FINANCIAL PROBLEMS OF THE CITY OF NEW YORK

Paper Read Before the State Tax Conference, Held in Albany, January 21, 1915

In a short statement it is possible to touch on only a few of the main features of New York City's financial problems. This paper is therefore confined to a brief consideration of the city's debt, the increasing annual cost of running the government, how the annual expenses are to be met, and what is the financial outlook.

The City's Debt

On January 2d, New York City's gross debt (other than short-term or demand loans against revenue) was $1,430,069,813. Against this gross debt there was a sinking fund reserve on the date taken amounting to $349,237,622, consisting principally of the city's own bonds which had been purchased by the sinking fund. This setoff, in effect, reduced the principal of the funded debt to something less than $1,000,000,000. But it did not reduce the need for revenue, for the reason that the bonds held in the sinking fund also bear interest and the interest of the total funded debt, including issues held by the sinking fund, must be taken out of each year's revenue the effect of the sinking fund being only to provide for meeting the principal when due.

The gross debt of the city is of two kinds: the "funded" debt and the "unfunded" debt. On January 2d, $1,307,020,221 represented the "funded" debt and $123,049,562 the debt which was not "funded." This "unfunded" debt was made up of

Land liabilities, estimated at

Contracts for various municipal purposes..
Street improvement fund obligations......

Rapid Transit contracts.

$13,147,484 00

10,948,477 00

3,236,272 00

95,717,359 00

Of the total debt ($1,430,069,813), $296,564,857 have been incurred for

what is called "self-supporting" projects:

$1,010,455,365 of the amount outstanding was for "non-self-supporting" projects of which $19,010,537 was for county purposes and the remaining $991,444,821 was for city purposes, returning little or no revenue. If there be deducted from the gross debt of the city an amount held in the sinking fund (that is $349,000,000) as well as the debt for so-called debt of the city other than that incurred for "self-supporting projects.(1)

The annual charge for interest, sinking funds and debt redemption for 1914 amounted to $52,611,517.65, and the amount appropriated for 1915 is $59,832,381.04. These amounts did not provide a dollar for service to the public. This is simply the cost of the present financial policy-the annual charge growing out of methods of financing past expenditures.

Annual Cost of Running the Government

The total expenditures authorized in the tax budget for 1915 which are to be met by general revenues is $198,989,786.52. For 1914 the figure was $192,995,551.62, a net increase of $5,994,234.90.(2)

These amounts may be analyzed as follows:

Attention is called to the fact that the amount actually appropriated for 1915 ($198,989,786.52) is not sufficient to meet squarely the financial demands of the year, and the amount of the net increase of the 1915 budget over that for 1914 ($5,994,234.90) does not correctly represent the increases of expenditures which should have been provided for.

It will be noted that the 1915 budget carries no appropriation for borough assessments and none for state taxes. The omission of the appropriation for borough assessments from the budget does not eliminate it from the tax levy. The omission of an appropriation for state taxes is due to the unsound state financing, the result of which has been to levy no direct tax in 1915, although a direct tax was levied for the three previous years the city's portion of which amounted respectively to $4,576,000 in 1914, $7,947,000 in 1913, and $4,301,000 in 1912.(3) If the state had levied a tax for 1915 equal to the average of three years previous and if the special assessments upon boroughs for borough improvements had been included in the 1915 budget, the amount of the 1915 budget would have been at least $205,000,000, and the amount of the in

(1) What are called "self-supporting" bonds are those exempted by the court from the constitutional limitations on municipal indebtedness.

(2) These amounts include only appropriations for expenditures from the general fund. Other costs such as maintenance, improvement, and extension of water supply, Brooklyn," pensions, and the larger part of the requirements of the sinking funds are met from revenues set aside by law for "special" purposes.

(3) The amount for 1916 will be approximately $14,000,000, unless the governor

crease over the 1914 budget would have been at least $12,000,000 instead of $6,000,000.

Appropriations for State Purposes

The amounts included in the New York City budget for state taxes are only the amounts of direct taxes imposed by the state upon the city. The total amount of taxes received by New York State in 1914 was $44,500,000, of which the direct taxes amounted to only $7,700,000, or a little more than one-sixth. New York City pays about seventy per cent. of the direct tax levied by the state and it is estimated that it stands nearly eighty per cent. of indirect taxes, so that the total cost to New York City of the state government (excluding counties) was about $34,000,000.

The direct state tax is an item of the budget over which there is no local control. For the year 1915 there is to be no state tax levied. This is due, in part, to reduced expenditures at Albany, in part, to the use of surpluses in various fund accounts. It is also due in part to the questionable practice of using proceeds of the inheritance tax ($11,000,000 in 1914) to meet current expenses. The inheritance tax is not a levy on the income of the community as are other taxes; it is an appropriation by the state of a part of the community's capital; it is a method of ex-propriating private property for public use. This tax, therefore, should be used for public improvements to relieve the state from borrowing, and not to relieve other persons from paying taxes for current expenses of government. If it had been used for the making of public improvements, there would of necessity have been direct taxes for all past years and the necessity for direct taxes for public improvements and sinking. fund would have been reduced for future years.

Appropriations for County Purposes

Appropriations for county purposes were increased from $6,630,165.66 to $7,033,716.82. This is an increase of $403,551.16, or 6.09 per cent. There are five counties now included in New York City, Bronx County having been recently carved out of New York County. The increase for Bronx County amounts to $425,712.78, which is about $22,000 more than the net increase in the total appropriation for county purposes. The increase of 1915 over 1914 is largely due to inadequate appropriations last year, as 1914 was the first year after Bronx County was established, and the supply appropriations for 1914 were nominal only, being supplemented by funds obtained from the sale of special revenue bonds.

The net effect of having set up a separate county government for The Bronx has been to increase the cost of county government several hundred thousand dollars each year. In 1913-the year previous to the division-the appropriations for New York County, including The Bronx, amounted to $3,883,271.67. In 1915 the appropriations for the two counties amounts to $4,515,220.87, an increase in two years of $632,000, or 16 per cent. On this basis the consolidation of the county governdollars annually, to say nothing of the advantage of simplification of administration.

The decrease in appropriations for New York County was $90,597.93, the increases for Kings, Queens and Richmond counties were, respectively, $46,572.21, $15,249.74, $6,614.36.

Borough Assessments

The item borough assessments represents portions of the costs of public improvements assessed upon boroughs rather than upon more limited areas or upon the city at large. The only year in which this item has appeared in the budget was the year 1914, when there was an appropriation of $520,015.06 for this purpose. The omission of this item in the 1915 budget means no reduction in expenses. The amount of the borough assessments to be met in 1915 is approximately $950,000.

Deficiencies in Taxes

The increase in appropriations to cover deficiencies in taxes amounts to $3,612,092.44.

Section 248 of the charter provides that the board of estimate and apportionment shall annually raise and appropriate a sum sufficient to meet the deficiencies of taxes as ascertained up to the January preceding the date when the annual appropriation bill is made. In other words, if the law was complied with, each budget would include all of the ascertained deficiencies up to the prior January.

This provision of the charter has not been complied with. The appropriations to cover deficiencies in the last seven years (since the passage of the act) have varied from $2,300,000 to $10,000,000. In no case has the appropriation correctly represented the actual or estimated deficiencies not otherwise provided for.

One of the difficulties in getting at the amount of deficiencies (even as far back as the year prior to the time the budget is made) is the continuing controversy over certain questions having to do with special franchise taxes and the difficulty of determining when personal and other taxes are uncollectible.

In the year 1914 the estimated amount required was $5,319,042.28. Instead of this amount being appropriated, however, an allowance of $2,500,000 only was made, with the result that there remained unprovided for an estimated amount of $2,819,042.28. This deficiency in the appropriation for 1914 was largely responsible for the increase in the appropriation for 1915. The amount in the first tentative budget for the year 1915 was $8,200,000. The amount appropriated $6,112,092.44..

Debt Service

was

Under the title of "debt service" are included the appropriations

for the following purposes: