Budget season is upon us, and New York City Mayor Eric Adams isn’t wasting any time in pursuing his campaign promise to cut down on spending.
On Monday, Adams’ new budget director, Jacques Jiha, sent a letter to city agencies asking them to submit a plan to reduce expenses by 3% in Fiscal Years 2022 and 2023. All but a few city agencies will be affected – the Department of Correction, Department of Health and Mental Hygiene, Office of the Chief Medical Examiner, and Health + Hospitals are exempted, owing to what Jiha called the “unique challenges” they face.
Though the Fiscal Year 2022 budget is currently balanced, the preliminary spending plan for 2023 has a $2.9 billion gap, Jiha said. On the campaign trail, Adams promised across-the-board cuts to city agencies of at least 3 to 5%. Adams suggested during the campaign that at least one of his other campaign proposals – direct cash assistance – could be funded in part through savings from those cuts.
The savings plans that agencies are required to submit are known as Programs to Eliminate the Gap (PEGs), and they’ll be due on Jan. 21. Jiha’s letter said that agencies would be asked to find savings through “restructuring the delivery of programs or services, improving revenue collection, reducing administrative and overhead costs, and funding underused programs at the appropriate levels.” They won’t involve layoffs, though agencies are asked to right size their staff by not unnecessarily filling vacant positions.
While we’ll likely have to wait to find out exactly what the cuts will look like, City & State consulted a few experts for insight into how savings might – or should – be found. Several people weighed in, including Ana Champeny, deputy research director at the Citizens Budget Commission; James Parrott, director of economic and fiscal policies at the Center for New York City Affairs at The New School; Martha Stark, former finance commissioner of New York City and a professor of public service at New York University; Ronnie Lowenstein, director of the New York City Independent Budget Office; and Peter Warren, director of research at the Empire Center for Public Policy.
Responses have been edited for length and clarity.
Does New York City currently need to cut its spending by 3%? Why or why not?
Martha Stark: Yes, the mayor's ask for 3% in spending cuts is reasonable and warranted. While there has been an infusion of much-needed cash from the federal government, the city must make sure it's non-COVID-related expenses and revenues match.
Ronnie Lowenstein: The Independent Budget Office recently released our Fiscal Outlook report with revenue and spending projections for the current and three upcoming fiscal years. According to our estimates, the city has nearly enough resources available to balance each year of the current financial plan – without the need for tax increases or major cuts. In fact, we are forecasting that the city will end this year with a small surplus: $938 million. For the following fiscal years, we are projecting modest budget gaps, similar in size to ones that the city has closed easily in the past. So my short answer to that question is no. I will say that this situation seemed almost impossible 18 months ago, when our projections of out-year budget gaps ranged from $4 billion to $6 billion. What has happened since? Most importantly, the city received billions in federal aid and stimulus funds. In addition, while total tax revenues fell in response to the recession brought on by the pandemic, receipts for some of the city’s taxes have been considerably higher than anticipated. This is not to say we are out of the woods. Our current economic forecast is steeped in uncertainty, and frankly, may be more optimistic than usual because it was completed just before omicron began to spread in the city. The amount of uncertainty about the course of the pandemic and uncertainty about its longer-term effects on the city economy really is unprecedented. So while the city’s current financial condition appears to be relatively – even surprisingly – strong, there is a level of precariousness surrounding these numbers that calls for extraordinary vigilance.
Peter Warren: Mayor Adams must push for spending reductions now because Bill de Blasio selfishly banked political credit for spending initiatives he refused to pay for – sticking Adams with the bill. To fill the city's stated budget gaps over the next three years requires cuts of at least 3%. And those official budget gaps include heroic assumptions. They assume, for instance, city employees will get no wage increase in the upcoming bargaining round, and that city worker overtime use will buck historic trends. A gimmicky baseline means Adams must make cuts just to tread water – never mind close the gaps. Adams' political leverage will never be greater than it is today. He's smart to invest political capital right at the outset to fix the mess he inherited. Ripping off the band-aid now – while the former mayor is fresh in mind – is a painful but necessary task. An investment of political capital here will reap dividends over the course of Adams' tenure.
James Parrott: The city should always be closely scrutinizing its expenditures to maximize effectiveness and eliminate unneeded expenditures. There are a lot of moving parts in the city budget so things undoubtedly have changed since the November budget revision. Is the 3% meant to be a net reduction in total expenditures or reductions to make room for other spending? Above all, a budget is a statement of policy priorities and the new mayor will shape the budget to advance his policy priorities.
Ana Champeny: Yes, Mayor Adams is exactly right to ask agencies to identify savings of 3%. Ensuring the city uses taxpayer resources efficiently and effectively, delivers high-quality services and achieves a sustainable budget is critical to maintaining the ability to provide for New Yorkers in the future. City-funded spending increased by $16 billion (30%) from fiscal year 2014 to fiscal year 2020, prior to the pandemic, with little attention to increasing efficiency and ensuring high-quality services. Now, the city faces multi-billion-dollar budget gaps, upward pressure on spending from expired labor contracts, a looming fiscal cliff when the federal money is used up, and significant economic risks. Starting to implement productivity-based savings now is necessary.
In the departments that Adams didn't exempt from the cuts, what cuts is he likely to make in order to achieve his desired 3% reduction?
Ana Champeny: The Program to Eliminate the Gap letter from the Office of Management and Budget provided direction on how to achieve the reductions. First, agencies were asked to right-size their headcount by reviewing and eliminating vacant positions (currently, there are nearly 20,000 vacant full-time positions). Second, agencies were asked to find productivity and efficiency savings by reducing spending on underutilized services and streamlining operations, while not cutting direct services, raising fees, or resorting to layoffs. Further, agencies were instructed to identify service impacts and rank these reductions. This step is important and will allow OMB to think critically about which proposed reduction to implement.
Martha Stark: One would need to look at each of the non-exempt agencies closely. Among the questions that agency heads will ask: Are overtime costs higher than needed? Are there any opportunities to use technology to operate more efficiently? Are there other ways for us to operate more efficiently – are we working smart, have we reviewed our processes to eliminate duplicative work?
Peter Warren: The agencies tasked with finding savings can surely produce some change they've stored under the seat cushions. But if they're not fully on board with the program, they may put forth little more than modest reductions in overhead like travel and IT expenses.That won't fill yawning budget gaps. No mayor can escape the reality that most of the city's budget goes to personnel costs – salary, overtime and benefits. I expect the mayor will look first to reduce the current staff bloat through attrition, including modified or full hiring freezes in several agencies. Assertive bargaining with the city unions could yield further savings. Adams was elected in part because voters were confident he would stand tall against crime. Paring bloated city payroll costs will require similar resolve, in the face of union intransigence.
James Parrott: Mayor Adams understands the New York City Police Department and is intent on reassessing the Department of Education budget. Those are two big budget areas. It would be great to see improved training and management at the NYPD result in savings from lawsuits against the city, among other things.
If you had to identify a 3% cut to city government’s spending, where would you start to identify waste?
James Parrott: A new administration provides the opportunity for new directions in several areas. I think the most important city budget priority should be to step back and look at the big
picture. For example, re-assessing the citywide health care system and what would be a more rational way to structure that, including the relationship between the public and private hospitals. This should result in savings in what the city, and the public, spends on health care. Secondly, the city should make up for lost time and sit down with the state to talk about the state’s Penn Station development plan that includes usurping a big chunk of the city’s commercial property tax base. Third, because tax equity and fairness is a big part of public confidence in government, the mayor should prioritize working with Albany to enact the recommendations of the Advisory Commission on New York City Property Tax Reform to overcome 40 years of distortions and provide significant relief to hundreds of thousands of moderate-income homeowners. Fourth, we should re-examine the $4 billion in annual business incentive tax expenditures, and the tax exempt status of mammoth non-profit institutions.
Ana Champeny: While there certainly is some waste, the Citizens Budget Commission has long supported consistent and on-going efforts by agencies to identify efficiency savings and improve operations. Five strategies include: 1) redesigning programs or services, or shrinking or eliminating less cost-effective or duplicative services; 2) improving operations through the use of technology or process redesign; 3) identifying alternate service providers within or outside the public sector; 4) sharing resources across agencies and reducing or eliminating duplicative processes; and 5) strengthening centralized management of cross-agency operations, such as fleet, office space, and energy. Agencies should include staff at all levels – from executive to managers to front-line staff – in these efforts. Staff will have valuable insights on how programs and operations can be improved. Ongoing, the mayor should be working with labor during this round of collective bargaining to find even greater efficiencies. This is crucial both to stabilize the budget over time and to provide workers raises without driving unaffordable spending increases.
Martha Stark: First, I wouldn't call it “waste” as that terminology often leads to a defensive response. Second, I would start with the people on the ground who do the work and ask them to help identify ways in which their work could be done more efficiently. Third, no agency should be exempt from looking at ways to serve more efficiently and effectively. Some agencies like the Department of Finance are often allowed to substitute revenue for spending cuts. One of the authors of a project that I worked on at NYU – NYC 2025 – argued that the city should try to “do no harm” when it comes to tax policy. Another paper discusses ways to get the basics right. There is one area at the Department of Finance that might be worth considering. The city has a program for rental car companies in the city. The fee for the program has not changed since inception even though parking ticket prices have increased. Raising the fee from $1 to $10 per month might generate some revenue.
Peter Warren: I'd recommend a de-Blasification effort that addresses the budget gaps by starting to unwind the irresponsible and unaffordable government expansion undertaken by the former mayor. The city employee payroll swelled in recent years – and a raft of planned hires are built into the existing budget baseline. Canceling most of those new hires and reducing positions elsewhere via attrition would avoid layoffs and create significant savings – all while restoring staffing to a level that proved manageable in the past. The gold-plated benefits enjoyed by city employees have one silver-lining for budgeteers: merely aligning them a bit closer to the employee benefits most New Yorkers working in the private sector get would save billions. For instance, city government employees are among the only state residents who enjoy premium-free health insurance. Would requiring them to contribute something – as state employees do – dry up the pool of applicants for city jobs? In the same vein, would moving to a 40-hour workweek hinder recruitment? These measures are responsible and needed. The city's traditional public schools have been hemorrhaging students during the pandemic. But despite declining enrollment, they're using temporary federal funds to hire additional staff to serve new lines of business, like pre-K3 and mental health services. There are more ways to reduce expenditures without harming city services. But these would be a good start.
Ronnie Lowenstein: IBO does not make policy recommendations, but we do provide policymakers with alternatives in a publication we call “Budget Options.” This is a compendium of more than 100 ideas that we publish annually and it is full of ways in which the city can cut spending or raise revenue. We neither endorse nor reject these ideas. IBO staff are tasked with brainstorming new measures each year. We then summarize each measure, estimate its fiscal impact, and provide arguments for and against its implementation. For policymakers looking for ideas, it might be a helpful place to look.
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