COMPTROLLER LIU: MAYOR’S BUDGET PLAN CONCEALS HUGE FISCAL RISK ON WAGES
NEW YORK, N.Y. – City Comptroller John C. Liu testified today before
the City Council Committee on Finance that Mayor Bloomberg’s
Preliminary FY 2014 Budget and 2013-2017 Financial Plan contain huge
fiscal risks that could open up a yawning multi-billion-dollar budget
gap in the next two years. Liu identified the biggest looming risk to
the budget as the Mayor’s failure to negotiate contract settlements
with the United Federation of Teachers (UFT) and the Council of School
Supervisors and Administrators (CSA), which could include retroactive
wages. Liu also proposed solutions that could provide revenues and
savings to partly defuse the risks left by the Mayor.
“The Mayor is leaving a huge mess for the next administration to clean
up,” Comptroller Liu said. “The actual budget deficit could be
billions greater than he’s stating because his budget plan assumes
zero increases for union contracts long expired, despite a pattern of
collective bargaining that includes retroactive pay increases during
A settlement with the teachers and principals unions comparable to
those the other municipal unions received in the last round of
bargaining could cost the City $2.595 billion in the current fiscal
year, of which $1.67 billion could be funding for retroactive wages,
Liu estimated. Going forward, the added cost of such a settlement
would be about $900 million a year.
But the UFT and CSA aren’t the only two unions working without a
contract; all the municipal unions’ contracts have expired.
Comptroller Liu estimated that the next Mayor may well be greeted with
a $4.34 billion budget hole on that score. That staggering amount
would stem from the cost of settling the UFT and CSA contracts (which
by then would grow from $2.595 billion to $3.045 billion) along with
an additional $1.29 billion cost of providing a very minimal wage
increase of 1 percent per year for all City unions.
The Mayor’s budget plan also has other huge risks. It assumes that the
City can count on revenue from the sale of taxi medallion and Federal
and State aid. The taxi medallion revenues, some $1.46 billion, are
tied up in court appeals. Given the uncertainty of those cases, the
Comptroller said, the entire amount assumed by the Mayor’s Financial
Plan is at risk. The Mayor’s Preliminary Budget also makes assumptions
about State and Federal aid to the City that may be unjustifiable,
especially given the Federal sequester that took effect on Friday.
In all, Liu estimates that these risks would create a budget gap of
$2.67 billion in the current year and $1.68 billion in FY 2014.
Liu offered several strategies that would provide hundreds of millions
to offset some of the risks. He called on the Mayor to recoup the $163
million that Hewlett-Packard overbilled the City as a contractor on
the 911 call center project. He also urged the City to renegotiate its
sweetheart lease agreement with the Marriott Marquis Hotel, which
could cost taxpayers at least $344.9 million. Finally, he identified
$191 million in budget savings through reduced debt-service
Following is Comptroller Liu’s testimony:
TESTIMONY BY CITY COMPTROLLER JOHN C. LIU
ON THE PRELIMINARY NEW YORK CITY FY 2014 BUDGET
AND 2013-2017 FINANCIAL PLAN, March 4, 2013
(As prepared for delivery)
Thank you, Chairman Recchia, and members of the City Council Finance
Committee for providing the opportunity to present testimony today on
the Mayor’s Preliminary Budget for Fiscal Year 2014. Deputy
Comptroller Ari Hoffnung and our Executive Director for Budget
Jonathan Rosenberg are here with me today.
I’m here today to present some good news and some bad news, but mostly
to warn you about three fiscal risks left in the budget by this
These risks could jeopardize more than $1 billion in state education
aid over the next four years and open up a yawning $4.35 billion
budget gap in the next two.
I’ll also propose some revenue and saving enhancements the City can go
after in order to partly defuse those risks. But more on that later.
The general economic picture in which we must view the Mayor’s
Preliminary Budget is decidedly mixed. New York City’s economy kept
pace with, and on some measures outperformed, the National economy in
2012, but Super Storm Sandy dampened the City’s economic growth by
about 0.2 percentage points in 2012.
While the City’s real gross City product (GCP) grew 2.2 percent, about
the same as the national rate, total private-sector jobs in the City
were up by 77,300, or 2.4 percent, on a year-over-year basis, slightly
more than national job growth during the same period.
As in the nation as a whole, the City’s residential real-estate market
strengthened in 2012, but the improvements were spotty, and the City’s
housing market remains far from healthy. Unfortunately, national
fiscal policy is turning toward austerity, and that will suppress
national and local economic growth in 2013.
As a result of the subdued economic forecast, the City is estimating
very modest tax growth, averaging around 4 percent per year for the
next four years. While my office does not expect to see any large
unexpected growth in tax revenues, we are slightly more optimistic in
certain areas than the Mayor, as I will describe.
The financial plan the Mayor has presented to you is the first step in
the FY 2014 budget process. The Mayor’s Preliminary FY 2014 Budget
totals $70.05 billion. The FY 2014 Budget is actually $322 million
less than the current modified FY 2013 budget, but the current year’s
budget includes $1.38 billion of Super Storm Sandy-related spending.
Excluding the Sandy-related spending, the FY 2014 budget is $1.08
billion or 1.57 percent greater than the FY 2013 budget. This increase
comes almost entirely from growth in the City-funds portion of the
budget, which is projected to rise from $48.9 billion in FY 2013 to
$50.7 billion in FY 2014.
In recent fiscal years, the City-funds portion of the total budget has
grown as aid from the State and Federal Government has declined. That
dynamic is only going to get worse.
In the current plan, nearly 72.4 percent of the FY 2014 budget will be
funded by City dollars, as compared to 70.8 percent of the FY 2013
budget. By FY 2015, City-funds will pay for 74 percent of the City
budget. And that portion will only get larger.
Here’s the first risk: One primary reason why the City will have to
shell out an ever-larger percentage of its budget is that our State
education funding just took an enormous hit, thanks to the Mayor.
State education aid is the single largest portion of non-City funds
supporting City services. In FY 2013, the City budgeted for $8.1
billion of State education aid, increasing to $8.3 billion in FY 2014.
In his budget address last year, Governor Cuomo established an
educational policy that would require school districts to implement a
new evaluation system for teachers or risk losing a portion of their
The State Legislature, as part of the adopted budget, agreed to the
Governor’s plan, which in the case of New York City authorized the
withholding of $250 million of aid if a teacher evaluation system was
not agreed upon by January 17, 2013.
Sadly, as a result of the Mayor’s complete inability to negotiate in
good faith with the United Federation of Teachers, the City lost out
on $250 million in much needed funding for our schools.
The Governor’s 2013-2014 Executive Budget sets forth a new deadline
for the implementation of a teacher evaluation system.
While the Governor hoped that a deadline would create an incentive for
both sides to negotiate, “My Way or the Highway Mike” saw it as a
chance to play a gigantic game of chicken with the UFT. In the end,
the students were the roadkill. New York City schools have already
lost $250 million in critical aid.
But that decline not only affects funding for our schools in the
current fiscal year. Even if an evaluation system were adopted today,
the loss of the funding in FY 2013 will reduce baseline State aid
provided to the City for years to come.
Unless something is done, the City’s schools stand to forgo more than
$1 billion over the next four years as a result of the lost $250
million in FY 2013 school aid.
But that isn’t the end of it. While the January Financial Plan shows
balanced budgets for FYs 2013 and 2014, my office has identified
certain risks to the Plan that, if realized, would result in large
budget gaps that would require further budgetary belt-tightening or
Here’s the second risk: The single largest risk to the Financial Plan
is the absence of funding for wage increases for employees belonging
to the UFT and the Council of School Supervisors and Administrators
for the 2008–2010 round of collective bargaining.
While all of the other municipal unions settled for two-year contracts
with wages increases of 4 percent at the beginning of the first and
second year of the contract, the City never came to contract agreement
with the UFT and CSA.
A settlement with these unions comparable to those our other municipal
unions received would cost the City $2.595 billion by the end of the
current fiscal year. Going forward, we estimate the added cost of such
a settlement would be about $900 million a year.
These amounts do not include the financial risk related to all of the
other municipal unions, such as DC37, that currently are working with
no contract. In fact, on the first day the next Mayor takes office, he
or she may well be greeted with a $4.34 billion problem. This
staggering amount stems from the cost of settling the UFT and CSA
contracts, which by then would grow from $2.595 billion to $3.045
billion, along with an additional $1.29 billion cost of providing a
very minimal wage increase of 1 percent per year for all City unions.
Of course, Mayor Bloomberg has said that the City does not have to give raises.
Here’s the third risk: Adding to the risks in the outyears are the
City’s assumptions on taxi medallion revenues and Federal and State
aid. The City has appealed the court’s ruling that suspended the sale
of taxi medallions, but that is far from a done deal.
Given the uncertainty of the outcome of the appeal, my office thinks
that the entire $1.46 billion of taxi medallion revenues assumed in
the Financial Plan is at risk.
Federal aid also remains uncertain. Although the passage of the
American Tax Relief Act (ATRA) helped avert a fiscal cliff, it did not
address the automatic across-the-board cuts to the budget, the
so-called sequester, which was to take effect at the beginning of the
Rather, ATRA merely delayed the spending cuts until the current month.
Given the uncertainties surrounding the Federal budget, the
Comptroller’s Office estimates that there could be a shortfall of $400
million in Federal and State support.
My office estimates some higher tax revenues that would offset some of
the risks in the outyears.
Our revenue forecasts assume that tax revenues will exceed the Mayor’s
revenue predictions by $386 million in FY 2014, $508 million in FY
2015, $901 million in FY 2016, and $1.025 billion in FY 2017. The
higher tax revenue forecasts reflect an overall more optimistic
forecast for the City’s economy.
But apart from whatever better times might bring us, my office has
offered a number of solutions for augmenting the City’s revenue and
saving taxpayer money that would add to the budget’s bottom line.
First, we call on the City to recoup the $163 million that our audit
found that Hewlett-Packard overbilled the City as a contractor on the
911 call center project. We also ask that the City renegotiate its
lease agreement with the Marriott Marquis Hotel that could cost
taxpayers at least $344.9 million.
Last year’s budget was balanced in large part because of the
half-billion-dollar settlement with Science Applications International
Corporation for its mismanagement and fraud connected with the
Recoupments from HP of what it owes the City and fixing the sweetheart
deal the City granted Marriott could help restore the 20 fire
companies, more than 30,000 childcare slots, and nearly 1,000 school
teachers that face elimination in the upcoming year’s budget.
City Hall can’t turn back the clock and undo the gross mismanagement
of these projects, but it can claw back taxpayer money.
I especially want to thank the Speaker and Council members who,
following an audit from my office, signed a letter demanding that the
New York City Economic Development Corporation renegotiate the City’s
lease agreement with the Marriott Marquis Hotel.
Second, City Hall should adopt our proposal for the issuance of Green
Apple Bonds, which would rid all New York City public schools of light
fixtures housing the known carcinogen Polychlorinated Biphenyls (PCBs)
by 2015, six years ahead of the Administration’s current schedule and
at a savings of $339 million.
News reports last week identified even more City schools with light
fixtures leaking these toxins, for a total of 366. These leaks are
happening much faster than the old fixtures are being replaced.
Green Apple Bonds work on the same principle as the Capital
Acceleration Plan that I announced with the Mayor in the fall and the
several bond refinancings undertaken by my Public Finance Bureau,
which take advantage of the low interest-rate environment we currently
enjoy in order to produce hundreds of millions of dollars in
debt-service savings for City taxpayers. Green Apple Bonds would lower
the City’s greenhouse-gas emissions to guard against climate change,
while at the same time creating 3,000 jobs. This proposal is a win all
Here too, I would like to thank the Council members who wrote a letter
urging the EPA to reject New York City’s ten-year timeframe for
removing and replacing all PCB containing light ballasts and instead
insist on a strict two-year plan.
Third, my office has located some more savings of funds now in the FY
2013 Plan that would provide about $191 million in additional revenue
for FY 2014. Through the first half of the fiscal year, the City has
spent $26 million on debt service for variable rate bonds. If rates
were to continue at this same pace for the remainder of the year, the
City would realize about $150 million in reduced FY 2013 debt service
expenditures. In addition, this week, we sold a $372.5 million General
Obligation bond refunding. When that deal closes later in March, we
will realize an additional $40.9 million of budget savings in 2013 and
Finally, I’d like to thank the New York City Council’s Finance
division for its assistance with Checkbook NYC 2.0, the website my
office developed and launched in January.
This powerful tool allows up-to-date spending activity on a Citywide
and individual agency level, and makes New York City the most
transparent municipal government in the country, according to the
United States Public Interest Research Group.
Checkbook NYC 2.0 empowers and enlists the public to keep an eye on
government spending and thereby curtails wasteful and improper
dispensing of public funds. While it is hard to quantify what this
tool will save us, we believe that it will have a significant impact.
Our office stands ready to offer tutorials or answer any questions
members and their staffs have about how to use this powerful tool.
Those are some partial solutions, but we have a glaring problem. In
total, my office estimates that these risks I have summarized could
create a budget gap of $2.67 billion in the current year and $1.68
billion in FY 2014.
Add those two, and you get the $4.35 billion to which I referred
earlier. So while the Mayor’s Preliminary FY 2014 Budget and 2013-2016
Financial Plan may look balanced, they contain great risks.
Thank you for the opportunity to submit testimony today. Please reach
out to me and my staff if you want to discuss these matters in greater
detail at any time. Press Release.
Report: Comptroller John C. Liu’s Comment on New York City’s
Preliminary Budget for FY 2014 and Financial Plan for FYs 2013-2017,
March 4, 2013
Press release on Hewlett-Packard’s overbilling:
Press release on Marriott’s sweetheart deal:
Visit www.comptroller.nyc.gov for the latest news, events, and initiatives.
Follow Comptroller Liu on Twitter. To receive Twitter updates via text
message, text “follow johncliu” to 40404. View the latest
Comptroller’s office videos on YouTube.