Bloomy's Bogus Budget

The Mayor Gets Raves for Phony Fiscal Planning

Ok, the city is in dire trouble. We've got a new mayor and new council who face daunting deficits and require civic support. Mike Bloomberg has managed in a few short months to demonstrate how a mayor can almost instantly change the mood of the city for the better, taking the tension out of the air as surely as his predecessor fed it. But all of this does not mean we are to collectively suspend critical judgment, turning a blind eye to alarming news that suggests the new city government has hired Arthur Andersen as its accountant.

Just three weeks after reaching a budget agreement for the fiscal year that began July 1, Bloomberg announced he was asking all agencies to come up with plans by September to achieve 7.5 percent cuts. He revealed that his just-launched budget had sprung a billion-dollar leak. The mayor blamed this overnight revision on the stock market's plummet, though when the budget passed on June 21 the papers were already reporting the fourth triple-digit-loss day of the prior eight—a 129.8 point drop.

The significance of this awkwardly early flip-flop could not be missed at the other end of City Hall, where a potentially rebellious council, with 38 raw and restless recruits, was corralled into signing on to a budget that dismayed many. If Bloomberg had proposed a budget with a billion plus in additional cuts and no real tax increases, the council would have almost certainly balked and passed its own, identifying new revenues the mayor could not legally block. If Bloomberg had proposed, as he is now, slashing the city's transit subsidy, sparking fears of a fare hike, the cries to tax the wealthiest New Yorkers rather than its subway poor and working class would have been so shrill even the billionaire mayor might've heard them.

Council Speaker Gifford Miller's claim to fame was the restoration of nearly all of a planned $350 million education cut, significantly aided by Assembly Speaker Shelly Silver. Yet, as quiet as it's kept, school officials are scampering right now to figure out how they will cope with the mayor's order that they freeze $379 million of the $5 billion in city funds they were just allocated. They've already cut $100 million—$42 million of it out of district funds.

The snookered council has a great deal more power in the budget approval process than it will when faced with Bloomberg's soon-to-arrive modification. It can change a budget, increasing or decreasing expenditures or revenues. It cannot introduce a modification raising taxes at all. It can only vote an expense-budget modification up or down. Indeed, if it doesn't pass a mod the mayor submits within 30 days, the proposal becomes law automatically.

While Rudy Giuliani did suggest far smaller cuts shortly after the council approved budgets flush with spending increases, this is the first time a mayoral modification is so significant it might well have changed the outcome of budget negotiations had it surfaced before council passage. And while mayors have in the past been forced by the council to alter a proposed modification and resubmit it, the council's leverage now is decidedly less than it was in June.

Yet David Weprin, the chair of the council finance committee, immediately came to the defense of Bloomberg's cuts: "It's a very responsible and prudent thing for the mayor to do." Though the mayor has already vowed that he will not back any midyear tax increases to close the gaps, the council leadership did not voice a word of public dissent.

Even schools spokeswoman Margie Feinberg refused to comment about a prospective reduction larger than the one that provoked arrests (of Cynthia Nixon no less) and mass howls just weeks ago, raising the question of whether the abolition of an independent board has already left the system more vulnerable to cuts. Chancellor Harold Levy is on his way out the door, the Board of Ed members are already gone, and the new advisory panel appointees have been publicly instructed by the mayor to shut up. Randi Weingarten, the teachers union president, has her best-ever contract, hiking salaries by as much as 22 percent, and hasn't said boo yet about the cuts.

No one's even noticed that the freshly passed school-governance bill, which contains "maintenance of effort" language barring cuts in city school spending unless revenues dip, does not go into effect until fiscal year 2003-2004. Meanwhile, the bill abolished the Stavisky-Goodman law, which had set a minimum formula for school spending since the 1970s. Not only does that give Bloomberg a window of opportunity to cut, it creates an incentive to slash this year—since the 2003-2004 minimum contribution will be determined by what's finally allocated now.

Despite legitimate questions about whether Bloomberg's June budget was a sham or a shocking miscalculation, his sudden shift has been widely praised by the editorial boards. "More power to him," boosted the Post. "The mayor may be moving too slowly in the right direction, but at least he's starting early," said the Times, which did not notice that he was actually a few weeks late in recognizing fiscal realities apparent when the budget was adopted.

Though virtually unnoticed in the press, the detailed, professional assessments of Kathleen Grimm, the state deputy comptroller for the City of New York, and the Financial Control Board (FCB), were blasts at the Bloomberg balancing act, released in mid July. Here are some of the core findings:

City revenue estimates are overly "optimistic," anticipating $250 million more this year than the monitors think will be collected, and $390 million next year. Bloomberg is predicting a 23 percent rise in Wall Street profits this calendar year, while the FCB is anticipating another decline. The state comptroller questions the city's dubious assumption that "economic growth in the coming recovery will be somewhat stronger than the gains seen in the 1990s, resulting in better tax revenue growth."

The UFT contract will cost $1.1 billion a year, $425 million more than was budgeted, with an arbitration panel set to rule on a police contract that could, with secondary effects on fire and other unions, cost hundreds of millions more. Yet Bloomberg has not budgeted a dollar for future collective bargaining, though another round of negotiations for most unions will start this fiscal year, on the heels of the long-delayed recent pacts. The FCB cites the "enormous strain" these settlements pose for the city, with the state comptroller expecting $200 million in additional costs for this year, up to $660 million by next year.

The various forms of borrowing in Bloomberg's four-year financial plan "will free up $3.7 billion through 2007," with 80 percent of it spent by next June. Yet "future taxpayers will have to repay these loans at a cost of $6.4 billion and will receive no services in return." Both monitors deplored the city's return to the costly refunding of its debt, with one calling it "imprudent" and the other warning that the multibillion-dollar debt splurge has reached "levels that the city has never demonstrated an ability to sustain," sounding the near-bankruptcy alarm from the '70s.

The mayor who presided over the '70s collapse was onetime comptroller and certified accountant Abe Beame, elected because he "knew the buck." The FCB, which was created to supplant Beame's fingers-crossed botching of the city's books, wrote in its July report that Bloomberg's "decision not to address the city's fiscal condition" in this budget was "of course related to the wish to avoid taking actions that would further unsettle the local economy." But Bloomberg's business acumen—and supposed ability to "address the city's fiscal condition"—was precisely why he was elected.

Saying that the mayor's budget contains "a high level of risk," the ordinarily muted FCB contends that the uncertainties "simply cannot be ignored." They should also not have been ignored in June, when the City Charter required both branches of municipal government to honestly confront them.


Research assistance: Ross Goldberg, Christopher Heaney, Rebecca Isenberg, Matteen R. Mokalla, Nate Schweber, Emily Weinstein

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