MAYOR BLOOMBERG PRESENTS FISCAL YEAR 2014 EXECUTIVE BUDGET Budget Balanced without Tax Increases or Major Service Reductions, Through Economic Growth and Spending Discipline Pensions and Fringe Benefits Continue to Drive Growth of City Expenses

Mayor Michael R. Bloomberg today presented the Fiscal Year (FY) 2014 Executive Budget and an updated four-year financial plan. New York City’s continued economic growth, prudent planning and fiscal discipline have provided for a balanced budget that does not rely on tax increases and maintains the services that have been part of the backbone of the improved quality of life in the city. The Executive Budget holds controllable spending levels flat from FY 2013 to FY 2014 and includes $6.5 billion in savings achieved through 12 rounds of deficit closing actions the City has taken since 2007. Expenses not fully controlled by the City – including pension, health care and Medicaid costs – rise by $1.7 billion and represent a significant long-term challenge, which the City has proposed to offset through new municipal labor contracts that include health benefit reform. The Mayor detailed changes in revenue forecasts for both the current and next fiscal years following increased tax collection and other adjustments, and noted the ongoing growth of private employment through a diversity of industries that continue to drive the city’s robust job growth. The Mayor also outlined the City’s ongoing commitment to education, capital investment and reducing out-year budget gaps.

“Like every budget our Administration has produced, this one will be balanced – and we’ll do it without increasing taxes or cutting critical services New Yorkers rely on,” said Mayor Bloomberg. “Responsible management of the budget has allowed us to increase education investments so our public schools continue to improve, and investments in economic development have diversified the city’s economy and spurred job creation, generating new revenue streams for the City. But even with our fiscal discipline, the costs we cannot control without help from our partners in labor and in Albany continue to siphon money away from services and remain a long-term challenge. Until we make meaningful reforms to our healthcare and fringe benefit programs, the services that have dramatically improved the quality of life for New Yorkers will be left to either compete for a smaller and smaller share of the City’s budget or rely on significant tax increases that will halt our economic growth and competitiveness.”

The Executive Budget is a $69.8 billion plan, with a City-funded portion of $50.2 billion. While year-over-year controllable expenses remain flat, non-controllable expenses (primarily pensions and fringe benefits) continue to rise. Non-controllable expenses will increase yet again in this Executive Budget by 7.6 percent or $1.7 billion, from $21.7 billion in FY 2013 to $23.4 billion in FY 2014.

Historical Spending Overview

While controllable expenses other than education have risen with the rate of inflation since FY 2002, non-controllable expenses and debt service have increased at dramatically higher rates. Since FY 2002, total City-funded expenses have grown by $23.4 billion. Non-controllable expenses and debt service represent $15.5 billion of the total increase in City-funded expenses – or 66 percent.

Education is the only area of controllable spending that has risen at a rate higher than inflation, due to the Administration’s commitment to reforming a broken school system, providing better compensation to teachers and filling the gap left by the State’s annual reduction of education aid. City-funded education spending has more than doubled FY 2002. Of the total $23.4 billion increase in City spending since 2002 referenced above, non-controllable, debt service and education represent $19.1 billion of the total increase in spending – 82 percent.



Historical Growth in Employee Costs

Total personal service costs (costs for City employees), has risen by 71 percent since 2002, from $22.8 billion to $39.2 billion. This is despite the City having more than 14,000 fewer employees in FY 2014 than in did in FY 2002. The driver of the growth has been pension and fringe benefits, which represent $11.4 billion of the increase – 70 percent.

Pension and Healthcare Costs and Labor Contracts

Pension and salary costs continue to increase, and the City’s overall headcount has decreased. Since January, the City’s Independent Actuary – who determines the pension costs for the City – has refined pension assumptions, resulting in an increase of the City’s required pension contribution by $230 million through FY 2014.

Healthcare expenses now account for the most staggering growth of these obligations and are forecast to rise 38 percent in the next four years alone, from $6.5 billion in FY 2013 to $9 billion in FY 2017. The Administration has proposed reforms to offset these costs, including new contracts with the healthcare service providers for the City’s workforce and restructuring health benefit plans. The City is preparing a Request for Proposals to replace existing healthcare contracts with a modern program that incorporates wellness incentives, active disease management that provide City employees with a higher standard of care while saving up to $400 million each year.

The City also must restructure healthcare benefits so that municipal employees make some contributions to their health insurance premiums. Health insurance cost $6.3 billion in FY 2013 – twice as much as in FY 2002 – and is expected to grow by 32 percent to $8.3 billion in FY 2017. Currently, 95 percent of all City workers do not make any contribution toward their health care insurance premium. However, more than 90 percent of State employees and more than 90 percent of private sector employees make some contribution. Future contracts between the City and its employees must include a minimum health care premium contribution to offset these obligations.

Finally, the City cannot afford to give retroactive pay increases to its employees as such an agreement would open an immediate, current year budget gap and extended massive out-year deficits. A retroactive four percent raise for teachers for the prior round of collective bargaining combined with retroactive inflation increases for all other employees would require $7.8 billion in FY 2014 and $3 billion annually thereafter. Those costs far exceed the total savings achieved through the gap closing measures the City has taken since 2007.



Education

The Administration’s unprecedented education commitments continue, and the City will spend more than $13 billion in FY 2014 – by far the most the City will spend on any City agency in FY 2014.The City lost $250 million in State education aid for the current fiscal year (FY 2013) when the United Federation of Teachers refused to come to agreement on a fair and effective evaluation system. The funding is restored in FY 2014. The Administration’s annual increase in City-funded education expenses comes as the share of State-funded education expenses has declined: the City is now spending $4.7 billion more than the state on education, shouldering 61 percent of non-Federally funded education costs, while the State funds 39 percent. In FY 2002, the State and the City evenly shared the costs.



Private Sector Employment

The number of private sector jobs continues to climb and grew more rapidly than initially forecast. In January, private employment accounted for approximately 3.3 million jobs and was estimated to climb to 3.4 million in 2014. The revised report shows that private employment has already reached more than 3.4 million and will continue to increase in the year ahead. The City’s development of new industries has helped to diversify the economy and support new job creation in professional services, hospitality, information and other sectors.



Revenue Adjustments

The Executive Budget adjusts revenue forecasts for the current and next fiscal years. The City collected an additional $800 million in tax revenue this year above what was forecast in January – a one-time increase due to private sector activity made ahead of Federal tax law changes. As a result, the City has lowered the revenue forecast for FY 2014. The City collected approximately $200 million more in corporate tax audit revenue through aggressive corporate auditing procedures. Finally, the City has reduced taxi medallion revenue forecasts from $600 million next year to $300 million in FY 2014.



Headcount

The City’s full-time and full-time equivalent headcount in FY 2014 Executive Budget is 297,148 a reduction of 14,656 positions (4.7 percent) since the start of the Bloomberg Administration. The City’s December 31, 2001 full-time and full-time equivalent headcount was 311,804. The Executive Budget maintains uniform headcount at the Fire Department and increases the number of uniform Sanitation Workers. The Police Department will maintain headcount through the accelerated hiring of 500 uniform officers in the July Police Class. The accelerated schedule required to maintain headcount is due to high attrition levels of officers entering retirement age who were initially hired at the start of the Safe Streets, Safe City Program in the early ‘90s. The January Preliminary Budget had also included maintaining uniform police headcount at current levels.

Out-Year Gaps

While the Executive Budgets for FY 2013 and FY 2014 are balanced, New York City will still face budget gaps of approximately $2.2 billion in FY 2015, $1.9 billion in FY 2016 and $1.4 billion in FY 2017. The Mayor announced that the City has put $142 million toward closing the gap in FY 2015, which begins July 1, 2014, and will pursue a 13th round of measures to help close the deficit in November.