Faced with a downturn on Wall Street and a slowing real estate market, New York City Mayor Michael Bloomberg yesterday announced a 20% cut in city-funded capital spending over the next five years as part of his $59.1 billion executive budget for fiscal 2009. The budget also calls for a $2.7 billion reduction in bonding for capital projects during that period.
Despite the gloomy outlook, forecasted tax revenue for fiscal 2008 have been revised upward by $2.2 billion, and the mayor said he wanted to extend a popular 7% property tax cut and $400 property tax rebate to homeowners for another year. The budget also calls for the early payment of $1.99 billion of debt in the current fiscal year.
Under Bloomberg's proposal, city-funded spending would only grow by 0.1%. Total spending would be $3.45 billion less than the $62.6 billion spending anticipated for the current fiscal year which ends on June 30. The City Council must pass a budget before the beginning of the next fiscal year.
The budget calls for $4.8 billion of the city's general obligation bonds to be sold in fiscal 2009, a $1.13 billion increase over estimated GO borrowing for the current fiscal year. The budget also proposes the New York City Municipal Water Finance Authority sell $2.51 billion of bonds next year. Although that would represent a decrease from borrowing proposed in January, it is a $36 million increase compared to fiscal 2009 projections in last year's executive budget proposal.
The city currently has about $52 billion of debt outstanding. Of that $10.3 billion is variable rate. The city has refunded or converted all but $670 million of its auction-rate debt but, according to budget documents, the securities carry insurance that hasn't been downgraded and the auctions are still providing investors with liquidity.
Bloomberg characterized the capital budget cuts - reductions in capital spending and borrowing from the preliminary budget released in January - as stretching the previously four-year capital program into five years. This would reduce city-funded capital spending by $5.09 billion to $32.34 billion during the next four years, compared to the January proposal.
Bloomberg said the capital spending cuts were being made in response to rising levels of debt service. Details of the cuts won't be made available until September when the city puts out an update to its capital commitment plan, he said.
"We'll try to make it across the board," Bloomberg said. "Some things are more important than others. If a bridge is falling down, you have to make an investment, you have to do it now, you can't say 'well let's strip that out.' But fundamentally it would be across every agency, every need, roughly the same."
Some projects can't be cut because they are already in progress or in contract, he said.
Charles Brecher, executive vice president and director of research at the Citizens Budget Commission, a fiscal watchdog group, praised the budget proposal as being a step in the right direction.
"They've recognized they've been running a somewhat swollen capital plan, and they really need to bring it to line so it may take a couple years, but you really get the benefit of reduced debt service and that does good things," Brecher said.
The national economic downturn and the downturn on Wall Street hasn't had a great impact on the city's finances yet, but that impact is coming, he said. One reason for the delayed impact is that large financial firms and commercial banks often overpay their tax liability during the year to avoid a penalty in case they end up underpaying.
Financial firms have written down than $226.28 billion in losses since the third quarter of 2007, according to the budget presentation. The city's financial sector is expected to lose 25,000 jobs over the next two years and the city is forecast to lose 90,000 private sector jobs from the first quarter of 2008 to first quarter of 2009, Bloomberg said, citing U.S. Bureau of Labor statistics data and forecasts by the city budget office.
"On Wall Street the numbers are scary," Bloomberg said. "Wall Street, that we depend on to generate a lot of tax revenue, is going through some very serious problems."
Revenues are expected to fall next year and outyear budget gaps are projected to grow to $4.6 billion by 2011.