The Rockaway Irregular
If Arnold Can, Why Can't Mike?
The news out of California gets more and more interesting! It seems that newly elected Governor Arnold Schwarznegger is making headway. After setting up a panel of outside experts to review state operations and options, he has convinced the legislature to place proposals on the ballot, come March, designed to start addressing the structural and budgetary problems now plaguing the Golden State. Among other things, they will seek voter authorization of a new bond issue to cover them in the face of the current structural deficit while, at the same time, instituting a "rainy day fund" to set some state monies aside for the inevitable cyclical downturns that seem to bedevil local governments and politicians. (Hmm, that seems like a familiar proposal, something I suggested in these pages myself, not too long ago!)
Cuts to government services, of course, come much harder. But Arnold promptly fulfilled a campaign promise to do away with the state's car tax increase (implemented by former Governor Gray Davis) as well as the law allowing illegal immigrants to obtain drivers' licenses. And, so far, the new governor is holding the line on his promise not to increase taxes to balance the state's budget and to focus, instead, on cost reductions. Unfortunately, he was not able to get the California legislature to to go along with spending increase caps like they have in nearby Arizona but his term's not over yet! Arnold still has a lot of personal capital to draw on, reflecting his lopsided win over Davis and the other Democrat in the race against him, Cruz Bustamante.
What about our own Mayor Bloomberg? He ran on a pledge not to raise taxes, too, but turned around and did just that, after walking in the door in the wake of 9/11 and the national economic downturn that began in the last year of the Clinton presidency. Unlike Arnold, Mike was legally obliged to balance his budget or lose control of the city to a New York State oversight board, a legacy of the former tax and spend profligacy of this city's government. Unable to get the cost reductions he needed to close the humongous budget gap, Mayor Bloomberg made his case to the citizenry and most went along, albeit grudgingly. It was pretty clear to anyone who was fair-minded that the Mayor didn't have much choice, however unpalatable the tax increases.
But now, midway through the Mayor's initial term of office, City Comptroller William Thompson tells us things are better, for the short term at least. And, of course, the economy seems to be reviving. The Mayor has even begun talking about rolling back taxes. "We have to find ways to balance the budget and not continue to do it on the backs of the taxpayers," he said recently. Sounds good to us. But where's the beef?
If the Mayor wants to win a second term, he needs to show that he's ready to put our money where his mouth is, and that means back in our pockets! How can he do this?
Even the Comptroller is not giving the city a clean fiscal bill of health, suggesting that significant structural deficits will return by 2004 - 2007. Well, there's only one way. The Mayor has to cut expenses. He has to reduce what it costs us to run this city. Of course, massive layoffs don't seem to be an option if the Mayor wants to get re-elected. At over 250,000 city workers on the payroll (not counting staff working for the city under the auspices of non-mayoral agencies like the Health and Hospitals Corporation!), with most of these having immediate family and other relatives living within the five boroughs, that's a lot of voters that a Mayor up for re-election would certainly not want to annoy. Getting union give-backs is also a tough row to hoe for the same reasons. Nor have the unions demonstrated a penchant for cooperation in these matters!
But, there are other ways. The Mayor could take a leaf from Arnold and set up a non-partisan (he seems to like that word, anyway!) task force of experts, staffed by former city managers, representatives and consultants from the private sector, and even folks from some of the local think tanks. He could then charge this group with the responsibility of ferreting through the dark alleys of city business practices to identify areas where structural inefficiencies need to be eliminated. This is a road to real cost savings that is long overdue and would not require massive employee layoffs in the near term.
Are there such opportunities? You bet. A recent review of city-owned property under the auspices of one city agency found that, out of roughly a million square feet of space, fully 10% (103,294 square feet) was useable but unoccupied. Another 38% (380,145 square feet) of this same agency's space was moderately to significantly underutilized. At the same time, that this agency was underutilizing the space in its portfolio, it was busy renting space from the private sector, sometimes at premium prices, around the city. So what happened to all the vacant space it controls?
In 14 of the 26 facilities reviewed as part of this study, 18 non-city tenants were occupying city-owned space. What were they paying? In six of the facilities, seven renters paid nothing at all, though the average operating cost to the city to run these facilities was reported at $12.07 per square foot! Of those non-city tenants who do pay something, eight tenants paid an average of only $5.10 per square foot against an average reported city operating cost of $12.51 a square foot. In some cases this is really egregious. The study showed that at one facility the city was actually only collecting about 10% of actual operating costs ($1.05 vs. costs of $10.94 a square foot). In only two of the sites was the city collecting anywhere near what it actually costs to maintain and operate the facilities.
Three of the facilities in question were basically rented out in total. The city agency responsible for managing these sites reported no incurred costs at all, while the average rental amounts returned to the city by the tenants at these locations was only $3.46 per square foot per annum. Though there were no reported city operating costs, it's highly questionable that this rental amount comes anywhere near to approximating real market rates in the areas in question. Where, after all, can you find annual square foot charges in today's market approximating anything like the amounts paid to the city by these renters? And what private landlord would countenance letting his space go for such absurdly low rents?
Of course, while all this space goes wanting or brings back only a pittance to the city, compared to its true value and/or costs, city agencies routinely pay substantially higher rentals for space in the private sector. The same agency which holds the space referred to in the study actually rents office and program space in over 17 locations throughout the city at an average annual rental (excluding ancillary costs) of $19.43 per square foot, well above both the city's own operating costs in space that it owns, and considerably higher than the amounts the city recoups in rents from its non-city tenants. Of these 17 rented locations, six were actually assessed in the study for levels of utilization. Five of the six showed real underutilization which means the city agency rented more space than it actually needed at these locations.
Of course, these results only reflect the activities of a single city agency! Imagine if the city actually kept track of, and inventoried, its "owned" square footage, under the auspices of ALL city agencies, throughout the five boroughs, monitoring the actual costs to maintain and operate. Imagine if the city really conducted its business with an eye toward costs and return, like a private landlord would. With today's automated systems, of course, this ought to be a cinch. The savings to the city would be substantial, if each of its agencies was obliged to make better use of the space it has and/or to share unutilized or underutilized space with other city agencies in need of space in the same communities. And think of the payback to the city if unutilized space was actually rented out in an intelligent manner designed to recapture costs and market values. There could be hundreds of millions of dollars in savings in this area alone.
So the question of whether there are real cost saving opportunities to be had by the city can be answered with a resounding affirmative. Now it just remains for Mayor Bloomberg to remember his background in the private sector and start acting like that other multi-millionaire businessman/ politician over on the West Coast and terminate some waste. He needs to begin to look at, and correct, the problems that make city operations so inefficient and costly in order to truly keep his promise to the citizens of this town. That's why we sometimes elect businessmen instead of career politicians, after all. email@example.com.