One of the most important monitors of New York City fiscal affairs weighed in this week with a tough appraisal of Mayor David N. Dinkins's financial plan, especially the city bonding program for fiscal years 1992 through 1996.
The New York State Financial Control Board, created to oversee the city's finances during its fiscal crisis in the mid-1970s, released a report on Wednesday saying the modified financial plan presented by Mayor Dinkins on Nov. 6 falls short of achieving a structurally balanced plan.
Such a plan would entail "permanent changes that do not require rebalancing the budget every year and consistent and complete estimates of all recurring expenditure and revenues."
One conclusion the report makes is that "the programs and estimates [in the city plan] do not provide a clear and convincing portrayal of a structurally balanced plan."
The tone of the report is of particular importance to the city because the fate of $1 billion of Municipal Assistance Corp. revenues hinges on the control board saying the city plan is structurally balanced.
Felix G. Rohatyn, the chairman of MAC, has said he would not provide the funds to the city unless the control board and bond rating agencies say the plan is sound.
While the report says the financial plan is not structurally balanced, it also notes that city officials are currently revising budget proposals and plan to unveil them on Jan. 16. This still leaves open the possibility that the city could get the MAC money.
The control board also noted that the city's recurring budget gaps are caused not only by the regional recession but also by a permanent structural gap unrelated to the economy.
The control board report estimates that the city faces even wider budget gaps than the city projected. For fiscal 1992, which began July 1, the gap could be wider by $333 million; in fiscal 1993, $505 million; in fiscal 1994; $694 million; in fiscal 1995; $913 million; and in fiscal 1996; $1.16 billion.
These projections would be added to the city's prognostications of gaps of $210 million in fiscal 1992; $1.2 billion in fiscal 1993; $1.8 billion in fiscal 1994; $1.92 billion in fiscal 1995; and $2.13 billion in fiscal 1996.
The report says it is difficult to conclude that the plan's expense projections are realistic, especially for social service costs and the Board of Education's budget, and the city's projection of "tax revenue growth will not speed up as soon nor by as much as the city predicts."
As for debt service, the report says, it "will be substantially higher than portrayed in the financial plan."
The report says that there is a "fundamental, structural inconsistency between debt service that will be created by the structure of the capital plan and the local economy's ability to support the current structure of operating services and revenues."
The control board said the city should adopt and integrate into its financial plan a debt policy that would control the size and scope of the capital program and debt service costs, which could include an annual cap on bonding. The report notes that the city is currently operating under an informal debt policy that has evolved incrementally and is not comprehensive in size.
Since 1989, the city has sought ways to reduce the amount of the increase in debt service costs that it would have to pay each year, the report says. But by doing so, the city has incurred and will continue to incur substantial costs over $300 million annually, which will have to be paid in the second half of the decade and beyond, the report notes. The increased debt service is caused in part by some of the bond refundings the city has sold, which stretches out debt payments.
And although the city slashed $2.9 billion of its own bonding from its total $67 billion capital program, which also includes about $20 billion of federal and state funds, the control board said it was not enough. Even after the cuts, the city is still slated to sell just under $4 billion in general obligation bonds annually over the next 10 years.
The capital program "remains on a trend line that will require a continuing shift of resources within the operating budget from existing priorities toward paying debt service," the report says.
The share of city tax revenues required to pay debt service is expected to skyrocket from about 15% in fiscal 1992 to about 24% in fiscal 2001, which would require about $1.7 billion of tax increases or shifts in spending away from other areas to cover debt service costs, the report notes. The control board estimated that by the year 2001, the total debt service cost of the 10-year program will be $54 billion.
