If New York City continues on its current fiscal course, it will soon face a crisis comparable to that of the 1970s, likely leading to draconian budget cuts and a state takeover of the city’s finances. The city’s budget has a structural imbalance—a long-term difference between spending commitments and expected revenues—conservatively estimated at between $1 billion and $2.6 billion per year. Mayor Dinkins’s $31.4 billion Executive Budget for fiscal 1994, released on May 3, 1993, is balanced, as required by law—but only because it relies on a series of unrealistic assumptions that mask the reality of the coming crunch:
- It assumes $250 million in gap-closing aid from the Federal Government and $280 million from the state, sums that are unlikely to materialize.
- It proposes, as a one-shot financing tool, selling the city’s outstanding property tax bills to a bank for $215 million.
- It assumes the city will sell the Off-Track Betting Corporation for $55 million, though no deal has been put together and officials from the mayor’s Office of Management and Budget concede the sale will not happen during fiscal 1994.
- It assumes the city will realize $45 million by renegotiating a lease agreement with the Port Authority, though this deal is also unlikely to happen during fiscal 1994.
- In another one-shot, it assumes that the Federal Government will refund $85 million in Social Security taxes paid by the city, though the IRS has not yet agreed upon a dollar amount.
- It underestimates overtime expenditures by some $100 million.
- It diverts $20 million from a defunct pension account that should be used to fund shortfalls in other pension accounts.
- It proposes cutting $50 million from the Board of Education by eliminating a preparatory period for teachers, even though a labor arbitrator has ruled that the city cannot do this.
On May 25, the three private-sector members of the state’s Financial Control Board—the panel that would take over the city’s financial affairs in the event that a fiscal crisis necessitated a “control period”—released an extraordinary letter harshly criticizing the mayor’s budget. "The choices the city has made to produce balanced budgets for the next 14 months skirt the critical objective of . . . lasting, structural balance,“ they wrote. Even if all the mayor&##148;s assumptions pan out for 1994, the city will face a budget gap of $1.6 billion in fiscal 1995, $2.2 billion in 1996, and $2.6 billion in 1997.
To bring its finances back into balance, the city cannot rely on tax increases, which would only worsen an already weak economy. Washington and Albany, under fiscal pressures of their own, are unlikely to offer the kind of massive aid needed to close the gap. The only answer, then, is for the city to make serious spending cuts.
We have compiled a list of ten ways in which the city could save money without harming basic services. This list is by no means comprehensive, but it represents a starting point in the effort to put the city’s fiscal house in order. Some of these cuts could be achieved by the city itself, while others would require action by the State Legislature. Some would require a show of political will by the city’s leaders, but none would adversely affect the quality of life for the vast majority of New Yorkers, and some would even improve city services.
Given the gravity of the city’s fiscal problems, a serious effort to cut the budget cannot wait any longer. Here, then, are our ten proposals:
1. Reduce the use of overtime by city employees.
Savings: $18 million to $75 million per year.
When the city prepares its budget, it allocates a lump sum to each agency for overtime pay, without evaluating its actual needs, and the agency proceeds to spend whatever it deems necessary or acceptable. If an agency exceeds its overtime budget, as many do, the city routinely grants a budget modification to reconcile spending.
The city projected it would spend $244 million on overtime during fiscal 1993; in the first eight months of the fiscal year alone, the figure reached more than $254 million, not including $18 million made necessary by the February 26 bombing of the World Trade Center and the March 13 blizzard. This is nothing new: in fiscal 1988, city agencies exceeded their overtime budgets by 91 percent; in 1992, by 41 percent. If the city had spent only what it originally allocated for overtime in 1992, it would have saved $98.8 million.
Why does the city routinely underestimate its overtime expenditures? A review of the past eight years suggests that such estimates are deliberately low as part of the effort to create the fiction of a balanced budget. The mayor’s fiscal 1994 Executive Budget estimates overtime at $248 million, $142 million less than the city now expects to spend on overtime during fiscal 1993. But the budget specifies no means by which overtime costs will be cut. As the year progresses, the mayor will be looking for additional funds for overtime.
Overtime spending has been growing steadily. In fiscal 1986 it consumed $190 million, or 1.8 percent of payroll expenses. In fiscal 1993, it is expected to exceed $390 million, or 2.6 percent of payroll. Moreover, some overtime expenditures impose additional long-term burdens on the city. Pension payments are based on the average salary earned during the last three years of employment, so employees are able to increase their pensions by amassing overtime during their final years. Some employees have nearly doubled their pension base in this way. The city has a recommended cap on overtime accumulation, but city commissioners are free to ignore it.
The city could reduce overtime expenditures through several different reforms. It could, for example, use compensatory time rather than additional wages to pay many civilian employees for extra hours. And in some instances it is cheaper to hire an additional entry-level worker than to pay time-and-a-half to a highly paid senior employee. Some fiscal experts argue that overtime is a necessary evil, that it is less costly than hiring additional workers with a full package of benefits. One solution to this problem would be to use temporary workers, an increasingly common practice in the private sector. Another would be to reexamine work rules that encourage abuse of overtime. The Department of Correction, for example, gives its workers unlimited sick leave, and the Sanitation Department gives its garbage collectors a day’s pay to complete a route that takes far less than the allotted six hours.
The City Council has introduced legislation that would cap overtime expenditures. Any time an agency exceeded its limit, it would be required to appear before the council to justify the excess. In addition, the city should either institute a strict cap on overtime for employees on the verge of retirement, or stop including overtime in pension calculations. If the city could reduce overtime spending by just 5 percent, it would realize a net savings of more than $19 million annually.
2. Consolidate community school board elections with regular primaries.
Savings: $1.5 million per year.
Community school board elections are held every three years, separately from all other city elections, ostensibly in order to focus attention on the school boards. Instead, the isolated elections have generated an anemic voter turnout, averaging about 6 percent, or 178,000 voters citywide. Even in April 1993, when controversy over the Rainbow Curriculum drew unprecedented attention to the elections, voter turnout reached only 10 percent.
Holding separate elections costs the city an estimated $4.5 million, or $25 per voter, every third year. This sum could be saved by holding school board elections every two or four years, at the same time as regular primaries. Such a change would not only save money but also make local school boards more accountable by exposing them to a wider electorate. And still more money could be saved by abandoning the confusing system of "proportional representation," which requires cumbersome paper ballots rather than the voting machines used in regular elections.
These changes would require approval from the State Legislature, which sets the terms for school board elections.
3. Privatize the Off-Track Setting Corporation.
Savings: $25 million to $50 million first year, $8 million to $20 million per year thereafter.
New York City’s Off-Track Betting (OTB) Corporation is a rarity: a gambling operation, with a legal monopoly, that is unprofitable. In fact, nearly eighty of its ninety branches lose money. OTB is expected to have a handle (the total of all bets) in excess of $825 million in 1993, but will not provide any residual revenues to the city. In fact, if not for a surcharge on winning bets, the city would be subsidizing OTB this year by nearly $2 million.
OTB, established in 1970 as a public benefit corporation, has been little more than a patronage haven. It employs 1,500 people, many of whom are friends of the mayor and contributors to his campaign. A 1992 City Council Finance Committee report found that OTB squanders millions of dollars a year on official perks, political contributions, and questionable contracts. Top OTB managers have chauffeur-driven cars, a luxury not accorded to commissioners of city agencies. Officials spend hundreds of thousands of dollars a year on meals and travel. OTB’s president, Hazel Dukes, for example, recently visited St. Croix at the corporation’s expense, ostensibly to attend a conference on economic development. The corporation has contributed money to elected officials, including the chairman of the State Assembly’s Racing and Wagering Committee. OTB; has used its print shop to publish political newsletters for various organizations, including the NAACP, which Dukes formerly headed. OTB gave a $1 million restaurant concession to a company called Ward & Ward, headed by Lee Dunham, a close friend and contributor of the mayor—and the head of the search committee that "found" his firm.
For the past few years, the city’s Office of Management and Budget has estimated that OTB would be worth $50 million if sold to a private company. Its value may be lower now as a result of continuing mismanagement. But if it were run as a for-profit business, OTB could generate millions of dollars in revenue for the city, which could continue imposing a surcharge on winning bets and establish annual franchise fees or a payment scheme giving the city a percentage of net handle. If the city were to receive 1 percent of handle, it would realize $8.5 million annually.
4. Eliminate redundant departments of the mayor’s executive office.
Savings: $1.32 million per year.
The mayor’s office has numerous departments whose missions closely resemble the responsibilities of other agencies. Most could be eliminated:
- The Office of Homelessness and Single Room Occupancy Housing Services could be transferred into the Department of Housing Preservation and Development, where its responsibilities could be handled by existing HPD staff with one additional staff member to oversee the office. (Savings: $275,000.)
- The Mayor’s Office of Volunteers could be transferred into the Department of Employment, with its responsibilities handled by existing employees and one additional staff member. (Savings: $300,000.)
- The Office of Environmental Coordination could be transferred into the Department of Environmental Protection, again using existing employees with one additional staff member. (Savings: $190,000.)
- The Office of Education Services could be eliminated, as its responsibilities are already handled by the Board of Education. (Savings: $100,000.)
- The Office on Health Policy could be eliminated, as its responsibilities are already handled by the Board of Health, Department of Mental Health, and Department of Social Services. (Savings: $100,000.)
- The Office of Asian Affairs, Office of Latino Affairs, Office of African-American and Caribbean Affairs, Office of European-American Affairs, Office of Immigrant Affairs, and Office for the Gay and Lesbian Community could be merged into one Office for Constituent Services. Since each of these offices has its own director, paid an average of $70,000, an annual savings of at least $350,000 could be realized.
5. Contract custodial services in schools to private firms.
Savings: $20 million per year.
The custodians’ $220 million contract with the Board of Education has been one of the most publicized examples of waste in city government. Custodians, who earn up to $80,000 a year, are required to clean only 20 percent of each school, wash the cafeteria floors only once a week, and paint only the bottom eight feet of school walls. Custodians also control the keys to school buildings, so principals cannot keep them open after hours for extracurricular activities.
Despite the poor quality of their services, custodians receive extravagant perks. They are able to hire their own staff, and often employ relatives and friends. When they purchase vehicles and other capital equipment for the schools, they can later buy it for themselves at a fraction of its value. Custodians have total authority over their expenses and are not required to provide detailed accounting. Supervision is so poor that a recent press exposé found some custodians working as pilots, lawyers, and yacht captains while they were simultaneously paid to keep their schools in order.
Contracting with private firms would provide a much higher level of service at lower cost, according to a recent evaluation by the Board of Education and the Office of Management and Budget. Schools could be kept open until 10 P.M. and be cleaned every day. Privatization would save the city at least $20,000 per school each year. With more than a thousand public schools in the city, the savings would amount to a minimum of $20 million annually. Even more could be saved through additional efficiency and productivity initiatives.
6. Consolidate the Department of Cultural Affairs into the to Department of Parks and Recreation.
Savings: $2 million in operating funds and $2 million to $3 million in capital funds per year.
The Department of Cultural Affairs was originally only a division of the Department of Parks and Recreation. In 1977, the city created a new agency to lobby for federal and state arts funding and promote New York’s cultural institutions. At the time of its creation, the department had a staff of 6; today it has a staff of 55 and an operating budget of $2.8 million.
The agency serves primarily as a "pass-through" for some $67 million a year in grants to artistic institutions. It also determines the capital needs of 32 major city-subsidized cultural institutions, though their capital programs are overseen by the Department of General Services. The Department of Cultural Affairs plays no part in the management or operation of cultural institutions, and its lobbying efforts have not borne fruit—all levels of government have reduced cultural funding over the past few years.
The Cultural Affairs Department could easily be consolidated back into the Parks Department. A City Council study has found that the department’s pass-through function could be handled readily by existing Parks Department personnel. The capital program could also be transferred to the Parks Department capital division, which has a better record of controlling costs than the Department of General Services. The Parks Department would also give cultural institutions a higher priority than General Services, which is responsible for the capital programs of 13 other city agencies, including the Police, Fire, and Correction departments.
7. Abolish the Art Commission.
Savings: $212,000 per year.
On the third floor of City Hall, in a minuscule office with six paid employees, is an agency that has cost the city and private institutions millions of dollars since its creation. The New York City Art Commission, with a budget of $212,000, is charged with approving works of art—including sculptures, paintings, murals, fountains, and monuments—that are to be erected on or over land belonging to the city. The Art Commission has authority over all buildings, gates, fences, piers, curbs, lampposts, and even traffic signals on city property.
This commission, so obscure that it does not even have its own line in the budget, has veto power over many necessary building projects. Several years ago, for example, it forced the Board of Education to spend $75,000 for a mural before it would grant permission to build a field house in Brooklyn. Later, while city schools faced massive overcrowding and children were being taught in closets and bathrooms, the commission held up the approval of 19 mini-schools because, in the opinion of its ten members, the designs were not "artistically favorable." At some city agencies, officials have become so fed up with the delays caused by the Art Commission that they have defied the legal requirement that they consult the commission before beginning construction.
The Art Commission is also a burden on the private sector. For instance, officials of the New York Stock Exchange wanted to build planters on the sidewalks around the Exchange in order to combat illegal peddlers whose presence was both an eyesore and a safety hazard. It took the Art Commission nearly two years to arrive at a consensus on what sort of planters would be aesthetically pleasing. The process required the Stock Exchange to spend tens of thousands of dollars in consulting fees for lawyers and architects.
Eliminating the Art Commission would directly save the city $212,000; we have made no estimate of the indirect savings that would result from doing away with this bureaucratic roadblock to public and private development.
8. Cut waste in the capital budget.
Savings: At least $45 million per year.
The city’s fiscal 1994 budget projects capital expenditures in excess of $5.2 billion. Since the city goes into debt to pay for its capital program, high capital expenditures have long-term costs. Debt service, in fact, is the fastest-growing part of the city budget, expected to consume nearly $2.7 billion, or 13 percent of city revenues, in fiscal 1994 and grow to $4.1 billion by fiscal 1998. Without a major reduction in the capital plan, debt service costs will continue to grow.
A 1 percent reduction in the four-year capital plan would amount to about $160 million, and would reduce debt service costs by some $17 million. The city could realize such savings without sacrificing vital infrastructural improvements; it has many opportunities to cut wasteful programs and streamline bureaucratic procedures. Among them:
- The city could extend the useful life of its vehicles by instituting a preventive maintenance program and abandoning its current policy of replacing vehicles every five years. The Department of Sanitation, for instance, sold "old" street sweepers to the town of Hempstead for $15,000 each, then purchased new ones for $80,000.
- The city could exercise better judgment in choosing equipment. The Fire Department, for instance, recently purchased new fireboats for $7 million each—and then found that the boat engines freeze during the winter.
- The city could cut back on its plans to replace and expand court facilities, expected to cost more than $2 billion in total. In the new facility at 80 Centre Street, each judge will have his own courtroom, and all courtrooms will be at least 1,200 square feet. But judges could easily share courtrooms, since they do much of their work in their chambers, and many trials can be accommodated in courtrooms of about 900 square feet.
- The city could reconsider some of the $350 million in capital funds it plans to spend in fiscal 1994 on the Health and Hospitals Corporation. Such expenditures may not be necessary in light of the city’s plan to create a Primary Care Development Corporation, which should reduce the need for emergency room care at city hospitals.
- The city could streamline its procedures for approving capital projects. For example, a typical project of the Department of Parks and Recreation requires approval from the Parks Department itself, the affected community board, the Office of Management and Budget, the Department of General Services, the Comptroller’s Office, the Art Commission, the Mayor’s Office of Contracts, the Office of Construction, the Office of Minority Contracts, the Corporation Counsel, and, in some cases, the Department of Transportation and the Department of Environmental Protection. The elaborate administrative burden of these approvals adds costs at each stage of the process.
9. Repeal the Wicks Law.
Savings: $40 million to $80 million per year.
Mayors from John Lindsay to David Dinkins have called for the repeal of the Wicks Law, actually a series of state statutes governing public construction. The Wicks Law requires that the city hire four separate contractors for each project: for general construction, plumbing, electrical work, and heating and ventilation. In the private sector, by contrast, a developer typically hires one general contractor, who has responsibility for overseeing the work of specialized subcontractors on particular aspects of the project. The state’s Division of the Budget and the city’s Office of Management and Budget have estimated that the Wicks Law adds at least 20 percent to the projected cost of the average project.
Under Wicks, contractors have no authority over each other, so it is the city’s responsibility to coordinate timetables, designs, and payment schedules. In addition to imposing these administrative burdens on the city, the Wicks Law also leads to costly conflicts among contractors. In one case, an entire public housing project was delayed while two contractors argued over whose job it was to sweep the floor. Such problems lead many of the most qualified contractors to refuse any public work in New York.
10. Stop the growth of capital spending in the Department of Housing Preservation and Development.
Savings: $82 million per year.
More than two decades ago, the City Council uncovered a major scandal in the Housing and Development Administration (HDA), which administered a program to rehabilitate low-income housing. The council’s February 1972 report called HDA’s program "a textbook lesson in profligate spending, deplorable mismanagement, abject incompetence and widespread corruption." Today, the mayor proposes to increase capital spending on HDA’s successor, the Department of Housing Preservation and Development (HPD), by $82 million, from $278 million to $360 million. But HPD has many of the same problems that plagued its predecessor agency twenty years ago.
The City Council Finance Committee conducted a case study of one of HPD’s programs, the Bureau of Vacant Apartment Repair and Rehabilitation (BVARR), which rehabilitates apartment buildings seized in rem (for back taxes) to provide housing for homeless families. The investigation found widespread theft of supplies: maintenance mechanics stole tools, refrigerators, and Sheetrock, either for personal use or to be resold. Most of the program’s workers were not licensed, and their work was usually below standard. One of the buildings the committee cited for shoddy workmanship later collapsed. At one BVARR site, employees were running a loansharking operation.
In the summer of 1992, the city responded to these allegations, ostensibly by abolishing BVARR. But it was replaced with a new program called the Bureau of Abatement, Repair and Renovation (BARR)—with the same employees and the same mission.
While the Finance Committee’s investigation was limited to the BVARR program, numerous witnesses attested that the problems are typical of other in rem rehabilitation programs. Given this record, it seems irresponsible to increase HPD’s capital budget. In the long run, the city should reconsider whether it is a wise policy even to have an HPD in its current form. Rather than manage thousands of apartments and turn some over to nonprofit organizations, the city might be better off if it put in rem property back on the tax rolls by auctioning it off to private developers.
As we noted at the outset, this list is far from complete; examples of waste and duplication are legion in city government. The Police Department has purchased hundreds of new cars that are being stored under 24-hour police guard on a sinking pier in Brooklyn. Community school boards spend tens of thousands of dollars on out-of-town travel, meals, and seminars. The Queens public library system spends more than $60,000 a year paying an outside lobbyist to lobby the city.
Thirteen agencies, ranging from the Taxi and Limousine Commission to the Department of Health to the Board of Education, have their own tow truck operations—a function that could almost certainly be provided more cheaply by the private sector. At least seven city agencies have jurisdiction over homelessness, and that excludes the Board of Education, the Department of Youth, the Department of Employment, various boards and task forces, and the mayor’s proposed new Department of Homeless Services. The Department of Sanitation has more than two thousand garbage trucks, yet the Parks Department has a hundred trucks of its own to pick up refuse in parks and other areas under its jurisdiction. On 106th Street and Broadway, for example, the Sanitation Department empties trash baskets on the sidewalk, while Parks Department collectors pick up garbage at Strauss Park across the street.
There is no shortage of ways to cut the city budget without damaging New York’s quality of life. But it is urgent that the city’s leaders muster the will to do so. If they lack political courage now, they will very likely face both fiscal and political disaster within a few years, as the state assumes control of the city’s finances. The city still has time to act, but that time is growing short.