February 1, 2006

Mayor's Budget Calls for Spinach and Few Sweets

Resisting political temptation, Mayor Michael R. Bloomberg proposed a $55.5 billion budget yesterday that would spend most of a $3.3 billion surplus this year not on politically popular programs, but on paying down debt and other long-term costs that threaten the city's future financial stability.

Flush with surging tax revenues from a strong New York economy and fortified by a resounding re-election victory, he chose to expend that financial and political capital in ways that would have been unheard-of under prior administrations, and even during his own first term.

In a presentation in the City Hall Blue Room, he said his approach to spending the surplus was aimed at addressing a sobering problem: the growing burden of fixed costs, those that are largely beyond the mayor's control, including pensions and benefits for city workers, along with Medicaid and debt service.

Those costs, taken together, are expected to grow 15 percent next year, leaving the city with far less room to maneuver in spending on discretionary areas like education, public works and social welfare programs.

Mr. Bloomberg would use $2 billion over the next two years to create a trust fund to pay retirees' health care costs, $500 million as an immediate payment on long-term debt and $1 billion to pay for capital projects outright and avoid financing costs. He also said he would press the State Legislature and union leaders to curtail soaring pension costs because such expenditures, along with other benefits, are expected to total $12 billion next year, up from $5 billion in 2001.

"Those are things that not only is New York City wrestling with, every municipality across the country is wrestling with and every company in the private sector is wrestling with," Mr. Bloomberg said. "You see companies walking away from their pension plans. You see companies changing from defined benefit to defined contribution plans. You see co-pay in medical plans."

But not every part of Mr. Bloomberg's four-year financial blueprint hewed to the eat-your-spinach theme. He proposed extending the popular $400 property tax rebate. In one of the few areas of increased spending, he urged that $17 million more go to the Administration for Children's Services, which has been embroiled in controversy over the deaths of children it was monitoring.

In addition, the proposed budget, which is for the 2007 fiscal year, beginning on July 1, includes spending increases of $70 million for more charter and special education schools; $7 million for the Correction Department, in part to cover the cost of protective vests for officers; and $8 million for the Department of Health and Mental Hygiene to spend on a diabetes registry and on prison health care programs.

City Council leaders faulted the mayor for not devoting more money to the city's schools, and the Council speaker, Christine C. Quinn, said the Council would play a more meaningful role in shaping the budget this year. Mr. Bloomberg's proposal begins negotiations on the budget, which must be passed by June 30.

For all the extra revenue that has resulted in a near-record surplus, the budget plan was as notable for its heavy emphasis on wresting control of runaway expenditures. The new theme was a departure from the mayor's last four budgets, which began with the immediate need to eliminate deficits and later became more political documents as his re-election campaign neared.

Now that he is safely in power for another four years, and has the benefit of a large surplus, Mr. Bloomberg signaled yesterday that he is prepared to take on the escalating fixed costs of municipal government that he has long complained about.

"He's an unusual politician, and he's certainly proving it here today by putting the city's long-term interests ahead of short-term political gain," said Diana Fortuna, president of the Citizens Budget Commission, a business-backed policy group. "I can't think of any criticisms right now because I am so struck by what an unusual and prudent thing that it is to do."

Other budget watchers sensed unease within the administration over how to handle the continuing surge of revenue from taxes on real estate transactions, personal income and business profits, which are now expected to be about $600 million higher this year than what the mayor's office was predicting just three months ago. In his remarks, Mr. Bloomberg repeatedly stressed that he did not expect the boom to last much longer, and his plan anticipates a budget deficit of $3.4 billion in the 2008 fiscal year.

"They seem to be trying to feel their way through this rain of cash that the city has right now," said Doug Turetsky, a spokesman for the city's Independent Budget Office. "I think they are faced with a problem of determining how much of it is permanent and how much is temporary."

To help balance next year's budget, Mr. Bloomberg is also hoping for an additional $350 million in state and federal assistance, as well as continued spending cuts by city agencies, which have trimmed a total of about $300 million from their budgets for this year and next. Although the mayor's office said his budget proposal totaled $52.2 billion, the actual amount to be spent, after adding in this year's surplus, which will be rolled forward and used next year, is about $55.5 billion. The current budget is about $54 billion.

Driving the mayor's proposal to create a trust fund for retiree health care costs is a recent accounting change that requires state and local governments to begin reporting the full value of health benefits earned by their employees in a given year, even if those benefits have not yet been paid. Budget officials said that number, when it is finally tallied, could reach as high as $50 billion, which will have to be reported as a liability on the city's balance sheets, much in the same way pension obligations are already reported.

One practical benefit to setting aside money now is that in lean fiscal times, the city, which currently spends about $1 billion a year on retirees' health care, could dip into the trust fund rather than use its operating budget.

The mayor's list of proposed capital projects includes $47 million to survey and repair retaining walls around the city; $23 million for improvements to Governors Island; $265 million for infrastructure and parks at the new stadiums for the Yankees and the Mets; and $2 billion for a previously announced plan to build housing for low- and moderate-income families.

Yesterday, some council members complained that the mayor had left out any reference to billions of dollars the city is seeking from the state, money that a judge said must be spent to improve city schools. The mayor said he did not include that money because he did not expect the issue, which is tied up in court, to be resolved for at least a year.

The Council's new speaker, Ms. Quinn, signaled that she was not content to follow the ritual of previous years, in which the Council's role was limited to deciding how to spend about $300 million for programs favored by members and their constituencies. Knowing that that is what is ultimately most important to individual council members, the administration usually withholds the money as a bargaining chip in budget talks, agreeing to include it in the mayor's final proposal only as the June 30 deadline approaches.

"We are committing today to change that process, to stop the music, to stop the dance," Ms. Quinn said. "We're going to step forward and assert what we believe is the full power the charter gives us."

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