New York City Mayor Michael Bloomberg backed off from deep cuts in the city’s 10-year capital plan in his preliminary fiscal 2012 budget released Thursday.
In a nod to a political ally and expected 2013 mayoral candidate, Bloomberg called for a 10% reduction in the city’s capital strategy after his budget director urged a 20% reduction to slow the growth of debt service. The 10% reduction excludes water and sanitation projects.
Earlier this week, City Council Speaker Christine Quinn said in her state of the city address that a 20% cut was too big and she would not support it.
“Chris Quinn has been very helpful in working this through and trying to explain to us the values there,” Bloomberg said to reporters at City Hall following his budget presentation. “After listening to her, 10% was something I thought we could live with.”
The 10-year capital strategy released Thursday calls for $35.8 billion of capital spending, excluding water projects — a $4 billion reduction from previous projections.
“You could make the case if you wanted to reduce debt service faster — 20% would have made a difference — but in terms of what the city needs, we have to make investments and we have to make investments in tough times,” Bloomberg said.
In December, citing rising debt service, budget director Mark Page wrote in a letter to agency heads that New York “must reduce the plan for capital spending, which drives capital borrowing and its resulting debt-service costs to the city operating budget.”
Debt service is one of the fastest-rising items in the budget. Annual debt service on general obligation bonds, future tax-secured bonds, and lease debt in fiscal 2012 is projected to be $5.91 billion compared to $1.88 billion in fiscal 2003. Even with the cuts, debt service is projected to rise to $7.27 billion in fiscal 2015, according to the proposed financial plan.
“They could have been more aggressive in bringing capital spending down and that probably would have gotten us to an objective of lowering debt service quicker,” said Charles Brecher, director of research for the Citizens Budget Commission, a fiscal watchdog organization. “Both Christine Quinn and [public advocate] Bill de Blasio had been saying they thought the 20% was an unreasonable cut to be taking, so maybe the mayor’s being a realist in what he thinks is necessary for the budget process, but that doesn’t mean it wouldn’t have been wiser to stick with the 20%.”
The city plans to issue fewer bonds in fiscal 2012 than in the current fiscal year, under the proposal. The city would issue $2.64 billion of GOs and $2.64 billion of future tax-secured bonds in fiscal 2012, compared to $2.48 billion and $3.6 billion, respectively.
Bond issuance by the New York City Municipal Water Finance Authority, which is secured by water usage fees, would decline to $1.98 billion from $3.01 billion in the current fiscal year. The financial plan also calls for the issuance in the current fiscal year of $1 billion of bonds by the Hudson Yards Infrastructure Corp. to finance development and a subway station on the far West Side of Manhattan.
Bloomberg’s $65.91 billion budget proposal would close a $4.58 billion gap in fiscal 2012 through a combination of actions, the realization of certain economic benefits, and through concessions and actions by the state. The improving economy has increased city revenue forecasts for fiscal 2012 to $46.77 billion, a $1.41 billion increase.
Revenue in the current fiscal year is also expected to increase by $930 million. The city would also tap $700 million of reserves. Debt-service savings and the timing a federal Medicaid funds that were received ahead of schedule also help lower the deficit.
It’s uncertain whether the city can get the state to kick in an additional $400 million or whether it can save $200 million by eliminating a retiree benefit program for certain retired police and firemen.
Even with a budget that keeps total spending essentially flat, the city plans to lay off 4,500 teachers and eliminate 1,500 teaching positions through attrition.
Comptroller John Liu said that the city should find more savings through agency cuts that don’t single out city employees.
“As New York City emerges from this recession, added tax revenues are certainly welcome but they are by no means a solution to our problems,” Liu said in a statement. “Before layoffs are even considered, the city must find savings in our own backyard — including putting an end to runaway contracts that have spent upwards of billions of dollars to employ high-priced consultants.”
