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PR- 035-09
January 22, 2009


The following is Mayor Bloomberg's testimony as prepared.

"Good morning.  Thank you, Chairman Farrell, and thank you, Chairman Kruger - and congratulations to you and Vice Chair Liz Krueger on your recent appointments.  This is my eighth year testifying before this joint committee. Seated with me are Michelle Goldstein, Director of State Legislative Affairs for the City of New York and Mark Page, the City's Director of Management and Budget.

"When we came before you last January, dark clouds of uncertainty already hung over our economy. Because we knew that no boom lasts indefinitely, New York City was already battening its hatches by pre-paying debt and putting billions of dollars aside to close future budget gaps. 

"But economic conditions have since deteriorated beyond what anyone anticipated. We are now in the 13th month of a national recession and deep into a global financial crisis centered in our city.

"In the past two years, firms on Wall Street - major contributors to our state's economy - have reported losses of more than $36 billion and may eventually lay off one-quarter of their workforce. Two months ago, we forecast that City revenues from economically sensitive taxes in Fiscal Year 2010 would be at least $4.9 billion lower than they were in Fiscal Year 2008 - a 20% drop.  But that's just in Fiscal Year 2010.  The hard truth is the losses on Wall Street will affect our tax revenues for many years to come.

"In such grave economic times, government is obliged to budget wisely - to stretch every dollar to maintain services and to focus on speeding economic recovery. In New York City, we've taken these responsibilities very seriously.

"Since my testimony 12 months ago, City agencies have, at my direction, taken $2.2 billion in actions designed to help close the City's still-looming budget gap in Fiscal Year 2010, which begins July 1st.  Last month, I directed City agencies to identify an additional $1.4 billion worth of cuts for the coming fiscal year. 

"The results will appear in the City's preliminary budget that I present next week.  But since most of the City's expenses are for personnel, you can be sure that it will forecast a smaller workforce. And because cost-cutting alone won't preserve essential services, we've also had to raise revenues. 

"Last month, as proposed by our Administration, the City Council voted to move up the expiration of a 7% property tax reduction to January 1st from July 1st.  This action will generate $600 million in our current fiscal year, which will be used to help close the budget gap we face in Fiscal Year 2010.

"The Governor also understands the severity of this fiscal crisis, evidenced by his presentation of an Executive Budget a full month before our state's constitutional deadline.  This budget includes some smart proposals - but unfortunately, it also contains serious flaws. In too many instances, it uses the fiscal crisis as an excuse to shift State expenses to New York's localities - in many cases, permanently.

"Also, and even more distressing, New York City residents would shoulder a disproportionately heavy share of service cuts and changes in revenue sharing, which could force us to raise taxes locally.

"All localities are being asked to take a bitter pill; New York City is being asked to swallow an entire bottle.

"In total, the Governor's proposed budget would produce a loss of $1.6 billion for the City. But let me stress that I am not here today to give the typical "tin cup" speech mayors always make in Albany. We understand that closing a $15 billion deficit requires major cuts - and the City can't be exempt. 

"But these burdens must be shared fairly.  The City certainly shouldn't be penalized for showing the good sense we have in anticipating this recession and trimming our own budget already. Nor should Albany overburden a city economy that, while straining, remains the state's economic engine.

"In the short term that would mean both higher City taxes and also thousands of fewer cops, firefighters, and teachers - all compounding the local effects of the recession. And in the long run, it would make it that much harder for the City's financial services industry to rebuild itself. Make no mistake about it: Raising taxes on those with the flexibility to move their businesses - as was done in previous crises - will lead to an exodus that will hurt us for decades and have devastating consequences for the entire state.

"There is a strong likelihood that Congress and President Obama will agree on a federal stimulus package that could help relieve some of our fiscal deficits. To the extent possible, we are working to have this money go directly to cities so that we can put it to use as quickly as possible.

"Funding coming to the State should also be shared quickly and fairly with localities, including New York City.  For instance, the City's Department of Transportation currently receives 19 percent of federal funding sent to the State for road and bridge work - and that's the way it should remain with stimulus funds. But it's important to note that such stimulus funds - whether they're capital or expense - are no panacea for our budget problems. They're only intended for two years. And the State's situation is so severe that we cannot ignore our primary responsibility, and the surest course of action: reining in spending.

"Before suggesting some potential cost-saving measures, let me turn first to items in the budget that require your most urgent attention. Without a doubt, the most pressing is the Governor's disappointing proposal to exclude New York City - and only New York City - from State revenue-sharing.

"This is, actually, the second time in three years that we face the prospect of having our share of State revenue-sharing funds eliminated completely. Because our revenues from taxes on real estate, financial services, and other industries have dropped so sharply, this couldn't happen at a worse time. And that's especially true because revenue-sharing funds provide us with welcome spending flexibility even as the discretionary spending in our budget shrinks year after year. Since the City generates nearly 50 percent of all State tax revenues, it's hard to justify cutting us out of revenue sharing entirely.

The Governor's budget suggests that additional taxes on city residents could make up the difference. But that would only exacerbate our ongoing imbalance of payments with the State - which already is equivalent to about $1,300 for each New York City resident.

"For New York City, the consequences of the proposed elimination of revenue-sharing are in fact much worse than they appear in the Governor's budget. Because of the way these funds are paid to the City, payments of $328 million would be lost in both our current and coming fiscal years. $656 million isn't chump change; it's enough to pay the salaries of roughly 9,000 police officers or 10,000 teachers or 11,000 correction officers or 12,000 sanitation workers. Our own budget problems leave us with no cushion to soften a blow of this magnitude.  So without a restoration in revenue sharing, we face an additional two-thirds of a billion dollars in new taxes and service cuts, including thousands of State-sponsored layoffs.

"What makes this situation even more difficult is Albany's continued practice of postponing certain payments owed to the City. This year, the State is delaying $522 million, including funding for our public colleges. In good times, these delays are just a nuisance. But this year, combined with the elimination of revenue-sharing funds, they're creating intolerable pressure precisely when we must draw up our budget.

"Members of the Legislature: That's not treating the City fairly, and it's not leading the State properly. Yet again, we're counting on you - our local representatives - to fully restore the revenue sharing that the City needs and deserves.

"Let me now turn to education.

"I want to set the record straight about precisely how much the City is losing in education operating aid from the State. At the very least, we ought to be honest about that. If you read the Executive Budget, that reduction is $206 million. But that number is the product of misleading accounting. It is reached by taking various increases and decreases in operating aid which combined equal a net reduction of $296 million, and then offsetting that with $90 million in additional State capital funding. These capital dollars are certainly welcome. But they aren't and never will be operating dollars - and they shouldn't ever be counted as such.

"In fact, the actual cut in aid to City schools is a staggering $770 million.

"Here's how it breaks down: It includes the net reduction of $296 million in operating aid. It also includes the elimination of $293 million in increased funds ordered by the Campaign for Fiscal Equity settlement. Finally, the State is also asking the City to absorb more than $180 million in the costs of educating some 30,000 pre-kindergarten students who have special education needs. These pre-k special ed costs have ballooned 52% since 2003.  And now the Governor proposes cutting the State's share of them from 59.5% to 47% - a permanent cost shift.

"Such steep reductions would hit us hard at the worst possible time. Because of the way New York City is required by State law to do its own budget, $84.3 million in additional pre-k special ed costs would fall on our taxpayers in the middle of the school year. That would force the City's Department of Education to cover these costs immediately. We'd also face an additional $97.3 million in mandated pre-k special ed expenses in our Fiscal Year 2010.Rather than just shifting these growing costs onto school districts, the State should work to contain them - and we are committed to working with the Governor and all of you to make that happen.

"Now, let's consider Medicaid.

"New York State has one of the most expensive Medicaid programs in the nation - and savings surely can be obtained as long as they're generated fairly. But it's a complex undertaking.  In containing costs, we must make sure that we neither sacrifice access to healthcare for our most vulnerable New Yorkers, nor undermine our healthcare infrastructure.

"Unfortunately, we face such potential problems. The Governor's proposals would cost New York City's Health and Hospitals Corporation nearly $300 million. These cuts would take the form of reductions in Medicaid funding and State grants, and a reinstitution of a gross receipts tax on hospitals. In addition, our Fire Department could lose $60 million in Medicaid support for its critical Emergency Medical Services. We can't absorb such reductions without putting vital services at risk.

"A much better route to savings would be increasing State efforts to root out Medicaid fraud and waste. For starters, the State Legislature should pass legislation making it easier to recover funds from Medicaid recipients who hide assets or receive cash windfalls. The State's Medicaid Inspector General must also respond more quickly to the instances of waste which the City's audits have found. In the past two years, our audits have identified about $25 million in potential recoveries - but the Medicaid I.G. has not given us the green light to go after it. Let's start rooting out this waste now - and then we can talk about the rest.

"The Governor is also seeking to expand eligibility for the State's Family Health Plus program. While I support extending health coverage to more New Yorkers, the State shouldn't pay for this expansion from funds currently dedicated to core services provided by public hospitals and nursing homes. It is, after all, State law that requires the City's HHC facilities to care for any patient, regardless of ability to pay. Instead, let's work together to control Medicaid spending, expand health coverage, and also keep our public hospitals the best in the nation. 

"Social services is another area where the Executive Budget hits New York City harder than everyone else, with cuts totaling more than $200 million.

"In reality, we'd have no choice but to pick up millions of dollars of those costs ourselves - because often, the proposed State actions are in fact camouflaged shifts of mandated costs to the City. For example, the Executive Budget would change how the State and City share costs of keeping children in locally operated juvenile detention facilities. Last year, as you may recall, the Executive Budget proposed that the State end its longstanding policy of paying 50% of these costs. We objected, and the Legislature wisely said 'no' to this idea.

"This year's Executive Budget instead proposes creating 'youth development block grants' for the City and other localities that would theoretically meet the total costs of juvenile detention as well as alternatives to incarceration, after-school programs, and other initiatives.

"But there's a problem. In reality, the juvenile detention population is inherently unpredictable, while per capita costs of detention are legally mandated. So the full costs of detention would wind up being beyond the City's control even as the pool of dollars we'd have to meet them would be fixed by the size of our block grant. Almost inevitably, the City would have to divert money in its block grant from other worthy initiatives in order to cover detention costs that the State has traditionally helped to bear.  That would cause us either to cut those programs or pay the difference ourselves.

"Another cost shift is proposed in the way the State funds local programs under Temporary Assistance to Needy Families, or TANF. The Executive Budget would eliminate all State general fund contributions to local employment, homelessness prevention, administration, and other services for the needy - and replace these funds with federal TANF monies. But the budget also calls for using federal monies to pay for the Governor's proposed increases in welfare benefits, leaving fewer federal dollars for other TANF programs. Since federal funding is not set to increase, the City will have to eliminate programs or make up the difference - another example of the State 'reducing costs' by shifting expenses to the City.

"Before dramatically reducing funds to hospitals, schools and public safety, let's make sure we've explored every possible alternative. So let me turn to measures in the Governor's proposed budget - and others that I am proposing today - which could help bridge State and local budget gaps without affecting services. Special interests may reflexively oppose some of them.  But we can't ignore our responsibility to the State as a whole during this time of crisis.

"First, we welcome continued reform of the Wicks Law. When passed in 1961, it required localities to issue multiple construction contracts for public works projects costing more than $50,000 - even when only one contractor was necessary. And that requirement remained - unchanged - until last year, when the State at last raised the threshold to projects costing more than $3 million in New York City.

"This year, the Governor proposes lifting it again - to $10 million in New York City.  That one measure will produce almost $160 million in capital construction savings for the City over the next five years.

"But the State Legislature can do even more by eliminating this costly and cumbersome law completely. At the very least, we should ensure that the federal stimulus funding which the City is likely to receive is exempted from the Wicks Law. That will help us stretch those federal dollars and put more people back to work modernizing our infrastructure.

"We also commend the Governor for including two common-sense reforms in his budget that would generate millions in savings for the City.

"The first would save us $14.5 million a year by directing the courts to offset personal injury awards with payments from 'collateral sources.' Right now, plaintiffs awarded damages who receive other compensation - like medical insurance or disability benefits - are essentially getting far more money than they claim to have lost. We all want justice for victims; the Governor's proposal would ensure justice for taxpayers as well.

"The second reform would lower the rate of interest that the City, State, and other public entities must pay on judgments. Right now, that rate is set by statute at 9 percent - but this doesn't make any sense while interest rates are at an all-time low. By linking the rate instead to the rate of the U.S. Treasury Bill - which has averaged 3.5 percent over the past four years - we would save $1.5 million a year.

"The Governor's budget also includes a significant expansion of our red light camera program, which will help us make our streets even safer.

"But the most significant reform in the budget is the proposal to create a new fifth tier in the City's pension plan and bring it in line with reality. I've always believed in paying our workforce as much as we can, and making public service attractive to the best and the brightest. But right now, we're paying full retirement benefits to people in their early 40s.  We can't afford to continue that for the next generation of retirees - especially with people living longer and longer. In fact, since 2000, the City's pension expenses have grown by $5 billion - an average of $1,600 in additional taxes last year for every New York City household.

"The Governor's reforms include setting a new 'full benefits' minimum retirement age of 50 and requiring 25 years of service instead of 20 for full benefits to members of our uniformed services. These changes would save taxpayers $7.4 billion over the next 20 years. With our economy in a tailspin, such pension reform is an idea whose time has definitely come.

"We also recommend other cost-saving measures.

"First, we propose folding all 21,000 employees enrolled in the Board of Education Retirement System - the City's smallest pension system - into either the Teachers Retirement System or the New York City Employees' Retirement System. This would produce millions of dollars in savings from economies of scale without the loss of a single job.

"Let's also seize this opportunity to enact overdue tort reforms that would bring New York in line with the rest of the country. Last year, we spent a staggering $550 million settling tort claims.  But we can reduce that astronomical sum through simple changes in the law, such as limiting awards. For instance, imposing a $250,000 cap on City liability for damages associated with pain and suffering - something that's on the books in 38 other states - alone would save us $63 million each year.

"Before taking your questions, let me run through five other key items on the City's agenda during this session.

"First, at the top of our list is working with you to re-authorize mayoral control of our school system. Since the State Legislature's wise decision in 2002 to abolish the old Board of Ed, we've replaced a culture of dysfunction in our schools with a culture of accountability and achievement.

"We've cut school crime by 34 percent, and slashed school bureaucracy by $350 million. We've given principals more power over their schools. We've created bonuses for high-performing teachers. We've made parents greater partners in their children's education. And we've ended the disastrous policy of social promotion.

"None of these reforms have been easy or always popular. But they have achieved results: Graduation rates are at an all-time high, test scores are improving throughout the City, and we've reduced the shameful achievement gap between students of different races - cutting it in half in 4th grade math.

"Clearly, we've still got a long way to go. While our schools are good and getting better they're not yet good enough.

"But for the first time in a long time, we are heading in the right direction - and we simply can't go back to the old days. For the sake of our children, for the sake of our future, I hope you will reauthorize mayoral control.

"The second item on our agenda is reform of the Unincorporated Business Tax. In my State of the City speech last week, I stressed that the UBT unfairly double-taxes thousands of businesses, and may discourage recently laid-off New Yorkers from doing freelance work or starting their own businesses. Such activities are subject to the tax - and yet they can bolster our economy and help pull us through this recession. In 2007, you prudently passed a law limiting the UBT.  Now, we hope you will take the next step by ending or reducing the tax for 17,000 small businesses - saving each of them up to $3,400. That will give their bottom lines a boost when they need it most.

Third, we are proposing legislation that would charge shoppers five cents for every plastic bag they use at local retailers. Some 5 billion plastic bags end up in our municipal waste stream each year, littering our streets and clogging our landfills. By implementing a small fee, we would generate $100 million a year and encourage New Yorkers to use less plastic, reducing the heavy toll it takes on our environment.

Fourth, we urge you to put the spurs to the Public Service Commission in improving the state's energy efficiency. Last June, the Commission approved $175 million for projects to help New Yorkers reduce their energy bills and protect our environment.  Today, these funds are still held in escrow. I don't know what we're waiting for. The Commission should immediately unlock this funding so that energy efficiency programs get up and running.

"Fifth and finally, we urgently must come up with a plan that maintains and improves mass transit. The MTA's budget for 2009 includes both a steep 23% hike in fares and tolls and significant reductions in service - all of which could go into effect this spring.

"That cannot stand; State leaders need to help balance the MTA's operating budget without resorting to these Draconian steps. That should involve establishing a dedicated and predictable funding stream for the MTA's operating and capital needs.

"The commission headed by Dick Ravitch has offered a potential solution that keeps fares reasonable by implementing a payroll tax and putting tolls on the East River and Harlem River bridges. That's one option - and I've always favored asking drivers to contribute to mass transit, while also reducing traffic and improving air quality.

"Ultimately, though, it will be up to you to arrive at a solution - one that's fair to commuters and taxpayers. And with our growing population putting more and more strain on the system, we need that solution without delay.

"The recession has brought a day of reckoning to my city and our state - and we must deal with all our fiscal problems, honestly and straightforwardly, in order to protect the people of New York.

"Success hinges on maintaining a basic fairness between New York City and the rest of the state. We seem to debate this point every January. But this year the stakes are higher than ever - and it's absolutely critical we have a budget that is above board, far-sighted, and most importantly, evenhanded.

"If we can work together, I'm confident that we can pull New York through this deep recession - sooner, rather than later - and put it back on the path to a brighter, stronger future."


Stu Loeser/Marc LaVorgna   (212) 788-2958

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