NYC Plans to Cut Capital Spending by 20% as Deficit Looms

New York Mayor Michael Bloomberg, faced with the prospect of budget deficits, wants a 20 percent cut in spending for construction and maintenance of city-owned buildings and infrastructure.

Budget Director Mark Page asked agency heads to revise their 10-year strategies for capital spending and report the status of all projects with explanations for delays, according to a Dec. 14 memorandum. Responses are due Jan. 5.

“We are actively seeking ways of diminishing city costs for pensions and health benefits, and we are obliged to also address the amount of the budget going for debt service,” Page wrote. “We must reduce the plan for capital spending which drives capital borrowing and its resulting debt-service cost.”

The release of Page’s directive yesterday came on the same day that city Comptroller John Liu and state Comptroller Thomas DiNapoli each warned that the city may confront larger deficits in the next three years than Bloomberg anticipates. The administration disputed some of their findings.

Liu said budget gaps may grow to $3.6 billion, $6 billion and $6.6 billion in the next three fiscal years. Bloomberg’s Nov. 18 financial plan anticipated deficits of $2.4 billion, $4.8 billion and $5.6 billion in those years.

The city’s fiscal year starts July 1. Its budget is about $65 billion. New York’s capital plan for 2010 through 2019 anticipated spending $61.9 billion; $47 billion of that from municipal funds.

That plan included $22 billion for schools; $13 billion for water supply and other environmental protection; $9 billion for bridges and streets; $4.6 billion for housing; and $3 billion for prisons and other criminal justice facilities.

Going Deep

“There’s going to be some severe expenditure cuts required,” said Richard Saperstein, managing director of Treasury Partners in New York, which oversees $10 billion in assets.

The extra yield over Treasuries that investors demand to buy city bonds will widen until officials identify how they will close the deficit, Saperstein predicted.

“If we wanted to add New York City bonds, we would suggest waiting, as a result of this information,” he said. The city is “a very astute issuer that has a lot of respect in the marketplace.”

New York City’s 10-year general obligation bonds are yielding 3.96 percent, or 0.6 percentage point more than top-rated bonds of the same maturity, according to data compiled by Bloomberg.

Paying Teachers

Liu and DiNapoli each based their estimated deficits on unresolved contracts involving the city’s 70,000 teachers. The administration may face an increase of about $900 million in related costs during each of the next four years, Liu said.

“Relying heavily on predictions of labor contract negotiations and consistently underestimated overtime costs contribute to our budget gaps, especially when added to the expected loss of state aid and rising debt,” Liu said in a news release accompanying the report.

The city may also exceed budgeted overtime by more than $100 million each year, he said.

The administration has vowed that any increase in teacher salaries will be paid out of savings in pensions or fringe benefits, said Marc Lavorgna, the mayor’s spokesman on budget matters.

“The mayor has made it clear that we cannot afford any further increase in teachers’ salaries without commensurate cost savings, and their contracts are not subject to arbitration, so their pay will continue under terms of the existing contract, with no unanticipated increased cost to the city,” Lavorgna said.

The comptroller’s office has overestimated overtime costs in the past several years, he added.

Strapped State

The Bloomberg administration agrees with DiNapoli’s assessment that the city’s budget deficit may increase due to the loss of state aid and federal stimulus funds, Lavorgna said.

On Dec. 6, Page told the City Council that the 2012 budget deficit may widen by $2 billion, to $4.5 billion, because cuts in state aid may be greater than forecast. Lieutenant Governor Richard Ravitch, in a Bloomberg Television interview yesterday, said the state faces a deficit of about $14 billion its 2011-12 fiscal year, which begins April 1. Its current budget is about $135 billion.

The city has ordered about $1.6 billion in cuts during the next 18 months, reducing the workforce by more than 10,000, including more than 6,000 who will lose their jobs.

“The reality that we’re facing is that the future could be considerably worse,” Page told the council members. “This is something we are solemnly worried about.”

The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

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