New York City Independent
Budget Office
Douglas A. Criscitello
Founding Director New York City Independent Budget Office New York City Independent Budget Office
Overview
Three broad factors have shaped New York City’s budget and its budget process:
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City’s budget process is considerably stricter than most cities or states;
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NYC budget is huge—larger than all but a handful of states
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Legacy of 1970s fiscal crisis.
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;
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Much of that power due to sole authority to set revenues.
Independent Budget Office’s
Role
Authorized in 1989 with city charter revision:
„ Board of Estimate was major player in budget process;
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BOE struck down by US Supreme Court
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Concern that changes to the budget process would make an already‐powerful Mayor even stronger;
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IBO seen as one way to empower other elected officials;
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Mayor’s OMB had near‐monopoly on budget information;
By providing information to others, IBO designed to help level playing field.
Independent Budget Office’s
Role
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Considerable opposition to creation of IBO;
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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?
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City Council Speaker and City Controller;
1. Preferred professional budget staff under their direct control
Independent Budget Office’s
Role
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Voters approved Charter in 1989 and IBO was expected to begin operations in 1990:
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Opposition by elected officials blocked creation for 6 years;
Took 3 lawsuits—spearheaded by a variety of good‐
government groups and relatively weak elected officials—to get up and running.
Independent Budget Office’s
Role
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IBO is non‐partisan, not bi‐partisan, and is a publicly funded agency modeled on CBO
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But unlike CBO, independent of both executive and
legislative branches. How? 9
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Guaranteed budget line not < 10% of Mayor’s OMB;
Complex process for appointing Director;
Director appointed for 4‐year term.
Independent Budget Office’s
Role
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Function more like CBO or GAO
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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.
Budget Process
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NYC’s budget process more stringent than most other states/cities
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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.
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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.
Budget Process
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Results have generally been very positive;
1. Most notably, >25 years of on‐time & balanced budgets
a. Strong credit rating
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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:
http://www.ibo.nyc.ny.us/iboreports/FEAPaper.pdf
Tax system
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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:
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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:
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But these other taxes are cyclically sensitive;
Especially true in NYC;
1.Very dependent on financial industry—noted for cycles of boom and bust.
Tax system
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Because NYC is (in legal terms) a creature of New York State, state approval is required to either increase or decrease most taxes:
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The only tax directly under NYC control is the property tax
1. City can only change rates, not structure
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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.
Mayor’s powers
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Proposes budget (actually two—preliminary and executive);
Mayor’s OMB controls the revenue estimate:
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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
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Another more subtle source of mayoral power is control over format of budget:
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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. 9
Increases transparency and Council’s influence and ability to perform oversight.
How is IBO independent?
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Process for choosing Director; 9
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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.
Where does IBO’s influence come from?
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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:
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Technical and analytical work (hired research types);
1. Many early pieces very technical tax issues – built image.
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Selected positive/not normative topics;
Chose not to take policy positions to avoid undermining credibility.
IBO’s credibility
IBO’s credibility has grown over time
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Giuliani Administration determined to get rid of agency;
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Expenditures per pupil “flawed analysis” NY Times;
1. Since no one knew who/what IBO was, helped to put us on map.
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Yankee stadium fiscal impact study;
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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.
IBO’s credibility
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Relationship with current Administration very different;
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For one thing, Bloomberg has used much of IBO’s work and is on the record quoting IBO as authoritative body:
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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.
IBO today
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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.