Angry New Yorker

Wednesday, May 18, 2005
The Myth of the Uncontrollables

Mayor Bloomberg, and many others in state and city politics, often point to the state and city's fixed expenses - health insurance, Medicaid, debt service - primarily in explaining away why spending can't be curbed. But the Citizens Budget Commission in a report release last week, Four Ways New York City Can Take Control of Its Financial Future and Save $2.5 Billion per Year, available here [PDF], that there are actions the mayor and city council can take to reduce these fixed "non-discretionary spending" expenses. The CBC's four proposals are:
  1. Reduce Pension Costs - by bringing pension contributions more in line with the private sector and requiring employees to contribute something. Its already been noted many times that New York's government pensions are exceeding generous by any measure.

  2. Reduce Health Insurance Costs - which would save $1.2 billion a year by sharing "the cost of health insurance premiums with workers by requiring 10 percent for individual policies and 20 percent for family policies. Retirees should be required to pay 50 percent of their health insurancepremiums, and the City should stop paying for their Medicare Part B premiums."

  3. Reduce Medicaid Costs - Soaring Medicaid expenses are the 800 pound gorilla in New York politics, yet little has been done to date, other than appointing commissions to figure out what can be done. As the CBC notes "[i]n fiscal year 2005 New York City’s local share of Medicaid will cost an astounding $4.8 billion and consume 14 percent of locally-raised revenues. Based on State policies, the City projects that its Medicaid costs will grow to $5.3 billion by fiscal year 2009" and it suggests that the city limit eligibility loopholes, pay only competitive costs to hospitals and nursing homes, introduce more managed care participation, and limit excessive personal care services.

  4. Reduce Debt Service - by 1) refinancing to convert high-interest debt to low-interest debt; 2) by reducing capital spending or building more efficiently; 3) by paying off debt already issued, thus eliminating future repayments. The recent surprising, and somewhat inexplicable, higher bond rating granted by S&P earlier thi week should help in these efforts. But the issuance of debt to pay operating expenses should immediately end.
The CBC report concludes:
These four proposals would yield the following annual savings in fiscal year 2009:

 Pension Reform $549 million
 Health Insurance Reforms $1,197 million
 Medicaid Cost Containment $454 million
 Debt Service Reduction $290 million

 Total Savings $2,490 million

The total savings of nearly $2.5 billion would leave the City with a much
smaller budget gap or permit investments in other needs. (See Table 4.)
Confronting the myth of “uncontrollable” budget items head-on is vital to
the City’s financial future.

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