The end of the budget dance?

Despite (or maybe because of?) New York City Council Speaker Melissa Mark-Viverito invoking the specter of the “budget dance” during hearings on Mayor Bill de Blasio’s Executive Budget for Fiscal Year 2017, the recent adoption of the city budget was hailed as the end of that longstanding, if oft-reviled, annual ritual.

Funding for six-day library service, summer youth jobs and elimination of waitlists for case managers for seniors were all “baselined,” supposedly ensuring that their fate is more secure than in the past.

The cynical view of the “budget dance” is that it’s a bit of a charade – a game played between the Council and the mayor where the latter cuts, or at least fails to fund services, knowing that at the end of the day the money will be found to restore those services most cherished by the Council.

There may or may not be an element of truth to that view of the “dance” – although it ignores the many budgets where the Council and mayor were genuinely at odds over priorities – but the underlying dynamic is also an artifact of how we budget in New York City. So even when both sides of City Hall share many common priorities, there’s reason to believe this may turn out to be a temporary reprieve. The budget dance may yet rear its ugly head again.

To understand why, we have to go back to the fiscal crisis of the 1970s, when New York state imposed an Emergency Financial Control Board on the city, along with a series of practices to ensure that the city’s finances were managed more responsibly and that a repeat of that near-death experience was never repeated.

Among those practices were the creation of a rolling four-year financial plan, and of the Program to Eliminate the Gap – usually called, redundantly, the PEG Program.

The purpose of the financial plan was to ensure that the city was managing its budget with an eye toward long-term stability and sustainability of its finances (a perspective that was conspicuously lacking prior to – and indeed was arguably the main cause of – the fiscal crisis). A main objective of the financial plan was to measure and manage the size of projected future budget gaps through, if necessary, the implementation of a PEG program.

Once city agencies were ordered to implement a PEG program by the Mayor’s Office of Management and Budget, the cuts were taken not just to the current year’s budget, but were carried forward into the so-called “outyears” of the financial plan – more or less permanently reducing the agency’s budget going forward.

If the City Council objected to any particular cut in the PEG program – reductions of library opening hours, for instance, or cuts to after-school programs for youth – it could restore funding to the program – but only for one year, because the Council only has the power to appropriate funds one year at a time. The outyears of the financial plan – a document controlled exclusively by the mayor – remained unchanged.

In any other state and local government, the starting point for the next year’s budget is usually this year’s adopted budget. In New York City, however, the starting point is not this year’s budget, but the last financial plan. So even though the Council may have added back millions of dollars to an agency’s budget for the current year, when it comes to considering next year’s budget, that money, in effect, disappears from what is considered the agency’s “baseline.”

This year, however, saw a reversal of the usual pattern of PEG programs, with funding increases for several Council priorities “baselined” – that is, included not just in next year’s budget, but also in baseline agency budgets for future years. In theory, this means the Council and the mayor will not have to perform the ritual next year or in future years. So is the budget dance over?

The problem comes if – when – there is an economic downturn, and the city is forced to cut spending through what is now known as the Citywide Savings Program in order to balance the budget, as it must by law. Beginning even prior to the official start of the Great Recession in the spring of 2008, the Bloomberg administration ultimately implemented no fewer than 12 rounds of cuts through a PEG program between then and 2012. Each year, holes in the budgets of the public libraries, the Department for the Aging, Cultural Affairs, and other agencies grew deeper and deeper, because the cuts were not taken against the current year’s appropriated spending levels but rather against ever-lower baseline budgets as the city moved into successive years of the financial plan.

De Blasio and Mark-Viverito seem unlikely to engage in the cynical version of the budget dance. But regardless of motives, in the Alice in Wonderland world of the New York City budget, the budget dance is almost inevitable. If the economy slows and the city is forced to begin making serious budget cuts, the dance will begin again.

Preston Niblack is a senior advisor in the New York City government affairs division of Manatt, Phelps and Phillips, LLP. He is a former director of the New York City Council Finance Division.