The Mayor testified this afternoon before the State Financial Control Board.  His prepared remarks are below and attached:

New York City has begun a new fiscal year with a new mood of measured optimism about our financial future.  We recognize that we have come a long way in the last two-and-a-half years, and also that we face significant challenges in keeping the City’s finances on a sound footing.

Since our Administration took office, we’ve made the tough decisions—and the right decisions.  During Fiscal Years 2002 and 2003, we cut spending of City tax dollars by some $3.2 billion.  But because City agencies have learned to do more with less, by virtually any measure, New York City’s quality of life is better now than it was three years ago. 

The facts speak for themselves.  New York remains the safest large city in the nation.  We’ve reduced crime by more than 15% over the last three years.  For the first time since the 1960s, we’re on track to have a third straight year with fewer than 600 murders.

Our streets are cleaner than they have been in 30 years.  Pedestrians and motorists are safer than they have been since the days of the Model T—90 years ago.

Reform of the city’s public schools has at last brought accountability to the all-important task of educating our children.  As a result, the size of the education bureaucracy has been substantially reduced, and school management has been streamlined and improved… the cost of school construction has been slashed by more than 30%… we’ve made heartening progress in reducing crime and disorder in the schools… and we’ve ended the discredited practice of social promotion, replacing it with a commitment to doing what we must to help every child achieve at or above grade level.

Our Administration’s affordable housing initiative, the largest the city has seen in two decades, is on course to meet its goal of financing the construction or renovation of housing for 200,000 New Yorkers by 2008.

And just last month, we launched a comprehensive plan to dramatically reduce chronic homelessness in New York by 2009, by redirecting resources to the job of preventing homelessness before it occurs.   

We’ve aggressively pursued a five-borough economic development strategy to make New York more livable, more business-friendly, and more economically diverse. 

Because of that strategy, earlier this week Citigroup, the city’s largest private sector employer, decided to move 1,500 jobs to Long Island City, and add a net of 600 to 700 new employees citywide.  It’s why the Brooklyn Navy Yard Industrial Park yesterday announced a dramatic expansion that will increase manufacturing employment there by as many as 800 jobs over the next three to five years.

It’s why Related Companies is developing a major new retail center at the Bronx Terminal Market that will produce 2,100 new permanent jobs.  It’s a strategy that is guiding our Administration’s plan to bring thousands more new jobs to the Far West Side of Manhattan, and to make the Homeport site an economic development engine for Staten Island.

In short, our strategy is working.  Our city’s economy is back on track.  During the first quarter of 2004, it grew faster than the nation’s economy for the first time this century. 

Downtown Manhattan’s commercial vacancy rate is now below 14% for the first time in two years.  That is one of the lowest vacancy rates among the nation’s business districts, and the investments we are making in Lower Manhattan will make the area even more attractive in the future.

New York’s ongoing economic revival is a tribute to the hard work and sacrifices of the people of New York… and to the cooperative spirit shown by all branches and levels of City and State government and, increasingly, by our municipal workforce.

Through this partnership, we have maintained fiscal prudence, and found new and innovative approaches to managing City agencies. 

This has, in turn, supported our economic revival, and allowed us to end Fiscal Year 2004 with a budget surplus of $1.9 billion.  This is more than $500 million greater than the surplus in the previous fiscal year.

It is all the more impressive when you consider that at one point the projected budget gap for Fiscal 2004 was more than $6 billion.

It was the City’s 24th consecutive balanced budget. We’re confident that the budget for Fiscal 2005 will also be balanced.

The City Council—in particular Council Speaker Gifford Miller—and City Comptroller Bill Thompson deserve credit for helping us achieve this record of fiscal responsibility.

So do the FCB and the budgetary and financial planning standards established during the fiscal crisis of the mid-1970s.  Their importance to our city is why, as the “sunset” of those standards approaches, our Administration will ask a Charter Commission to consider proposing appropriate checks and balances that will help keep the City on firm fiscal ground.   

As your staff report indicates, the City’s budget for Fiscal Year 2005 is balanced.  It also meets the essential needs of New Yorkers.  And it includes well-deserved tax relief for the City’s homeowners and for New Yorkers who are struggling to make ends meet. 

The $400 property tax rebate homeowners expect to receive will, in most cases, offset the 18.5% emergency increase in property taxes that the City enacted in response to our post-9/11 fiscal crisis.

The rebate will repay those who made the greatest sacrifices during that crisis.  And it will be spent in neighborhoods throughout our city.

Similarly, the Earned Income Tax Credit included in the current City budget will help hard-working New Yorkers who earn less than $30,000 per year.  This EITC will make a big difference in helping them feed and clothe their families—and, as with the property tax rebate, these tax credit funds will be spent in New York City, and support local businesses and jobs.

Both the property tax rebate and the EITC will require the approval of the State Legislature.  Assembly Speaker Silver, Senate Majority Leader Bruno, and Governor Pataki have expressed their support for enacting these measures.

We will also need the support of our State leaders on issues crucial to closing a gap in the City’s budget for Fiscal Year 2006, which the members of this Board are forecasting to be almost $4 billion.

That gap, and the $4.5 billion gap forecast for Fiscal Year 2007, are the result of steadily mounting expenses that are out of the City’s control, but which we must pay.

In our four-year Financial Plan, we project that expenses over which we have control will remain essentially flat through Fiscal 2008.  But our non-discretionary expenses, including debt service, pensions, and the local share of Medicaid, are expected to increase by $2.2 billion, or 14% in the current fiscal year.  They will grow by another 8% in Fiscal 2006.  

The major economic development projects underway in our city that I mentioned earlier, such as the New York Sports and Convention Center, will generate the increased tax revenues that will help us meet these rising costs.  That is why these projects are so important to the economic health of the city, and also to the fiscal stability of City government.     

Balancing our budget in the years ahead also requires us to address our long-term structural problems now.

The City is doing just that.  The budget we have just adopted, for example, contains City debt service costs by funding $800 million in construction costs on a pay-as-you-go basis through 2008. 

Fringe benefits also will be contained through an historic agreement with the City’s labor force that calls for greater employee participation in health care costs.

In April, our Administration also negotiated a new three-year contract with our largest municipal union, District Council 37, which represents almost one-third of the City workforce. 

A 2% raise in the third year of the contract will be financed from benefit savings and operational efficiencies; an additional 1% raise can also be granted if the union works with the Administration to identify more productivity savings. 

This agreement has been mirrored in subsequent contracts with roughly a dozen other City union locals and staff associations.  It now covers some 138,000 City workers. 

It establishes the important principle that raises for the City’s workforce depend on finding offsetting savings in the way that City government operates.  Making that standard part of collective bargaining is vital to the City’s long-term fiscal health.

So is the subject that I want to close my comments with: the still-pending revision of the State education funding formula.  As the FCB’s staff report on our budget suggests, the resolution of this issue has profound implications for the City’s finances.

Education reform is the defining issue of our time.  The people of New York City have accepted the budgetary implications of that challenge.

Our local support for schools is 180% more per pupil than the average in the next four largest cities in the State.  Despite our fiscal crisis, the city has increased support for schools by $1.5 billion since 2002.

Our City’s Department of Education bears responsibilities much greater than those of any other school system in the state.  More than 80% of our students, for example, qualify for free or reduced-price lunches. 

Some 18% of our students have limited proficiency in English, which also puts significant strains on our budget.  In short, 32 cents on every City budget dollar goes to education—and billions more in City dollars go for publicly funded daycare, for Medicaid services to children, and for child welfare programs.  

A fair system of education funding must account for all these local expenses.  It must recognize something else important as well:

That is, the huge deficit that exists between the state tax revenues generated in New York City and the State tax dollars returned here.

For years, the City has relied on a nearly five-year-old analysis of this “balance of payments” that estimated the City’s annual net contribution to the State at $2.6 billion. 

The Center for Governmental Research recently updated this analysis and found that in fact the imbalance of payments between the City and State is more than four times greater than we thought:  It’s actually $11 billion a year.

Simple justice requires that New York City taxpayers not bear the costs of reforming education funding.

New York City is the economic engine for the State and the financial capital of the nation.  Albany and Washington have understood that, and helped our city in its time of need.

The City’s other elected officials and our municipal unions have recognized that, and have been partners with our Administration in the City’s recovery.

Because of that cooperation, New York City is back.  And by continuing to work together in a spirit of partnership, we can meet the city’s immediate and long-term budget needs, and ensure that New York City’s best days are still ahead.