Looking Under the Hood of New York City’s November 2022 Financial Plan Program to Eliminate the Gap

In September, Mayor Eric Adams called for a mandatory citywide program to eliminate the gap (PEG) whereby city agencies were instructed to reduce FY 2023 City spending by 3% and FYs 2024, 2025, and 2026 by 4.75%. The recently announced November Plan Program to Eliminate the Gap (PEG) totals $5.55 billion over the four years of the Financial Plan period, with $916 million of savings in FY 2023, $1.61 billion in FY 2024, $1.52 billion in FY 2025, and $1.50 billion in FY 2026.[1] Outside of FY 2024, these targets fall slightly short of the Mayor’s stated goal of $1 billion in FY 2023 cuts, and $1.6 billion in cuts throughout FY 2024 and the outyears, and most agencies fall short of their specific targets. The Office of Management and Budget (OMB) recently sent a second letter to agencies announcing additional cuts to existing vacancies, though it is as yet unclear how these new cuts interact with the savings that have already been announced and are discussed below.

The Comptroller’s Office conducted a review and categorization of the PEG initiatives to highlight what is included in the savings program and whether the initiatives are feasible. The City’s November 2022 Plan PEG initiatives were categorized as: savings in personnel expenditures (PS Savings), initiatives that may impact program delivery (Potential Program Impact), lower than anticipated spending (Expense Re-Estimates), revenue-boosting initiatives that reduce budget gaps (Revenue), and reductions in debt service payments (Debt Service). Many of the City’s PEG items were presented with insufficient information to discern if a PEG item results from a budget re-alignment (more authorized funding than needed for a program) or an actual program impact (a program cut resulting from either more efficient service or fewer services to be provided). These opportunities for clarification are spread throughout the PEG items provided by the administration.

The Major PEG Categories and Their Impacts

PS Savings

Savings associated with Personnel Services (PS), including staffing and fringe costs (unless fringe costs are offset by other revenue)

• The PEG Plan includes $134.3 million in FY 2023 accruals (savings based on delayed hiring where agencies still anticipated being able to hire in the future).
  • The largest amount, $89.8 million, sits in the Department of Education (DOE), primarily pedagogical, which should not be impacted by OMB’s most recent announcement in November. DOE’s delays in hiring may have to do with the confusion and uncertainty caused by the school budget cuts over the summer.
  • The DOE also included a $23.8 million accrual for school safety officers (funded in the DOE budget and hired by the New York Police Department) and $13.1 million in FY 2024, due to delayed hiring.
  • The remaining accruals are smaller and spread across multiple agencies.
• The PEG also included a number of nonspecific initiatives that reduced agency headcount by 714 positions, characterized as less than anticipated PS spending and/or vacancy reductions, with a collective savings of $45.9 million in FY 2023, $54.4 million in FY 2024, $54.4 million in FY 2025, and $54.5 million in FY 2026. The affected agencies currently have sufficient existing vacancies to cover these reductions and should be able to maintain their current levels of service without them. But because the program areas are generally unspecified, it is unclear whether specific program areas within an agency will bear the burden of these reductions, or whether current levels of service in these areas are adequate.
  • The largest reduction in planned agency positions is in the Parks Department (200 positions). The Police Department (NYPD) provided a reduction of 123 civilian positions, the Law Department submitted 93 reductions, and other agencies submitted smaller reductions. All of these reductions are feasible based on an analysis of agency vacancy numbers over the last two years.
• Other significant initiatives within the PS savings category have no associated position reductions, yet extend into the outyears of the plan ($122.3 million in FY 2023, $148.6 million in FY 2024, $111.4 million in FY 2025, and $86.3 million in FY 2026). It is unclear where these savings are coming from if not associated with reduced headcount, and whether these savings result from misaligned budgets, service reductions or efficiencies.
  • Reductions of note include the NYPD (savings of $57.1 million in FY 2023, $91.1 million in FY 2024, $48.2 million in FY 2025, and $27.1 million in FY 2026), Department of Correction (DOC) ($42.4 million in FY 2023 and $34.4 million in each of the outyears), and Department of Health and Mental Hygiene (DoHMH) ($7.5 million in FY 2023 and $6.2 million in FY 2024 and 2025, and $2.2 million in FY 2026).
• And finally, a group of initiatives that sit within several of the uniformed agencies, have descriptions characterizing them as efficiency initiatives (overtime reductions, seasonal operational efficiencies, staffing uniform vs non-uniformed roles appropriately). Interestingly, however, these same items are offset completely, also with City Funds, elsewhere within the Financial Plan documents. These PEGs will not actually reduce the gap in City funding. If these initiatives are expected to have a measurable impact on spending embedded within a larger budget code, agencies should provide clear and trackable metrics to ensure these savings targets are met. The values associated with these initiatives total $56.5 million in FY 2023, and $89.1 million in each of the outyears:
  • DOC has a “Staffing Efficiencies” PEG item at $12.2 million in FY 2023 and $24.4 million in FY 2024 and out, which is offset by a “Staffing Efficiencies Cost Avoidance” item of the same amounts.
  • The Department of Sanitation’s (DSNY’s) “Seasonal Operational Improvements” PEG item at $17.3 million in FY 2023 and $17.7 million in FY 2024 and out, which is offset by a “Seasonal Operational Improvements Cost Avoidance Offset” item in the same amounts.
  • The Fire Department (FDNY) has a number of similar scenarios: A “Discretionary Overtime Reduction” PEG item baselined for $3 million that is offset by a “Discretionary Overtime Cost Avoidance” item also baselined at $3 million per year. A “Full-Duty Off-The-Line Position Reduction” PEG item baselined at $14 million per year is likewise offset by a “Full-Duty Off-The Line Position Cost Avoidance Offset.” Lastly, the agency has a PEG item titled “Uniformed Availability Improvement” set at $10 million in FY 2023 and $30 million in FY 2024 and out, which is offset by an adjustment in the same amount.

Potential Program Impact

Reductions that may impact service delivery within specific programs. This category includes $1.21 billion in savings across the Financial Plan

In general, potential program impact reductions are items in which a specific programmatic change was announced, or a reduction in the program seems likely in order to achieve the savings target. These savings initiatives should be monitored both for potential impact on services and whether anticipated savings are achieved.

• City libraries all took a 3% hit to their operating subsidies in FY 2023 for a total of $13.6 million in cuts, growing to a $20.5 million reduction in the outyears. Thus far, service cuts have not been announced but it is unclear how the libraries can meet these targets.
• As part of the PEG initiative, the DOE is stepping back from the prior administration’s commitment to universal preschool for 3-year-olds and has reduced the budgeted amount for the program by $284 million beginning in FY 2024. The remaining budgeted amount in FYs 2024-2026 is roughly the same as FY 2023 (approximately $740 million). In FY 2027 it drops to $619 million. This cut reduces the size of the outyear under-budgeted amount (fiscal cliff) to roughly $100 million, down from $376 million. In addition to this program reduction, the City is pulling $284 million forward to FY 2024 to reduce the City funds allocated to the program for one year, which we have characterized as a revenue shift below.
• The City’s Behavioral Health Emergency Assistance Response Division (B-HEARD) initiative saw a budgeted reduction of $12.2 million in FY 2023, split across the Fire Department ($8.6 million) and Health + Hospitals (H+H) ($3.7 million). The FDNY savings is a reduction of the FY 2023 budgeted amount from $37 million to $28.5 million, with a commensurate reduction in headcount of 54, leaving 134 lines available. Note that the Financial Plan contains no outyear funding or headcount for this program within FDNY, and no positions were filled as of October, suggesting a possible retrenchment. The H+H savings amount is more consistent with a delay in hiring (similar to the accruals discussed in the above section).
• Other programmatic initiatives that are also showing reductions include Housing Preservation and Development’s (HPD’s) supportive housing program, the Housing Authority (NYCHA) non-personnel spending (that passes through HPD), a large amount ($29.3 million in each of the outyears) of Department of Youth and Community Development (DYCD) spending in unspecified programs, and the Young Men’s Initiative (across several agencies).

Expense Re-Estimates

Lower than anticipated spending

Expense re-estimates are savings due to efficiencies resulting from the renegotiation of contract rates; delays or lower utilization than anticipated; or high-level adjustments in large spending categories in line with projected spending. Additionally, many of the savings initiatives were broadly characterized by the administration as savings resulting from less than anticipated spending – possibly fitting within one of the other categories but lacking any specificity or detail.

• Efficiencies include items where City agencies proactively pursued savings through contract re-negotiations and other methods of lowering costs on items not related to specific programs.
  • The City’s November PEG includes $7.3 million of these savings in FY 2023, $14.7 million in FY 2024, $17.4 million in FY 2025, and $44.5 million in FY 2026, mostly in lower lease amounts, telecommunications contract renegotiations, and maintenance savings from system changes.
• Lower utilization of services covers items where costs were reduced, potentially due to a lower demand for services or a lower level of service provision for programmatic reasons or due to staffing shortages.
  • The DOE included lower than anticipated spending on staffing changes due to the department’s vaccine mandate. Costs were $40 million lower in FY 2023 and are anticipated to be $97 million lower in FY 2024 and each of the outyears.
  • Other items included lower spending on client carfare, Career Compass and Career Advance employment contracts (all three submitted by the Department of Social Services), case management services (Department for the Aging), adoption subsidies (Administration for Children’s Services), and elevator contracts (Department of Buildings).
• Re-estimates of spending, seemingly to align with historical spending and current service levels.
  • The biggest savings in this category is a reduction in health benefits expenditures at the DOE ($80 million in FY 2024 and $165 million in FYs 2025 and 2026), which is in line with prior year spending at lower than budgeted amounts.
  • DoHMH, Parks, and H+H all included re-estimates of other than personnel spending (OTPS).
• Many agencies cited unspecified lower than anticipated spending, sometimes providing specific areas and generally in non-personnel spending, but sometimes inclusive of PS savings as well. The descriptions are broad and do not include an underlying explanation for the savings.
  • Some of the larger savings can be found at Department of Transportation (DOT) ($13.2 million in FY 2024, $13.9 million in FY 2025, and $13.6 million in FY 2026), and Department of Citywide Administrative Services (DCAS) ($11.2 million in FY 2023, $1.7 million in FY 2024, and $1.5 million in the outyears)
• OMB reduced its outyear inflation adjustment for OTPS by $55.5 million, despite high current levels of inflation. This adjustment is how the Financial Plan accounts for increases in contractual spending as costs rise over time, particularly when contracts are renegotiated.

Revenue

Improvements in revenue that reduce the projected gap between revenues and expenses

The City often uses revenue PEGs to reflect increases in City funds revenue and/or offset City funds with State or Federal funding. These types of initiatives reduce the budget gap without impacting services, but can be difficult to track. There are several different types of revenue initiatives in the Plan:

1. Funding Shift: In these cases, non-City or capital funding replaces City expense funds in a few different scenarios – grant funds are appropriately allocated to fund eligible expenses that had previously been budgeted with City-funds; personnel used on capital projects can be funded by the City’s Inter Fund Agreement (IFA), a process by which the City transfers capital funds to the expense budget for qualifying items; or existing services can be covered by new sources of non-City funding.

• Fringe adjustments for Administration of Children’s Services (ACS) ($21.3 million in FY 2023), Social Services (DSS) ($18.5 million in both FY 2023 and FY 2024), FDNY ($3.3 million in FY 2023 and $2.9 million in FY 2024), and NYPD ($7.7 million in FY 2023) are included in this category instead of “PS Savings” as they are funding shifts from City funding to existing federal grant funding
• ACS replaces $23.8 million in City-fund child care spending per year in FY 2024-2026 to the Child Care Block Grant.
• A large outyear shift is seen in the Department of Homeless Services (DHS) of $119.6 million of behavioral health, vocational services, case management, access to permanent housing, and nutritional care and meals funding in both FY 2025 and FY 2026 to the NYS Medicaid Waiver program. This may require meeting rigorous programmatic and reporting requirements in order for the revenue to be collected.
• As noted above, the City moved $284 million in stimulus funds forward to replace City-funds as part of its “3-K rightsizing initiative”. This initiative reduces the outyear allocations and eliminates a large portion of the FY 2026 fiscal cliff that had been noted as problematic in prior plans, but in doing so pulls back from the prior administration’s commitment to provide universal 3K.

2. Rate improvements and revenue maximization:

• The FDNY included an initiative to improve reimbursement rates for EMS.
• ACS and DSS included an improved federal reimbursement rate for fringes, but only for one and two years, respectively. The City included three initiatives to maximize revenue, including a nearly $24 million revenue increase in FY 2024 and out through eligible child care claims under the Child Care Block Grant, and smaller $3 million annual increases at DYCD (Adult Literacy and School’s Out NYC) and DoHMH (unspecified programs).

3. Prior year funding:

• DSS, DoHMH and DYCD included prior year revenue PEGs of $161.3 million, $18.9 million and $15.5 million respectively in FY 2023. The Department for the Aging (DFTA) anticipates $15.3 million of prior year revenue in FY 2025. These PEGs are a way of budgeting for revenue that is anticipated for a prior year but had not previously been accrued for.

4. Revenue re-estimates:

• The Fire Department and the Department of Health and Mental Hygiene both included broadly categorized “revenue re-estimates” for increased reimbursement for EMS and Medicaid respectively, relative to previously budgeted amounts.

5. Increases in City revenue:

• The Department of Finance (DOF) is anticipating $12.5 million in FY 2024 and $9.5 million in the outyears in increased fees – primarily in real property income and expense late penalties due to the implementation of higher fines for repeat offenders and payment schedule updates related to parking violation fees.
• DOT is anticipating $27.1 million in increased revenue from speed camera violations, revocable consent, and bikeshare, in FY 2024, dropping to $24.1 million in FY 2025 and $22.1 million in FY 2026.
• A variety of other increases in fees and penalties (both increased fees and higher projected collection rates), property sales, and auction revenue for a total increase in revenue of $16.4 million in FY 2024, $9.1 million in FY 2025, and $8.5 million in FY 2026.

Debt Service

Projected reduction in debt service payments

The City often includes reductions in Debt Service payments as part of its savings programs. The PEG program this year includes an overall reduction in debt service of $505.7 million across FYs 2023 – 2026, comprised of $316.6 million of Transitional Finance Authority (TFA) savings and $189.1 million in General Obligation (GO) bond savings.

• These savings are a combination of lower than anticipated borrowing costs due to assumed – or budgeted – interest rates being lower than actual borrowing rates year-to-date, and estimated bond issues are lower than initially projected; as well as higher than expected State Building Aid revenue which can offset TFA debt-service costs.
• These reduced costs are offset by higher projected interest costs on variable rate bonds which have been factored in the above savings amounts.

Conclusion

PEG programs are an essential part of addressing the City’s sizable budget gaps – gaps that have been recognized by this office previously, and that (even with the November Plan program) remain significant in the outyears. We agree that agency leaders are best placed to identify efficiencies within their own operations as well as other savings opportunities that are least likely to impact critical City services. Incorporating an ongoing PEG program into the annual budget process is the best way to ensure that the need for reductions doesn’t build up to the point that they have a significant impact on operations. Additionally, eliminating vacancies that have been left unfilled for at least a year, as some of the November Plan PEG initiatives described here have done, is less likely to impact the current level of City service – though that level may still be inadequate compared to what the City needs.

But it appears that the City may be heading down a more risky path:  OMB’s recent vacancy reduction letter calls for a broad 50% reduction in civilian headcount across most of the City’s agencies. We urge caution in applying such a blunt instrument to the positions that keep the City functioning. As the Comptroller’s recent report on the current citywide vacancy rate noted, eliminating currently vacant positions reduces head count but does not take into account whether mission-critical services are adequately staffed.

We also support PEGs that encourage additional revenue to fund services, as well as the effort to realign budgets so that they portray a more accurate picture of the City’s expense needs. Both actions are necessary to maximize scarce City resources. That said, we urge the City to be more forthcoming with details that are essential to understanding the impact of these initiatives on services and to enable a system that provides ongoing monitoring of initiative efforts over time. It is crucial that the program be evaluated, tracked, and monitored using a standard that allows the public to clearly see where cuts are being made, whether proposed cuts are achieved, and how cuts impact services.

Note: This analysis was last updated January 27, 2023.

[1] The November 2022 Program to Eliminate the Gap is available here: Program to Eliminate the Gap (PEG) – November 2022 (nyc.gov)

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