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A TALE OF TWO BUDGETS
The present administration has had an opportunity to work on two city budgets, that for the fiscal year beginning July 1, 1966 and that projected for the fiscal year which will begin July 1, 1967.
The 1965-66 budget was prepared by the prior administration. It totalled $3.88 billion. As the new administration took office it was confronted with $66 million in projected over-runs and the heavy millstone of $256 million borrow-now-paylater five year serial indebtedness incurred to meet current operating expenses. A job freeze was instituted. It has saved $53 million to date.
A twenty-year practice of financing budget over-runs with emergency budget notes was stopped and such notes were reduced from an all-time high of $68.8 million on June 30, 1965 to $21.0 million on June 30, 1966.
The 1966-67 budget totalled $4.55 billion, up 15%. Its most important features
New sources of revenue with good potential for growth along with the economy were adopted, including a personal income tax on residents, an earnings tax on non-residents (commuters), and a series of business net income taxes. The old inequitable business gross receipts tax was rescinded. Borrow-now-pay-later long term borrowing for current operating purposes
For the second year in a row the issuance of emergency budget notes was avoided.
A planned economy program of $76 million was instituted.
Basic streamlining of the city government structure was begun under Mayor's Executive Orders.
A strong program of economic development was begun, with emphasis on building business and employment in New York City.
The Manpower and Career Development Agency was established to develop job-training programs.
The proposed 1967-68 budget totals $5.18 billion, up 12.7 percent. State and Federal aid increases provide 67 percent of the additional funds required. Normal increases in general fund revenues and real estate taxes plus transfers of unneeded balances in certain accounts provide most of the remaining increases. No new taxes are proposed.
The share of the budget devoted to debt service is down from 13.6 percent in 1966-67 to 12.5 percent in 1967-68. This continues a long-term trend. Debt service in 1956-57 was 16.7 percent.
Important new management techniques being considered in the current budget include:
Consolidation of 49 city agencies and departments into a compact set of ten Administrations;
Development of a modern planning-programming-budgeting system and decentralization of budgetary controls;
Consolidation of capital and operating budgets, and expanded long-range planning.
The relative importance of each of the major categories of revenues and expenses in the proposed 1967-68 budget is shown in the following chart.
Future newsletters will report fiscal developments as they occur, and examine other basic factors
in New York City's fiscal position.
FISCAL NEWSLETTER, THE CITY OF NEW YORK, SEPTEMBER 1967
(From Mayor John V. Lindsay, City Hall, New York, N.Y.)
The New York State Constitution provides the legal keystone of New York City's credit worthiness: Funded debt service will be met by taxes on real estate without limit. Thus, payment of debt service is unaffected by annual budget-balancing problems. Article VIII, Section 2 of the New York State Constitution requires that if the annual appropriation for debt service is not made by City authorities then they must set aside "a sufficient sum from the first revenues thereafter received" for such purposes.
A SATISFACTORY CONCLUSION TO THE 1966-1967 BUDGET STORY
When in June, 1966, the city concluded its fiscal year without invading its rainy day reserves or continuing the long standing practice of issuing budget notes to cover unforeseen expenses, observers wondered whether all this was a "flash in the pan". The answer came on June 28, 1967 when the mayor and the comptroller announced that, for the second consecutive year, the city's expense budget would be balanced without using reserve funds or issuing budget notes. This was achieved by savings of $29 million through the city's vacancy freeze program and other economies, and $12 million from increased State and Federal funds.
The city faces difficult problems in continuing the same record during the current fiscal year which began July 1. Collective bargaining settlements will create substantial budgetary overruns and the State lottery is expected to fall $35 million below the budgeted estimate of $55 million.
A fiscal plan has been developed to increase forced saving by city agencies and to seek increased State and Federal aid. Barring presently unforeseen emergencies, the city has a fighting chance under this plan to balance the 1967-68 budget without issuing emergency budget notes or invading reserves.
STABILIZATION RESERVE FUND BUILD-UP
Cash in the Tax Appropriation and General Fund Stabilization Reserve Fund was increased during the past two years from $154 thousand to $80 million. This fund was created to provide for emergencies arising from shortfalls in General Fund revenues, and to provide reserves which can be employed to minimize the need for borrowing in anticipation of real estate and other taxes.
The following table shows the cash balances in the Stabilization Fund over the past six years:
Stabilization fund cash balance as of June 30
Current available cash in the fund almost equals the highest amount in the history of the fund, which was $84.1 million as of June 30, 1960.
APPLYING THE ECONOMY BRAKES
Governmental economy in a city as large at New York is not an easy job. The momentum built into its expenditure structure can be reversed only with real determination. The savings realized to date by the present Administration since it took office on January 1, 1966 are as follows:
Lower salaries in existing positions_.
Increased accruals and savings through program reorientation; reduced absenteeism; improved methods; reduction of work groups-public works, water supply, gas and electricity, etc---
1966-67 and 1967-68-Con. Savings in lump-sum appropriations provided for new and expanded (millions) programs--
These savings were substantially greater than economies in the city's five preceding budgets.
THE CITY'S NEW TAX PROGRAM IS LAUNCHED
On July 1, 1966, the State legislature passed a new tax package for New York City. This included a resident income tax, a commuter earnings tax, a new general corporation tax based on business net income instead of gross receipts, an unincorporated business tax, a financial tax, an insurance tax, and a transportation tax. Although the city urged the State to administer these new levies since they were largely patterned on existing State taxes, the legislature gave the responsibility to the city, at least for the time being.
The new taxes were originally estimated to yield $440 million for the General Fund. Receipts, at approximately $408 million including revenue anticipation notes, fell short of estimates by about $32 million. Refunds of $15.5 million were made, and an additional $12 million reserve was established for anticipated refunds to be made in the current fiscal year.
The breakdown of 1966-67 receipts and 1967-68 estimates is as follows:
1 Exclusive of credits from rescinded gross receipts tax. Revenue anticipation notes were issued for accrued payments for 1966-67 which were collected after the close of the fiscal year on June 30.
The 1966-67 cash collections were abnormally low because of the existence of credits issued to taxpayers when the old gross receipts tax was rescinded. Cash receipts for 1967-68 are expected to be substantially above 1966-67 because most of these credits have been submitted with 1966-67 returns.
NEW YORK CITY'S DEBT PICTURE
For the bondholder, the changing picture of New York City's debt shown in Table 1 is of special interest.
The increase of $8 million in the net funded debt during the fiscal year 1966-67 is the smallest since 1960-61.
Despite the fact that there has been an increase of $100 million in Bond Anticipation Notes (to be funded into Limited Profit Housing Bonds), the total increase of $108 million in bonds issued or to-be-issued is the smallest in the last six years. This small increase is attributable in part to the current high level of bond redemptions under a policy inaugurated by previous city administrations of issuing bonds for a much shorter term than the probable life of the assets. During the last fiscal year, approximately $438 million of funded debt (including $5 million in capital notes) were redeemed.
The administration is not satisfied with the size of the total temporary debt which stood at $260 million at the end of fiscal 1966-67. However, it should be pointed out that this figure is not as bad as it would appear.
First, tax anticipation notes issued in anticipation of real estate tax collections increased approximately $36 million from $100 to $136 million, as a result of a rise in real estate tax delinquencies from 3.8 percent to 5.2 percent.
Collections of real estate tax arrears for the first 11 weeks of 1967-68, however, have been excellent. Over $17.7 million of 1966-67 tax arrears have been collected,
more than double the $8.8 million collected against 1965-66 tax arrears in the same period last year.*
Second, revenue anticipation notes (borrowings in anticipation of revenues other than real estate taxes) rose by approximately $49 million, (up from $45 million in 1966 to $94 million in 1967). A part of this increase was caused by the fact that corporate income tax payments for the second quarter of the calendar year 1967 were not due until July 15, 1967, after the end of the city's fiscal year. Under the old gross receipts tax, these payments were due May 15th. The city could have collected its business tax before June 30th but this would have been out of phase with State collection dates and would have imposed a great hardship on businesses.
Recently, steps have been taken to reduce the amount of revenue anticipation notes outstanding. As of July 31, 1967, the amount of revenue anticipation notes still outstanding was reduced to $38 million, or $7 million less than on July 31, 1966.
1Does not include $5,333,000 accrued interest due, which if applied would reduce net debt by a like amount.
Additional favorable factors which partly offset the year-end increases in temporary debt noted above are the elimination of $21 million in budget notes outstanding and a growth in reserves. (Both commented upon in detail above.) The total of all forms of debt shows only a moderate increase for 1967, at a rate below the increases in total debt in each of the five previous years. Viewed in this light, and considering the increase in reserves during the last few years, it may be said that New York City's debt picture has improved.
RECENT NEW YORK CITY BOND SALES
Table 2 reveals the interest rates the city has paid on its bond sales since January 1, 1966 and the gradual improvement that has been effected in recent months both in absolute terms and in relation to the Bond Buyer 20 Bond Index. The relatively high interest rates the city has paid are attributable to a number of factors, some temporary and some more lasting.
The large supply of bonds offered by the city is a major determinant of its interest rate. During 1966, approximately $11 billion of bonds were issued by all
*The tax anticipation notes now outstanding are against taxes which have been in arrears only a comparatively short time. Of the $136 million of New York City tax anticipation notes outstanding. $80 million were issued against taxes delinquent less than one year and an additional $25 million against delinquent less than two years. Provision is made in the current budget for redemption of an additional $15 million of tax anticipation notes. This can be used to redeem all tax anticipation notes issued to date for the years prior to 1964-65.
Steps to further improve collections of arrears are now being taken. For the first time, taxpayers will be separately billed for taxes in arrears. Current tax bills are being sent out earlier, and this should also improve future tax collections.