With New York City facing tougher times in the face of Wall Street turmoil, Mayor Michael Bloomberg yesterday presented a preliminary budget for fiscal 2009 that calls for across-the-board agency cuts but that doesn’t scale back on capital spending or bond issuance.
Total expenditures in fiscal 2009 would shrink to $58.5 billion from $60.36 billion in the current fiscal year, under the proposed budget.
The Mayor’s five-year capital plan, which includes the current fiscal year, calls for spending $59.1 billion with 38% of that going toward infrastructure, 25% to schools, and 37% to other government capital projects.
“This city made the mistake from walking away making those kinds of investments back in the 70s and we’re still paying a price for it,” Bloomberg said. “We are not going to make that mistake. We have to leave a better New York City to our children.”
The city’s modified capital commitment plan for fiscal 2008 through fiscal 2011 calls for spending $52.5 billion of which $42.5 billion will be funded by the city. Most of that, $39.3 billion, would be bond financed.
Bloomberg’s preliminary budget calls for the city to sell $7.36 billion of debt in fiscal 2009, an increase of $1.58 billion over projected issuance in the current fiscal year. Most of the debt, $5.06 billion, would be sold as general obligation bonds and the remainder would be sold through the New York City Municipal Water Finance Authority and includes new-money bonds and commercial paper. The increase is similar to what the Mayor had proposed in his executive budget last year. Under his proposed financing program, the city would issue $28.55 billion of GO debt and $10.76 billion of MWFA debt during the five-year period from the current fiscal year through fiscal 2012.Additionally, the New York City Transitional Finance Authority would sell $1.4 billion of build aid revenue bonds, BARBs, backed by state aid in fiscal 2009. The financing program calls for the TFA to sell $3.5 billion of BARBs from the current fiscal year through fiscal 2010.
New York City budget director Mark Page said the turmoil in the bond insurance market might cost the city more in the short term.
“We use insurance ... on some of our variable-rate borrowings,” Page said. “It might cost us a little for a period of time. I don’t think it’s a permanent problem. Our credit is very good.”
According to budget documents the city’s floating-rate GO and lease appropriation bonds have generally had credit enhancement and liquidity facilities, but that since the city’s ratings upgrades last summer, the city has issued floating-rate bonds without enhancement. The city’s floating-rate debt has traded at rates that are on average at least 150 basis points lower than its fixed-rate debt.
Bloomberg acknowledged recent bad economic news in the city, estimating that third and estimated fourth-quarter write-down losses of $112.36 billion at investment and commercial banks would cost the city $660 million in lost tax revenue over several years.
“The credit markets and the decline in Wall Street profits signal trouble. I think we can expect the year ahead to have challenges,” he said. Bloomberg said his direction last fall for agencies to find savings of 2.5% in the current fiscal year and 5% in fiscal 2009 would generate nearly $1.5 billion in savings.
The proposed budget would use an estimated $3.8 billion of unspent funds from fiscal 2007 and 2008 to help close the budget gap in fiscal 2009. The mayor repeated his call for a $400 property tax rebate to homeowners and for a 7% property tax cut.
Bloomberg said that his budget assumes the city will get all the funds promised by the state, but Gov. Eliot Spitzer’s executive budget, released on Tuesday, calls for some reductions. One example is a $164 million reduction of promised aid in its Aid and Incentives to Municipalities program. Last year the aid was cut back to $20 million but the city was expecting $328 million this year.
A source at the New York City Comptroller’s Office said that their preliminary estimates of what the difference between what Bloomberg’s budget expects from the State compared to what Spitzer’s budget would offer is between $450 million and $550 million.
Bloomberg said he will go testify before the Legislature on Monday during state budget hearings.