Testimony of New York City Comptroller Scott M. Stringer Comments On New York City’s FY 2019 Preliminary Budget Before The New York City Council Finance Committee

Thank you, Chair Dromm and members of the Finance Committee. I welcome the opportunity to discuss the Comptroller’s analysis of the City’s FY 2019 Preliminary Budget.

Joining me is our Deputy Comptroller for Budget, Preston Niblack.

Let me start by saying that Mayor de Blasio’s FY 2019 Preliminary Budget and Financial Plan made several new proposals that I support, including the first jail closure on Rikers Island, capital funding to begin the critical replacement of NYCHA heating systems, and the future expansion of 3-K For All.  These are all important priorities.  But as I will discuss in more detail, I am concerned that we are beginning to see warning signs of a slowing economy.

As I have said in the past, and will repeat with more urgency today, we need to do more to prepare for the possibility of challenging times ahead.  More than ever, our spending decisions must be data-driven and evidence-based.  We must ensure that no dollar is going to waste.

Now I want to share a brief review of the Mayor’s financial plan, and our evaluation of its revenue and expenditure assumptions.

Spending in fiscal year 2019 is set to rise 1.4 percent.  Over the financial plan period, the City projects that total expenditures will accelerate to grow by 2.6 percent per year on average, reaching $97 billion by FY 2022.  Total revenues, however, are projected to grow more slowly, at a 2.2 percent average annual rate.

The Mayor’s Office expects total tax revenues to grow by 3.5 percent per year on average, to $65.6 billion in FY 2022.  My office expects tax revenue growth will rise at a slightly faster rate of 3.8 percent, reaching $67.1 billion by 2022 – largely on the strength of higher property tax revenues.

There are two assumptions in the Mayor’s revenue plan that we believe present risks.  First, the budget for FY 2019 continues to assume that the State will not recapture all savings from the STAR-C bond refundings.  Thus far, they have intercepted City sales tax revenues in each of the last three years, and we therefore assume a $150 million risk in next year’s budget.

Second, we believe the City is unlikely to realize the taxi medallion sales revenues assumed in the financial plan. As I’ve said before, given the disruption in the yellow taxi industry from for-hire car services, these sales – with an assumed value of $929 million over the Plan period – are unlikely.

On the expenditure side, my office has identified budgetary risks from overtime spending and Federal Medicaid reimbursements for special education services.  We also anticipate that the City will continue to waive Health + Hospitals payments for medical malpractice claims and fringe benefits, for which the City has only received sporadic payments over the last four years.

All of this comes precisely at a time when we are seeing warning signs for our fiscal future.

For the last three years, I’ve talked about the strength of our economy.  In terms of job growth, the current expansion will go on record as the longest and strongest in recent history.  The City has created over 700,000 private-sector jobs since 2009, reaching an historic high of 4.4 million total jobs in 2016.  Unemployment rates have fallen across all five boroughs.  But for the first time in eight years, we saw a significant loss of jobs in the fourth quarter of 2017.

That’s a warning sign.  So is the decline in our cash balances, which went from a low of $5.4 billion during fiscal year 2017, to a low of $1 billion in the current fiscal year.  That’s a significant drop, resulting largely from the slowdown in growth of non-property tax revenues.

So while the economy appears strong now, my office expects the rate of growth to slow sharply in the next two to three years. The rate of job creation could fall to less than a third of the recent rate.

Taken together, our revenue and expense re-estimates result in a modest addition to the surplus for the current year.  But we are projecting a larger gap than the Administration in fiscal years 2020 and 2021, falling slightly below the Mayor’s gap projection in FY 2022.

Now let me turn to how we can address these challenges.

The Mayor took significant steps in both November and January with the Citywide Savings Program, which totals a combined $1.4 billion in savings in FY 2018 and FY 2019.  Compared to last year, when agency efficiencies, by our reckoning, made up only 6 percent of total savings in the first two years of the plan, this year they make up a full 15 percent of savings, and I applaud this progress.  But agency savings still represent just a little more than one percent of total agency spending.

A more robust savings program is critical to building up our reserves and reducing the likelihood of cutting city services down the line.  But it is not enough to find a few efficiencies here and there.  It’s time to start applying a much more rigorous test to our spending – are we getting real results for our investments?

This year I introduced the Comptroller’s watch list: the three City agencies I’ll be watching closely this year when it comes to budgeting and spending.

First, our Department of Homeless Services.  Spending for homeless services across all agencies is projected to rise to $2.6 billion next year – more than double what we spent in 2014.  But still, around 60,000 New Yorkers will sleep in homeless shelters tonight, including 23,000 children.

I support taking every measure we can to reduce homelessness.  But if we’re going to solve this problem, we have to know which programs are getting results, and which are not.  The Department of Homeless Services created a “Data Dashboard” in 2014, in order to track progress in reducing homelessness. But the tool hasn’t been updated in over two years.  How are we, or you, the City Council, supposed to know how effectively our tax dollars are being used in the absence of hard data?

A second example is the Department of Education.   Since 2012, DOE has added over 400 new positions in Central Administration – a 24 percent increase.  Over the same period, however, new teaching staff has only grown at half that rate – and that includes the addition of an entire new class, Pre-K.

I’m glad to see that DOE is proposing cuts to Central Administrative spending in this budget.  That is a step in the right direction.  But we can and must do more, because there remains rampant waste and a lack of accountability at DOE.  In an audit my office did in 2014, for example, DOE was unable to account for one-third of its computer monitors, laptops, and tablets at sites our auditors visited.

And DOE continues to spend hundreds of millions of dollars annually on contracts without competition.

I know that, as the previous chair of the Education Committee, Chair Dromm, you share my goal of getting every penny into the classroom to educate our children and help them graduate, by reducing class sizes, training teachers, and hiring guidance counselors – not spending that money on overhead.

Finally, I want to talk about the Department of Correction, an agency my office has audited extensively.  As we have documented for four years now, in the last decade, the number of inmates in City jails has been steadily falling, from an average daily population of nearly 14,000 in 2008, to 9,500 in 2017.

Yet over the same period, the average annual cost of housing an inmate on Rikers Island has spiked from $117,000 a year to $270,000.  Sadly, however, we are only seeing more violence against both inmates and correctional officers, like the brutal, vicious attack last month against Correction Officer Jean Souffrant.

And while the Mayor is taking important steps to reduce these incidents, we cannot lose sight of the urgency of this problem.

Let me be very clear here in saying that I wholly agree with, and share, the Mayor’s goals of reducing homelessness, improving our public schools, and closing Rikers. But we must ensure that we are working toward these goals as efficiently and effectively as possible.

Because as things stand now, I’m concerned that we are in a weaker position than we should be.  At the beginning of FY 2009, we had built up a budget cushion – our savings for a rainy day – equivalent to over 17 percent of spending.

As of the Preliminary Budget, however, we would start 2019 with a projected cushion of just 9 percent of spending, or $8.5 billion – largely because our surplus roll is nearly $1.6 billion less than our surplus from FY 2017.

To reach even the bottom of the optimal range, which we consider to be between 12 percent and 18 percent of adjusted expenditures, we would need to add $2.3 billion to our cushion.

My message to you today is that the robust economic growth we’ve seen for the last near-decade is slowing, and the warning signs for the future are increasingly apparent.  We cannot stop investing in our City.  But we can only afford to do so if we are getting real, measurable results for our spending. We must meet the needs of New Yorkers while also ensuring we are ready for a rainy day.  And we can do so, and prevent the possibility of cuts to vital services, if we put in the hard work now.

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