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Queens Chronicle

De Blasio’s proposal faces a budget GAAP

Council largely praises $73.9M plan; comptroller, Wall St. identify problems

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Posted: Thursday, May 15, 2014 10:30 am | Updated: 11:56 am, Thu May 22, 2014.

The executive budget presented by Mayor de Blasio on May 8 was the first one in 20 years that was almost universally embraced by a heavily Democratic City Council upon receipt.

But it also wipes out a $2 billion surplus; increases projected deficits by $5 billion through 2018; and was the first one in memory to have to undergo a radical adjustment in less than a week after the city Comptroller’s Office raised serious questions about de Blasio’s intentions to spread retroactive pay raises for retiring school teachers over four years, an apparent violation of state-mandated Generally Accepted Accounting Procedures, or GAAP.

The mayor’s $73.9 billion request represents an increase of about $4 billion over the current fiscal year, which ends on June 30.

“Budgets are not just a collection of numbers. They are not just accounting documents,” de Blasio said, introducing the plan. “They reflect fundamental values. And if you ask someone what they fund, you will be able to see what they actually believe in. I think in this budget, you will clearly see what I believe in and what this administration believes in.”

De Blasio’s plan holds the line on property taxes. Along with his much-touted $300 million universal pre-K program, it includes $145 million for middle-school afterschool programs; and calls for $20 million to beef up CUNY’s training in science, technology, engineering and math, or STEM, curricula.

On public safety, the mayor wants $28.8 million for his Vision Zero traffic initiative; increases the bridge maintenance line item by $346 million and road resurfacing by $49 million; and redirects $70 million to maintenance and security at public housing projects.

A long-held complaint of the City Council under Mayor Mike Bloomberg was that of the so-called “budget dance” by which Bloomberg every year proposed shutting down the same 20 fire companies, the same cuts to library support and the same cuts to senior and afterschool programs, only to have the Council place the funding back every year before the new fiscal year on July 1. De Blasio, in fact, used the term himself last week.

“I lived it for eight years as a Council member,” he said. “It didn’t make sense to a lot of us. ... And instead of going through a dance and a Kabuki theater, [we] actually determined together some of the things that had to be in this budget.”

“The executive budget ... is a strong start and represents the shared commitment between the Council and the administration to deliver for all New Yorkers while remaining fiscally responsible,” said Council Speaker Melissa Mark-Viverito (D-Manhattan).

Council Finance Chairwoman Julissa Ferreras (D-East Elmhurst) said the proposal mirrored many of the Council’s own priorities, and that additional hearings and negotiations will begin this week.

Mark-Viverito was disappointed that the mayor did not include universal free lunch for all public school students. She and Councilwoman Karen Koslowitz (D-Forest Hills), in a statement to the Chronicle, were unhappy that de Blasio did not fund the Council’s call for 1,000 additional police officers.

Councilwoman Elizabeth Crowley (D-Middle Village) also wanted more money for EMS personnel.

“With an average EMS response time for life-threatening emergencies exceeding nine minutes, our officers are spread too thin,” she said.

The most controversial and thus far troublesome part of the budget has been the tentative labor deal reached with the United Federation of Teachers, announced days before de Blasio made his presentation.

The pact, if approved by the union, would be for nine years, retroactive to 2010, and give teachers an 18 percent raise.

De Blasio said much of the increased costs would be covered by $3.4 billion in cost savings other unions are projected to get over the next three years assuming their contracts are roughly comparable to that of the teachers.

But while the annual cost-saving targets have been agreed to by UFT leadership, there are not yet any specifics as to where those savings will come from.

In a text of his presentation, de Blasio did not directly answer a question about how healthcare savings will be accounted for, and how the city would proceed if it is determined that the goals are not being met.

“These savings will happen, period,” he said. “They are guaranteed. What’s clear is there is a menu of ways to get there, but there is an arbitrator process that guarantees the outcome.”

Provided, of course, that the city would both institute and win any arbitration process.

Councilman Danny Dromm (D-Jackson Heights), chairman of the Education Committee, did not respond to a request for comment on the healthcare savings.

But Koslowitz was not concerned, saying she on the whole is pleased with how the budget process is going, and that it is not uncommon to have to make continual adjustments to budgets based on things like labor contracts.

Messages left at the offices of Councilman Eric Ulrich (R-Ozone Park) and Republican Minority Leader Vincent Ignizio (R-Staten Island) were not returned.

But it was due to someone in his own party — Democratic Comptroller Scott Stringer — that de Blasio was forced to make a major adjustment.

At a joint teleconference on Monday, representatives of the mayor and the comptroller said de Blasio would have to take $725 million from the Labor Reserve Fund to place in this year’s budget to pay for retroactive raises for teachers who will retire between June 30 of this year and October 31, 2020.

The as-yet-unratified agreement with the UFT had the city spreading out the payments for retroactive raises for those teachers between 2015 and 2018.

While representatives of de Blasio and Stringer attempted to put as pretty a bow on the situation as possible, portraying it as a disagreement between two schools of thought on accountancy, Stringer’s people counseled the Mayor’s Office in recent days that the plan would run afoul of the state laws that mandate the use of GAAP standards.

The money must be paid now because GAAP standards consider the retroactive raises to be an expense incurred this fiscal year.

The payments affect an estimated 10,000 teachers but will not change the terms or cost of the proposed contract.

A precondition of the teleconference was that any information could be attributed only to the offices of de Blasio and Stringer, and not the individuals making the presentations.

A de Blasio representative said the move did have the positive impact of sightly reducing projected out-year deficits in the next four years.

And while de Blasio has acknowledged the need to tackle structural deficits in the city budget through FY 2018, his plan has at least one Wall Street heavyweight concerned.

The credit rating firm Moody’s Investors Service issued a statement Monday calling de Blasio’s executive budget “credit negative” because it doubles the city’s projected deficit for FY 2016 and 2017, and triples it for 2018.

“The plan is credit negative because it shows how personnel costs drive the city’s budget and challenge its finances, even in a strong economy,” Moody’s’ report said.

Moody’s cited city Office of Management and Budget deficit figures of $2.2 billion in FY 2016; $2 billion in 2017; and $3.2 billion in 2018.

OMB’s February forecast for the three years combined was just under $2 billion, though Moody’s acknowledged those figures did not include the full costs of labor contracts that can be anticipated through “pattern bargaining,” or the city’s general practice of awarding similar pay increases to all municipal unions in a given contract cycle.

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