The Mayor’s Savings Mirage

On January 20, Mayor de Blasio presented his $95.3 billion preliminary budget for the 2021 fiscal year that begins on July 1 as well as updated data on the budget for the current fiscal year. He noted that the Office of Management and Budget (OMB) and city agencies had found enough cost savings to completely offset the “new needs” spending included in the preliminary plan. The mayor praised this as an especially significant accomplishment since so much work has gone into finding savings in the administration’s prior budgets and the low-hanging fruit had already been picked.

Really? To channel former President Clinton, whether you think the savings plan is a success depends on what the meaning of “savings” is.

There is no question that Budget Director Melanie Hartzog and her staff take the effort to find efficiencies and improve government operations seriously. OMB’s city-wide savings unit provided a detailed description of the planned savings by agency. But even a casual review of the report reveals that most of the claimed $713 million “savings” over two years is in fact lower than projected interest on city debt and increases in revenue, not lasting cost savings achieved by cutting agency expenses. 

Debt service reductions are the largest “savings” in the current fiscal year ($129 million) and were also the largest element in the savings plan totaling $474 million that was presented this past November. It is good news that the cost of borrowing continues to be lower than anticipated, but that is mostly a product of economic and market conditions, rather than an accomplishment of city administration. It would be more appropriate to apply savings in interest costs to paying down the city’s heavy outstanding debt than to use it to increase operating spending.

Another large category of claimed savings is actually new revenue. Most if it comes from collecting more reimbursements from the state and federal governments – called “reimbursement re-estimates.” This is money that is supposed to have paid for services already being delivered and should be used to offset those costs, not fund new programs. The plan also includes millions of dollars in higher fees and collections such as ambulance charges, elevator inspection fees, summons collections, as well as revenue from litigation settlements. If more money can be obtained by better enforcement of fines, fees, and penalties, that’s great (not everyone would agree), but that is not savings. Nor is moving costs from the expense to the capital budget, which is also included in the savings plan. 

Some initiatives in the savings plan can truly be characterized as improvements in agency operations that optimize efficiency. But the number of these efficiencies to be achieved and their total dollar value are very small relative to the total value of the overall plan. Many of the initiatives are in the Department of Education, where reductions in the costly absent teacher reserve will save $39 million in unnecessary salaries, and there will be cost reductions in food service contracting and professional development.

Other promising efforts include trying to save on city phone service (to be overseen by DoITT), merging two divisions of the Department of Health & Mental Hygiene, and installing new upgraded software at CUNY. But the largest efficiency measure in the plan, $55 million in recurring procurement savings, is likely a placeholder to build up the savings total, not a real expectation of savings, since specifics of the reforms and how they will be implemented is not explained. 

There is nothing wrong with saving city dollars through lower debt service, collecting more fines and fees, and getting the federal and state governments to provide more reimbursements. All of these things should be done; indeed they should be regular, ongoing efforts of city government that reduce the costs of current services.

The problem is in treating them as offsets to more spending, when most cannot be expected to recur, while the new spending will continue into the future and be incorporated into future years’ budgets. Meanwhile, the City Council will surely want to add more “new needs” to the budget for next year — the mayor may also have some of his own — and it appears that additional expenses due to cost-shifts from the state may well have to be absorbed. More real, significant, and sustained savings in city government are needed.

This post was originally published on February 4 by Gotham Gazette.