Slim Capital Budget Leaves de Blasio With Few Options

Written by Kristen Meriwether on . Posted in Blog, Budget/Taxes, Daily, Economic Development, Features, Government Operations, Latest, News.

Mayor Bill de Blasio will have a year to submit his capital budget plan, which will set a road map for new infrastructure projects during his term. That plan, however, will not come without challenges, some of which were discussed at an infrastructure panel hosted by the General Contractors Association of New York at Fordham University on Monday.

De Blasio spent much of the last year touting the need for a tax on the wealthy to pay for pre-kindergarten and after-school programs. State and federal funding is not enough, he said, arguing a dedicated revenue source is the only way to make it work. The proposal was not popular when initially introduced, but now polls at 63 percent approval, according to a Nov. 2013 Quinnipiac University poll.

Mayor Bill de Blasio

Mayor Bill de Blasio

Imagine de Blasio had made the same pitch, but instead of levying a tax on the wealthy to pay for universal pre-k, he had campaigned on spending that new revenue for improvements to transit and other capital costs, such as more parks or better roads.

We might be witnessing a new mayor move in to Gracie Mansion this month.

There are not many people who would argue against the benefits of expanded pre-k. The argument always comes in how to pay for it. The same can be said for transit and capital costs. New Yorkers love new parks, new schools and properly maintained roads and bridges. But asking for higher tolls, taxes and fares to generate additional revenue to pay for them has proven to be politically risky (just ask Joe Lhota). Regardless, the need for new capital revenue is very real.

“We need politicians with the guts to raise the revenue necessary to meet the most important needs,” said Richard Ravitch, a former lieutenant governor, and panelist at Fordham on Monday. “Infrastructure is a major need and a major unfunded need.”

Mayor Michael Bloomberg went all in on infrastructure investment during his three terms. According to a December Citizens Budget Commission report, Bloomberg spent $123 billion—$33.5 billion more than former mayors Rudolph Giuliani and David Dinkins combined.

The result: 126,000 new school seats, the completion of a new water tunnel, 440 more acres of parks, and more bridges in good repair and only one closed. The investments were heralded during Bloomberg’s final two-week legacy tour, but little was mentioned about the mountain of debt he used to pay for it.

Over two-thirds of the projects were paid for with the sale of bonds. The city used no “pay-as you-go” funding, monies that come from the general fund or enterprise funds like taxes, tolls or fees. By comparison New York State pays for roughly a quarter of its debt using pay-as-you-go. In Fiscal Year 2013 the ratio of debt to outstanding personal income was 14.3 percent, more than double the benchmark for “high debt,” according to the CBC report.

“The next administration is going to have to deal with the fact you really can’t go farther than that without crowding out operating expenses this administration wants to not only fund, but increase,” said Carol Kellermann, president of the Citizens Budget Commission, at Fordham on Monday. “They will have to make a conscious decision about how to get more with less.”

Kellermann suggested regulatory reforms and better project scoping to prevent going over budget.

Even with reforms, it will be several budget cycles before the debt is paid down to more manageable levels. The city can ill afford to forgo capital projects during that time, a lesson learned during the economic downturn of the 1970s.

Former New York City budget director Abe Lackman suggested using pay-as-you-go or a dedicated revenue stream. He said all eyes will be on the Tappan Zee Bridge toll, which will provide a litmus test for pay-as-you-go capital projects.

Lackman argued if there is an uproar in response to the high toll the bridge will likely require of drivers, Gov. Andrew Cuomo will probably gravitate to a dedicated tax to pay for it.On the broader issue of funding infrastructure, Lackman said he was skeptical about how effective a dedicated revenue stream would be.

“Even when we try to set up a dedicated fund for infrastructure, invariably the political pressure to siphon that money for operating [cost] is intense,” Lackman said.

In New York City, pension and healthcare costs for municipal workers have exploded, taking up larger chunks of the operating budget each year.

In Fiscal Year 2003, Bloomberg’s first budget, pension costs were $1.63 billion, according to budget reports from the City Comptroller’s office. In Fiscal Year 2013 pension costs were $8.05 billion. Health care costs, which are an unfunded liability, are projected to spike 40 percent in the next four years, to roughly $7 billion by 2017.

“It is the increase in those expenditures that is driving spending on infrastructure down very significantly. That is where the conflict is,” Ravitch said. “There is no question we are on a downward spiral and there is not one shred of evidence out there that the politics are providing adequate revenues for infrastructure investment.”

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