New York City’s FY 2017 Budget Proposal: Change from the Recent Past

One of Mayor Mike Bloomberg’s best innovations, from a truth telling point of view, was the introduction of a table in NYC budget documents that shows how much different government functions actually cost us. By allocating pension, fringe benefit and debt service costs to the different agencies. And by deducting federal and state aid that merely passed through the city’s budget, allowing everyone to see the money the city actually has to pay for in local taxes and fees for different functions. With a New York Democratic Administration coming back in, with an assumed attitude that what the serfs don’t know they don’t deserve to know, I wondered how far it would dare to go to restore the prior level of obfuscation.

The answer is that the Bloomberg table remains for the proposed budget, if in a stripped down format. But the identical tables for the prior fiscal year or two, and the change between the prior fiscal year and the current one, and the current one and the budget proposal, have been removed. So there is no longer an easy way to see what is changing. And yet the budget documents from prior fiscal years are still up on the website of the city’s Office of Management and Budget. Someone is apparently counting on the unwillingness of the City Hall press core and various pundits to type the data from the tables – only available in PDF format — into a spreadsheet, check it once or twice, and examine the results.   I did so, however, and found that according to the Mayor’s optimistic estimate of NYC residents’ personal income in FY 2017, it will have increased 14.5% (adjusted for inflation) from FY 2007. And according to the Mayor’s budget proposal, NYC spending will have increased 23.8%, and city-funded spending will have increased by 29.9%.

First, as always let me show you exactly where the data I present came from.   The proposal for next year’s budget is from the April 2016 Budget Summary, Page 47.

Going back in time, I have chosen to compare this with projected spending for FY 2007 from the April 2007 Budget Summary, page 29.

That not only provides a full-decade view, but also may provide a measure of change from the peak of one economic cycle to what may turn out to be the peak of another. Mayor DeBlasio rightly believes that another national recession is possible in the intermediate term, as the U.S. economy – and stock and real estate prices – remain unsustainably inflated by rising debt.

America’s Debts: Sorry But Things Are Not Fine, and the Foreigners And Minorities Are Not to Blame

A second comparison is with FY 2014, under the last budget of former Mayor Bloomberg, based on the May 2014 Budget Summary, page 48.

That is an examination of the first three budgets of the DeBlasio Administration. Under the optimistic prediction of 2017 personal income for city residents, this non-recession period of high NYC population and employment growth shows a strong 7.8% increase in the total (not per person) adjusted for inflation. But under the DeBlasio Administration proposal total New York City spending and city-funded spending will have still increased faster than the income of the people paying for it, at 9.7% and 12.5% respectively. Meaning that on the revenue side the city government is being forced to take more and more of its residents’ personal income, in taxes and fees, to balance the books.

In another deviation from past practice, the new table no longer shows the amount spent on Judgments and Claims against the city, by agency and in total. This type of spending is, instead, just lumped in with a bunch of other “miscellaneous” stuff as a single number. Past reporting of this data showed that most of the city’s Judgment and Claims costs were police brutality claims against the NYPD, slip, trip and fall lawsuits against the Department of Transportation, and malpractice lawsuits against the Health and Hospitals Corporation. I can’t think of a reason why the DeBlasio Administration would want to hide this, but then again maybe that’s why it is hidden. Maybe it was to make Sheldon Silver happy. Perhaps the detail on Judgments and Claims by agency will come back to the table next year.

A few more points about the data that will be presented before moving on to what types of spending are going up and down, and to what extent.

The data presented for the past isn’t what the city actually spent; it is what the city projected it would spend with a month or two left in each fiscal year. I learned the hard way years ago that the budget documents and reality are not always the same, but hard data on reality comes out much later. Later on this year I will probably be able to produce updates data on NYC spending compared with other places using data compiled by the U.S. Census Bureau, but only through FY 2014. The resulting discussion will be about what happened during the past Bloomberg Administration, not what is happening during the current administration of Mayor DeBlasio.

The city’s economic assumptions for the future were taken from the Message of Mayor, Economic forecast page 20.

Why do I say the forecast of personal income is optimistic? According to the Message of the Mayor…

Wages will be influenced by two competing factors. Finance compensation will be held in check due to disappointing revenue growth, challenging market conditions and a tighter regulatory environment. Securities wages are estimated to have contracted last year by 2.4 percent and are expected to fall again by 0.3 percent this year before recovering modestly in 2017. However, strong employment growth outside of finance has reduced slack in the non-finance industries and is projected to result in wage-growth consistently above four percent beginning in 2017. Because finance generates such a large share of overall wage earnings, the net impact is that average wage growth will remain below two percent in 2015 and 2016.

Basically, the “New York Idea” is that those on the inside, such as unionized public employees and contractors, can take more and more out without negatively affecting the millions of powerless ordinary people. Because “the rich” will pay for it all. So whatever they take, off the top and irrevocably, “costs nothing.” Until it doesn’t, “due to circumstances beyond our control.”

As a result of how much has already been taken off the top by the political/union class New York City cannot afford more equality, but more equality is exactly what the U.S. economy needs. The Mayor’s budget has taken that into account on wages, expecting taxes on an ever-growing number of increasingly less-well-paid young people to offset the decline of the take on Wall Street. But this ignores taxes on the capital gains investment income of the rich. When the inflated asset values correct down to something like normal, these disappear for years at a time as realized “losses” offset any and all gains and some ordinary income. I expect something like that will happen soon too.

Moreover, while the Mayor expects real estate transfer related taxes to level off and retreat slowly from the peak of another bubble, experience from just a few years ago shows that real estate transactions can nearly halt for years at a time, bringing the average level of sales over a cycle back to something like a long term average.

The city also continues hiding and deferring – at a high future cost – some of the burden of all the retroactive pension increase deals for unionized public employees over the 20 years, along with scheming and spiking. By continuing to assume a 7.0% return from inflated asset values. This is a double counting fraud, as I noted here.

Pensions: The Nature of the Lie

The economic assumptions table shows the city believes something different will happen. The 1979 to 2015 average interest rate for 10-year U.S. Treasury bonds was just 6.6% according to the city, but the projected rate is just 2.9% for FY 2017 and 3.6% for 2020. Returns on everything else are similarly low relative to the past. The dividend yield on stocks, for example, is currently half its historic average of 4.3%.

So in the future more and more money will have to be taken from the serfs, in service cuts and tax increases and lower pay and benefits for new public employees, to pay for what the richest and most selfish generations in U.S. history have taken in the past. And they might take even more. So yhey want to keep lying about this as long as possible.

Public employees always had the richest pensions. No one else objected because this was considered part of the deal, an offset to lower public employee pay. But despite all the pension increases that have caused city pension costs to soar, there has been no corresponding decrease in public employee wages and other benefits. Mayor Bloomberg responded to the Great Recession by refusing to agree to any union labor deals, unless the public employee unions gave something back to the increasingly worse off serfs. The unions responded by refusing to negotiate until a new, union-backed Mayor gave them what they wanted – with another union-backed Controller in place to lie about this.

So when you look at the wage and salary data for, for example, the Department of Education, bear this in mind. It shows that total wages and salaries fell 5.7%, adjusted for inflation, from FY 2007 to FY 2014. Not because pay was cut but because the number of workers was cut, leading to higher class sizes and program cuts. This was the period when most labor contracts were not settled for the past recession years, when most people became much worse off.

From FY 2014 to FY 2017 wage and salary spending in this department soared by 15.4% more than inflation, but a good deal of that is payment for the past. The biggest payment for the past, however, is yet to some — scheduled for they year after Mayor DeBlasio’s re-election, when NYC teacher pay is set to soar under contracts already agreed between the union and its Mayor. It is only then (or thereafter) that other New Yorkers will find out what “fairness” is from a “progressive” perspective with regard to how much they are expected to pay those in the inside, and how much those on the inside are expected to provide in return.

When you see the recent jumps in wage and salary spending in particular, it may be some of this “back loaded” pay for past work. That back pay, in effect, exempted public employees from the declines in their real cash pay that everyone else has faced, even as they benefitted from all the pension increases of the past. For other government functions for which recent spending increases appear to be more restrained, it may be that contracts have yet to be settled and a huge increase is coming. I think all the contracts are settled and show up in the FY 2017 proposal, but I’m not completely sure.

This is the operating budget. The city also has a separate capital budget. It shows capital assistance by the city to the MTA falling from $394 million this year to $125 million in FY 2017, and never increasing through 2020.   Governor Cuomo and Mayor DeBlasio each agreed to continue to the defunding of the MTA Capital plan and lie about it, by promising city and state funding in a far off future – when not keeping the promise could be described as “circumstances beyond our control.” The hope, of course, is that an economic and quality of life catastrophe will not occur until they have moved on to other political offices and their political tribe has retired to Florida. Given the Cuomo/DeBlasio deal, once can only assume the state’s funding of the MTA appears similar. Although state budget documents are designed to be indecipherable, so no one but the legislators on their way to prison know what is happening.

If investments to prevent things from getting far worse for younger generations is where the money is NOT going, where is it going?

As is my custom, I’m going to provide the spreadsheet first, and allow people to make up their own minds, before writing about my views. The spreadsheet is here.

Analysis of NYC Budget FY2017

Clicking on the bottom, you can even see the charts I have already made, although I might add a couple more before writing an analytical post.

Note charts 3a and 4a. A proxy group for one set of unionized public employees has resentfully sued the rest of us, demanding $billions more in funding (which would mean higher taxes or lower spending on other things) for itself. That union is also demanding lower and lower expectations as for what its members are required to provide in exchange, and has already won a big increases in the share of time spent in training rather than working. Even more is demanded. The Mayor has agreed, but wants the state to pay and push through the required tax increases and cuts in funding for other things. Based on the charts, guess which government function that is?