Net Loss: Secondary Effects of City Budget Cut Proposals
Introduction
The objective of this report is to examine the impact of cuts in City programs being contemplated by the Mayor to cope with looming budget deficits and cuts in aid from Albany and Washington.
We begin with a general look at the State and City economies, budgets, and proposed cuts. We do not attempt a comprehensive analysis of spending cuts and the effects on the economy of the proposed spending reductions, for at least these two reasons:
- The proposed cuts are still being reviewed by legislators in the City and in Albany.
- A comprehensive analysis of cuts on the City's economy would require making difficult, ultimately subjective, assumptions about how the cuts would change people's behavior. Behavioral changes by institutions and individuals that might be predictable if a change was small and introduced over time may not be predictable when changes are large and sudden, so that adding up service-cut effects may not be valid. For example, the revenue loss from a cut in the personal-income tax might or might not be offset by increased economic activity because of a change in individual behavior resulting from such a cut. Likewise, a reduction in spending might or might not trigger an unintended increase in illegal activity such as theft or drug trafficking as desperate people seek alternative income sources.
Direct, or primary, service cuts have been described in the proposed budgets of the State and City. The relevant documents are the Executive Budgets of the Mayor and Governor and a budget introduced in the State Senate. Unfortunately, the state documents are much less clear and specific than the City's budget, making even tentative projections sometimes difficult. But many program cuts are very specific. For example, the Governor has proposed significant reductions in home health care for Medicaid recipients. The magnitude of such a proposed spending cut is relatively easy to define, as is its immediate probable effect.
Our focus goes beyond the program cuts themselves to the secondary effects of cutting the programs -- the combined impact of the concentration and timing of the cuts on the population the programs were designed to serve. For example, some Medicaid recipients who previously received home health care may be forced into nursing homes and hospitals. The cost of nursing-home care is more expensive than the cost of home care, the savings attributable to the primary cut -- the home health care reductions -- may be entirely offset by the secondary effect of increased nursing-home costs.
Looking at secondary effects means considering the combined impacts of program reductions that have separate effects on services to the City's children, its poor and its sick, and on the governmental and contracting-agency workers who provide these services. What, in the end, will we be left with one or two years after the cuts are introduced?