THE CITY OF NEW YORK

OFFICE OF THE MAYOR

NEW YORK, NY 10007

MEMORANDUM

TO: Agency Heads

FROM: Mayor Michael R. Bloomberg

DATE: September 21, 2010

RE: November 2010 Financial Plan

Over the past three years, the City has implemented seven Programs to Eliminate the Gap
(PEGs), with City agencies taking actions totaling $4.1 billion to eliminate the gap in FY2011,
including spending reductions of $3.7 billion. We have also used $8 billion of prior-year surplus
funds, which were generated during the economic expansion, to maintain budget balance during
this recession. These actions have been the cornerstone of our success in delivering balanced
budgets since 2007.

Although the City’s unemployment rate has declined seven months in a row, and job growth in
the City has outpaced growth nationally and statewide, we are not immune from the impacts of
the recession. Our economically sensitive tax revenues in FY2011 remain more than $4 billion
below the peak levels reached before the recession began. Meanwhile, the costs of the services
the City provides—particularly pension costs—continue to rise.

In order to maintain a balanced budget this fiscal year and begin to close next year’s gap, which
is currently projected to be more than $3 billion, we must reduce City-funds spending. The target
savings Citywide for FY2011 is approximately $800 million and breaks down as 2.7% for
uniformed forces and the Department of Education, and 5.4% for all other agencies. For
FY2012, the target savings Citywide is approximately $1.2 billion and breaks down as 4% for
uniformed forces and the Department of Education, and 8% for all other agencies.

Cumulative PEG programs inevitably lead to increasingly difficult cuts. Nevertheless, we must
re-examine the way in which we manage our spending in order to ensure that creative
management leads to the maintenance of high-quality public services. The City’s new “shared
services initiative”—which is consolidating back-office operations—is a model of this approach.

To ensure that we reduce agency spending prudently and continue to maintain budget balance,
we will take the following steps:

1
First, since almost 60% of City spending goes towards labor costs, including pension and health
care contributions, the City must immediately take steps to rein in spending. Until your program
is approved by the Office of Management & Budget (OMB), all hiring is hereby frozen. The
only hiring that will move forward during this period will be for positions immediately impacting
public health and safety or positions which help maintain budget balance through this period.
Once the savings program is in place, we will review the necessity of maintaining the hiring
freeze on an agency-by-agency basis.

Second, in developing the PEG program, mayoral agency commissioners should work closely
with staff from OMB to develop a joint PEG program to be reviewed with the relevant Deputy
Mayor. OMB should be utilized as a resource and will be asked to proactively identify potential
PEG program elements. Commissioners should consult Deputy Mayor for Operations Stephen
Goldsmith at their discretion to discuss their PEGs and for assistance in developing efficiency
and cost-cutting programs. After discussing their PEGs with OMB and the relevant Deputy
Mayor, commissioners of large agencies will present their PEG program to Steve or myself.

Third, commissioners of large mayoral agencies and their chief operating officers should
maximize the opportunity presented by the recently created Mayor’s Management Council to
share best practices and learn from colleagues facing similar challenges. The next meeting of this
Council will focus on the PEG program. Smaller and non-mayoral agencies should work
collaboratively and look to streamline and consolidate functions wherever possible.

The attached memorandum from Budget Director Mark Page describes the PEG program in
more detail. Though the coming months will require difficult choices, our shared history of
success instills confidence in our ability to meet the present challenges.