The year is ending with good news for the city’s budget from two public officials. Mayor Michael Bloomberg is reporting both new revenue and new savings, and thus a projected deficit much lower than originally expected. City Comptroller William Thompson offers a generally encouraging view of the city’s economy in his annual financial report. The comptroller’s report also offers a useful review of the ways in which Bloomberg crafted balanced budgets despite daunting challenges.

But the report also hints at some of the management problems facing Bloomberg’s second term.

BLOOMBERG’S BUDGET, AS OF NOW

Bloomberg’s recent budget modification of the 2006 city budget promises a budget surplus for this year of at least $1.7 billion. The surplus is largely the result of nearly $2 billion of additional tax revenues, based primarily on the continuing boom in housing-market transactions. On the expense side, there are some $450 million of new Medicaid savings.

Add this projected surplus to additional tax revenues expected for 2007, and what once threatened to be a $4.2 billion deficit in 2007 is now looking to be $2.3 billion. This is still a lot of money to be in the hole, of course, but it is quite an improvement in less than five months.

But the good news in revenues obscured, at least temporarily, a big change in expenses for the future. Union contract settlements have added $661 million of labor costs to this year’s personnel budget and $1.1 billion to the 2007 budget.

THE AUDITOR VIEWS THE CITY’S PERFORMANCE

The comptroller’s comprehensive annual financial report, required by the city charter, offers a necessary independent view of both the city budget and an assessment of the city’s management performance.

The report notes that the 2005 budget marked the 25th year of balanced budgets for the city, an impressive rebound after the fiscal problems of the 1970s. The economy has improved, with the city’s gross city product increasing by 3.3 percent in fiscal 2005, after three years of decline. The unemployment rate dropped from 7.9 percent in 2004 to 6.1 percent in 2005. Moreover, the comptroller suggests that the city’s economy is healthier than the nation’s.

But the report makes clear that many problems remain in city agencies. The comptroller has, for instance, challenged the documentation and “fiscal clarity” of education department policy and practices. He suggests that budget reporting in the department has “not kept pace with [its] structural changes.”

In his role as city contract administrator, the comptroller found that the department of homeless services had “falsified an annual inspection report” on a 800-bed homeless facility in upstate New York. Sanitation department contracts were rescinded because of altered scoring sheets during the contract-selection process.

Contracts – 15 Percent Of The Total Budget

The report underscores the importance of city contracting. Contracted services (not including capital budget contracts) totaled $7.84 billion in 2005, nearly 15 percent of the total city budget. The dollar value of contracts was up six percent from the previous year. The biggest contract areas include $690 million for school transportation, $895 million for non-public school handicapped children services, and $625 million for mental hygiene services. The scope of these privatized, publicly funded services may deserve much closer mayoral and legislative oversight.

Yankee Deadbeats

In another role, the comptroller’s 81 audits and special reports provided further oversight of mayoral agencies. The comptroller found – not for the first time – that the New York Yankees, who lease the stadium from the city, shortchanged the city. They underreported over $9 million in revenues and overstated deductions against revenues by $34.5 million. The Yankees, who stand to receive hundreds of millions of dollars in future city and state subsidies for a new stadium, owed (and subsequently paid) an additional $3.6 million in fees.

Problems In Human Resources, Finance, Fire, Etc

The audit unit also found problems in the human resources administration (questionable vendor payments), the department of finance (weaknesses in the administration of the commercial incentive and abatement programs), and the fire department (inadequate controls over EMS ambulance transport fees). Audits also revealed major problems in implementing information technology at HRA and the department of city administrative services.

Budget Up 31 Percent, Taxes Up 33 Percent

One of the most useful sections of the comptroller’s report is a series of 10-year statistical tables. Those tables are a handy way to see what happened during the first Bloomberg term. Comparing fiscal years 2001 and 2005 (which ended June 30, 2001 and 2005, respectively), for example (not adjusting for inflation):

· The city budget grew 31 percent, from $40.2 billion to $52.8 billion.
· City taxes were up 33 percent, from $23.2 billion to $30.9 billion.
· City real property taxes rose 41 percent, from $8.2 billion to $11.6 billion.
· Property-transaction taxes grew 161 percent, from $900 million to $2.3 billion.
· The personal income tax was up nearly 16 percent
· The sales tax, 19 percent
· Business income taxes, up 27 percent.

The mayor’s $1.50 per pack increase on cigarettes (split with the state) jumped receipts by over 350 percent, from $28 million to $127 million.

IBloomberg’s18.5 percent property tax rate increase and the explosion in property transactions (resulting in the huge property-transfer and mortgage-recording tax gains) have been key to the 31 percent increase in the city budget. The mayor’s November modification says that those property tax transactions continue at an unexpectedly high level.

During the same four years, the size of the city workforce increased by nearly six percent, from 249,824 to 264,061.

And Non-Mayoral Parts Of City Government

Given the expansive nature of budget-building over the past four years, there is a touch of irony in the fact that the comptroller’s own budget has declined during that period by over 2.5 percent, to $51.3 million.

The other citywide office, the public advocate, which had a tiny budget to begin with, did see a 17 percent increase in its budget, to $3.1 million.

The borough presidents, who lost most of their budget and land use powers with the elimination of the Board of Estimate in 1989, have also seen their offices cut back dramatically. The combined offices lost 26 percent of their budgets from 2001 to 2005, dropping to $23.1 million.

The city council, which determines its own budget under the charter, has been very conservative in budget terms. Its budget increased only 4.4 percent from 2001 to 2005, from $44.4 million to $46.3 million.

Perhaps there is a case to be made that in a city so dominated by the structural powers of its mayors that the city’s countervailing institutions – the comptroller and city council in particular – should be given more resources.

The Mayor’s Optimistic Number

The mayor’s budget numbers are optimistic. But let’s not forget that, very soon, the city and state comptrollers, the state Financial Control Board, and the Independent Budget Office will all be weighing in with their own analyses of the mayor’s optimistic forecasts.

Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001.