Five ways to modernize New York City’s fiscal and operational management
New York City is at an inflection point, like during the 1970s fiscal crisis, after 9/11 and even during the crack cocaine epidemic. Despite some bright spots — total employment has returned to prepandemic levels, some recent crime increases have abated, and tourists have returned — negative signs cast a shadow over the city’s prospects.
The Citizen Budget Commission’s Straight From New Yorkers resident feedback survey shows that New Yorkers’ assessment of the city’s quality of life, public services and public safety is not positive. In 2023, only 30% rated quality of life as good or excellent and just 37% rated public safety in their neighborhood as good or excellent, both declining from a 50% positive rating in 2017. Even grading on a postpandemic curve, these numbers do not bode well for New York.
History teaches us to be optimistic. Time and again, New York rises and thrives because its advantages — dynamism, density and magnetic ability to attract people and talent — align with the human spirit and the aspiration to create opportunity and growth. But this is not a guarantee of future success. Good public policy and management are needed for New York’s value proposition to hold. New York is and always will be expensive, which residents will tolerate if they have a high quality of life, opportunity and value for their taxes. For this, government needs to be a stable, efficient and effective provider of needed services. Fiscal stability is the bedrock of government’s ability to serve people in good times and bad.
Unfortunately, the City’s fiscal stability is currently threatened and its service quality wanting. Despite strong revenues, New York City faces budget gaps that may reach $14 billion in a few years. Reported budget gaps (in the Executive Budget) of $5.5 billion understate the problem in part because $2.2 billion needed to fund ongoing programs simply is not in the budget. Furthermore, nearly half of the potential fiscal stress comes from two laws passed without funding plans: the New York State class size reduction law, which may require hiring 10,000 teachers, and the expansion of eligibility for City-funded housing vouchers, enacted by City Council override of a mayoral veto.
The City has consistently increased spending beyond its means and failed to increase operating efficiency.
Service quality also is suffering. In our 2023 survey, only 24% of New Yorkers rate government services as good or excellent, dropping from 42% in 2017. City data show the cash assistance timeliness rate plummeted to 28.8% from 82.3% the prior year; the time to prepare public housing apartments for rerental increased from 268 to 451 days; and there were delays in filling supportive housing units. While some other indicators were moving in the right direction, these are troubling trends indeed.
The sources of the problem
How did we get here? The City consistently increased spending beyond its means and failed to increase operating efficiency. Riding a strong economy for most of its eight-year term, Mayor Bill de Blasio’s administration repeatedly increased spending with little attention to efficiency and cost-effectiveness. Then, it used temporary federal COVID aid to expand public programs, creating fiscal cliffs.
Mayor Eric Adams’ administration deserves some credit for efforts to restrain spending. Still, City-funded spending is increasing 5.9% annually, a total of $13.7 billion from fiscal years 2022 through 2025 — and more if the underbudgeted $2.2 billion is added. Not to be ignored, the administration has been handed the incredible challenge of more than 200,000 migrants and asylum seekers arriving since 2022. Providing shelter and services is projected to cost $3.4 billion in City funds in fiscal year 2025. Still, even without asylum-seeker expenses (but accounting for the underbudgeting), City-funded spending currently is projected to grow 17% over the three years.
While the administration touts its mantra to “get stuff done” and advocates for efficiency, only 20% of its savings plans are attributable to efficiency increases. It also failed to include any efficiency improvements in the collective bargaining agreements it negotiated with 95% of City workers.
In fairness, prior administrations have also often funded new priorities without shrinking previous commitments. Productivity has often been discussed, but few major efforts have been realized. And the City Council shares responsibility for increasing spending beyond what is sustainably funded over time, often by proposing and advocating for new and expanded programs without offering or pushing for offsetting savings.
What is to be done
Facing this impending reckoning, New York City must ensure it is fiscally stable and uses its resources efficiently and effectively. This will improve the value proposition: better services at lower costs, investing in the future and supporting economic growth.
Five structural and cultural improvements to how the City manages its finances and operations would greatly enhance its long-term stability and value proposition.
One: Tie budgeting to a robust performance management system. New York City’s budget generally allocates dollars based on the previous year with increases due to costs of labor and contracts, inflation, identified “new needs” for program expansions or initiatives, and administration priorities. This often ignores whether the funds effectively and efficiently address New Yorkers’ needs. Just because a problem is significant or persistent does not mean current programs are effective, or should be expanded or augmented.
Instead, budget allocations should be heavily informed by a robust, comprehensive performance management system that measures the efficiency and effectiveness of programs, identifies programmatic problems, facilitates solutions and supports executive leadership and public accountability. Data would show which programs are more and less cost-effective, informing decisions about allocating funds or implementing savings plans.
Creating such a system can prove challenging and may take resources. However, successes exist broadly, as the Citizens Budget Commission highlighted in a report entitled “It’s Time for New York State to Heed SAGE Advice on Performance Management.” Specific New York City agencies have already pointed the way, including the Police Department, with CompStat, and the Health Department, with its Quarterly Program Reviews.
This system should include a management review and accountability process supported by robust performance measures. Current City efforts have benefits but are inadequate. There is no standard review process, and, for example, indicators in the Mayor’s Management Report (MMR) often exclude outcome, quality and efficiency, and instead focus on simple process and some more valuable output measures.
Structured, regular performance reviews where leaders, managers and line staff analyze and discuss performance measures and initiative implementation benchmarks are critical to success.
Performance data should include the portfolio of measures needed for a comprehensive assessment. For each function, there should be quantifiable goals and measures of: inputs (dollars, contracts, personnel); processes; outputs; outcomes (the impact or changes expected); quality; and efficiency (often unit costs — output or outcome divided by resources).
Two: Elevate efficiency and service quality in collective bargaining. Approximately 95% of City employees are represented by labor unions, and collective bargaining agreements generally serve as the foundation for salary increases even of most nonrepresented employees. Primary drivers of the City’s collective bargaining strategy are the Office of Labor Relations’ (OLR) interest in defining and preserving the “pattern” of raises and other contractual elements, and the Mayor’s Office of Management and Budget’s (OMB) interest in identifying and controlling the fiscal impacts of specific agreements and the pattern.
Despite being essential to the city’s value proposition, service quality and efficiency are not a primary focus. And so, changing work rules and narrowly defined job titles to increase flexibility, innovation, efficiency and quality rarely play a substantial role in negotiations.
Instead, the City should prioritize and propose contractual changes that increase efficiency and quality. This requires deep knowledge of agency operations and should be the product of collaboration among operating agencies, OLR, OMB and the Mayor’s Office of Operations. This would be most effective if a single office were charged and resourced to be the central expert on agency operations and to drive performance excellence.
Fiscal stability is the bedrock of government’s ability to serve people in good times and bad.
Three: Strengthen the requirement and focus on fiscal impacts and consider “pay-fors” when debating and enacting legislation. By state law and the New York City Charter, New York City must adopt a balanced operating budget annually, update it quarterly and produce a four-year financial plan. Sometimes, however, bills are proposed and laws adopted that have major budget ramifications, despite occurring outside the budget process. Unfortunately, the ensuing debate regularly ignores how the program will be paid for.
Fiscal impact statements — though required by the City Charter before a vote on a local law or budget modification — rarely are available until just before the vote of the whole Council. That leaves no time for substantive debate about costs and potential funding offsets. Even when available in a timely fashion, fiscal impact statements rarely spark debate about the inconvenient truth of affordability.
To facilitate awareness and debate about the cost of proposed legislation, fiscal impact statements should be required earlier, perhaps at bill introduction or at least sufficiently prior to a committee hearing. Additionally, strong consideration should be given to whether fiscal impact statements should include a “pay-for” — a proposal to “fund” new spending with other reductions or locally controlled revenues — akin to what sometimes is required in federal budgeting. The City also would benefit if Council leadership took steps to change the culture of policy debate and adoption to more strongly consider long-run fiscal stewardship, perhaps requiring Council committees and the Council budget negotiating team to always address future fiscal impacts when debating policy.
A glaring example is the City Council’s passage and mayoral veto override of four bills to expand eligibility for the City’s Family Homelessness and Eviction Prevention Supplement program (FHEPS). While the Council’s own fiscal impact statement showed the expansion would cost $10 billion over five years, it ignored the statement, issuing one press release about other estimates showing lower costs or savings and another about its veto only highlighted the savings, writing that “fiscal cost analyses … projected that the bills would save the City over $730 million in costs from homelessness and its various impacts on New Yorkers.”
Four: Provide agencies flexibility and incentives to manage their budgets and headcount to improve quality and reduce costs. Hiring public employees comes with a cost — not only the current salary, but benefits paid outside agency budgets and long-term obligations. This sometimes has led administrations to tightly control the allocation of headcount and agencies’ ability to hire. From their vantage point, agencies naturally feel headcount is especially precious, so they see giving up a potential employee slot, even if not a priority now, as a major loss.
Additionally, agencies may face perverse incentives regarding efficiency and quality. Often, increased efficiency can result in an agency’s budget being reduced over time. Conversely, quality lapses sometimes result in an agency receiving additional funds to correct the failure. Over the long run, all this helps create a culture where failure is rewarded and success punished.
Instead, the City should develop two alternative management approaches:
- Agencies should be allowed to freely hire within their budget and headcount allocations. To address concerns about centrally borne costs for fringe benefits and long-run obligations, the City should devise a system that essentially charges agencies for those costs if they are above expectations, and conversely rewards them if they are below. The City should reduce headcount overall, but give agencies flexibility to move vacant positions to where they are needed.
- Concurrently, reforms should focus on providing incentives for agencies to make long-run structural improvements. For example, agencies should be allowed to reinvest all or part of efficiency savings, analogous to collective bargaining gain-sharing. Also, when OMB gives agencies dollar or percent targets for savings programs, agency savings proposals that reduce headcount or increase efficiency could get some “extra” credit toward their target, incentivizing those approaches.
Five: Deploy capital dollars efficiently to invest in basic, resilient and growth infrastructure. The City has enormous capital needs — both to keep its current infrastructure in a state of good repair and to address new and emerging needs. The City’s 10-year capital strategy now exceeds $170 billion, up from $100 billion just seven years ago.
However, the City has been plagued with cost overruns, myriad project scope changes, project delays and delayed vendor payments. Fortunately, the City’s Capital Process Reform Task Force proffered important improvements that should improve planning, procurement, execution, change orders and payment speed. Bad examples abound, from ideas as sensational to a $2.3 million park bathroom to the City building new schools while nearby schools have empty seats.
The City should implement a comprehensive needs assessment, improve integrated planning and prioritization; benchmark against other jurisdictions to assess costs; regularly analyze life-cycle costs including maintenance and operating expenses; and implement processes to consider operational alternatives that reduce capital needs. This all should be directed toward ensuring that the City prioritizes investments that maintain critical assets in a state of good repair.
Conclusion
As leaders chart the city’s future, they must ensure that the cost-effective measures are pursued, those with lower value are not, and the City remains stable. Fiscal stability is not just some wonky ideal; it underpins New York’s ability to help those in need and thrive. Structural and cultural changes that promote fiscal sustainability and service and management quality will help New York and New Yorkers thrive and keep the city’s value proposition attractive to individuals, families and businesses.