Budget Office. Douglas A. Criscitello Founding Director. New York City Independent

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1 New York City Independent Budget Office Douglas A. Criscitello Founding Director New York City Independent Budget Office

2 New York City Independent Budget Office Overview Three broad factors have shaped New York City s budget and its budget process: City s budget process is considerably stricter than most cities or states; Legacy of 1970s fiscal crisis. NYC budget is huge larger than all but a handful of states NYC s tax system looks more like a state s than a city s; 1. But without the autonomy/powers of a state; 2. Mismatch problematic. Mayor is single most powerful player in City s budget process; Much of that power due to sole authority to set revenues.

3 Independent Budget Office s Role Authorized in 1989 with city charter revision: Board of Estimate was major player in budget process; BOE struck down by US Supreme Court Concern that changes to the budget process would make an already powerful Mayor even stronger; IBO seen as one way to empower other elected officials; Mayor s OMB had near monopoly on budget information; By providing information to others, IBO designed to help level playing field.

4 Independent Budget Office s Role Considerable opposition to creation of IBO; Mayors Koch, Dinkins, Giuliani (2 out of 3 now supporters); 1.Why give up monopoly on information?; 2. Moreover, too many fiscal monitors; a. Dating back to fiscal crisis of 1970s b. Why create another? City Council Speaker and City Controller; 1. Preferred professional budget staff under their direct control

5 Independent Budget Office s Role Voters approved Charter in 1989 and IBO was expected to begin operations in 1990: Opposition by elected officials blocked creation for 6 years; Took 3 lawsuits spearheaded by a variety of goodgovernment groups and relatively weak elected officials to get up and running.

6 Independent Budget Office s Role IBO is non partisan, not bi partisan, and is a publicly funded agency modeled on CBO But unlike CBO, independent of both executive and legislative branches. How? Guaranteed budget line not < 10% of Mayor s OMB; Complex process for appointing Director; Director appointed for 4 year term.

7 Independent Budget Office s Role Function more like CBO or GAO Not just another fiscal monitor; Provide info/answer questions/do research on budgets and fiscal policy for: 1. Broad range of elected officials, advocates, press, etc. Publish: a. Charter mandated reports on city s fiscal outlook, preliminary and executive budgets; b. Annual volume on budget and tax options; c. Fiscal briefs on wide range of public policy topics; d. Educational materials: budget guides and roadmap; e. Staff directory. 2. All available on website.

8 Budget Process NYC s budget process more stringent than most other states/cities Legacy of 1970s; For example, NYS Governor is simply required to propose a budget that is in balance; 1. No requirement that adopted budget be in balance at the beginning of the fiscal year, let alone at its end; 2. If short, just borrow. In contrast, NYC must adopt a budget that is in balance according to GAAP; 1. City must end its fiscal year in balance; 2. If city were to end a fiscal year with a deficit >$100mn (a tiny fraction of a $60bn budget), then a New York State Financial Control Board would control city finances.

9 Budget Process Results have generally been very positive; 1. Most notably, >25 years of on time & balanced budgets a. Strong credit rating One unintended consequence: 1. GAAP makes it difficult for city to save for rainy day; a. Instead, city typically under estimates tax revenues to accumulate surplus. Uses surplus to pre pay debt service & fill gap for upcoming year 2. Makes budget process opaque: hard to understand how quickly NYC can go from record surplus to looming budget gaps. Brief IBO report on this topic can be found at:

10 Tax system In order to support a nearly $60bn budget, NYC s tax system looks more like a state s than a city s Local governments typically rely most heavily on property taxes: Very stable revenue source; Particularly appropriate if you re funding education, public safety, sanitation, and the like which don t vary significantly from year to year. In contrast, NYC relies on broad range of income, sales, and property transfer taxes in addition to the property tax: But these other taxes are cyclically sensitive; Especially true in NYC; 1.Very dependent on financial industry noted for cycles of boom and bust.

11 Tax system Because NYC is (in legal terms) a creature of New York State, state approval is required to either increase or decrease most taxes: The only tax directly under NYC control is the property tax 1. City can only change rates, not structure This mismatch between a cyclically sensitive tax system and a lack of authority to raise (most) taxes is problematic because City has to end its fiscal year with a GAAP balanced budget.

12 Mayor s powers Proposes budget (actually two preliminary and executive); Mayor s OMB controls the revenue estimate: Dictates the size of the budgetary pie; Example: in late 1990s Council attempted to adopt a budget over Mayor s objections. Note: IBO required by Charter to provide an independent revenue estimate. 1. IBO s estimate (while very credible) is not legally binding Another more subtle source of mayoral power is control over format of budget: IBO and Council Speaker pushing to change budget presentation to focus on: 1. Programs not arbitrary units of appropriation and; 2. Year over year changes rather than plan to plan. Increases transparency and Council s influence and ability to perform oversight.

13 How is IBO independent? Process for choosing Director; Once director chosen for 4 year term, great flexibility in how resources used. Three charter mandated fiscal monitor type reports but resources are available to do considerably more; Guaranteed budget line; Access to information Charter provision backed up by the Court; IBO serves everybody except Mayor; In effect, working for everybody (all other elected officials, the press, advocates, etc.) = working for no one.

14 Where does IBO s influence come from? Independence and credibility; No one has to take its numbers/analysis; Influence comes from having credibility guided many of our early decisions, from hiring on: Technical and analytical work (hired research types); 1. Many early pieces very technical tax issues built image. Selected positive/not normative topics; Chose not to take policy positions to avoid undermining credibility.

15 IBO s credibility IBO s credibility has grown over time Giuliani Administration determined to get rid of agency; Expenditures per pupil flawed analysis NY Times; 1. Since no one knew who/what IBO was, helped to put us on map. Yankee stadium fiscal impact study; Originally requested by an elected official (who did not initially support IBO); Mayor loudly proclaimed that stadium would pay for itself ; Mayor s own economists suggested otherwise in internal meetings; IBO s report adopted strategy of giving Mayor benefit of doubt maximum possible return but still came up short; Administration s response was twofold: invective and draft competing report that was never officially released.

16 IBO s credibility Relationship with current Administration very different; For one thing, Bloomberg has used much of IBO s work and is on the record quoting IBO as authoritative body: Much more cooperative/productive concerns; Another IBO study on fiscal effects of sports teams and new stadium construction; Although IBO s numbers were much lower than the benefiting sports team (Jets), Mayor embraced them as best estimate; IBO was cited in ads for both sides of debate.

17 IBO today Very well established; IBO alums have moved on to other influential positions within City government; Quality of work remains top notch; Some talk of increased budgetary resources for IBO to increase its staff focused on education issues; Has yet to weather a significant change of leadership; Bottom line: credibility is key. Takes years to build, but easily eroded without strong quality control and continued commitment to nonpartisanship.