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Analysis: The Bloomberg Fiscal Legacy


mayor-bloomberg-presenting-budget

After 12 years in office, Mayor Michael Bloomberg will have left an indelible fiscal stamp on New York City that will present his successor — and any progressive agenda — with formidable challenges.

There is, foremost, a four-year financial plan that looks sound in the short run, but masks future labor cost problems for the new mayor; a more centralized, less transparent budget process that has reduced public participation in making fiscal policy; and a weakened set of City Charter-mandated performance indicators that now obscures actual policy outcomes.

Lastly, and perhaps most importantly, Bloomberg leaves a legacy of a trickle-down theory of philanthropy and privatization that sees fiscal and policy reform as best spun from private, not public sources.

Immediate Budget Prospects

In the immediate case, the mayor leaves a $72.7 billion one-year city budget which, according to a modification released last week, will actually end this fiscal year (in June 2014) with a $1.6 billion surplus. The new modification has even better news. The fiscal year 2015 budget — which in June’s financial plan was projected to have a $2 billion deficit — is, four months later, now balanced. The presumption is that the mayor-elect will inherit 18 months of a balanced budget.

"We’re proud of all we’ve achieved — and now we want the next Administration to do even better," Bloomberg said in his weekly radio address broadcast on WINS-AM on Sunday. "The balanced budget we’re handing off to them now — more than seven months before the next fiscal year begins — will help them get off to the best possible start."

But that June financial plan for fiscal years 2014 to 2017, as well as the new November modification, are disingenuous. Recent reports from all four fiscal monitors — city and state comptrollers, the state Financial Control Board, and the Independent Budget Office – all point to retroactive and future labor costs that could add billions of dollars to the plan. The IBO, for one, has laid out a scenario that could cost the city nearly $12 billion more over the next four years.

Management, Accountability, and Privatization

In terms of managing city finances, Bloomberg has expanded mayoral fiscal power, weakening the fiscal clout of the City Council and frustrating planning in city agencies and nonprofit agencies. At the same time, mandated accountability mechanisms, such as the mayor’s management report, provide little information about the impact of the outgoing mayor’s major priorities, such as education reform, expanded privatization, and reductions in human and social services.

The mayor’s focus on privatization has changed the funding and governance structures of reform in New York City. New charter schools are almost exclusively privately run. Many charter schools have attracted significant private funding, from foundations and wealthy individuals.

{pullquote}Bloomberg leaves a legacy of a trickle-down theory of philanthropy and privatization that sees fiscal and policy reform as best spun from private, not public sources.{/pullquote}

The mayor’s own foundation has contributed millions of dollars to city organizations that also receive public funds. Similarly, several small anti-poverty reform programs — introduced late in the Bloomberg tenure — are largely funded by private money and managed in large part by non-city agencies.

The ultimate impact of private funding of charter schools, cultural, social, and anti-poverty programs won’t be known for some time, but the private, philanthropic origins of this — unfolding as the Occupy Wall Street movement dramatized increasing inequality in New York City – have only expanded the financial and governance power of private wealth over public policy in the City. This development promises to be a stout barrier to any public, progressive reform agenda.  

The Budget Legacy: Two Crises, Two Different Solutions

The mayor’s budget legacy is the product of 12 years of balanced budgets, crafted, often brilliantly, in the face of two major economic, social, and political challenges — the shocks of September 11, 2001, and then the financial crash and subsequent recession of the late 2000s.  Those two crisis periods were, however, resolved in quite different ways, and illustrate the range of choices a new mayor and new City Council will consider.

The post-9/11 financial crisis — which slashed city tax revenues and soon threatened the city with a more than $6 billion deficit — presented an enormous challenge to the new mayor. Bloomberg responded effectively and equitably, in November 2002, with a controversial package of service cuts and new taxes, roughly $3 billion of cuts and $3 billion in new revenues.

The $3 billion in property, personal income, and sales tax increases were unpopular, especially the 18.5 percent increase in the average property tax rate (cut back by the City Council from his proposed 25 percent increase), the first rate increase in ten years.

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But the tax package was reasonably progressive, with higher income taxpayers paying higher rates for three years. (The sales tax, the city’s most regressive tax, was increased by only 0.125 percent and only for two years). Along with additional help from state and federal governments, the budget crisis was rather quickly brought under control. The plan, with its focus on shared sacrifice, in retrospect if not at the time, was a triumph for the new mayor.

The second crisis, the financial collapse of 2008 and subsequent budget crisis, was resolved in a quite different way: the regressive city sales tax was increased from 4.0 percent to 4.5 percent — and made permanent; the other major taxes were not tapped; and there followed a nearly-exclusive focus on reductions in city spending. In what has continued as a five year, nearly year-round series of budget modifications, mostly cuts in city spending, the city “saved” a lot of money.

Today the current budget is over $6 billion less than it would otherwise have been, absent the modifications. The cumulative effect on services, while only marginally documented in mayoral performance documents, has had clearly negative impacts, especially in public education.

The progressive income tax rates in place from 2003 through 2005 (and in place through most of the 1990s) would have been a reasonable alternative to the relentless succession of budget cuts. The mayor, however, has simply argued that wealthy New Yorkers already pay the bulk of city personal income taxes (true) and might well move out of the city (unlikely).

The $12 Billion Gamble

By far the biggest fiscal problem for the new mayor will be the nearly $12 billion “gamble,” as the IBO has put it, that the last Bloomberg financial plan includes. All city labor unions have been without a contract for the last three years, the city’s teachers and school administrators for the last five years.

{pullquote}The post-9/11 financial crisis presented an enormous challenge to the new mayor. Bloomberg responded effectively and equitably.{/pullquote}

The IBO’s March 2013 analysis of the mayor’s then-preliminary budget for fiscal year 2014 notes Bloomberg’s “assumptions that the municipal labor unions will accept settlements with no wage increases for contracts that expired after 2010 and that the unions for the teachers and principals will forgo the two years of 4.0 percent raises other unions received [in 2008-2010 negotiations]. With virtually no money set aside to pay for wage increases prior to 2013, the financial plan gambles that the unions and the next mayor will agree to no retroactive raises.”

The IBO estimates that paying the teachers and administrators the 4.0 percent increase for the 2008-2010 period that other unions received, and assuming all union members receive a retroactive annual increase of 2.0 percent for two years after 2010, the cost would be $4.5 billion through last year’s (fiscal 2013) budget, and $1.8 billion annually thereafter through fiscal year 2017. Total potential cost over four years: $11.7 billion ($4.5 billion, plus 4 x $1.8 billion).

More Fiscal Problems for the New Mayor

The just-released November modification shows that there will be a surplus of $1.6 billion at the end of this fiscal year in June, which is used to pre-pay expenses in the next year’s budget. This is much less than surpluses in recent years — and, again, assumes no costs in new labor negotiations. Another fiscal problem is that the mayor has used up the one big reserve fund, his own Retiree Health Benefit Fund (more on this below), which, although it was designed to pay for costs way down the road, he has used as a convenient budget-balancing tool.

As the state comptroller comments in his July 2013 report: “The city has come to rely on the annual surplus and reserves built up during the last economic expansion to balance its budget, and now the city has exhausted most of these reserves.”
Created in 2007 by the mayor and Council to build a long-term reserve fund to pay for the rising future health of city retirees (the city’s liability is now at $88 billion), the fund reached a peak of $3.1 billion. But little more than $100 million is left, according to the state Financial Control Board’s July 2013 report.

As an example of Bloomberg’s fiscal style, the state comptroller points out that the current fiscal 2014 budget “is balanced with $4.5 billion in nonrecurring [i.e., one-time] resources, including $2.7 billion surplus resources and $1 billion in reserves from the last economic expansion.” In other words, the new mayor will have little fiscal cushion should the collective bargaining results (or any surprise events) add major new costs to the financial plan.

The new mayor’s first chance to formally affect the city budget will be in February, when he will release a preliminary budget for fiscal year 2015 (beginning July 1, 2014) and a modified four-year financial plan.

The Question of Mayoral Fiscal Power

While questions about the fiscal health of the city in the short and long run will be paramount in the early months of 2014, there are questions about budget process and management mechanisms that deserve similar attention. For instance, the success of the Bloomberg administration’s 2008-2013 budget-balancing stemmed largely from its ability to change the budget clock and control fiscal information.

In its rush to accumulate an ultimate $6 billion in savings, the mayor telescoped the traditional budget process by overriding the usual February-June budget process set out in the City Charter and made it effectively a year-round process. No sooner were budgets adopted in June than they were effectively modified almost immediately: with public warnings to city agencies to cut back spending in the summer and major modifications announced as early as September.

The February-June schedule lays out formal, well-publicized mayoral presentations — a preliminary budget in February, an executive budget in May — which build in time for City Council hearings, opportunities for public access to the process, and council/mayoral negotiations. Big changes made in the fall don’t permit this full democratic exchange.

{pullquote}A more subtle way in which the mayor has controlled the budget process has been through his budget office’s control of information — much of which is not shared with the public.{/pullquote}

The City Council, for instance, could argue that the sudden increase in the budget surplus, announced last week, could have been used to increase city services this year. Autumn modifications don’t get thorough reviews, and the Council is generally ill-equipped to challenge the changes. The early modifications in a budget year also disrupt planning and management in city agencies and the large number of nonprofit agencies that contract with the city to provide public services.

A more subtle way in which the mayor has controlled the budget process has been through his budget office’s control of information — much of which is not shared with the public. There are any number of ways in which the city’s budget office can manage and then explain (or not) its budget planning to the public. The Bloomberg staff has probably not invented any new techniques, but in the scale and sophistication of its close-to-the-vest work, it may be unmatched.

The Budget Dance

There are several ways, for instance, for a mayor to tamp down expectations and maximize mayoral discretion. Revenue projections may be a bit under-estimated; projected expenditures may be a bit over-estimated. Projects can be delayed. Economic projections may be on the lower range of conventional projections. Money put aside to pay for certain anticipated expenses may not be needed. One-time revenues — like selling city land or taxi medallions — can be moved from one year to another.

These techniques are perfectly illustrated in the new November modification. That surprise $1.6 billion surprise stems from several sources. Tax revenues were (four months ago) underestimated by $1.1 billion for the current year. A reserve fund of $450 million was tapped for $300 million, only four months into the fiscal year; and re-financing of city debt — not anticipated four months ago? — will save $535 million over four years.  

One of the most effective of tamp-down strategies is the so-called “budget dance” through which the mayor each year cuts a few hundred million dollars from programs favored by the City Council. The mayor and Council fight over those cuts during the spring negotiations and the mayor eventually restores most of the cuts (generally for only one year, to keep the game going).

By thus focusing on less than 0.5 percent of the City’s $70 billion budget, the mayor diverts attention from the remaining 99.5 percent of his proposed budget. Big ideas — like re-introducing progressive tax rates or reviewing a system of housing and economic tax exemptions that cost the city billions of dollars — don’t get a hearing. Instead, the mayor and Council fight over pennies.

Typical result? This past June the mayor proposed a $1.00 increase in the public school lunch fee (to $2.50). The Council negotiated the proposed increase down to 25 cents — although the City Comptroller noted in his July report that the remaining 75 cent increase remains in next year’s budget.

One of the biggest areas of budget savings in recent years has been the low interest rates for a city that borrows billions of dollars each year for capital improvements. The budget office has repeatedly overestimated the cost of borrowing — as they in effect acknowledged last week — which then makes it easier for the mayor to claim there’s no money for new proposals.  

According to the state comptroller’s July 2013 report, for instance, the city has refinanced $18 billion of debt (one-quarter of the city’s debt) for cumulative savings of $1.5 billion through fiscal year 2014.

What these budget maneuvers suggest is a consistent political strategy that anticipates and discourages any pressures from the City Council or others to fund new programs or resist proposed cuts. The use of reserve funds, one-time revenues, and the depletion of the health-benefit fund, in particular, have meant that the Bloomberg budgets for the past five years have reflected short-term, opaque planning and an unwillingness to consider alternative strategies.   

Budget Accountability: What Else We Don’t Know

Then there is the question of accountability, the flip side of budgeting. What are the effects of 12 years of spending plans? The official answer is ostensibly in the City Charter-mandated Mayor’s Management Report, issued twice a year, in which a mayor is asked, first, to lay out his fiscal and program goals, and, second, to provide indicators that measure the success of those goals.

The Bloomberg administration, however, has stripped the MMR not only of data, but also of language. There is little or no data provided, for instance, on many of the mayor’s biggest policies and programs: education reform, economic development, contracting, and homelessness services. There is no overall analysis of data; there are occasional paragraphs, but mostly a litany of one-line, bulleted comments.

Nobody reads the MMR anymore. An IBO blog, “How the MMR Went MIA,” noted three years ago that there was an almost complete absence of major press notice of that year’s MMR (only 145 words in the Daily News), and concluded that “the report’s stature has clearly declined.” The New York Times, however, did devote 443 words to the last Bloomberg MMR, released in September.

{pullquote}The Bloomberg administration, however, has stripped the MMR not only of data, but also of language.{/pullquote}

But the Times found little of substance. More than a fifth of the Times’ report was devoted to the MMR’s summary of 12 years of work with the “perennial challenge” of graffiti. It turns out that getting rid of graffiti was transferred from the Department of Sanitation to the Economic Development Corporation (the mayor’s economic office) in 2011.  Who knew? In any case, in fiscal year 2013, the EDC “scrubbed off more than four million square feet of the city’s landscape … the equivalent of 93 acres.”

It wasn’t always so. In 1991, The New York Times reported that then-mayor David Dinkins’ first MMR “painted a dark picture of New York City’s growing social problems and service burdens.” When Harvey Robins, Dinkins’ director of operations   whose office produces the MMR   was asked by reporters about the tendency of such summaries to ‘cook’ the hundreds of pages of statistical indicators in the most favorable way, he said, ‘Not only didn’t we cook them. This year, we didn’t even put them on the stove.’”

Eight years later, the Times’ Michael Powell said of the Dinkins’ tenure that “through the years of recession, as the city lost hundreds of jobs, [Dinkins] spoke of his successes and failures, often with brutal candor. His successors [Rudy Giuliani and Bloomberg] have pruned the statistical reports of some negative indicators and tend to place a relentless emphasis on the positive.”

Read more: Analysis: The Bloomberg Fiscal Legacy

Commentary: I Lost the SNAP Challenge


ramen-noodles

It's old news that food stamps, technically SNAP benefits, were cut on Nov. 1 by $5 billion, including cuts for about 1.9 million New York City residents. If you were single and on food stamps you might have gone from the maximum $200 benefit to $189 just in time for Thanksgiving. That's an $11 loss a month. For a family of four, it typically meant a $36 cut or about 24 meals a month.

The average SNAP cost per meal went from about $1.50 to $1.40 a meal. That doesn't sound like so much, does it? It's just 10 cents a meal.

It sounds like a lot to me.

By November 1, the day the cuts kicked in, I had just completed a "SNAP Challenge." Well, sort of.

A SNAP Challenge is one of those things where people who aren't in need of food stamps agree to live on approximately a food stamp budget for five days — just five days. The challenge I participated in was actually a little too easy because I was allotted $5 a day, for a five-day total of $25. That was an extra $2.50 over what a "real" SNAP beneficiary would have had to live on before the cuts took place.

So, I need to make a confession. First, I realize five days on a SNAP challenge is to living on food stamps as camping is to being homeless. Second, I failed. I failed the SNAP challenge.

I started out well enough. I stuck to the $5 a day budget for the first day. But I went over the $25 total on day four. It was only a five-day challenge and I couldn't make it.

While I'm being candid, I might as well go all the way. I cheated and still failed.

I ate a few morsels and drank copious volumes of coffee at work and didn't count it.

Cutting food stamp benefits, most of which go to kids, the elderly and disabled people, is no joking matter. The only real point of participating in the challenge was to realize how hard it was to possibly eat on that budget.

I stuck with mostly Raman noodles, and macaroni for variety. To put it another way, pasta, high carb and starchy foods was all I could afford. SNAP is theoretically designed to allow a nutritious diet, but I sure don't know how. Things like fresh fruits and vegetables just cost too much.

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I didn't get the full SNAP experience even for five days. I wasn't restricted, as beneficiaries are, from purchasing hot or prepared foods. I wasn't subject to the stigma and judgment of others. I didn't have to go through the embarrassment of trying to purchase an item from a store that should have accepted it just to be turned down, knowing I didn't have money to make the purchase.

There's no geographic differential in the SNAP program. A person in the same income category, the same number of mouths to feed and other similar circumstances gets the same benefit in rural Louisiana, the Midwest bread basket or in costly New York City.

SNAP really is a safety net. It's a critical last-line-of-defense but increasingly porous safety net.

In America, studies say there'd be another 4.7 million people (again, mostly kids and seniors) below the federal poverty threshold without SNAP benefits. If that ratio is true for New Yorkers, SNAP saves over 160,000 of our city neighbors from falling below the poverty line.

These are real cuts taking food out of the mouths of hungry people. The Food Bank For New York City figures the cuts amount to the equivalent of 62 million meals annually in the Big Apple. Of course the meals probably couldn't actually include an apple. That's too expensive.

As we were approaching November, I was concerned because so many SNAP recipients didn't know the cuts were coming. The week before Nov. 1, though, letters went out to New Yorkers on SNAP. I guess it was sort of a directive to tighten belts and not be quite so hungry from here on out.

Suddenly, I became concerned that most beneficiaries would assume this was the big SNAP cut back we've been reading about for the past several months as the farm bill, larded with industry tax breaks, agri-business subsidies, farmer price supports.

If that was the big cut, I assumed many recipients might think, it's bad, but maybe not as bad as I was worried it would be. It's not easy, they might reason, but if I have to I can live with that.

Well, this isn't that cut. This one was just the expiration of a small increase in nutrition payments from the 2009 Recovery Act. The big one is still on the menu.

We don't know how big yet. The version passed by the Republican-controlled House has a $40 billion SNAP cut over 10 years — $4 billion annually. The cut comes mostly from throwing a good 3.8 million mouths off the program altogether.

But even the Senate Democratic version calls for a $4 billion cut over a decade.

We'll be celebrating Thanksgiving this month, most of us with opulent meals served on overflowing plates piled high with the traditional foods and dripping with gravy. But that's not for all of us.

The weekend before Nov. 1, I got a phone call about a homeless friend, dependent on SNAP, who ran out of "food stamps" before he ran out of October. Just like I ran out of my $25 before I hit the end of the five-day challenge. This guy, though, was sitting in a police station.

He was arrested for stealing a pack of hot dogs from a bodega. He was just so hungry, he said. And I got that.

Of course, that was before the SNAP benefit cut.

Jeff Foreman is Policy Director at Care for the Homeless. Follow him on twitter at JeffForeman2

Opinion: For De Blasio’s Universal Pre-K Plan, the Devil is in the Details


pre-k-graduation

Now comes the really hard part. Having handily defeated Republican Joe Lhota to become the first Democrat elected mayor of New York City is nearly a quarter century, Bill de Blasio must now make good on the plethora of promises that paved his way to City Hall.

And none is likely to be more politically challenging than his signature commitment to establish “truly universal pre-Kindergarten for all 4-year-olds” by imposing an extra tax on the wealthiest New Yorkers.

A central plank in his campaign platform, the de Blasio pre-K plan calls for a five-year tax hike – from 3.86 percent to 4.41 percent – on those New Yorkers making more than half a million dollars a year. The surcharge is expected to raise some $530 million in dedicated funding for universal pre-K and after-school programs for middle-school students.

But unlike other populist promises like stop-and-frisk reform, which arguably can be accomplished by mere executive fiat, the universal pre-K commitment will require a virtual army of other prominent elected officials willing to risk their own political fortunes. And therein lies the rub. As The Wall Street Journal correctly noted, de Blasio’s proposal faces “significant headwinds” in Albany, including “a skittish Legislature heading into an election year and a governor who is reluctant to raise taxes.”

Even state Assembly Speaker Sheldon Silver — himself a fellow Democrat — has been hedging his bets on this one, telling the Journal that the plan might have to be put on ice for at least a year until after the 2014 state legislative election.

Then there’s the always intricate intersection of semantics and arithmetic. What exactly does “universal” mean and how do we measure the reach and effectiveness of the de Blasio plan? In first unveiling his initiative before the Association for a Better New York just over a year ago, de Blasio said his proposal would add 10,000 new pre-K seats to the existing system and expand all part-time pre-K classes to fulltime sessions for 38,000 four-year-olds.

But would the creation of 48,000 new publicly funded full-time pre-kindergarten slots come even close to meeting any reasonable definition of “universal”? That depends on how you do the math and what you mean by pre-K.

New York City already operates the largest publicly funded early care and education system in the nation, serving some 100,000 pre-school children in a mix of center-based and home-based settings. Recently renamed EarlyLearn NYC, the program is run by the Administration for Children’s Services, which also oversees one of the largest Head Start grant programs in the country, serving some 19,000 children. In addition, the city’s Department of Education manages the state’s universal pre-K program, which is provided through public schools and contracted EarlyLearn providers.

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But a study released by city Comptroller John Liu earlier this year found that the combined early education system does not even come close to meeting universal need: as many as 200,000 children in the city, including many from low-income families, are currently excluded from early-learn programs, including pre-kindergarten classes. Titled "The $4 billion Deficit: Ratcheting Up Investment in Early Childhood Education," the comptroller’s report estimates that the total cost of providing universal, comprehensive, early care and education (including pre-K programs) for all of New York City’s children, would amount to more than $6 billion a year.

But combined city, state and federal spending on these programs currently totals a mere $1.5 billion, leaving an “education deficit” of $4.6 billion.

Though not as widely covered as de Blasio’s pre-K initiative, Liu — himself a former candidate in this year’s Democratic mayoral primary — had also proposed an additional investment of some $433 million to make pre-Kindergarten truly universal for all 4- and 5-year olds in the city. But he has gone even further in calling for the creation of a universal pre-school program for all 3-year olds, at an estimated cost of nearly $1 billion. 

{pullquote}Would the creation of 48,000 new publicly funded full-time pre-kindergarten slots come even close to meeting any reasonable definition of “universal”?{/pullquote}

De Blasio’s populist embrace of universal pre-K programs as a signature component of his mayoralty places him squarely not only on the rightside of history, but of science as well. It also dovetails neatly with his “tale of two cities” narrative: one recent study from the National Bureau of Economic Research finds that the best thing we can do about inequality is to provide universal pre-school.

“A policy of free preschool would yield a raft of cost-effective benefits for society and the economy,” according to the report. “It would increase social mobility, reduce income inequality, raise college graduation rates, improve criminal behavior and yield higher tax revenue thanks to an increase in lifetime wages.”

These benefits are especially critical for children of low-income families, who suffer at an early age from poverty-related developmental deficits that are only compounded the longer they remain unaddressed. In fact, researchers at the Washington University School of Medicine now report in a study published by the JAMA Journal Pediatrics that poverty appears even to inhibit the physical development of the brain. Those children exposed to poverty at an early age had smaller volumes of white and cortical gray matter, the study found, as well as hippocampal and amygdala volumes.

All of that is aside from the environmental impact of poverty on a student's behavior and school performance.

Noting that fewer than three in 10 4-year olds in the United States are currently enrolled in high quality pre-K programs, President Barack Obama has also publicly embraced the cause of universal access to early education in his State of the Union address earlier this year. And that’s good news for mayor-elect de Blasio who, come January, may need an infusion of political capital from the nation’s top Democrat if his signature initiative is to make any headway in Albany.

Hugh Hamilton is an independent journalist and editorial consultant in New York City. For 12 years until this summer, he was the host and executive producer of WBAI-FM's drive-time news-talk analysis program, Talkback. He previously worked as a legislative director for two different members of the City Council. 



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