NY City to avoid tax hikes in Mayor's budget plan

Reuters News
Posted: Feb 02, 2012 11:39 AM
NY City to avoid tax hikes in Mayor's budget plan

By Joan Gralla

(Reuters) - New York City residents will be spared new taxes in the budget plan Mayor Michael Bloomberg will present on Thursday even though he must close a $2 billion budget gap, a spokesman said.

"The budget will be balanced without any tax increases because we budgeted with foresight - saving resources which we could and holding down spending while providing city services at or near record levels," Marc LaVorgna, a spokesman for the mayor said in a statement on Wednesday.

The city is required to balance its budget, and after several rounds of spending cuts by the mayor in recent years, the mayor ordered $1.5 billion of additional cuts in November.

Fiscal monitors have warned that Bloomberg cannot expect taxes on capital gains and bonus payments earned by bankers and brokers to give the city a big year-end surplus.

The city's current budget totals $66 billion.

The new budget Bloomberg unveils on Thursday will include $1 billion of extra revenue from the sale of new taxi medallions.

Bloomberg could get some unexpected relief from changes in the way the city calculates its pension contributions. This will help offset potential costs if the city's assumed rate of return is lowered, which has been recommended by the city actuary.

The pension changes are expected to help save $850 million over the next two fiscal years, a source familiar with the matter said.

Mayor Bloomberg had set aside $1 billion for the next fiscal year to cover costs related to a lower assumed rate of return. Under the actuary's recommendations the assumed investment rate of return will fall to 7 percent from 8 percent, the source said. A lower rate of return would necessitate increased contributions from the city.

Some of the trustees, who represent city workers' unions, want the assumed investment rate of return lowered only to 7.25 percent. This would enable the city to decrease its pension contributions, which would leave more money for pay increases, one of the sources said.

However, the city's five pension funds, which all have separate boards of trustees, must approve of the city actuary's changes. "That is not a done deal," said the source, who requested anonymity.

Bloomberg has warned that the rising cost of pension benefits for city workers is diminishing how much the city has available to spend on everything from education to firefighters' salaries.

(Reporting By Joan Gralla; editing by Carol Bishopric)