N.Y.C. Looking Nervously at State Budget

The recession has dealt New York City’s economy a better hand than expected, but city officials yesterday painted New York State’s budget problems as the wild card still in the deck.

Testifying before the City Council about Mayor Michael Bloomberg’s preliminary $63.6 billion fiscal 2011 spending plan, budget director Mark Page said he will be working over the next few weeks to prepare for a $1.3 billion reduction of state aid.

“We don’t exactly know how the budget process is likely to play out with the state,” Page said. “We’ll have to make an estimate of where we hope to come out under the [mayor’s] executive budget, which will have to be balanced on a realistic assumption of how much state aid we can really expect.”

State budget director Robert Megna has called the city’s estimates of cuts “inflated” and calculated total reductions to the city at $748 million. Independent Budget Office director Ronnie Lowenstein referred to the state cuts as being “at least” $750 million. Bloomberg’s preliminary budget did not include those cuts.

The state’s worsening fiscal picture could augur greater cuts to the city, Page said. New York’s projected deficit in the current fiscal year and fiscal 2011 grew by $850 million since last month, increasing the state’s fiscal 2011 deficit to $9 billion, according to consensus revenue projections released Monday by the Legislature and Gov. David Paterson.

In January, the state Division of Budget projected growing budget gaps would reach $20.7 billion by fiscal 2014. The state’s fiscal year begins on April 1 and the city’s begins on July 1.

The $1.3 billion reduction in aid threatened for fiscal 2011 “is only likely to get larger looking at the incremental gaps the state is currently facing in its out-years,” Page said. “These larger gaps in the future are likely to further reduce aid from the state to the city going forward.”

The hearing was the first led by City Council member Domenic Recchia Jr., D-Brooklyn, who became finance committee chairman in January.

Recchia asked Page whether the city should scale back its capital program.

“We’re not asking for a significant additional cut in capital this spring,” the budget chief responded. “As a practical matter, it’s too much to deal with in the next few months. In the long run, I think the long-term cost of debt service as a fixed cost in New York City is a serious problem for us.”

The recession has hurt the city much less than previously forecast, the IBO’s Lowenstein said.

“Absent a renewed downturn or 'double dip’ nationally, the current recession will be for New York City one of the mildest since World War II,” she said in prepared testimony.

“New York City’s fiscal picture looks better than most anyone would have expected 12 months ago,” Lowenstein said. “The city’s relative fiscal health in the wake of the worst nationwide economic crisis since the 1930s is the product of a variety of factors, such as the federal bailout of Wall Street and the Federal Reserve Bank’s ongoing monetary stimulus, changes in the composition of employment in the city, and actions taken by this council and the mayor to control spending and raise revenues.”

The IBO projects the current downturn will cost the city 156,000 jobs and employment will begin growing in the second quarter. A year ago the office was projecting job losses of 270,000. The bailout of major Wall Street firms helped return the financial industry to profitability and limited job losses in that sector, Lowenstein said. A year ago, the IBO projected the city would face two years of tax revenue declines, but it now projects revenue will rise in the current fiscal year and next year as well.

New York City Comptroller John Liu said risks he identified in Bloomberg’s budget could create a $1.19 billion gap in fiscal 2011. Those risks include the possibility of lower tax revenue, lower state aid and concessions from municipal unions that are uncertain.

“I am much more pessimistic about risks to the budget next year and beyond,” Liu said in prepared testimony. “I agree with the mayor that the national and local economies are headed into an economic recovery that will be much slower than the historical average. However, our economic projections show slower growth in the out-years of the financial plan period, resulting in more sluggish overall revenue growth.”

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