Testimony of New York City Comptroller Scott M. Stringer, Comments on New York City’s FY 2019 Executive Budget

Good afternoon Chair Dromm and members of the Finance Committee.  I’m here today to discuss the Executive Budget for Fiscal Year 2019.  I’m joined by my Deputy Comptroller for Budget, Preston Niblack.

Since my testimony here in March, our economic outlook has remained largely unchanged.  The economy remains strong, thanks to a strong labor market and a boost from the Tax Cuts and Jobs Act and the federal budget.

But increased federal spending and ongoing tax cuts will ultimately lead to higher federal budget deficits and rising interest rates going forward.  As a result, we expect economic growth to peak this year, and begin to taper off in the later years of the financial plan period.  Depending, in part, on how well the Federal Reserve is able to manage that transition, it should be possible to avoid a recession, and we are not projecting one as of now.  But if the Fed misjudges the timing and magnitude of interest rate increases, or if other events intervene – like a trade war – the solid footing of our economy could be undermined.

Let me turn to the budget and fiscal outlook.

The Mayor has proposed an $89.1 billion budget for FY 2019.  The Administration was able to increase the surplus in this Executive Budget, thanks to a nearly $1 billion increase in tax revenues this year.  But as of now, the projected surplus for this year, of $3.7 billion – remains below the $4 billion surplus in FY 2017.

The boost to FY 2018 tax revenues is related to several factors, including the changes in the federal tax law, the repatriation of overseas hedge fund earnings, and a booming stock market.  The Executive Budget recognized an additional $800 million in personal income tax revenues for this year due to these various factors – $600 million of which the Administration believes to be non-recurring.  My office expects that tax revenues will ultimately go even higher this year, growing by 7.9% over FY 2017.

Despite this extraordinary one-time boost in revenues, the outyear budget gaps grew in the Executive Budget financial plan.  That’s because, although increased revenues for the most part do not continue through the outyears, new spending commitments do.  These commitments are in part to make up for gaps in the State budget, such as the cost of the Close to Home program and last year’s Raise the Age legislation.

Let me be clear – the Mayor’s Executive Budget included a number of important programs which I support.  From raising Fair Student Funding up to the highest average in more than a decade, so we can ensure more dollars are actually reaching the classroom, to funding $418 million for the Subway Action Plan, including $164 million in the Capital Budget.

These are critical steps forward that will serve students and working people in our city – that is our top priority. But there is still much more work to do.

We need to fund the Fair Fares proposal, to level the playing field for low income New Yorkers, because no one should have to choose between buying a MetroCard and putting food on the table.  Affordable transportation should be a fundamental right in this city, and Fair Fares will get us a lot closer to that goal.

We also need to launch the New York City Citizenship Fund, a public-private partnership I proposed to help tens of thousands of legal immigrants cover the ever-rising costs of becoming a U.S. citizen.  Supporting our immigrant communities has never been more important, and creating a Fund to finance the citizenship process is a realistic opportunity to make a measurable impact.

We have to remember that budgets are not just about numbers.  Budgets are about priorities, about creating opportunities to give everyone a fair shot and provide a boost to people in need.  That’s why we cannot let even a single dollar go to waste.  We must ensure that we are getting the results we’re paying for.

I’ve been watching these numbers for a long time, and this year, to share our focus areas with the public, we launched the Comptroller’s Agency Watch List.  This month, over the course of the Executive Budget hearings, we have released our first watch list reports on the Department of Correction (DOC), Homeless Services spending, and the Department of Education (DOE).  These agencies have seen tremendous growth in spending, but it remains unclear if we are getting adequate programmatic results for those investments.

Take the DOC.  Since 2014, New York City’s inmate population has fallen 20%, yet total agency spending is projected to rise 29% over the same period, as of the FY 2019 Executive Budget.  The ratio of inmates to correction officers has fallen, while the annual cost of keeping an inmate on Rikers has increased from $97,000 in FY 2014 to over $144,000 in FY 2017. We need to see results for that spending, but many of the relevant indicators to measure those results in fact seem to be going in the wrong direction.  It’s time to ask when we will see results.

I’ve testified before this committee for years about our ballooning spending on homeless services.  Since 2014, spending has more than doubled from $1.2 billion to $2.9 billion across agencies, but we still have a crisis on our hands. Close to 60,000 New Yorkers will sleep in a shelter tonight.  We need to see more results, and soon. That includes reporting on the use of commercial hotel rooms, the success in finding permanent housing for homeless families, and the most effective strategies for preventing homelessness.  Some of that data is currently unavailable to the public, and when it is available, lacks enough detail to evaluate the impact.

And lastly, the Department of Education has invested heavily in a variety of programs to improve student outcomes, but does not report on whether those programs are making a difference for our kids.  We need to ensure that our spending is going to the classroom and not to Tweed – where the rate of hiring has been more than twice that of new teachers, even with the addition of a whole new grade for UPK.

In addition to being smart about our spending now, we need to be mindful of potential challenges down the road.  While the economy is strong, we have to prepare for an inevitable slowdown.  To avoid hard choices that could undermine the progressive goals we all share, we have to increase our budget cushion – now.  The current financial plan projects a cushion of $9.2 billion at the start of FY 2019.  This is 10% of adjusted FY 2019 expenditures.  That is $1.8 billion short of even the lowest bound of the optimal range of 12% to 18% of adjusted expenditures.  I commend the City Council for calling for a $500 million addition to reserves, but I believe we must do more.

We have a four-year spending plan – we also need a serious four-year savings plan to increase our budget cushion and reduce the outyear gaps.  As I have said repeatedly, we must demand that our agencies work harder to identify efficiency savings.  This year’s Citywide Savings Program, by our reckoning, contains only 14% of savings that are truly efficiencies – the rest are debt service savings, funding shifts, or spending re-estimates.  And however you categorize them, agency savings represent less than 1% of agency spending in the outyears of the financial plan.

We need to raise the bar for agency savings targets.  Don’t get me wrong – I’m not in favor of the heavy-handed, arbitrary, and indiscriminate application of savings targets that was too often the practice in the past, regardless of the consequences.  But I am in favor of giving agencies real targets for their savings efforts, in order to push them to work harder.

Over the last 3 years, the increase in the surplus roll has gone down each year, from $1.6 billion in 2015, to just $147 million last year.  We should be growing that amount, and increasing our budget cushion.  By adding $1 billion this year and next to our surplus, we could reach a budget cushion equal to 12% of spending by FY 2021.  Doubling the agency savings target to 2% per year could get us half way there.

I know the City Council shares my view that instead of spending our revenue windfall, we should be looking for more efficiency savings from our City agencies, and putting additional resources aside.  I look forward to working with you to keep our City’s fiscal position strong enough to weather future challenges.

Thank you.

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