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Manhattan Institute

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Small Change


Small Change

April 19, 2002

THERE are a whole lot of ways to close a $4.9 billion gap in a $40 billion budget, as Mayor Bloomberg demonstrated once again this week. He wants to balance the budget without imposing economically devastating tax hikes.

But that will ultimately hinge on whether he can put the brakes on school spending - which rose sharply under that mortal enemy of the education establishment, former Mayor Rudolph Giuliani.

The city-funded portion of the Board of Education's nearly $12 billion budget makes up a full third of what Bloomberg deems "controllable" spending. (That's what's left after you exclude items such as debt service, pension benefits, state-mandated Medicaid and welfare outlays.) If the board isn't forced to cough up the savings the mayor has demanded, he'll have to make bigger and deeper cuts in other areas - some of which had leaner budgets to begin with.

The City Council has made education the focus of its budgetary counter-strategy: It demands an income-tax hike to leverage billions of dollars in new school capital spending. And state Assembly Speaker Sheldon Silver threatens to prevent a mayoral takeover of the school system unless Bloomberg leaves the Board of Ed's budget alone.

BUT all those headlines about Bloomberg's school "cuts" are actually referring to reductions in the baseline - spending's upward flight path if left on automatic pilot. In fact, while Bloomberg wants to trim that baseline by $358 million, the Board of Education's total operating expenditures would still rise by $79 million in 2003.

Add in debt service and pension fund costs, and the mayor's proposed school-budget hike rises to $382 million.

That's right: the Board of Education will still have more money to spend next year than this year. (Under the mayor's doomsday "contingency" budget, it would have a little bit less.) This, despite the city's nearly $5 billion budget gap - which stems at least in part from a global economic downturn, a horrendous bear market on Wall Street and the destruction of the World Trade Center.

To be sure, school spending won't keep pace with inflation. But a nominal increase is not at all bad under the circumstances. The city's public schools spend more per pupil than 45 states and 94 of the nation's 100 largest school districts, according to the latest federal statistics. And inflation-adjusted K-12 spending will remain near an all-time high even under Bloomberg's worst-case budget scenario.

As shown by the chart, real per-pupil spending in the city's public schools has closely tracked the performance of the city's economy: It rose during the late '90s economic expansion, after dropping steadily earlier in the decade.

In fiscal 2001, it hit a record of nearly $10,700 per pupil (a figure that doesn't even include all the debt-service and pension costs ultimately attributable to the Board of Ed). In fact, real per-pupil spending under Bloomberg's budget in fiscal 2003 will be 9 percent above the Dinkins-era high-water mark - and a whopping 54 percent above the level of 1983.

Next year's figure includes the cost of a 27-month contract incorporating a 9 percent pay increase for the city's public school teachers - who've been working without a contract for almost two years because they have demanded more than twice as much as the city offered.

WHICH brings us to the real point of the school-spending debate: This fight is not, as some pious political rhetoric might have it, about "the children" or "investing in our future." It's about financing a generous contract settlement for the United Federation of Teachers, part of Albany's most powerful lobbying group and a key player in last year's City Council elections.

The Board of Ed's baseline budget trend is rising faster than the city can now afford for two main reasons:

* The school system added more than 13,000 staff members in the last five years (even while enrollment growth was flat), and

* Teacher salaries and benefit costs are rising at two to three times the rate of inflation.

If Bloomberg agrees to a state labor panel's non-binding recommendation for a 15 percent teacher pay hike, the board's labor costs will rise by another $330 million, increasing pressure on Chancellor Harold Levy to further reduce the staff headcount unless the state comes up with the difference.

DESPITE the city's very real fiscal crisis, the City Council and Assembly Speaker Silver essentially are trying to pressure Bloomberg into repeating David Dinkins' biggest mistake - raising taxes in a recession, largely to make good on a hefty pay raise for the UFT. But the teachers won't gain by that - the likely result will be a re-run of Dinkins' nightmare: The tax hikes will spark an even steeper economic decline - which will force much deeper budget cuts.

For those who insist on believing (despite all evidence to the contrary) that there's nothing wrong with the city's school system that more money can't cure, the best prescription is a growing economy. And the best way to achieve that is by restraining spending, not raising taxes.

Sooner or later, the school budget has to be cut. Better a little now than a lot later.