New York Mayor Faces Sea Of Red Ink

AUSTERITY is the word for New York's new mayor, David Dinkins. Mayor Dinkins, the city's first black mayor, has discovered he must put the nation's largest city on a budgetary crash New Year's diet. This means that many of Dinkins's new anticrime, education, drug, and housing programs will likely be moved to the back burner. For example, a city official says it is now likely Dinkins will have to scrap his plans to expand the community patrol program that puts more police on the street.

After only one week on the job, Dinkins is already trying to find revenues or savings that can help him end the fiscal year in June with a balanced budget - as mandated by law.

Much to Dinkins's chagrin, New York City's tax revenues are falling much more quickly than expected. At the same time, expenses - particularly for fuel oil and Medicaid - are higher than projected. This news prompted Dinkins last week to warn the city's agencies that ``the city's already glum situation will doubtless worsen.''

The city estimates revenues have dropped another $150 million since the budget numbers were modified in early December. Since October, the city's revenues have dropped $510 million more than expected.

The city budget director Philip Michael admits that the larger shortfall this fiscal year will have an adverse impact on the next year. As part of its budget process, the city is working on its financial plan for fiscal year 1991. The plan is due Feb. 1. The Koch administration had estimated the fiscal year 1991 budget deficit could be as high as $1 billion, depending on the cost of its settlement with its labor unions.

This week the various city agencies, which are budgeted at $26.4 billion this fiscal year, will find out how much they will have to take out of their budgets for the next six months. Last week, Dinkins backed off from a statement during his campaign that he would cut 1 percent across-the-board. ``You don't want to use a cleaver but a scalpel,'' he now says. As part of an initial savings, Dinkins last week announced he would delay hiring 1,848 police officers to save $4 million a month. This action was viewed favorably by the agencies that rate New York's bonds.

``It is an indication of Dinkins's awareness of the dimensions of the problem after he campaigned so hard to add police,'' says Hy Grossman, an official at Standard & Poor's. Despite the city's problems, its rating remains at A minus.

The city's budget woes stem in large part from a decline in its economy. ``The primary cause is that there has been no private-sector growth in two years, and there will be very little in 1990 either,'' says Alair Townsend, a former city budget director.

As a result, corporate tax revenues declined 18 percent in the city's first quarter and did not improve in the second quarter. ``That's 50 percent of our problem,'' says Deputy Budget Director Allen Proctor.

A significant portion of the problem stems from Wall Street's downturn. City officials estimate Wall Street has seen its profits shrink by $1 billion over the past year. ``We think it's bottoming out,'' Mr. Proctor says.

The slump on Wall Street has rippled over to the real estate market. In its latest budget modification, the city estimates it has lost $100 million in revenue related to real estate.

At the same time, inflation has dropped sharply. This has lowered the revenues coming into the city, particularly from sales taxes.

As these economic developments squeezed the city, former Mayor Edward Koch started cutting back. He enacted a 2 percent cutback on city agency budgets. He refunded some city bonds, saving about $260 million in debt-service cost over two years. He also eliminated a subsidy to the Water and Sewer Authority. This increased the average homeowner's water bill by $28 a year.

In the past, mayors who were strapped for funds could ask the governor and Congress for help. But New York State may be looking at a $2 billion deficit in its coming fiscal year. At a press conference last week, Dinkins admitted the chance of getting more money from President Bush was slim.

It is likely the next year will be even more difficult for Dinkins. Ms. Townsend, now the publisher of Crain's New York Business, says the outlook is for the economy to get marginally worse and then strengthen later in the year.

On the spending side, Dinkins will have to negotiate a stingy labor settlement this spring. The Koch budget assumed a 1.5 percent increase in labor cost in fiscal year 1991.

Mr. Grossman estimates Dinkins will likely give the unions a 4 to 5 percent increase - in line with the inflation rate. Every 1 percentage point increase in labor cost adds $110 million to next year's budget. ``To finance that, the mayor will likely have to cut head count,'' Grossman says.