City Council Approves Major Mid-Year Modification To
Fiscal Year 1998 Budget

The City Council, on December 10, 1997, approved a major mid-year modification to the city's budget for fiscal year 1998. The Council's actions, which followed the release of the Mayor's "November Plan," included approving the addition of $391.9 million in newly identified funds to the budget, which comprised a net increase of $467.5 in forecasted tax collections this year, offset by a net decrease of $75.6 million in other revenue and aid categories.

Over half of the $391.9 million increase, $213.6 million, was added to the city's recently established "budget stabilization account" (see text box). In November, the Mayor had proposed adding a total of $239.7 million to the stabilization account. However, subsequent negotiations with the Council resulted in the reduction of that figure to $213.6 million, with the difference of $26.1 million appropriated instead to a variety of other initiatives.

The Council's modification of the city's expense budget included the appropriation of funds to an assortment of agencies and initiatives. For example, $21.3 million was added to the Police Department's fiscal year 1998 budget to fund the hiring of 1,000 police recruits that had been scheduled to join the police force next July (i.e., the first month of fiscal year 1999) but have instead been hired this month. An additional $4.2 million was added to the city's "miscellaneous" budget for the purpose of funding fringe benefit costs associated with the hiring. The accelerated hiring of such police recruits is intended to support recently announced efforts to re-intensify drug enforcement efforts throughout the five boroughs.

For additional information on any aspect of last week's budget modification, contact IBO at (212) 442-0632.

Budget Stabilization Account

The budget stabilization account, which many refer to as a "rainy day fund," was created last June and was initially funded at $300 million. State law prohibits the city from rolling surplus funds from one year to the next, but it does not prohibit the city from prepaying future expenses, such as debt service costs, with surplus funds. By pre-paying future expenses, the city has effectively "rolled" its surplus at the end of each year for many years. For the first time, however, the city used this technique in 1998 to create a quasi rainy day fund -- the budget stabilization account -- by allocating $300 million of funds at adoption to prepay, at the end of the year, the following year's debt service. This innovation achieves some, but not all, of the benefits of a genuine rainy day fund. While it can help close the next year's budget gap, its inherent structure does not guarantee that funds generated during flush economic times will be available during subsequent economic downturns, perhaps occurring several years later.