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FOR IMMEDIATE RELEASE
November 14, 2002
PR- 296-02
www.nyc.gov


MAYOR MICHAEL R. BLOOMBERG PRESENTS FIRST QUARTER BUDGET MODIFICATION AND FOUR-YEAR FINANCIAL PLAN

Proposes Income Tax Reform and Budget Cuts To Ease Tax Burden On  New Yorkers And Close Budget Gap

Mayor Michael R. Bloomberg today announced his first quarter budget modification for Fiscal Year (FY) 2003 and presented an updated four year financial plan for New York City.  New York City is facing a budget deficit of more than $1.1 billion in the current fiscal year and $6.4 billion in FY 2004. Mayor Bloomberg announced the shortfalls will be closed by a combination of cost savings, assistance from the State and Federal Governments, labor productivity and revenue enhancements including reforming the City’s income tax and an increase in the property tax.  The Mayor will release his formal first quarter budget modification to the City Council on November 20th.

“There is no silver bullet to address the $7.5 billion budget shortfall facing the City over the next twenty months --- $1.1 billion in FY 2003 and $6.4 billion in FY 2004,” said Mayor Bloomberg.  “By any standard, the magnitude of the deficit precludes any single measure from curing the entire problem without causing serious harm to New Yorkers.  Taxes alone cannot bridge the shortfall, nor can the need be responsibly met solely through budget cuts.”

The FY 2003 budget, when adopted last June, closed a gap of almost $5 billion and projected a shortfall of $3.7 billion for FY 2004.  The financial picture has since eroded significantly with projected gaps now widening to $1.1 billion and $6.4 billion for Fiscal Years 2003 and 2004, respectively. The change in estimates is due primarily to a reduction in anticipated revenues resulting from a continued softening of the economy. In addition to decreasing revenues, the revised financial plan reflects growth in the relatively unchangeable fixed cost components of the budget.

The magnitude of today’s budget gap is substantial; however, the City is not in the same predicament as in 1975. Unlike the mid-1970s the economic foundation of New York City remains strong.  Population is at an all time high of over eight million citizens and the City is recognized as a vital and cutting-edge place to do business. 

Expense Reductions:
In July 2002, Mayor Bloomberg, in an effort to prepare for any financial shortfall, asked all City agencies for a 7.5% cost savings program for FY ‘03, in October the Mayor requested an additional 2% for FY ’03 and 4% for FY ’04. The result of that program is $844 million in FY ‘03 and $1.1 billion in FY ’04 of cost savings. These expense reductions are in addition to $1.5 billion already made in FY ’03, bringing the total reduction to over $2.3 billion for the current fiscal year. Every effort was made to absorb these reductions by finding ways to more efficiently deliver vital services. 

Tax Reform:
Like other jurisdictions, including Nassau and Westchester Counties, the City plan proposes an increase in the property tax.  The November modification proposes a 25% increase in the real property tax rate that will generate $1.1 billion in Fiscal Year 2003, growing to $2.3 billion in Fiscal Year 2004. The property tax, the rate which has not been raised in over a decade, is the only levy that the City can alter without prior State approval.

The November modification proposes to reform the personal income tax structure to: (1) raise revenues, (2) introduce equity into the City’s tax system and (3) mitigate the impact of higher property taxes on City residents. The personal income tax is currently levied only on residents, with a maximum rate of 3.65%.  Restructuring the City’s personal income tax base to include income earned in New York City by non-residents will provide an immediate across the board reduction to the City’s personal income tax, reducing the top rate from 3.65% to 2.75%. This approach mirrors the methodology employed by New York State to impose its personal income tax, which is levied equally on all individuals working within the State regardless of residency. And because three-quarters of corporate employees that work in New York live in New York and pay local income taxes, tax reform will minimize any long-term impact on City employment.

In the short-term, this measure will generate over $1 billion in Fiscal Year 2004. However, the need to generate increased revenues from the personal income tax is temporary. Over the next several years the maximum rate will be reduced to 2.25%, the rate at which no additional personal income tax revenues will be collected over and above the amount collected under today’s tax structure.

The net effect of these tax changes is that the adverse impact of the property tax will be offset substantially by the restructuring of the personal income tax.  Together, the combined impact of these tax changes to many residents will be relatively modest.  A head of household with two dependents, earning $55,000 per year and owning a one or two family house, will pay only $151 more annually in taxes under this proposal and many taxpayers will actually see their tax burden reduce as result of this reform.

Intergovernmental Aid:
The City is also requesting significant assistance from the State and Federal Governments.  The City is seeking $200 million in aid from the State Government from a menu of options that includes $719 million in proposals that have no cost to the State. These include Medcaid Cost Containment, Tort Reform, and Flexible use of Child Care Funding.   New York City is seeking $275 million in education aid to offset the ongoing cost of the teachers labor agreement.

New York City is requesting $200 million in aid from the Federal Government and an additional $700 million to fund emergency preparedness spending.  The City has prepared a menu of more than $1 billion in Federal initiatives with $300 million of no additional costs to the Federal Government.  These initiatives include flexibility in Hazard Mitigation, flexible use of Community Development Block Grants and reimbursement for of costs for protecting foreign dignitaries.

Workforce Productivity:
Municipal employees and their unions must share in the solution to the City’s current financial difficulties. Labor costs represent 72% of the discretionary portion of the budget --- the largest single component. Savings associated with workforce productivity are a major ingredient of the November modification.  In the absence of productivity improvements or other responsible alternatives, layoffs may become inevitable.


 

www.nyc.gov

Contact: Edward Skyler / Jordan Barowitz 
(212) 788-2958