Mayor Michael R. Bloomberg today announced his Fiscal Year (FY) 2006 Preliminary Budget and presented an updated four-year financial plan for New York City. The $48.3 billion budget puts the City on firm financial footing while closing a $3 billion budget gap, maintaining City services and not raising taxes.
“The tough decisions and difficult choices we have made are paying off,” said Mayor Bloomberg. “The City’s fiscal outlook is strong. Our economy is improving and tax revenues, buoyed by a hot real estate market, are climbing. It is no accident that the City is finding its financial footing. New Yorkers have persevered through challenging times over the last three years, have stoically endured tax increases and almost $4 billion in budget reductions. It is because of New Yorkers sacrifice that the City’s fiscal outlook is brightening. However, long-term fiscal stability and structural balance remains elusive because of increases in non-discretionary spending. The City still faces significant challenges in closing the FY ’06 budget gap as well as in the out years.”
New York City’s economy continues to strengthen and jobs are being created throughout the City. Although Wall Street profits in 2004 are projected to be below the 2003 level, the fourth quarter of 2004 was strong, providing a firm foundation for 2005. The commercial real estate market is recovering, with occupancy rates increasing for the fourth consecutive quarter. Residential real estate prices have also been increasing. Both domestic and international tourists are returning to New York City at record levels, eating in restaurants, shopping in stores and taking in all of the wonderful sites of New York City. Hotel occupancy rates are at levels not seen since before September 11th, 2001, and nightly room rates are rising.
Quality of Life
Despite the challenging fiscal environment, more than $3.8 billion in gap-closing actions and a reduction in City headcount of 16,000 over the last three years, City services and the quality of life continue to improve. Crime continues its historic decline and is down 14% since this administration began three years ago. In 2004, New York City had the fewest murders since 1963 and the fewest traffic fatalities since 1910. Streets are cleaner than they have been in 30 years and parks are being improved and expanded like never before.
FY ’06 Gap Closing
Prior to the Preliminary Budget, the FY ’06 budget gap was forecast at $2.965 billion dollars. The gap is closed by $911 million generated by increases in tax revenue and other savings since the October 2004 financial plan update, and a $518 million agency program that yields $1.43 billion in FY ’05 that can be used as a resource to help close the FY ’06 budget gap. In addition to the roll of $1.43 billion, the gap is closed by a nearly $600 million in agency actions in FY ’06, $500 million in State actions, $250 million in assistance from the Federal Government and $325 million in pension and health insurance savings.
The FY ’06 budget gap is ameliorated by significant increases in real estate transfer taxes. The feverish pace of real estate transactions, reflected in the City’s mortgage recording and real property transfer taxes have increased FY ’04 and FY ’05 City tax collections by $663 million since FY ’03. Unfortunately, this activity cannot be sustained indefinitely and real estate transaction taxes are forecast to decrease in FY ’06 by 37%.
Despite the City’s strengthening economy and fiscal stability, significant risks within the budget threaten the City’s financial health. The resolution of the Campaign for Fiscal Equity lawsuit could cost the City’s billions of dollars if the State fails to properly fund the education of New York’s children. The Metropolitan Transportation Authority’s (MTA) capital plan needs a massive infusion of funds. While the City is the only jurisdiction within the MTA’s service area that makes contributions to its capital plan, New York City faces the risk of having to bail the agency out. If the labor settlement reached through the State PERB process are above the pattern set for municipal workers who bargained with the City directly it could impose billions of dollars in additional cost and result in severe reductions in uniform personnel.
$400 Homeowner Rebate and EITC:
Last year the City was able to reward homeowners who helped New York through its fiscal crisis with a $400 property tax rebate. Over 660,000 Class 1 and Class 2 homeowners received a $400 rebate on their property tax. The program cost approximately $265 million and is being extended through FY ’06. In addition, low-income working New Yorkers with children will receive an average of $142 from the extension of the Earned Income Tax Credit to
New York City.
Mandated increases in City spending on Medicaid, fringe benefits, pensions and debt service are the principal cause of the City’s budget gaps in FY ’06 and beyond. City discretionary spending is remaining essentially flat. Non-discretionary spending has surpassed discretionary spending in total and is increasing at a rate of 12.1% between FY ’04 and FY ’05, and will top $22 billion by FY ’07.
State and Federal Aid:
The FY ’05 Financial Plan calls for additional Federal and State aid to New York City, including many items that are of no cost to the State or Federal Governments. New York City is requesting $250 million of assistance from Washington and $500 million of assistance
New York City pays over $13 billion more in Federal taxes than it receives from the Federal Government in spending. The City requests that the Federal Government increase Medicaid spending for localities. In the past year, the City received an additional $125 million in Homeland Security funding for high threat cities. In the coming year, the State Homeland Security Grant program must be changed so that it is distributed on a threat-based allocation rather than a population-based formula.
New York City pays $11 billion more in State taxes than it gets back in funding despite being the economic engine of the State. The State underfunds the City’s public schools, imposes local participation for Medicaid costs (unlike most States in the country), mandates certain services while failing to allocate appropriate funds, and continually imposes higher pension costs through benefit enhancements for City employees. The Financial Plan calls for $500 million in assistance from the State Government including Medicaid reform.
Preliminary Ten-Year Capital Plan:
The Preliminary Capital Plan invests more than $60 billion in City infrastructure over the next ten years. A total of $19.1 billion or 31% is invested in New York City schools. The plan invests more than $1 billion in resurfacing 8,700 of lane miles of City streets, $532 million in supportive housing for the homeless, $408 million for Parks, $580 million for new firehouses and police stations, $225 million for Harlem Hospital, $200 million for Bronx parks, $100 million for the development of Fresh Kills Park, $89 million for developing Downtown Brooklyn and $73 million for building the Flushing Meadow Corona Park pool and skating rink.
“This is a budget that reflects the priorities of our administration: increasing public safety and our quality of life; creating jobs; reforming our schools and helping the vulnerable,” concluded Mayor Bloomberg. “Now is not the time to change course. The City is benefiting from a resurgent economy and more efficient government but we must remain fiscally responsible or we will risk all we have gained. If we spend outside our means, we will spend our way right back into a fiscal crisis. After all we have done, after all we have been through, no one wants to see that happen.”