Michael Bloomberg has prided himself throughout his tenure on his fiscal prudence, an integral aspect of his image as the CEO mayor. But as he prepares to leave office at the end of next year, another of his governing principles, ambitious investment in infrastructure and major capital projects, is bringing record levels of debt to the city, leaving billions in loan payments to future administrations.
City debt and other commitments are poised to shoot up from $54 billion as of last July to an all-time high of $73 billion in mid-2011, according to city numbers.
“It’s already much too big, and it certainly reduces our flexibility when you run into a budget crunch,” Nicole Gelinas, a senior fellow at the conservative Manhattan Institute, said of the debt.
Now, as the City Council considers Mayor Bloomberg’s budget submitted earlier this month, with more than $11 billion in proposed capital commitments for the next year, payments on debt service are rising well above inflation at a rate of almost 10 percent a year, according to the city’s Independent Budget Office. Taken with a slowing economy and perhaps falling tax revenues, the increased debt costs could leave future office holders with a shrinking pie of uncommitted money in the budget to move around as they please in the post-Bloomberg era.
“There’s no question that the next set of city leaders face straitened circumstances,” said Councilman David Yassky, a candidate for city comptroller. “The big picture is that we’ve added to the city’s debt enormously and in a way that will reduce the ability of future city governments to pay for police, firefighters and teachers and other operating costs.”
Mr. Yassky suggested that the problem hasn’t yet received the attention it deserves. “I don’t think there’s a general appreciation for how much debt the city’s taken on in the last few years, and there’s absolutely cause for concern,” he said.
The bulk of the money for capital projects, which include expansions and repairs on city infrastructure and buildings, comes from loans, as the city pays for the projects over the long term in the form of debt payments.
The high level of city borrowing at the end of Mr. Bloomberg’s tenure—this year and the proposed budget for next year call for over $20 billion in city spending commitments on capital projects—spreads the cost for the capital projects to future administrations. Yearly debt payments are expected to reach about $6 billion by 2012, up from the $4 billion-plus spent in much of the mayor’s first term.
There has been little in the way of political fuss over the debt spending, which has gone to fund popular, unopposable necessities such as new schools, transportation infrastructure and park improvements. What’s more, two of the three leading potential Democratic mayoral candidates, Council Speaker Christine Quinn and City Comptroller William Thompson, will have little interest in griping about debt payments: Ms. Quinn’s blessing is needed to pass the annual budget, and Mr. Thompson, as the city’s fiscal monitor, has not taken a strong public position either way on the rising debt.
But fiscal monitoring groups have raised concerns over the rising debt. They generally support the increased attention to aging infrastructure, and are careful to say that the problem hasn’t reached crisis proportions yet. But they also warn that the rising cost of debt payments will take up an increased, untouchable portion of the annual budget, especially if tax revenues decline.
“It pinches the budget because debt service comes out of our day-to-day expenditures,” said Doug Turetsky, a spokesman for the Independent Budget Office, which is not managed by the mayor’s office. “As the economy slows, tax revenues fall off, this becomes tighter.”
Charles Brecher, executive vice president at the Citizens Budget Commission, said that the city should take a more rational approach to the capital budget, which drives the debt, making sure that investments in economic development projects are indeed worth the money.
“It makes some sense to think about how to prioritize within the capital budget—it’s been growing, and there is a need to get a little more of a handle on that in terms of making sure that all the capital investments are justified down the road.”
The Bloomberg administration acknowledges that the capital budgets have swelled, a product of the city’s emphasis on infrastructure. With debt growing and the economy slowing, the city cut back annual commitments by about 20 percent in its capital budget proposed earlier this month, spreading the four-year capital program over five years.