NYC’s Balanced Budget Is Mixed Blessing for De Blasio

New York Mayor-elect Bill de Blasio faced calls from unions for new contracts and retroactive pay after Mayor Michael Bloomberg handed him a balanced budget.

Bloomberg yesterday announced a $72.7 billion spending plan for the year starting July 1 after closing a $2 billion hole through reduced spending, increased real estate sales, bond refinancing and unexpected revenue. It marked the first time since at least 1975 that an incoming chief executive won’t have to deal with a deficit, Bloomberg said.

For De Blasio, a 52-year-old Democrat who takes office Jan. 1, elimination of the budget gap means he won’t be able to use it as a reason for denying raises or back pay. Bloomberg and mayoral predecessors including Rudolph Giuliani, David Dinkins and Edward Koch pointed to predicted deficits as reasons for rejecting or limiting city workers’ raises.

Harry Nespoli, chairman of the Municipal Labor Committee and president of the city sanitation-workers union, said Bloomberg’s announcement is “great news if it’s true,” and would be a reason to insist upon a 5 percent raise, consistent with inflation, to compensate for years without a contract.

“For the past three years, the mayor’s been talking about a deficit, and there’s been a surplus there,” Nespoli said. “He’s the only mayor who departed from City Hall leaving all 100 unions without contracts.”

Reducing Pain

To offer raises to the city’s 300,000 employees, de Blasio will have to raise revenue or find even more savings. Some unions seek back pay for years of working under expired pacts, an expense that could cost as much as $4.5 billion, according to the Independent Budget Office, a nonpartisan fiscal monitor.

After the announcement, a spokesman for de Blasio, Lis Smith, said the mayor-elect remains concerned about the impact of federal budget cuts, uncertainty around the flow of U.S. aid for Hurricane Sandy rebuilding and liabilities from the labor contracts.

“It doesn’t make the next mayor’s job easy, but it reduces the pain and it means one less thing that he has to worry about,” Bloomberg said yesterday at a City Hall news briefing.

Should unions insist on raises without agreeing to productivity increases and contributions to health and pension plans, the next mayor would have to raise taxes to pay for them, Bloomberg said. About one-third of the city’s workers have continued to get annual raises under provisions in old contracts that remain in force, he said.

9/11 Impact

In a 2007 radio appearance, the mayor said he wouldn’t leave his successor with a challenge similar to the one he faced in 2002, when a recession and the aftermath of the Sept. 11 attacks on the World Trade Center the previous year forced him to deal with a $4.8 billion gap in a $42.3 billion budget planned by Giuliani.

This year, unanticipated revenue topped $520 million over what had been forecast in June, driven by taxes on personal income and real estate transfers, and sales of new taxi medallions are expected to bring $145 million over the next 18 months, Bloomberg said.

The administration saved $364 million in August when New York-based health-care provider EmblemHealth Inc. said it wouldn’t raise its premium for the first time in 15 years. The city should reap more than $200 million through the sale of two buildings in lower Manhattan, the mayor said.

Debt Costs

A legal settlement over a contract dispute with Verizon Communications Inc. produced $60 million, and higher-than-expected investment returns on pension assets enabled the city to reduce its contribution to those funds by about $86 million.

Refinancing bonds cut debt service by $400 million in the current and next fiscal years, the mayor said.

Investors are demanding less additional yield to buy New York City debt rather than top-rated securities. New York City general obligations rated two steps below AAA and maturing August 2026 traded yesterday with an average yield of 3.27 percent, the lowest since Nov. 4, data compiled by Bloomberg show. That interest rate is 0.95 percentage point above benchmark munis with similar maturity, the least extra yield since May.

The mayor, a political independent, is founder and majority owner of Bloomberg News parent Bloomberg LP.

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