CITY BUDGET INFO

EPP ALERTS
2005

The Mayor’s Funding Recommendations
For the 2005-06 School Year

Expense Budget: On January 27, 2005, the Mayor released his Executive Budget. His funding proposal for the public schools was similar to his previous education funding proposals: no major cuts, but no major increases. For example, the current baseline budget for the 2004-05 school year is $5.583 billion in city funds and for the 2005-06 school year it is $5.618 billion, an increase of $35 million. This is slightly above one half a percentage point.

When all funds are combined (city, state, and federal) but pension contributions, debt payments, and legal judgements against the DOE are excluded, the 2004-05 adopted budget of $13.048 billion is expected to increase to $13.603. City funding will represent a 40 percent share of this estimated amount. Year to year, fringe benefits are expected to increase by $496 million.

The growth in fringe benefit costs is a good example of why "flat funding" for public education results in cuts at the school level. While pension contributions are outside the agency’s budget, fringe benefit costs are not. City, state, and federal contributions to education fund the payment of fringe (mostly health insurance). The growth in state and federal funding has kept pace somewhat with these cost increases, but city funding has not. After DOE meets these increased employee costs, very little is left over for other purposes. So every new initiative, if not funded by federal, state or private sources, has to be funded out of a shrinking pot of funds.

Recent Budget Actions: The Executive Budget not only provides estimates of next year’s funding levels, but also budget changes that have taken place since October. There has been an $84 million increase to the DOE budget, almost half of which comes from increases in special education funding for students in private schools ($23.9 million for contract schools and $17.7 million for Carter Cases). Re-estimates of FICA, health insurance, and fuel costs as well as the number of students enrolled in charter schools, and other adjustments constitute the remaining changes. To get more details, go to the bright green box on the lower left side of EPP’s home page, "Other Helpful Web Sites," and click on "more budget info" which has a link to the city’s Office of Management and Budget web site.

You will notice that the "Agency Details" for DOE reflect a lot of changes in "Units of appropriation." These changes for the most part reflect the new structure of DOE in that community school district and the high school district budget lines have been combined.

Some news reports have cited "cuts" to Teacher’s Choice (supplies) and Class Size Reduction (a city contribution to a much larger state and federal program). Technically, what this means is that these amounts, negotiated by the City Council, were not included in the agency’s budget for next year, so the City Council once again has to fight to include them.

Capital Budget: As with other reports about "cuts," the reduction in the city’s capital funding for schools is subject to interpretation. When the Mayor and the Chancellor presented their $13.1 billion, five-year capital plan, 50 percent of it was to be funded by the state. Only the NYS Assembly supported this funding request in its one-house budget bill. The NYS Senate, in contrast, merely allowed the city to borrow sufficient capital funds through its Transitional Finance Authority.

The $13.1 billion capital plan was to be funded by a yearly contribution of $1.3 billion from city borrowing and $1.3 billion from state borrowing. The January Executive Budget shows that the city plans to borrow $1.3 billion this coming fiscal year.

EPP had hoped that the city would provide more of its own funding for the capital plan in the first few years in the likelihood that there would ultimately be a resolution to the CFE court decision in future years. Under this scenario, the state would largely fund the capital plan towards the end of the five-year period. A 50-50 funding scheme for a capital plan does not require an equal contribution each year. The Executive Budget clearly shows that the city will not adopt this riskier funding strategy.

What does this mean? EPP’s analysis of prior cuts to the capital plan for the schools shows no clear pattern. Surprisingly, when past mayors announced cuts, capital spending sometimes increased. At other times, spending decreases were larger than the announced cuts. Much depends on projects that are nearing completion and how many new projects are begun.

EPP’s understanding is that there were close to $2 billion in capacity projects that were near execution, so a reasonable expectation is that about $700 million worth of projects will be delayed. Leasing new space is a promising strategy, because fewer capital funds are needed. On the other hand, more leasing puts additional stress on DOE’s expense budget.

An additional problem is the city’s ability to borrow. The Citizens’ Budget Commission and the NYC City Council estimate that the city has the capacity to borrow only an additional $1 billion under the state constitution, which places limits on municipal debt. So currently, the maximum that the city could borrow for the schools’ capital plan would be $2.3 billion, and this would mean no other additional capital funds to meet other agencies’ needs.

Every year the city’s debt limit is recalculated based on the value of real property. The city, however, does have a way to get around the state constitution. Under Mayor Giuliani, the Transitional Finance Authority (TFA) was created that allows the city to pay bonds holders with revenue from personal income taxes. TFA borrowing carries lower interest rates, but TFA is at the limit of its authorized borrowing levels. The Senate and most recently the Governor, recommend that the TFA be given additional borrowing authority. What this means, however, is that they want the city to fund the entire schools’ capital plan.

The State Budget: EPP has received a lot of positive feedback on Dr. Joan Scheuer’s commentary on the Governor’s Executive Budget, posted on EPP’s web site (Edpriorities.org). By February 4th, EPP will post our analysis of the details of the Governor’s budget recommendations for education along with updates, if necessary, on city funding.
 

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