Mayor Bloomberg announced his budget this afternoon for the fiscal year that starts in July. The mayor expects that a combination of federal stimulus, state funds, tax hikes, spending cuts, and labor givebacks will close a $4 billion budget gap that represents 10 percent of the city’s spending. Even after $1 billion in previously planned spending cuts, the projected gap had nearly doubled in the past seven months as tax revenues have fallen.

First, the good (with caveats):

1. The mayor is finally asking city workers to pay 10 percent of their own healthcare premiums, saving $350 million annually starting in July. (Right now, workers pay nothing on the two most common plans.)

This development is welcome. However, it may be more difficult for the mayor to get the unions to open up their contracts after having just given them generous raises a few months back. (About those raises, the mayor said that “today, if you were to negotiate labor contracts, you would not make the kind of settlements we’ve made in the past.” But the mayor made these last settlements after Lehman Brothers collapsed.)

2. The mayor is finally asking for very modest pension reforms. He’s asking the unions to allow future workers to contribute to their own pensions after 10 years of work and to vest their pensions after 10 years instead of the current five years. Future uniformed workers would have to work 25 years before retirement, instead of 20, and would have to reach the age of 50 first.

However, it’s important that the mayor be clear that this is just a stopgap step to generate savings immediately through the higher contributions. It doesn’t represent the next generation’s worth of pension reform in New York City.

3. The mayor has acknowledged that across-the-board budget cuts aren’t sustainable in this environment. Unlike last year, and part of the year before, the mayor will protect all-important parts of the budget like police and sanitation, relative to other parts of the budget like social services. To wit: between this year and next year, the uniformed budget will increase by nearly half a percentage point, while social services will shrink by 6.5 percent.

But, the mayor is taking only the tiniest cut to local spending on education, and assumes a 10 percent increase in such spending starting 16 months from now. It’s unsustainable to leave the education budget relatively alone, given that it’s grown so much in recent years.

4. The mayor acknowledged that Wall Street isn’t coming back anytime soon, if ever. When explaining his chart of Wall Street profits (or lack thereof), Bloomberg pointed back to the much smaller profits of a generation ago relative to the recent boom. He said of surviving Wall Street firms that “they could go back to this level of profits” when they recover.

The mayor should be even clearer, though, that the $1 billion in federal stimulus money that the city is expecting for Medicaid (plus more dollars indirectly from the state) for the next fiscal year is a bridge loan to a drastically different future.

The bad:

1. The mayor proposes that the City Council and Albany hike the city’s sales tax from 8.375 percent to 8.625 percent. That’s what it was after the tech bubble burst, except that back then, the increase was split between the city and the state. Such a rate would be the fifth-highest city-state sales tax in the nation and the highest city-only tax.

The biggest problem here, though, is that the mayor made it clear that he picked the sales tax because he expects Albany to “dramatically” hike the state income tax. This hike, too, would disproportionately fall on city residents.

2. The capital plan — investments in the city’s physical assets — is taking a 30 percent hit, after a 20 percent hit announced last year.

3. The budget still assumes that the city’s pension investments for workers and retirees will earn an 8 percent gain annually starting, well, right now. If they don’t, the city will have to make contributions to the pensions that are even higher than more than $7 billion needed annually by the middle of next summer.

The ugly:

Tax revenues are just vanishing into the ether. For the next fiscal year, “economically sensitive” taxes like income taxes likely will be down by 13.2 percent, or $2.7 billion, after a 16.5 percent, $4 billion drop this year.

Worse, the mayor assumes, seemingly inexplicably, that starting in the summer of 2010, these taxes will increase by 10.5 percent, or $1.9 billion.

If they don’t, a big deficit for that 2011 fiscal year — today projected optimistically to be $3.2 billion — will be even bigger.

Anything that makes that gap seem smaller than it will actually be is bad. It will lull unions and other groups into complacency, figuring that they can just ride out one bad year and everything then will return to “normal.”

In fact, it’s just as likely that tax revenues are getting back to “normal” now.

If so, in a year’s time, we’ll be worse off than it looks now, plus, federal stimulus money will be drying up by then.

You may also like

How a Medicaid ‘Cut’ Could Lead to More Unionization of Home Care Aides

A money-saving maneuver in the newly enacted Medicaid budget could end up increasing costs in the long term – by paving the way for more unionization of the state's burgeoning home health workforce. Read More

Budget Deal Slows Medicaid Growth But Plants Seeds for Future Spending

The growth of New York's Medicaid spending is projected to slow but not stop as Governor Hochul and the Legislature effectively split their differences over health care in the newly enacted state budget. Read More

Albany Lawmakers Push a $4 Billion Tax on Health Insurance

Legislative leaders are proposing an additional $4 billion tax on health insurance plans in the upcoming state budget – but withholding specifics of how it would work. Read More

Hochul’s ‘Straight Talk’ on Medicaid Isn’t Straight Enough

Arguably the biggest Medicaid news in Governor Hochul's budget presentation was about the current fiscal year, not the next one: The state-run health plan is running substantially over budget. Read More

New York’s Medicaid Spending Is Running Billions Over Budget

New York's Medicaid program ran billions of dollars over budget during the first half of the fiscal year, adding to signs of a brewing fiscal crisis in Albany. According to the fro Read More

As migrants flow to NY, so does red ink 

The influx of foreign migrants to New York could cost the state $4.5 billion more than expected next year, Governor Hochul today warned.  Read More

At mid-year, NY still far below most states in pandemic jobs recovery

New York has added private-sector jobs in all but three of the 38 months since the COVID-19 outbreak of March 2020—but the Empire State remains below its pre-pandemic employment level and continues to trail the national recovery. On a seasonally adju Read More

The Bill Arrives: NY Faces $9B Budget Gap Next Year 

New York’s outyear budget gaps, the shortfall between planned state expenses and state tax receipts over the next three years, has exploded to more than $36 billion, just-released documents show.  Read More