MAYOR GIULIANI ADDRESSES PUBLIC FINANCE PROFESSIONALS AT THE BOND BUYER 3RD ANNUAL NEW YORK PUBLIC FINANCE CONFERENCE
Mayor Rudolph W. Giuliani today addressed public finance professionals at the Third Annual New York Public Finance Conference sponsored by The Bond Buyer, a daily newspaper of municipal finance.
The Mayor was joined by Kenneth Gibbs, Senior Vice President and Co-director of Municipal Finance at First Albany, Gerry Mintz, President and Chief Executive Officer of The Bond Buyer, Tom Curtain, Publisher of The Bond Buyer, Dan Yacoe, Editor of The Bond Buyer; Deputy Mayor Randy Levine, and Office of Management and Budget Director Joseph Lhota, at the Marriot Financial Center in Manhattan.
Following his addressthe Mayor answered questions on the state of the City posed by key decision makers in state and local government and in the municipal bond industry. The audience was comprised of various representatives of the industry including bankers, attorneys, financial analysts, fund managers, rating agencies and bond issuers.
"I'm honored to be here with you today to talk about the revitalization of New York City," said Mayor Giuliani. "Over the last four years, our City has made history. We reversed decades of escalating crime rates, deteriorating schools, rising welfare rolls, and declining quality of life. Fortune recently named New York City the best City to do business in the country and U.S. News & World Report called us the "Comeback City." Over the past four years we reversed the decline of the City and have changed the way people all over the nation and the world perceive New York City.
"Over the last four years, we have consistently balanced the budget year-in and year-out, and managed to keep government spending below the rate of inflation. This is the first time that New York City government has accomplished this in our history.
This means we've reversed what had become one of the most entrenched and destructive New York City traditions - not only to increase our spending, but to routinely increase it at a rate greater than the growth of our economy would allow. By imposing discipline onto our finances, we have built for the first time a solid foundation that allows for steady and sustainable economic growth, a foundation that allows us to make real, lasting, and economically intelligent choices for the good of the City.
"But even with all of these accomplishments much remains to be done," said the Mayor. "That is why in the November Financial Plan, we continued to make gains that the City hadn't made before: such as a $450 million windfall in tax revenues, allowing the city to increase spending, reduce risks that appeared in the budget and scale back anticipated budget cuts."
The Bond Buyer is recognized as the leading municipal finance publication. Bond Buyer Conferences offer direct access to key decision makers in state and local government and in the municipal bond industry.
For the first time in decades, we are able to plan for the future from a position of strength. This is a particularly important transformation when you consider the fact that just four years ago, the financial future of the City was in serious jeopardy. City government was shooting itself in the foot by spending more than it could afford, and more than our economy would allow.
[CHART 1: "City Funded Spending vs. Inflation"]
The past three administrations had rates of increase in spending over a four year period ranging from 4.7 percent to 7.9 percent - every year, they managed to spend more, and do less. And the rates of growth were always larger than the rate of inflation.
Look at the difference over the last four years. Our rate of inflation has been 2.5 percent, and the rate of increase in City spending has been just 1.5 percent. I think that's just as exciting historically as anything else we've accomplished.
It's exciting because budgets have a real impact on the lives of people. A City that is fiscally viable attracts investment, and investment creates jobs. It's just that simple. By restoring faith in the future of the City and returning the principles of responsibility and accountability to the life of our government, we have taken, and continue to take, a critical step toward improving the lives of all New Yorkers.
The State of the City's Economy Four Years Ago
Just four years ago, City government was in fiscal disarray, and the City was in deep economic trouble. We were hemorrhaging over 320,000 private sector jobs. In fact, with only three percent of the United States employment base, New York City was responsible for 20 percent of all job losses nationwide.
The City bureaucracy was overgrown and out of control. The City's own payroll was over 217,000 and getting larger without the quality of service we have a right to expect. New York City was developing a well-earned reputation for being fiscally irresponsible.
Our public assistance rolls were rising dramatically. With 1.2 million people on welfare and counting, the City was in the midst of its longest sustained period of welfare growth of the last 25 years. That wasn't fair to City government, it wasn't fair to working New Yorkers, and it wasn't fair to the people on welfare.
Our economic growth as a City was also shackled by higher taxes, which city government used to consider the only way to raise revenue. The Dinkins Administration raised taxes by more than $1.5 billion -- but even with this increase in revenue, they did not successfully close the budget gap. In fact, they widened it. In January 1994, I was confronted with a budget gap of $2.2 billion for that year. This was significantly larger than Mayor Dinkins had reported it to be.
[CHART 2: "Cumulative Expenditure Savings of $7.8 Billion"]
If we had continued at the pace that David Dinkins and his predecessors had set, look at how much we would be spending today and in the future: In FY 95, we would have spent $1.3 billion more than we spent. In FY 96, we would have spent $2 billion more. In FY 97, we would have spent another $1.4 billion. And in FY 98, we would be spending another $3.1 billion. That's a total of $7.8 billion more over four years and we wouldn't have seen any increase in the quality of life.
Our Answer: Fiscal Responsibility and Discipline
We refused to accept the old way of doing things. Instead, we stressed accountability and responsibility throughout the City, starting with City government. In the financial capital of the world, City government should not be behind the curve - it should be out in front, leading the way.
We had the courage to make tough decisions, to take on taxes that had hampered our economy for years without deriving any real benefit for the people of the City.
Our strategy has been simple and straightforward: we reduced the rate of growth in spending and the tax burden on the private sector, with the specific aim of spurring diverse private sector job creation. This is the only way for a City to become strong and stable on its own. We realized that to be the Capital of the World (and the Financial Capital of the World) we needed to be capable of sustaining our growth regardless of fluctuations in Wall Street or any other part of our economy.
So how did we put the City on the right track and stabilize our economy?
We lowered projected spending by $7.8 billion... kept the growth of City spending under the rate of inflation for the first time, made smart, targeted tax cuts... made conservative estimates of City revenues despite criticisms that the estimates were too low... and negotiated sensible contracts with City unions to generate further savings.
We reduced the City's headcount by over 20,000 without layoffs... reduced the public assistance rolls by over 300,000 [CHART 3: "Public Assistance Recipients January 1955 to September 1997"]... reduced the out-year gaps [CHART 4: "Every Year the Out-Year Gaps Are Reduced or Eliminated]... reduced the tax burden, specifically cutting taxes in order to spur job creation... and lowered business costs by rooting out organized crime influence and opening up our markets.
Through welfare reform we've saved over $650 million annually in city, state, and federal funds. We've cut the City work force by over 20,000, and over all by 36,000 when you include the non-tax levy positions in the Health and Hospitals Corporation, the New York City Housing Authority, and the Off-Track Betting Corporation.
The general reserve of the City of New York is five times what it was in 1987 and two-and-a-half times what it was in 1993. In other words, currently we have set aside a cushion of $500 million -- in the past, we used to save only $200 million or $100 million.
All of these are reasons why, when the Dow Jones industrial average dropped 554 points in late October, City government was concerned, but we knew that we were prepared to handle it. That's because, due to the way we have managed our economy, it is stronger and more stable than ever, and in a better position to withstand fluctuations in the market.
And as the ultimate result of all our choices -- the result of the vision we had at the beginning, and had the courage to stick to despite media and political pressure -- we're experiencing record job growth, with over 173,500 jobs created over the last four years. We haven't gotten back all the 320,000 jobs we lost between 1990 and 1993 yet, but we're more than halfway there. In fact, the rate of increase in employment over the last four years is greater than it has ever been.
What's most remarkable about the jobs that we've allowed our businesses to create -- 170,000 plus and growing -- is that they've been added across the board. There is a misconception that most of the City's jobs have been added on Wall Street. But the point is that exactly the opposite has happened -- we haven't depended on Wall Street for our resurgence.
In so many ways, we are now in a position of strength, which is always the position you want to be in when you are planning for the future.
Planning for the Future
But that doesn't mean we have the luxury of relaxing the fiscal discipline that we have acquired.
The City's fiscal condition was significantly damaged in the 1970s, 80s, and early 90s. That's simply a part of history. Remember - we almost went bankrupt in the mid-70s, and never really turned around our core management strategies until the mid-90s. As a result, today New York City still isn't treated like other cities by the people in this room, nor should we be. We're scrutinized, looked at under a microscope. We're held to a different standard. Of course, we don't mind that because we are scrutinizing ourselves and holding ourselves to a new standard of accountability.
Because of this, we're making significant strides in transforming the economic culture of the City. Now, businesses are not afraid to invest their future in the City. They don't feel threatened by the long list of liabilities that once kept them away - crime, taxes, dirty streets, a crumbling infrastructure, poor schools, the mob. We're confronting all of the problems that held New York City back for decades, all the problems that overwhelmed previous administrations.
And just look at the results: According to two polls released within the last six months, New York City is now the most desirable place to live in the nation, as well as the city Americans most like to visit. You may have heard that crime is down in New York City - just days ago, statistics were released showing that in the first six months of this year, serious crime in the City fell at a rate two-and-a-half times the national average. Now, we are 150th on the F.B.I.'s list of 189 cities for our rate of serious crimes. Our crime rate is roughly what it was in 1967, lower than it was at any time in the 1970s, 80s, or 90s.
We've broken tourism records each of the last three years. Hotel occupancy rates are at a record high, second only to Waikiki, Hawaii thanks to our reduction of the hotel occupancy tax, which used to be the highest in the nation.
But we don't plan to celebrate, at least not when it comes to planning our next budget. What got us to this point was disciplined spending and hard work, and that is exactly what will take us to the next level as a City. We plan to continue to impose fiscal discipline.
We'll continue to make more intelligent and targeted tax cuts, like our most recent proposal to eliminate the unfair double taxation on owners of "S" Corporations, and our proposal to allow parents and guardians to get child care credit while working or looking for work.
We'll continue to reduce the welfare rolls and move people to lives of self-sufficiency, leading the City toward greater independence and setting an example for the nation about the importance of work.
We're continuing our highly successful fight against organized crime influence in New York City. By eliminating mob influence in the Fulton Fish Market and the garbage hauling industry, we've already saved hundreds of millions of dollars for legitimate businesses throughout the City. Now we are expanding our strategies to wholesale markets throughout the City, the garment industry, and the construction industry. I believe that soon the "mob tax" savings to the people of the City will total $1 billion dollars.
We will continue to build and renovate our City's infrastructure. Much of the money we're spending is on projects that were neglected for years. We're finally dealing with them - from schools to bridges to parks - and this bodes well for the future of the City.
We hope that, like so many other observers both inside and outside the City - from national magazines to local store owners - you recognize the strides that we're making. That's why we're asking you to upgrade our bond ratings once again as we continue to grow fiscally strong. Our record speaks for itself. We are confident about our future, and we deserve your confidence as well.
I believe that this administration, in tackling many of the most difficult financial problems facing our city since the 1960s, is setting a precedent for future administrations. Neglect is no longer an option.
We've proven that we are responsible enough to spend within our means and, when necessary, to borrow within our means in order to do what we have to do to keep the City strong. Sometimes, when you're facing head on the most difficult challenges of a City that has, in many ways, been neglected for years, you have to borrow money. That's the only way to build for the future.
This is why we are proposing that the state legislature increase the City's debt limit, as it is currently outlined in the state constitution. It was written in 1938, when the only source of City revenue was the property tax. As a result, the debt limit was decided to be 10 percent of the taxable value of real property in the City. Now we also have an income tax, and a sales tax - which, I might add, we're trying to eliminate, at least for clothing purchases.
We have vastly different needs as a City than we had sixty years ago, and we should be in a position to borrow more money when we must. That's why we created the Transitional Finance Authority in February of this year, which gives us the flexibility we need to make plans for the future.
But we want to do something else for the City, so that in the next century we can grow and prosper as much as we have in this century. In January, we will propose in Albany that the City's debt limit be increased, so that it is 10 percent of the sum of real property value and of taxable personal income.
This amendment would be a prudent and intelligent change that would allow us to institute our capital plan with the same spirit of discipline, accountability, and responsibility we have exercised so consistently over the past four years. For example, we will very soon need more space to accommodate our growing public school student population. But the state's bond issue to build more schools was recently defeated by referendum. What is our alternative now? We're exploring our options at the moment, but in the future, an increase in our debt limit would provide the necessary means to weigh the possibilities. [Is this worth mentioning? Is it pertinent?]
Changing the state constitution is not a simple process. First, it must be voted on by two successive legislatures. Then, it goes to a vote of the people. So the earliest that this could conceivably be approved is November 1999.
We believe to put this reform on the books, and to give the City this necessary flexibility to build more schools, new roads, or whatever we may need to help the City function at its best, will be a wonderful legacy to leave to the people of the City as we advance together into the year 2000. It will give the City the opportunity to realize its promise for the sake of our children and our grandchildren.
Conclusion
Now, we have to continue to build on our success -- to balance our budget year in and year out, with low out-year gaps. We have to continue to lower taxes and reduce spending. We have to continue to shrink the City's payroll without layoffs and without compromising services.
That might seem difficult to do, but we've proven what we're capable of as a City. We've already raised the expectations of many of the people in this room, and we're not done yet.
Thank you.
Reducing Spending
As we began to successfully reduce crime, we had the confidence to instill discipline and accountability in City government. That, too, wasn't done without a fair share of criticism. But as a result, we've reined in what had become uncontrolled growth in City spending.
The past three administrations had rates of increase in spending over a four year period ranging from 4.7 percent to 7.9 percent -- every year, they managed to spend more, and do less. And the rates of growth were always larger than the rate of inflation. That's very important, because it meant that the City was always spending more in actual dollars from one year to the next.
[CHART 4: "City Funded Spending vs. Inflation"]
In this administration, for the first time we've kept the rate of growth of the budget below the rate of growth of inflation. And that's happened with a low rate of inflation. The rate of inflation over the last four years was 2.5 percent, and the rate of increase in City spending was just 1.5 percent.
Hard decisions pay off. Discipline and accountability pay off, and as a result all New Yorkers are better off.
[CHART 5: "City Funded Headcount Has Been Reduced"]
One of the keys to reducing the increase in City spending has been lowering the City's payroll. In 1990, the City-funded headcount was at 226,735 -- in 1991, 226,290.
You can also see something remarkable on this chart. In November of 1987 -- which is FY 1988 -- following Wall Street's sharp drop, Mayor Koch said that what the City needed to do was put in place a hiring and spending freeze. But if you look at the chart, you'll see that in reality, City government did just the opposite. The City's payroll went up from 213,509 in 1987 to 220,085 [a 6,576 increase] in 1988, and then rose again in 1989 by another 4,000 [to 224,166 in 1989].
We've reduced the City payroll to just over 200,000, without layoffs and without compromising services. We did it with an innovative severance program. In fact, services have improved. We have better policing, faster response times for the Fire Department and the Bureau of Emergency Medical Services, and cleaner streets and parks. Was this some kind of magic trick? No. We are doing more with less by having the courage to make difficult decisions and manage effectively. We've demanded higher standards of performance from City workers.
Now, as a result of putting our financial house in order, we don't need to be as reactive to momentary economic fluctuations as the Koch administration or the Dinkins administration. City government can stand on its own. So when there are dips in the market, like the 554-point drop earlier this week, we don't panic -- because we are better prepared, and it really doesn't effect us dramatically.
Cutting Taxes and Creating JobsWe reversed the policies of the past to promote job growth across all sectors of the economy. The conventional wisdom said that to raise money for government, you had to raise taxes -- we've disproved that.
[CHART 6: "New York City Tax Burden Has Declined Dramatically"]
Over the last four years, we have reduced the tax burden on hardworking New Yorkers by $1.1 billion -- the largest decrease in New York City history. A recent report by the New York State Comptroller actually pointed out that New York City's tax burden is now the lowest it's been since 1970.
We did this by eliminating the Commercial Rent Tax in Brooklyn, the Bronx, Queens, and Staten Island, and in Manhattan north of 96th Street and south of Chambers Street -- and we're reducing the tax in that remaining area... by reforming the General Corporation Tax and beginning the implementation of the phase-out of the Unincorporated Business Tax... and by reducing the hotel tax.
Each of these tax reductions has strengthened by City by putting money back in the pockets of the working people of the City, which is where it belongs.
And our week-long sales tax "vacations" have given needed relief to New Yorkers, especially those with lower incomes. Because they've been so successful, we have successfully lobbied Albany to drop the tax completely for all clothing items under $100, not including footwear, in 1999. But that's not enough. I plan on working hard to eliminate the tax on all clothing purchases under $500, including footwear.
As I announced recently, we'll continue to make intelligent and targeted tax reductions. We will urge Albany to provide an income tax credit for resident owners of small corporations called "S Corporations," who are currently double-taxed, and will fight for a tax credit for child and dependent care for parents or guardians who are working or looking for work.
On top of the record $1.1 billion tax reduction that has already benefited the City's businesses and consumers, we've reduced the mob tax by hundreds of millions of dollars, which has returned even more money to businesses across the City and prevented criminals from profiting off honest New Yorkers. I believe that over the next few years, savings from the mob and the construction industry -- will total $1 billion.
THE RESULT: A STRONGER CITY
The ultimate result of all these choices -- the result of the vision we had at the beginning, and had the courage to stick to despite media and political pressure -- is that we're experiencing record job growth. In fact, the rate of increase over the last four years is greater than it has ever been. This is just four years after New York City was responsible for 20 percent of the nation's job losses.
What's most remarkable about the jobs that we've allowed our businesses to create -- 170,000 plus and growing -- is that they've been added across the board. There is a misconception that most of the City's jobs have been added on Wall Street. But the point is that exactly the opposite has happened -- we haven't depended on Wall Street for our resurgence.
Wall Street accounts for 15 percent of our tax revenue -- in 1987, it was responsible for 18 percent of our tax revenue. So the City has diversified substantially.
In fact, Manhattan isn't even registering the highest percentage job growth -- Queens is leading the way.
[CHART 7: "Private Sector Job Growth 1994 through September 1997"]
And citywide, the securities industry has accounted for a relatively small percentage of our total job growth. Wall Street -- which accounts for 5 percent of the City's private sector employment -- has only grown by 13,800 jobs over the last four years.
In contrast, employment rose over 62,000 in business and related services -- which includes advertising, accounting, personnel, computer programming, and legal services -- over 25,000 in the retail industry, over 24,000 in medical services, and nearly 24,000 in educational services. We've gained 18,200 entry-level jobs in the tourism and restaurant industry.
That's the sign of an economy that has the stability to continue growing despite shifts in the market or in any particular industry. All of our industries are important, and all have played an essential part in our economic revitalization.
In so many areas, we are now in a position of strength, which is always the position you want to be in when you are planning for the future.
CONCLUSION
When we set out to rein in spending, improve City services, and diversify our economy, some critics were urging us to cut government spending more drastically. But we understood that you can't just make indiscriminate budget cuts -- you must go about it wisely and strategically.
I believe if we had cut the way people had suggested, we would have jeopardized the future of the City. Instead of doing that, and doing things the same old way, we forged our own path.
As The New York Times said on their editorial page last Sunday, "The Mayor scored some impressive successes. He made hard choices during his first years in office. Unlike his recent predecessors, who also knew how to cut when times were tough, he did not return to business as usual once the economy improved. The head count in city agencies has not ballooned back to its pre-austerity level. He kept his promise to reduce taxes with modest, targeted cuts aimed at encouraging business growth."
Now, we have to continue to build on our success -- to balance the budget year in and year out, with low out-year gaps. We have to continue to lower taxes and reduce spending. We have to continue to shrink the City's payroll without layoffs and without compromising services.
That might seem difficult to do, but as we've proven already, it can and will be done.
Thank you.
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