INDEPENDENT BUDGET OFFICE
The City of New York
110 WILLIAM STREET, 14TH FL., NEW YORK, NY 10038



Legal and Practical Implications of the City Council Formulating and Adopting the City Budget for 1999

An ongoing disagreement between the Mayor and City Council leadership on the cityís 1999 budget has raised the possibility that the City Council might for the first time adopt a non-negotiated budget. If the Council were to do so, the Mayor could make implementation of the budget difficult; but any roadblocks the Mayor might construct are not without negative consequences for the Mayor. Below, IBO discusses the statutory and practical framework within which the Council would be forced to operate.

 

City Charterís Budget Adoption Process. The Charter provides the City Council with broad authority to amend and adopt the Mayorís executive budget. It is empowered to increase, decrease, add, or omit any appropriation¾ regardless of whether such appropriation is part of the expense, contract, or capital budget. Moreover, the Council can change any of the terms and conditions related to such appropriations. In other words, the Council has full authority to craft its own budget if it deems appropriate.

In the past, the Mayor and the Council have always reached a negotiated settlement on the budget prior to the start of the fiscal year on July 1st¾ not a surprising development given the substantial budgetary powers granted to the Mayor in the Charter. The Mayorís authority to set non-property tax revenues and independently execute the budget make him a formidable force in the budget adoption process.

A key date in the process is June 5th. The Mayor must send the Council an estimate of all non-property tax revenues anticipated for the coming fiscal year by that date. Additionally, if the Council has not adopted an expense budget by June 5th, the budget and tax rates in place for the current year are extended for the new fiscal year until such time that an expense budget is adopted. For the capital budget, the unused portion of all capital appropriations are automatically reappropriated.

When the Council adopts the budget it becomes law. The Mayor can, however, veto any increases to appropriations (above the Mayorís executive budget proposal) or changes in terms and conditions. Any such vetos must occur within five days of the budget adoption and may be overridden by two-thirds of the Council within 10 days after disapproval.

Revenue Estimates: Who Decides How Much the City Can Spend? The adopted budget is funded at its most basic level from two sources: 1) non-property tax revenues¾ estimated by the Mayor no later than June 5th and 2) property taxes¾ set by the Council immediately subsequent to budget adoption. The Council is required to set property tax rates at a level sufficient to make up the difference between adopted budget spending and non-property tax revenues because the budget must be balanced under the Charter.

The revenue estimation process reflects an important mayoral power which can be used to undermine the Councilís ability to adopt a budget without the Mayorís active participation and agreement. Since the Mayorís final revenue estimate is binding on the Council, the Mayor could refuse to update his 1999 tax revenue forecast to reflect actual April income and business tax collections¾ which proved to be much higher than forecast in the Mayorís executive budget. The Mayorís tax revenue forecast for 1999 is $505 million lower than forecast by IBO (which is required by the Charter to provide a revenue estimate to assist the Council in crafting a budget) and $693 million lower than forecast by the Councilís Finance Division. If he refused to update his estimate, the Mayor would force the Council either to decrease the amount available for expenditure or increase property tax rates.

If the Mayor were to set non-property tax revenues at unrealistically low levels, however, the Council would be able to counter such a move during the upcoming fiscal year when the Mayor seeks to modify the budget to account for and spend the revenues being collected over and above his forecast level. Under the Charter, the Mayor must request the Councilís approval to spend unanticipated revenues accruing during the year, and the Councilís full budget powers (as described above) apply to revenue modifications. By understating revenues when the Council adopts its own budget, the Mayor would only postpone having to negotiate with the Council. Moreover, if the Council is forced to set property tax rates at an unnecessarily high level, taxpayers could have a legal case that rates based on a seriously flawed revenue estimate are not valid.

The Charter is silent about what happens if the Mayor does not provide the Council with a non-property tax revenue estimate by June 5th.

Budget Execution. The Charter provides the Mayor with substantial powers in deciding when funds can be spent by agencies. No funds can be spent until schedules are established by the Mayor fixing positions and salaries and other expenses within appropriations. Moreover, the Mayor is required to establish quarterly spending allotments for each appropriation limiting the amount agencies are allowed to spend. Importantly, the Mayor can set aside reserves which cannot be spent until released by the Mayor. Those administrative functions can be transformed into what can be thought of as virtual impoundment power if the Mayor chooses to use them aggressively. The Councilís powers to structure units of appropriation¾ which could be defined very narrowly giving the Mayor little room to exercise much discretion¾ and to use terms and conditions directing precisely how and when funds are to spent, however, can mitigate any virtual impoundment threat.

 

The Charter permits the Mayor, under certain circumstances, to impound (or withhold from fully spending) certain funds after notifying the Council and responding to their requests for explanation. The Mayor is granted this unilateral power in addition to his joint powers (along with the Council) to amend the budget after adoption. The Mayorís power to impound depends on authority to act under the Charter or other relevant law (primarily the state Financial Emergency Act). The Charter provides impoundment power to respond to statutory mandates and fiscal crises, not political disagreements.

While the most recent Charter revisions retained a strong mayoral form of government, the City Council was strengthened to be a more effective counterbalance to the executive branch. The new city government was designed in the spirit of the traditional American model, replete with a system of checks and balances. While a negotiated budget has become the norm in the city since the new Charter was put in place, the Council clearly has the authority and means to craft, adopt, and ensure proper implementation of a non-negotiated budget. The Mayor could take steps to make such an effort both cumbersome and difficult, but the powers vested in the Council could in turn be used to counter some, if not many, of the options available to the Mayor.

 

For more information on this topic, call IBO at (212) 442-0632.