Monday, February 7, 2011


ALBANY, NY – New York City Comptroller John C. Liu today presented testimony before the State Assembly Ways and Means Committee and the State Senate Finance Committee regarding the impact of the proposed State budget on New York City’s finances.

Comptroller Liu said Governor Cuomo’s proposed budget would widen the FY 2012 budget gap by $1.4 billion due mainly to loss of education aid and the elimination of revenue sharing.

Comptroller Liu’s testimony as prepared for delivery is below:

Thank you Chairman Farrell and Chairman DeFrancisco for the opportunity to speak with members of the State Assembly Ways and Means Committee, and Members of the Senate Committee on Finance regarding the Governor’s Executive Budget proposal and the impact it will have on New York City’s finances. Governor Cuomo has inherited the unenviable task of eliminating a $10 billion budget gap in the coming fiscal year. This is a daunting challenge in any economic environment but even more so in this period of economic uncertainty. With out-year gaps forecasted to exceed $20 billion it is imperative that the State contend with its structural budget imbalance immediately.

New York City has always been willing to accept our fair share of the burden for balancing the State’s budget. What I would hope though, is that the Governor’s budget is not disproportionately balanced on the backs of hard working New York City taxpayers. I echo the sentiments of Mayor Bloomberg in affirming that any prescription for balancing the budget must be equitable to New York City residents.

My office estimates that the Governor’s FY 2011-12 Executive Budget could create an immediate $1.4 billion gap in the City’s Fiscal 2012 budget, which already faces a $2.4 billion shortfall. The key components of this gap are revenue sharing and school aid, which together comprise nearly $1.25 billion. In addition, proposed cuts in welfare services could reduce support by over $100 million, affecting many of our City’s most vulnerable.

In my brief tenure as Comptroller I have made it a top priority of my office to uncover fraud, waste and abuse wherever it may exist in the expenditure of the City’s resources. One of my first initiatives was to institute a redesign of the office, elevating two critical bureaus - audits and contracts - to the level of Deputy Comptroller. Due to the restructuring, we have been able to pinpoint our audit focus, which resulted in more than $129 million in actual funds being recouped last year alone. In addition, we are better equipped to scrutinize each contract to ensure that we avoid instances of runaway spending.

I would therefore like to commend Governor Cuomo on his proposal for redesigning and reforming State government. Embracing innovative and unique approaches to managing State government will offer many opportunities for both the State and its municipalities to conserve scarce financial resources, and possibly identify additional areas of waste.

I am extremely interested in what recommendations the Governor’s Mandate Relief Redesign Team will present. New York City has long been burdened with onerous and costly unfunded State requirements -- such as the numerous costs borne by the City for funding services related to special education -- that often come at the expense of other vital City services. It has been estimated that nearly 16 percent of the education budget is the direct result of unfunded mandates.

As part of his redesign of New York State government, Governor Cuomo has emphasized his focus on a regional approach to economic development, seeking to “reenergize the State’s economy and maximize the potential of our economic development investments.” These efforts to increase investments statewide in order to spur economic activity are to be applauded. However, these proposals to reenergize and maximize the State’s potential should not come at the expense of New York City.

Any truly comprehensive economic development program must provide assistance and support for those segments of the population that have typically been overlooked: specifically minorities and women. While unemployment rates have been leveling off and in some cases decreasing, certain groups have been disproportionately affected by the recession, specifically communities of color which have experienced relatively higher rates of unemployment. In the rush to maximize economic development investment, it is important to keep in mind the unique needs of this segment of the population and provide the opportunities necessary for their economic success.

My office has developed a system that allows anyone with an internet connection to track the City’s level of contract spending with Minority and Women-Owned Business Enterprises. The website updates daily and tracks potential and real spending with M/WBE’s to get a sense of how we are faring as a City. Sadly, we can do much better, but it is my hope that the public data readily available will inspire the City to provide more opportunities to these businesses, many of whom are small and neighborhood orientated, in an effort to spur economic growth.

I strongly recommend that you and your colleagues, including the Governor, keep these traditionally overlooked businesses in mind when discussing economic development programs.

The City has tightened its budgetary belt many times over the last few years and has made the necessary and difficult cuts to balance its budget. Further cuts to the City’s budget will require painful reductions in many core service areas. The most immediate and worrying of the reductions would be the elimination of thousands of pedagogical positions in New York City’s public schools. If the Governor is truly interested in maximizing economic development investments he should look no further than the investment in our children’s education.

My office estimates that the Governor’s Executive Budget will reduce support for New York City’s school children by $953 million. This includes a reduction of $891 million in formula-based aids and special education cost shifts totaling $62 million in summer school and pre-school special education programs. These cuts will have an immediate effect on the ability of the City’s Department of Education to provide a proper educational environment to over 1.1 million school-aged children.

We in New York City are keenly aware of the cumulative effects of unchecked budget growth and support realistic changes to budgetary assumptions. Obviously the State cannot continue on the course it is heading with growth in expenditures far outpacing revenues. It is appropriate that the Governor take a careful look at each and every budget assumption. But changes to budgetary assumptions should be done with an eye towards equity.

In Fiscal 2010 – 2011 the State returned $729.3 million of taxpayer dollars directly to over 1,500 municipalities statewide through Aid and Incentives for Municipalities (AIM). The 11.1 million New Yorkers residing in these villages, towns and cities received over $65 per capita in AIM funding. But nearly 8.3 million New York State residents in one city saw not a penny of these funds.

The Governor’s Executive Budget for 2011- 2012 eliminates the entire $302 million of AIM funding planned for New York City while reducing funding for all other municipalities by only two percent. For yet another year New York City residents are being treated inequitably. I am encouraging you to right an unjustified wrong for all New York City residents by restoring the City’s AIM funding.

In addition to the aforementioned direct budget effects of the Governor’s proposal, the Executive Budget may have many indirect effects on the economy of the City and the State. The Governor’s plan anticipates savings of close to $2.9 billion from Medicaid reform and redesign. It is hard to comment on how these cost savings will be derived because as of yet there have been no real proposals set forth, making it difficult to assess the impact of Medicaid cuts on the City’s hospitals and the Health and Hospitals Corporation (HHC). Such large cuts would lead to further declines in services and quality of care, as well as significant job loss for health care workers. Health care is a vital segment of New York City’s economy; we must do everything within our powers to preserve funding for this industry.

The Governor’s budget proposal includes $178 million in cuts to funding for social services which would impact the City’s neediest population. The wide range of actions would reduce support for services such as youth detention and adoption subsidy, as well as shift the funding responsibility of special education related costs to school districts. Among these reductions, the State also unfairly targets the City by eliminating funding for two programs that would only affect New York City. The reduction in funding for these two programs, for housing assistance to public assistance households under the Work Advantage program and reimbursement for adult homeless shelters, would remove $51 million in much needed funding for services for the homeless and those who are at risk of being evicted from their homes.

Lastly, as the steward of the City’s five pension funds I am keenly aware of the constraints which exclude the City from taking an active role in the negotiation of pension structure. The Mayor has put forth a pension reform proposal of which we are reviewing, but at first glance, I do agree that the City should be empowered to negotiate pension benefits. It is a matter of self-determination.

I would like to point out to the committees that this past fiscal year, FY 2010, the New York City Pension Funds achieved a rate of return of 14 percent, and during the first half of FY 2011, preliminary findings indicate the investment returns above 16 percent.

It is no secret that pension costs are rising and that there is a need to address the issue, but a number of factors contribute to this increase, including investment losses over the past ten years – during which New York City was attacked and suffered through two recessions.

This issue deserves a real dialogue and I am sure you and your colleagues will be discussing this in greater detail in the weeks and months ahead.

Thank you for the opportunity to present our findings today. As always, my office is ready to assist you in any way possible.

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