M a r c h 2 0 0 7 ANALYSIS OF THE MAYOR’S PRELIMINARY BUDGET FOR 2008 IBO’s Reestimate of the Mayor’s Preliminary Budget for 2008 and Financial Plan through 2011 New York City IBOIndependent 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] • http://www.ibo.nyc.ny.us ANALYSIS OF THE MAYOR’S PRELIMINARY BUDGET FOR 2008 Preface This report provides IBO’s analysis of the Mayor’s Preliminary Budget for 2008 and Financial Plan through 2011. It includes our own economic and revenue forecasts and presents an examination of the key budget proposals made by the Mayor. The report also presents IBO’s reestimates of projected spending by agencies as well as agency-by-agency reviews of proposed Capital Budget spending. Because many of the sections contained in this report were first made available in conjunction with the City Council budget hearings that began March 6th, they may not reflect all of the latest events and information. Continuing IBO’s ongoing efforts to make understanding the city’s budget easier and more representative of how most New Yorkers think about municipal services, we have sought wherever possible to present agency spending in terms of programs. Based on these program categories, we provide spending comparisons from prior years, the current year, and the projection for 2008. This offers a better representation of how spending may be changing than in the standard Preliminary Budget and Financial Plan format, which only shows plan-to-plan, or quarterly, shifts. To ensure comparability with the Mayor’s Preliminary Budget, we also discuss the main spending changes in the same dollar terms as presented in his proposals. As we have over the past five years, IBO has also produced a companion volume to this report,Budget Options for New York City. Released in February, the latest report presents 62 ways to reduce costs to the city and to raise revenue. For each of the measures we review, IBO discusses its pros and cons along with our projection of savings or revenue. Two notes on the report’s format: all years refer to fiscal years unless otherwise indicated and the total budgets for city agencies are always net of intra-city sales (contracts and purchases between city agencies). This Preliminary Budget report is the product of the expertise and hard work of IBO’s team of budget analysts and economists. A list of staff contributors and their areas of responsibility are included at the end of the report. The report was written under the supervision of Deputy Directors Frank Poscillico, George Sweeting, and Preston Niblack with the help of Assistant Deputy Directors Ana Ventura, Nicole Fleming, and Paul Lopatto. Tara Swanson coordinated production and distribution and Doug Turetsky provided editorial assistance. Ronnie Lowenstein Director NYC Independent Budget Office March 2007 i ANALYSIS OF THE MAYOR’S PRELIMINARY BUDGET FOR 2008 Contents Preface i Overview 1 Revenue Economic Outlook 9 Taxes and Other Revenues 13 Tax Revenue Forecast 14 Real Property Tax 15 Property-Related Taxes 18 Personal Income Tax 20 Business Income Taxes 25 General Sales Tax 27 Hotel Occupancy Tax 27 Other Revenues and Categorical Grants 28 Expenditures Expenditure Outlook 31 Business and Community Services Department of Consumer Affairs 33 Department of Cultural Affairs 35 Department of Small Business Services 39 Department of Finance 43 Department of Parks and Recreation 45 Department of Sanitation 49 Public Libraries 53 Capital Spending and Municpal Workforce Capital Program, Financing, and Debt Service 55 Labor Costs 57 ii NYC Independent Budget Office March 2007 ANALYSIS OF THE MAYOR’S PRELIMINARY BUDGET FOR 2008 Education, Health, and Human Services Administration for Children’s Services 61 City University of New York 65 Department for the Aging 69 Department of Education 73 Department of Health and Mental Hygiene 85 Department of Homeless Services 89 Department of Youth and Community Development 93 Health and Hospitals Corporation 97 Human Resources Administration 101 Medicaid 105 Public Assistance 107 Infrastructure Department of Buildings 111 Department of Environmental Protection 115 Department of Housing Preservation and Development 119 Department of Transportation 123 New York City Transit 127 Public Safety Civilian Complaint Review Board 133 Department of Correction 135 Department of Juvenile Justice 139 Department of Probation 143 Fire Department of New York 147 New York City Police Department 153 Appendix Commission for Economic Opportunity Initiatives Table 159 Report Contributors 161 NYC Independent Budget Office March 2007 iii Overview IBO projects the city will end 2007, the current fiscal year, IBO’s estimated budget gaps for the remaining years of the with a surplus of $3.9 billion and 2008 with a surplus of just Financial Plan are higher than in 2009, $3.3 billion in 2010 over $1 billion. These surpluses reflect the city’s bright near- and $3.1 billion in 2011. The gap estimates in all three of term fiscal picture as tax revenues continue to come in at these years assume the property tax rate reduction remains in better-than-expected levels. Indeed, IBO has now increased place, reductions that comprise more than one-quarter of each our 2007 tax revenue estimates by $1 billion over what we had year’s gap. projected just two months ago. But as our projected budget shortfalls for 2009 and beyond signal, revenue growth may not Some key highlights of our analysis and reestimate of the 2008 be sufficient to keep pace with expected spending increases. Preliminary Budget and Financial Plan through 2011 include: • IBO has increased its tax revenue estimate for 2007 The city’s near-term fiscal strength allowed the Mayor to offer by $1 billion more than we had projected just two a number of new proposals in the 2008 Preliminary Budget, months ago and now expect the city to end this year including several tax cuts that widen our projected out-year with a surplus of $3.9 billion. budget gaps. In addition to continuing the $400 per year • Higher than expected taxes from property sales and tax rebate for homeowners, the Mayor proposed a 5 percent business income are responsible for most of the 2007 reduction in the property tax rate that would cost by his increase. estimate $750 million in 2008. Although he presented it as a • Although a weaker real estate market and slower one-year measure to be considered for extension “if conditions growth in corporate profits will dampen the growth permit,” the tax cut is included in each year of the Financial rate of tax revenues over the next few years, IBO still Plan through 2011. He also proposed roughly $300 million in expects a surplus of just over $1 billion in 2008. permanent tax cuts, including a child care tax credit for low- • The budget plan includes a number of tax reduction income working families, the elimination of the city’s sales tax proposals that will cost the city $1.3 billion in on clothing and shoes, and tax breaks for small businesses and revenue in 2008, rising to $1.6 billion in 2011. S-corporations. • With large surpluses no longer available to mask underlying shortfalls in the budget, IBO projects gaps The large surplus expected in 2007, which will be used to of around $3 billion in 2009, 2010, and 2011. prepay some of next year’s expenditures, enabled the Mayor to • The same “big ticket” items that have propelled also propose putting $500 million more in the Retiree Health spending growth in the past—debt service, pensions, Benefits Trust Fund in 2008. In addition, the Financial Plan and health care and other fringe benefits for city assumes the 2008 surplus will be used to prepay some 2009 workers—continue to rise. But there is now also expenses, reducing the expected shortfall for that year to $2.8 spending growth in some other areas of the budget billion based on IBO’s projections. such as education, the Mayor’s new antipoverty Total Revenue and Expenditure Projections Dollars in millions Average 2007 2008 2009 2010 2011 Change Revenues $58,144 $58,024 $59,451 $62,571 $64,762 2.7% City-funded Revenues Taxes 35,639 36,283 37,690 40,051 42,246 4.3% Tax Reduction Program - (1,318) (1,427) (1,517) (1,626) n/a Other Revenues 6,862 6,965 6,366 6,436 6,488 -1.4% Expenditures 58,144 58,024 62,282 65,828 67,833 3.9% City-funded Expenditures 42,501 41,930 45,460 48,227 50,179 4.2% IBO Surplus / (Gap) Projection $- $- ($2,831) ($3,257) ($3,071) SOURCE: IBO. NOTES: IBO projects a surplus of $3.91 billion for 2007, $27$27 millionmillion belowbelow thethe BloombergBloomberg Administration’s forecast. The surplus is used to prepay some 2008 expenditures, leaving 2007 with a balanced budget. IBO projects a surplus of Administration’s forecast. The surplus is used to prepay some 2008 expenditures, leaving $1.05 billion for 2008, $328 million below the Bloomberg Administration’s forecast. The surplus is used to repay some 20092007 expenditures,with a balanced leaving budget. 2008 IBO with projects a balanced a surplus budget. of $1.05 Estimates billion forexclude 2008, $328intra-city million revenues below and expenditures. the Bloomberg Administration’s forecast. The surplus is used to repay some 2009 expenditures, NYC Independentleaving 2008 Budget with aOffice balanced budget. Estimates exclude intra-city revenues and expenditures. March 2007 1 ANALYSIS OF THE MAYOR’S PRELIMINARY BUDGET FOR 2008 Pricing Differences Between IBO and the Bloomberg Administration Items that Affect