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Understanding New York ’s Budget A Guide to The Budget

This guide is designed to help interested New Yorkers understand and participate in the city’s budget process. It outlines the components of the city’s Capital Budget, the time lines and processes for adopting it, and provides an overview of how the city raises capital funds and how those funds are spent.

New York City Independent Budget Office Table of C ontents

capital budget basics

2 What is the Capital Budget?

3 Components of the Capital Budget

4 How to Read the Capital Commitment Plan

5 Establishing Capital Budget Priorities

8 City and President Capital Allocations

9 Tracking the Progress of Capital Projects

10 Main Types of Capital Financing

14 Glossary of Common Capital Budget Terms Introduction

ew York City’s spending on capital projects — from building schools to repaving streets to buying fire trucks — consumes a significant portion of the municipal budget. Over the past decade, the city’s Capital Budget for these kinds of projects has averaged about $7.9 billion in annual expenditures.

Most of this capital spending is paid for with the city borrows. The city has Nroughly $68 billion in debt outstanding — more than $8,300 for each resident. Every year, a portion of the city’s Expense Budget must be used to fund debt — the payment of interest and principal on debt outstanding. The more the city spends on debt service, the less funds are available for other city programs.

But it is more than size and cost that makes the Capital Budget so important. The projects funded by the Capital Budget are often essential to the city’s future, reflecting how New York will evolve in the coming years.

Despite the dollars involved and the critical nature of the projects being selected for capital , many New Yorkers have little knowledge of how the Capital Budget is developed and implemented. This guide will help demystify the Capital Budget, an important but often neglected aspect of the city budget.

Actual Capital Commitments, 2003-2012 This guideCommitments, is Capital the secondActual in a series by IBO designed to help interested New Yorkers understand and participate in the city’s budget process. For more information12 about this or other IBO publications, visit our Web site at www.ibo.nyc.ny.us or call IBO at (212) 442-0632. 10

8

6 Dollars in billions 4

2

0 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003

SOURCES: IBO; Monthly Transaction Analysis Reports Analysis Transaction Monthly IBO; SOURCES: What Is The Capital Budget ?

ew York City has a Capital speaking, a “capital project” involves Budget, separate from its the construction, reconstruction, Nannual operating (or acquisition, or installation of a physical expense) budget, which presents the public improvement with a of funding plans for city construction and $35,000 or more and a “useful life” of repair projects, and purchases of , at least five years. This may include buildings, or equipment. Technically everything from buying garbage trucks to reconstructing bridges to building housing. Actual Capital Commitments, 2003-2012 The capital program is generally financed by borrowing money, usually 12 through the sale of bonds. This differs

10 from the city’s Expense Budget, which covers day-to-day operating

8 expenditures and is financed by city and other revenues along with 6 and federal aid. In fiscal year 2012, over 75 percent of the capital Dollars in billions 4 program was city funded, and the rest was supported by state, federal, and 2 private grants.

0 Total capital commitments have been 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 rising, from $5.8 billion in 2003 to a

SOURCES: IBO; Monthly Transaction Analysis Reports peak of $11.7 billion in 2008, and then falling to $7.1 billion in 2012. This represents an average annual increase in actual commitments for capital projects of 2.3 percent.

2 capital budget basics Components of The Capital Budget

hile the City Council The Capital Budget. The Capital Commitment Plan. The adopts a Capital Budget submits an Executive Capital Budget commitment plan, issued by OMB W each year, the planning concurrently with the Expense Budget three times each year, presents an and actual expenditure of funds for each April. It proposes funding for agency’s capital program and capital projects generally occurs over capital projects for the coming fiscal provides the anticipated a period of years in accord with City year, and estimates the funds needed in implementation schedule for projects Charter provisions. There are several each of the three following years. The in the current fiscal year and the next different documents that articulate final Capital Budget is adopted by the three years. The first commitment this process. City Council with the Expense plan is published within 90 days of Budget. Spending for the adoption of the Capital Budget Ten-Year Capital Strategy. In November projects may not exceed the amount (generally by early September). of every even-numbered year, the appropriated in the Adopted Capital Updated commitment plans are Mayor’s Office of Management and Budget. Approval from OMB, in the issued in January and April along with Budget (OMB) and the Department of form of a “certificate to proceed,” is the Mayor’s budget proposals for City Planning jointly prepare a draft required before an agency can commit future years. Ten-Year Capital Strategy. The strategy capital funds for a project. Funds that presents the goals, policy constraints, are not committed in the fiscal year in assumptions, and criteria for assessing which they are appropriated are either the city’s capital needs over the next 10 reappropriated in the subsequent years. The document also provides the Capital Budget or withdrawn. anticipated sources of financing, and the implications of the strategy, including any possible economic, What $10 Million in Capital Spending Buys social, and environmental effects. After Housing 40 new units of supportive housing for low-income, special needs a public hearing and report by the City populations (6 percent of the city’s average annual capital spending on new affordable housing) Planning Commission, the final Sanitation 33 dual-bin recycling trucks version of the strategy is released with Parks 6,891 sidewalk trees the Executive Budget in odd- Fire 9 ladder trucks numbered years. The strategy presents Education 3 classrooms capital projects in broad categories that Transportation 65 lane-miles of city streets (about 7 percent of total lane miles reflect city agency goals. resurfaced each year) Environment 9,006 feet of new or reconstructed sewers Correction 26 jail beds Parks 7 reconstructed playgrounds or 4 new playgrounds of about one acre

SOURCE: IBO

capital budget basics 3 How to Read The Capital Commitment Plan

Commitments and he Capital Commitment years. Also included are contingency Expenditures Plan authorizes new and funds to cover unexpected costs and on-going projects to be inter-fund agreements (IFA): amounts A “capital commitment” occurs T implemented within the appropriated when the City Comptroller transferred from the city’s Capital registers a contract to levels and definitions by budget line as Fund to the General Fund as construct or purchase a capital set forth in the Adopted Capital reimbursement for costs related to any asset. The city can register a Budget. Budget lines may be either for capital planning and design work, and contract in one fiscal year for a discrete projects, for example, project supervision performed by city project that will actually take “Reconstruction of 1st Avenue, employees. Under city rules, IFA two or more years to complete. ,” or they may be lump-sum expenditures may be financed with For budgeting purposes, the projects that provide funds for similar proceeds from long-term borrowing. entire contract amount is types of work at multiple locations, for The commitment plan also contains a registered as a commitment in example, “Improvements to Highway “milestone” field to indicate the that year, but spending — Bridges and Structures, Citywide.” project’s current status along with actual cash outlays — will take While the commitment plan only place over the life of the projected start and end dates — for provides a short project, typically at defined example, “develop description for each milestones agreed to between scope,” “final design,” budget line, a more the city and the contractor. “bid award and complete description register,” or “begin is available in the construction.” These Adopted Capital fields are generally left Budget. blank, which means Each budget line may project inquiries must include a schedule be directed to the of planned appropriate city commitments that agency. covers up to 10

4 capital budget basics Establishing Capital Budget Priorities

he preparation of the Capital and City Council for modifying not exceed the amount contained Budget is a process that the capital proposals. in the Mayor’s “statement of debt lasts many months and is affordability” issued with the Executive T The City Council holds hearings intended to take into account Budget, which sets forth the city’s on the Mayor’s Preliminary Budget neighborhood, borough, and citywide capital financing needs and sources proposals in and sends its needs (see page 12 for a detailed of funding for its four-year capital recommendations to the Mayor. timetable). The process begins in the program. fall, when each of the city’s 59 The Mayor submits the Executive The City Charter requires the Mayor Community Boards holds Budget to the City Council to document any variance between the hearings on the capital needs of its by April 26. The Borough Presidents Adopted Capital Budget and the Ten- . After the public hearings, again comment to the Mayor and Year Capital Strategy within 30 days each Community Board submits a Council on the proposed budget. after adoption. In practice, the Mayor’s statement of its capital priorities for The City Council again holds budget office considers the Adopted the next fiscal year to the Mayor and hearings and then adopts the budget. Capital Commitment Plan as fulfilling appropriate . The Council can and does add new this requirement. projects to the Capital Budget. Total Also in the fall, as part of preparing capital appropriations, however, may the Mayor’s Preliminary Budget, city agencies make detailed estimates of Citywide Authorized Capital Commitments their capital needs for the upcoming 2013-2016 Capital Commitment Plan, Dollars in billions fiscal year and three succeeding fiscal

years. In developing these estimates,

L L Education $8.8 agencies are required to consult with L Environmental Protection $7.0 the Community Boards and consider their capital priorities.

After the Mayor presents the L

Preliminary Capital Budget by General Services $2.8

January 16, the Community Boards L Transportation L Health and and Borough Presidents hold public $5.1 Social Services $1.3

hearings and evaluate the L

L L

Housing & Economic

Sanitation $1.3 L Development $3.1 responsiveness of the proposed L

budget to their capital priorities. Public Safety $2.2 Parks, Libraries & Culturals $2.8

Each Borough President then issues a SOURCES: IBO; Fiscal Year 2013 Adopted Capital Commitment Plan (October 2012) NOTES: Plan categories defined by IBO. General Services includes public buildings and real estate, and citywide equipment purchases set of recommendations to the Mayor

capital budget basics 5 Commitment Plans and Targets

Managing Capital Projects The Capital Commitment Plan represent the largest share, 25.6 percent translates the appropriations or $8.8 billion of planned commitments. Twenty-eight city agencies authorized under the Adopted Capital Environmental protection accounts for have a capital program. For Budget into a schedule for 20.3 percent or $7.0 billion followed by some of these agencies, particularly those with small implementing individual projects. The 14.8 percent or $5.1 billion for capital budgets, managing fact that funds are appropriated for a transportation projects. project in the Adopted Capital Budget their programs would be In the Capital Commitment Plan, difficult and inefficient. does not necessarily mean that work OMB lays out the schedule for which Two primary agencies — the will start or be completed that fiscal projects agencies are authorized to begin Departments of Design and year. The choice of priorities and or continue work on during the coming Construction and Citywide timing of projects is decided by OMB four years. Administrative Services — in consultation with the agencies, provide capital program along with considerations of how The sum of all the projects that OMB management services for many much the Mayor thinks the city can authorizes for the current year usually of these smaller agencies. afford to spend on capital projects exceeds what it actually expects city Other agencies such as the overall. agencies to undertake — these Department of Small expectations are referred to as the Services occasionally oversee The city’s Adopted 2013 Capital commitment targets. Subject to Mayoral capital projects for the benefit Commitment Plan, which covers fiscal and Council approval, uncommitted of other agencies. years 2013 through 2016, totals $34.4 funds are rolled over, or transferred, into billion. Education, environmental the subsequent year; in practice, almost protection, and transportation projects all uncommitted funds are rolled over. are expected to receive 61 percent or $20.9 billion of planned capital commitments. Education projects

6 capital budget basics The difference between authorized Over time, the city has determined commitments and the target amount that in order to achieve a targeted level is referred to as the “reserve for of commitments (maximum unattained commitments.” The reserve productivity) it needs to approve is simply the difference between the approximately 35 percent more in sum of all projects authorized for the authorizations. Planning for slippage, year, and the target set by OMB. such as redesigns due to unforeseen Having a spending target that is below construction issues, helps ensure that the plan level allows flexibility for the city will be able to maintain the delays, changes in project scope, and targeted level of commitments. other adjustments to capital projects.

capital budget basics 7 City Council and Borough President Capital Allocations

ach year City Council Where do Council Members Allocate Their Capital Funds? 2013-2016Citywide Capital Commitment Authorized Capital Plan, Dollars Commitments in millions members and Borough 2013-2016 Capital Commitment Plan, Dollars in billions E Presidents provide

discretionary city funds for capital

L L Public Safety $14

Education $8.8 L L L projects that benefit one or more

Parks, Libraries & EnvironmentalTransportation Protection $7.0$31 L Culturals $701 communities in their respective , or city as a whole. These projects may also receive L General Services $2.8

L Education $362 funding from other sources, including

Transportation L L other city funds, and state, federal, and Health and $5.1

Social Services $1.3 private grants.

L L L

L L Housing & Economic

Housing & Economic

Sanitation $1.3 L Development $3.1 L L L

Development $322 The Borough Presidents collectively

Public Safety $2.2 Parks, Libraries & CulturalsGeneral $2.8 Services $107 receive 5 percent of the discretionary

SOURCES: IBO;Health Fiscal Year 2013 and Adopted Services Commitment Plan$195 (OctoberL 2012) portion of the capital budget as set NOTES: Plan categories defined by IBO. General Services includes public buildings and real estate, and citywide equipment purchases

SOURCES: IBO; Fiscal Year 2013 Adopted Capital Commitment Plan (October 2012) forth in the City Charter, which is NOTES: Plan categories defined by IBO. General Services includes public buildings and real estate, and citywide equipment purchases. Roughly $342,000 was allocated to Environmental Protection and $553,000 allocated to Sanitation are too small to appear in chart. allocated to each borough based on a formula that takes into consideration Where do Borough Presidents Allocate Their Capital Funds? the borough’s population and total 2013-2016 Capital Commitment Plan, Dollars in millions geographic area. The Mayor’s budget office determines the amount of discretionary capital funds from which

Parks, Libraries & L the 5 percent is allocated; several

Culturals $321 capital program areas are excluded from the calculation either because

L they are not funded by debt supported Public Safety $3 by city dollars or state and federal

L

L L grants, or because the city does not Transportation $55 Housing & Economic Development $125 have substantial discretion over them.

In practice, however, the Borough L

L L Education $85

Presidents negotiate with OMB on the

L L Health and Social Services $60 General Services $46 amount of discretionary capital funds available in the capital budget. SOURCES: IBO; Fiscal Year 2013 Adopted Capital Commitment Plan (October 2012) NOTES: Plan categories defined by IBO. General Services includes public buildings and real estate, and citywide equipment purchases. Roughly $100,000 allocated to Environmental Protection is too small to appear in chart.

8 capital budget basics Tracking the Progress of Capital Projects

City Council. The Adopted 2013 he Capital Commitment In addition, the City Comptroller Capital Commitment Plan, covering Plan is not a project tracking publishes a report by December 1st fiscal years 2013-2016, includes a total T document. To enable users to each year in on the of $1.7 billion for City Council- track a project’s status, the city status of existing capital projects as of sponsored projects. Roughly 40 publishes a detailed, multivolume July 1st (that is, the start of the fiscal percent or $701 million of the report — the Capital Project Detail year). This report shows actual Council’s capital funds are allocated Data report. This report is designed to spending (as opposed to commitments) to parks, libraries, and cultural present information on cost, budget, in the previous fiscal year by agency institutions. Other capital areas scope, and milestones, and, where and budget line. It also shows the receiving a large share of Council applicable, the Community Board in amount appropriated, spent, and support include education (21 percent which the project was located. currently encumbered (funds set aside or $362 million), housing and because a purchase order or contract OMB also produces a detailed economic development (19 percent or has been signed) since the project’s geographic version of the commitment $322 million), and health and social inception, and the balance of plan that is divided up and distributed services (11 percent or $195 million). remaining appropriations. to the Community Boards. Borough Presidents. The Adopted 2013 If these documents do not provide Capital Commitment Plan, covering sufficient information on the status of fiscal years 2013-2016, includes $696 a capital project, inquiries may be million for Borough President- made to the appropriate city agency. sponsored projects. Roughly 46 percent or $321 million of the Borough President’s capital funds are allocated to parks, libraries, and cultural institutions. Other capital areas receiving a large share of capital funding are housing and economic development (18 percent or $125 million) and education (12 percent or $85 million).

capital budget basics 9 Main Types of Capital Financing

Why Borrowing? he city takes on long-term General Obligation debt is backed by debt by issuing bonds to the general revenues (full faith and Why is the capital program build, maintain, and improve credit) of the city. That is, the city primarily financed by issuing T long-term debt? There are the city’s infrastructure and other promises in good faith to use its two main reasons: capital assets. general powers to collect sufficient revenues to make principal and interest ➤ As a matter of equity, it Every year, a portion of the city’s payments on the debt as they become seems fair that current Expense Budget must be used to fund due — in particular, tax taxpayers should help pay for debt service — the payment of interest revenues are pledged to GO debt the use of facilities that may and principal on debt outstanding. In service before they are available for have been built before they 2012, debt service on general other city spending. The amount of were citizens of the obligation, TFA, and capital lease jurisdiction. Why should outstanding GO debt is limited by the obligations (adjusted for prepayments) taxpayers who happen to be state Constitution to 10 percent of the accounted for $5.5 billion of General city residents for the one or five-year average of the full value of Fund spending — about 13.0 percent two years required for taxable in the city, as of city tax revenues. Thus, there is an construction of a public determined by the state. The city’s important relationship between the library pay the full cost of a constitutional debt limit is $76.8 Capital and Expense Budgets. facility which their children, billion in 2013 and $78.1 billion in grandchildren, and even more In 2012 the city had over $68 billion 2014. distant generations would in debt outstanding, about $8,300 per then enjoy for free? city resident. The debt is comprised of: ➤ Because capital projects ➤ General Obligation (GO) debt: vary considerably in size, $42.3 billion complexity, and cost, the stream of expenditures can ➤ Transitional Finance Authority be considerably “lumpier” (TFA) debt: $19.6 billion (not than it is for Expense Budget including Building Aid Revenue Bonds items. To pay for the entire and World Center-Recovery capital program as part of Bonds) the general budget would ➤ Conduit Debt: $4.8 billion require erratic changes in tax rates from year to year — an ➤ Tobacco Settlement Asset undue and unpredictable Securitization (TSASC) burden on taxpayers. debt: $1.3 billion

10 capital budget basics Transitional Finance Authority issues capacity had been exhausted. In July agency) finances construction of a debt backed by personal income tax 2009, the state authorized the city to building or other . The city revenue. When ’s debt issue additional bonds through the then makes annual lease payments that neared the constitutional limit in the authority; however, any TFA debt cover the debt service. Because the city late 1990s, the city received approval exceeding the $13.5 billion cap is now does not issue the debt for the project, from the state to create the subject to the constitutional debt limit. the city is able to meet capital needs TFA to issue debt backed by income The city is now able to finance up to while bypassing the constitutional debt tax revenues. This allowed the city to half of its capital program with TFA limit. The annual lease payments are continue funding its capital program bonds and the remainder with general included in total debt outstanding, but with debt that is not subject to the obligation bonds. not in calculations of the general debt constitutional debt limit. Moreover, limit. Tobacco Settlement Asset Securitization authority debt is less costly for the city. Corporation was created in 1999 to Pay-As-You-Go is another alternative to Until recently, the TFA was authorized issue debt secured by a portion of debt financing. Some capital projects to issue $13.5 billion of bonds for the city’s share of revenues from the are funded not by long-term debt but general capital purposes and its issuing settlement of claims against tobacco by current revenues, appropriated . annually out of the Expense Budget. This is called pay-as-you-go, or Conduit Debt is an alternative to PAYGO, capital spending. When the long-term debt financing. These city has enjoyed substantial budget obligations occur when the city enters surpluses, elected officials and others into long-term lease agreements where have advocated using a portion of the another entity (such as a surpluses to reduce the debt needed to private , public fund the city’s capital program. Using authority, or state PAYGO helps the city meet its capital needs without adding to total debt outstanding.

capital budget basics 11 Capital Budget Timetable

Not Later Than October 1 Mayor’s submission of the amounts necessary to meet the city’s capital needs. November 1 The Directors of the Mayor’s Office of Management and Budget and (even-numbered years) the Department of City Planning submit a draft Ten-Year Capital Strategy. November 15 The Mayor submits a citywide Statement of Needs concerning city facilities. Thirty days prior to submission of each Community Board submits a statement of its Capital Budget priorities to the departmental estimates Mayor and the appropriate Borough President. Set by Mayor each agency submits a detailed estimate of its need for capital funds to the Mayor. December 1 The Comptroller submits a report providing the amount and nature of all payment obligations for each pending capital project. January 16 The Mayor submits a preliminary certificate setting the maximum amount of capital debt, appropriations and expenditures. Sets date for Borough Presidents to propose how they will spend their allocations. January 16 The City Planning Commission responds to the draft Ten-Year Capital Strategy. (odd-numbered years) January 16 The Mayor issues the Preliminary Budget for the ensuing fiscal year. February 15 each Community Board presents an assessment of the responsiveness of the Preliminary Budget to the district’s statement of budget priorities. February 25 each Borough Board submits a comprehensive statement on the budget priorities of the borough. March 10 Borough Presidents submit any proposed modifications of the Preliminary Budget to the Mayor and the Council. March 15 The Independent Budget Office publishes a report analyzing the Preliminary Budget for the ensuing fiscal year. March 25 The Council, through its committees, holds hearings on the program objectives and fiscal implications of the Preliminary Budget, the statements of budget priorities of the Community Boards and Borough Boards, the draft Ten-Year Capital Strategy and the City Planning Commission’s response, the Borough Presidents’ recommendations, and the status of capital projects previously authorized. April 26 The Mayor issues the Ten-Year Capital Strategy. (odd-numbered years) April 26 The Mayor submits a proposed Executive Capital Budget to the Council. May 6 each Borough President submits a response to the Mayor’s Executive Budget to the Mayor and the Council.

May 15 The Independent Budget Office publishes a report analyzing the Executive Budget for the ensuing fiscal year. Between May 6 and May 25 The Council holds public hearings on the budget as presented by the Mayor. June 5 adoption of the budget by the Council. The fifth day after adoption of Date by which Mayor must exercise veto. the budget by the Council Within 10 days of the Mayor’s veto Date by which Council must act to override Mayor’s veto. The day after the budget is The budget as finally adopted is certified by the Mayor, the Comptroller, and the City Clerk as adopted the budget for the ensuing fiscal year. Thirty days after the budget is The Mayor prepares a statement of how the Capital Budget and Program as adopted vary adopted from the Ten-Year Capital Strategy.

NOTES: Timetable based on City Charter provisions; dates may be changed by annual legislation.

12 capital budget basics Glossary of Common Capital Budget Terms

Advice of Award. Notification sent by Debt Service Funds. Funds budgeted in Lump-Sum Project. A grouping of managing agency to Comptroller that the Expense Budget for the payment related projects or purchases to be a contract has been awarded. This of principal and interest on debt. carried out or made at various allows the Comptroller to register the locations or facilities. Lump sum Encumbered Funds. Funds that are contract. projects are classified as construction contractually obligated, but have not and reconstruction, equipment Appropriation. The amount of money yet been spent. purchase, land acquisition, or design. allocated to a budget line in the Exempt Funds. Certain city capital Adopted Capital Budget. Agency responsible funds may be exempt from — that is, Managing Agency. for implementation of a capital project. Budget Amendment. A change in not charged against — the debt limit, See also Project Type. the Capital Budget. It can be made and are designated in capital budget for a change in appropriation, title, documents as CX. Exempt debt Non-Exempt Funds. All capital funds or addition of a new project or includes debt issued by the Municipal financed by debt issued by New York appropriation, or both. Water Finance Authority for water City itself are “non-exempt” supply and treatment facilities and by (designated CN). Approval from Certificate to Proceed. the state for court buildings. OMB that sets forth the terms and Period of Probable Usefulness. The conditions under which the capital Expenditures. Also “liquidated number of years established in the state project shall proceed and informs expenditures.” Actual cash outlays, as Local Finance as the useful life of the Comptroller of the amount of opposed to commitments, which a particular type of capital expenditure. obligations to be used for financing include future obligations. The maximum term of a bond sold to the capital project. finance a capital expenditure may not Inter-Fund Agreement. An internal exceed that asset’s period of probable . In general, a capital contract that allows the Capital Fund Commitment usefulness. commitment is a contract awarded by to reimburse the General Fund the managing agency and registered (Expense Budget) for the cost of city Project Type. A two-letter code by the City Comptroller. employees who work on capital indicating which city agency will own projects. and maintain the capital asset to be A limit on long-term Debt Limit. acquired, built, or reconstructed. borrowing imposed by the New York Line Project. A site-specific or activity- State Constitution. The total amount specific construction, equipment, or Registration. Process by which the City of outstanding city debt cannot exceed land acquisition project that is Comptroller legally binds the city to 10 percent of the five-year average full identified as a separate project in the an awarded contract. value of the city’s taxable real estate as Capital Budget. calculated by the state. Local Finance Law. The types of improvements or construction projects that may be funded in the Capital Budget are determined by the state Legislature in the Local Finance Law.

capital budget basics 13 New York City Independent Budget Office Ronnie Lowenstein, Director 110 William St., 14th Floor New York, NY 10038 Tel. (212) 442-0632 Fax (212) 442-0350 e-mail: [email protected] www.ibo.nyc.ny.us

June 2013