"Thank you, Governor Pataki, and good afternoon, everyone.

"At the outset, I want to say how much I appreciate the role the Financial Control Board has played over the past 30 years in assuring New York City's financial stability, and in particular, the role that Governor Pataki has played over the last twelve of those years.

"Governor, this will be your last meeting with the FCB, and on behalf of all New Yorkers, I want to thank you for being such a strong partner in helping to secure New York City's future. 

"I'm not alone in appreciating the important role that the FCB has played in our City.  In fact, since the last time we met, last July, New York's voters wisely decided to include in the City Charter many of the financial safeguards that have been established and employed by the FCB for so long and so well.

"These include requirements to balance our budget annually in accordance with generally accepted accounting principles, to prepare a four-year financial plan for the City, to keep in place restrictions on the City's ability to issue short-term debt, and to incorporate the standards State law has set concerning the annual audit of City accounts.

"Our Administration proposed and heartily endorsed these reforms. They are the essence of responsible stewardship of the City's finances. And because we have followed these standards, today, it's my duty, and also my pleasure, to report to you that New York City stands on firm fiscal ground.

"That's because we've made the sound investments that continue to spur robust economic growth in all five boroughs, and also followed a fiscally responsible course of budgetary restraint at City Hall.

"The $52.9 billion City budget for Fiscal Year 2007, adopted some four weeks ago by the City Council, continues these policies, and  I want to applaud the Council, and particularly Speaker Christine Quinn, for working with our Administration to achieve a forward-looking budget that will help ensure our long-term growth and stability.

"I am pleased to report that the course we've set has been vigorously endorsed by Standard & Poor's, which has once again improved its rating of the City's general obligation bonds to historically favorable levels. 

"A year ago, Standard & Poor's raised our G-O bond rating from 'A' to what was then an all-time high of 'A+.'  This year, they topped that with a new G-O bond rating of 'AA-.'

"In its evaluation of the City's finances explaining this upgrade, Standard & Poor's cited a number of positive indicators, including these four: Our 'long track record of strong budget management' on both the capital and expense sides; and our disciplined commitment to addressing future long-term liabilities, such as retiree health benefits; New York City's 'substantial and diverse economic base;' and our recent success in 'securing long-term funding for our substantial education facility needs.'

"I believe that these are precisely the right factors to look at in evaluating our current fiscal status.  And in today's testimony, I'd like to touch briefly on each of them, starting with the recently passed budget.

"Responsible budgetary decision-making at City Hall is ensuring that the gains we have made are managed wisely-so that we don't repeat the mistakes of the past and squander our good fortune with excessive spending or unwise revenue reductions. 

"We have come a long way since the first two years of our Administration, when we struggled to close successive budget gaps of $5 billion in Fiscal Year 2003 and $6.5 billion in FY '04. Our resulting efforts to put the City's financial house in order preserved essential services, increased agency efficiency, and reduced City spending by almost $4 billion over the past four and a half years.

"Now we are reaping the benefits of that fiscal prudence, which was a major factor in the more than $3.75 billion surplus we accrued during Fiscal Year 2006. Because we're no longer operating in a crisis mode, we can take the long view, and begin to put the City on a course to the long-term structural balance.

"The four-year financial plan accompanying the budget for Fiscal '07 continues the fiscally sound decision-making practices commended by Standard & Poor's. For example, we are using much of our surplus from Fiscal '06 to reduce long-term debt, by committing some $1 billion to finance capital projects on a "pay-as-you-go" basis.  Debt restructuring will also produce $850 million in savings.

"And this forward-thinking approach to budgeting leads to the second factor cited by Standard & Poor's:  Our strategy for meeting the City's long-term obligations, including the costs of retiree health benefits. No one yet knows precisely how large a liability these expenses will be.  Estimates run as high as $50 billion. During Fiscal '06, we took the unprecedented step of creating a health benefits trust fund, and committing $1 billion to it.  We're matching that with another $1 billion in the current fiscal year.

"Clearly, $2 billion is hardly sufficient to meet our future obligations.  But we have made a beginning.  And also, importantly, we've sent a message to the financial markets and others about New York City's commitment to fiscal responsibility and transparency. We're also continuing to send all the stakeholders in the budget process equally unmistakable messages about the urgency of addressing all our long-term structural problems. 

"The ever-mounting costs of pensions, fringe benefits, and other non-controllable expenses are not only absorbing the sizeable budget surplus produced in Fiscal Year '06, they are also going to produce budget gaps of roughly $4 billion in each of the next three fiscal years, up to Fiscal Year 2010.

"These future multi-billion budget gaps cannot be treated lightly - nor can we afford to wait for them to arrive.  Our current good fortune is a result of making the tough - and the correct - long-term decisions.  And now is not the time to let up.

"We must work with our partners in government and labor to address these structural imbalances, and to set our City on a smoother path - one that avoids the trap government too often sets for itself - enjoying the good times, rather than planning for the hard times.

"Future tax increases and spending cuts are not inevitable - but if we fail to take action, they will be. This is particularly true because there are signs that our current rate of robust economic growth is beginning to slow down. So we certainly can't expect continued windfall revenues to close our future budget gaps. 

"To achieve structural balance, we need continued fiscal restraint at City Hall. We will seek containments of rising costs fringe benefit costs as we negotiate collective bargaining agreements with the Municipal Labor Committee, and we will work with our municipal unions to achieve pension and health care reform in Albany.

"Unless we achieve such reforms, when bad economic times return-as they inevitably will-New Yorkers will pay a heavy price in reduced services and higher taxes.

"But we have a chance to steer clear of these budgetary shoals - and our Administration will chart that course, and do everything possible to persuade our partners in government to join us. By making sound investments in the future and managing our resources in a responsible manner, we have helped achieve a "substantial and diverse economic base" - the third factor cited by Standard and Poor's.

"Virtually every economic indicator in our city is very positive. Today, more New Yorkers-nearly 3.6 million men and women-are working than at any time in the city's history.  The number of private sector jobs in the city-more than 3.1 million-is the biggest since September 2001.  Average monthly unemployment for the first six months of this year was 5.3% - the lowest average rate for the first half of any year since 1988.  And fewer New Yorkers are on welfare than at any time since 1964.

"The city's steadily growing population is also another telling measure of our economy's health.  By the year 2010, we expect to have added some 325,000 people-the equivalent of a city the size of Pittsburgh-to our population during the current decade.

"That's clear and compelling proof that people and businesses see a bright future for New York City-a future that they want to be part of. 

"Today, we're experiencing healthy growth in virtually all of the most important sectors of our economy.  And to sustain that growth, our Administration is pursuing policies and making strategic investments that are nurturing our key industries.

"A good example is tourism.  During 2005, New York City welcomed more than 42 million visitors to our city-a new record.  This year, we expect to do even better, helped by a continued upsurge in tourism by overseas visitors. 

"Across the city, hotel occupancy and room rates are at historic highs.  Our airports are packed.  A record number of New Yorkers-more than 305,000-are employed in tourism-related businesses.

"But we are not complacent about this success.  We know that we are locked into an intense, non-stop competition with other cities for convention and tourism business.  So we're sharpening our competitive edge by investing $350 million in City capital dollars in the expansion of the Javits Center, by rebuilding and expanding cultural institutions across the city, from Lincoln Center to the Staten Island Zoo; by supporting the new homes being built by the Yankees, Mets, and Nets in the Bronx, Queens, and Brooklyn; and by tripling to $45 million over the next three years the City's funding for tourism marketing and promotion.

"Film and television production is another of our important industries; it supports the jobs of some 100,000 people in all five boroughs.  It is also enjoying robust growth.  During 2005 alone, New York City hosted more than 350 film and television productions.  The number of "shooting days" in New York City was double what it was in 2002, and reached an all-time high.

"Our Administration has fostered this growth by actively supporting the expansion of the Steiner, Silvercup, and Kaufman-Astoria studios; And also through the highly successful 'Made in NY' film and TV production tax credit that we developed.  We have now extended 'Made in NY' through 2011, and more than doubled the pool of City funds committed to this program.

"Construction is another key industry enjoying healthy growth.  Construction cranes dot our skyline.  Building permits have increased by nearly 30% since 2001, and are at an all-time high.  So are housing starts. The resulting demand for construction materials is so strong that their purchase price is reportedly increasing at the rate of one to two per cent per month.  

"This fast pace of building will only increase in the months ahead, as we move forward with major public projects that have long been in the works, and also as new private development, encouraged by our targeted rezoning of the Far West Side, Greenpoint and Williamsburg, and other once-distressed communities, continue to break ground.

"From the South Bronx to Coney Island to Staten Island's Homeport, neighborhoods once plagued by abandonment and neglect are being rezoned, redeveloped and reinvented-creating the open space, housing, and businesses critical to the city's future. And cooperating with labor and management, we're also recruiting and training the next generation of construction workers who will transform our city.

"Because of these efforts, in the years ahead construction jobs across our city will increasingly be filled by women, minorities, our public high school graduates, and our returning veterans.  In fact, last week at Gracie Mansion, it was my pleasure to hand out diplomas-and hard hats-to the first 54 graduates of a new program that is preparing formerly hard-core unemployed New Yorkers for jobs in the building trades.

"Let me describe just one more aspect of our strong local economy:  Commercial real estate.

"The market is hot, and demand is being fueled, in part, by a trend that was reported on earlier this month:  An increasing number of Fortune 500 companies are making their headquarters in New York - reversing a decades-long exodus from our city of corporate headquarters.

"Now, in order to ensure that both established and new companies have the room they need to expand, it's vital that we increase New York City's supply of modern office space.  That's why our Administration has made a top priority of rezoning and redeveloping such areas as Downtown Brooklyn, Flushing in Queens, and the Hudson Yards area on Manhattan's Far West Side.  

"The development of these areas is key to our city's future prosperity.

"Our continued success in reducing crime is also crucial to our economic future-and the budget for FY 07 keeps us headed in the right direction. When we came into office in 2002, there was a great deal of apprehension that because of the post-9/11 austerity the NYPD faced, we would lose precious ground gained in public safety.

"The belt-tightening was real.  Today, there are some 4,000 fewer officers assigned to ordinary patrol duties than there were before 9/11.  In part, that's because of the attrition that reduced the Department's headcount by 3,000 officers during 2002 and 2003. And in part, it's also because we have assigned 1,000 officers to duties in the NYPD's nationally recognized counter-terrorism and intelligence divisions.

"Nevertheless, New York has remained the undisputed safest big city in the nation.  We've driven crime some 22% lower than it was at this time in 2001.  And our murder rate is the lowest it has been since the early 1960s.

"That's an enormous tribute to the bravery and skill of New York's Finest.  Nevertheless, the continued growth of our city's population demands that we increase patrol strength-and that is exactly what we intend to do.

"However, as the new officers gain seniority, the annual outlays for their salaries and fringe benefits are expected to exceed $80 million by the end of this decade. But this is not an area-or an era-in which we can afford to scrimp or cut corners.   These new officers are essential for the safety of our streets.  Just as importantly, they're also a bulwark against future terrorist attacks.

"On both counts, they're investments in the continued prosperity of New York City.

"So is the final factor that Standard & Poor's cited in their decision to upgrade the City's bond rating:  This year's joint City-State funding of our historic $13.1 billion, five-year school capital program-the biggest school construction program New York has ever seen.   

"In a very real sense, this capital plan raises the curtain on the 21st century in our public schools.  It will fund construction of 97 new schools throughout the city-a city in which the median age of public school buildings is 62 years, which means that half of them are of World War II vintage or older.

"The capital plan will produce 66,000 new classroom seats.  That will allow us to eliminate pockets of overcrowding, discontinue the use of trailers as "mobile classrooms" in elementary schools, and end the practice of split shifts in overcrowded high schools. 

"We'll also be able to build the libraries, labs, and gyms we need to truly give our children the first-rate schools that will help us attract and retain hard-working and talented people to our city, and that will educate the workforce we need for our future.

"Our Administration has made an unprecedented commitment of  $6.5 billion to this school construction program.  And this spring, our State leaders-including Assembly Speaker Sheldon Silver, Senate Majority Leader Joe Bruno, and you, Governor Pataki-committed the State to the dollar-for-dollar match that will permit us to see this program through to completion.

"That was a major investment in the city's future-one that will pay enormous dividends for all New Yorkers for many years to come.

"Such investments in education and job creation build on and lock in the gains our economy has made in recent years, and help us to ensure our long-term growth and stability. 

"By following the course that we are now on, by continuing to promote a diverse and growing economy while also maintaining fiscally sound budgetary practices, we can ensure that New York City will remain strong, and continue to grow stronger."