in its recovery and growth.  Crime continues to fall,; welfare rolls are near all time lows; parks are clean; accountability and achievement are being woven into our public schools system; and more than 7 million calls have been placed to 311, demonstrating how it has revolutionized the way citizens interact with Government. Private sector employment has grown by 16,000 jobs over the last year and international tourists are returning to New York in numbers not seen since before September 11th, 2001. The forecast for Wall Street profits for calendar year 2004 has been increased to $16.4 billion from $12.3 billion. 

Changes in FY '04 Since Preliminary Budget:
New York's economy continues to strengthen.  Revenue projections for FY '04 have increased by $791 million based upon strong collections in the personal income and real property transaction taxes and other economically sensitive taxes.  However, expenses for FY '04 have increased by $800 million.  When expanded citywide, the agreement reached between DC 37 and the City is budgeted at $533 million in FY '04.

Agency expenses have increased by $67 million and Medicaid costs have increased by $200 million primarily because of increased enrollment in Family Health Plus.  The ongoing legal dispute over the New York State takeover of MAC debt service has not been resolved, so the planned $502 million benefit for FY '04 has been moved to FY '05.  The net effects of the expense and revenue changes in FY '04 will reduce the pre-payment of expenses in FY '05 by $84 million.

FY '05 Gap Closing Program:
The budget for FY 2005 is now balanced.  Expenses in FY '05 have increased $1.77 billion since the January plan.  Increased expenditures include a Citywide collective bargaining agreement costing the City $652 million, reduced expectation of Federal Aid costing $150 million and funding for the continuation by the MTA of formerly franchised bus service costing $159 million.  Medicaid costs rose by $200 million and subsidies to the Health and Hospital Corporation have increased by $200 million.  The Gap is closed with the assistance of a $324 million Agency Reduction Program,  $658 million in additional revenue and $1.3 billion in resources generated in FY '04.   Increasing costs in FY '05 have eliminated any pre-payment of expenses to benefit FY '06.

Labor Agreement:
The City has also agreed on a three-year contract with DC 37, representing approximately one-third of the City's workforce, which includes the following terms:

  • A $1,000 per employee cash payment upon ratification;
  • A 3% rate increase retroactive to July 1, 2003;
  • An up to 3% increase effective July 1, 2004, to be paid from productivity and other operational savings without additional cost to the City budget.

Funding at the level of the DC 37 contract terms has been included for all City employees in the Executive Budget.  The effect on the City's budget is an additional cost of $533 million in FY '04, $652 million in FY '05, $580 million in FY '06 and $574 in both FY '07 and FY '08.

Growth in Fixed Costs:
The City has reduced the rate of growth in City spending on agency operations, but non-discretionary expenses are increasing at an explosive rate. Fixed costs are growing almost six times as fast as the projected revenue growth. Debt service, pensions, fringe benefits and Medicaid expenses increase by over $2.3 billion from 2004 to 2005, while Agency expenses increase by only $293 million.  Immediate economic growth will not solve this problem. If tax revenues increased at their fastest rate ever, the budget gap in 2006 would be reduced by only$1 billion.  In addition, unfunded mandates by the City Council are putting additional pressure on the budget.  The lead bill passed by the Council over the Mayor's veto will cost the City $315 million over four years (not including liability costs) and require the hiring or redeployment of 389 city personnel.

$400 Homeowner Rebate:
New York City residents have the highest tax burden in the State and because City homeowners sacrificed to help the City get through the fiscal crisis, Class 1 and Class 2 homeowners will receive a $400 rebate on their property tax.    The program will cost approximately $250 million and 600,000 owner-occupants of one-, two- and three-family homes, co-ops and condos will receive the $400.

The Council's proposal squanders the bulk of the rebate on Con Edison ($8.3 million roll back) and large landlords such as the Met Life building ($600,000 roll back) and the Empire State Building ($463,000 roll back).  By emphasizing businesses over homeowners the Council's proposal provides only $25 a year in relief for Brooklyn co-op owners, $49 for Queens homeowners and $45 for Bronx homeowners.  Because landlords are not obligated to pass on property tax reductions to their tenants and property taxes are just one of many factors that contribute to rent increases for regulated apartments, the alternative proposal provides only $3 a month in relief for stabilized rentals and no relief for unregulated rentals.

Investing in New York's Future:
Despite the City's budget problems we must continue to invest in our City's infrastructure and long-term growth.  We are using targeted investment of City funds to create jobs, housing and economic growth in all five boroughs. Among other projects we are investing over $1 billion to modernize our 911 Emergency Response System for the 21st Century.  We will invest $71 million in the Brooklyn Navy Yard to improve the infrastructure supporting our local industrial base.  To maintain our competitive edge in travel and tourism, we invest nearly $200 million to redevelop the Manhattan Passenger Ship Terminal for cruise lines and are spending $475 million to modernize Harlem Hospital and Jacobi Medical Center.

We have accomplished a lot of over the past few years," concluded Mayor Bloomberg.  "Brighter days are undoubtedly here but no amount of sunshine should make us forget the very real challenges going forward.  We need to continue making not just the tough decisions, but the right decisions, so we don't squander our gains. Fiscal restraint still needs to be the order of the day or we will be right back where we started. We cannot spend our way back into a crisis.  Too many people have sacrificed to let that happen."


Edward Skyler / Jordan Barowitz   (212) 788-2958

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