The Independent Budget Office today released its analysis of the Mayor's Preliminary Budget for 2003 and Financial Plan through 2006. The 98-page report examines the Mayor's plan for closing a projected $4.76 billion budget shortfall primarily through a combination of spending cuts, state and federal assistance, and borrowing and other measures that provide short-term resources but add long-term costs.
"Mayor Michael Bloomberg would have inherited a very large budget shortfall even if the tragic events of September 11 never occurred. Continued economic weakness has only compounded the fiscal problems the Mayor faces," said IBO Director Ronnie Lowenstein. "But a significant share of the Administration's budget proposals for 2003 count on one-time revenues from borrowing that would still leave much the same gap in 2004 and beyond. This borrowing, along with a plan to reduce the immediate costs of pension increases, would help close next year's gap by shifting the burden to future taxpayers."
These measures include:
- borrowing a total of $1.74 billion through the Transitional Finance Authority and the Municipal Assistance Corporation to help close the 2003 gap. The TFA borrowing, plus another $515 million in 2002 for World Trade Center-related costs for which the city will not receive federal reimbursement, would cost New Yorkers $180 million annually for 20 years.
- borrowing $191.4 million to pay for fire trucks, ambulances, and other city property and equipment lost in the World Trade Center disaster even though the Federal Emergency Management Agency will reimburse New York for these expenses. The city plans to use the FEMA reimbursements as operating revenue rather than to pay off the debt - in essence capitalizing operating expenses - at an annual cost of roughly $11 million for 20 years.
- extending the phase-in period for cost-of-living adjustments in the pensions of city workers from 5 years to 10. This would save the city $275 million in 2003, and a total of $856 million over four years. But the future budgetary impact would be substantial. Once the phase-in is complete in 2010, the city would have to increase its contributions by $120 million per year for 20 years to make up for the earlier savings.
"IBO recognizes the depth of the city's shortfall, but cautions that borrowing and other actions that will cost the city more in later years should be kept to a minimum - and coupled with a plan to restore the city to long-term budget balance," added Lowenstein.
IBO's report finds that even if all of the Administration's proposals are adopted, the city still faces a shortfall of $397 million in 2003, and more than $3 billion in each year from 2004 through 2006. These shortfalls would occur even without any money being included for future settlements with the municipal labor unions. Each 1 percentage point increase for all city workers, including teachers, would increase labor costs - and the city's budget shortfall - by over $180 million during the first full year the contracts are in effect.
The report, portions of which were released earlier this month, also provides a comprehensive forecast of city revenues for 2002 through 2006, and examines the spending proposals for some two dozen city agencies.
The report is available on-line at www.ibo.nyc.ny.us. A free, printed copy can be requested by calling 212-442-0632.