Budget land mines lurk for New York City

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Mayor Bill de Blasio and the New York City Council face several uncertainties about the new city budget, including strains on the city’s already spiraling capital budget, a new round of labor talks and a possible recession.

De Blasio and council leaders were long on congratulations and short on details when they announced their tentative agreement on an $89.2 billion fiscal 2019 budget. The full council and after that, the New York State Fiscal Control Board, must approve the plan.

According to the brief statement de Blasio released Monday without documents, he and the council agreed to add $125 million to the $1 billion allocation the general reserve, and $100 million to the Retiree Health Benefits Trust Fund, raising the balance for the latter to $4.35 billion.

The capital stabilization reserve will remain at $250 million.

“The City Council, from a bond perspective, did force some good measures,” said Howard Cure, director of municipal bond management for Evercore Wealth Management.

According to Cure, capital-needs variables include bringing New York City Housing Authority properties into a state of good repair – the city just agreed to a $2 billion settlement with the U.S. Attorney’s Office for the Southern District of New York – and possible continued investment on subways.

While de Blasio pegged the five-year capital commitment plan at $82 billion in all funds when he released his executive budget on April 26, he gave no bottom-line capital figure on Monday.

“These are a couple of big issues hovering over the city’s budget,” said Cure.

Under the consent decree with the feds regarding NYCHA, the city must provide the funding.

“There have been a lot of problems in the institutional culture of the Housing Authority in some cases going back decades,” de Blasio said.

De Blasio also said the city earmarked $254 million and $164 million in operating and capital spending, respectively, to the Metropolitan Transportation Authority, the state-run agency that operates the city's subways and buses.

Although he emphasized that the allocation is a one-off, not a subsidy, and that the city would administer its new "fare fares" discount program for poor riders directly and not through the MTA, the level of future city support for mass transit is an open question.

De Blasio's agreement to spend $106 million for “fair fares” was a win for council Speaker Corey Johnson. The mayor, Johnson and transit advocates celebrated the move Tuesday at a rally at the Fulton Street subway station in lower Manhattan.

Higher-than-expected personal income tax collections and lower-than-predicted property tax refunds enabled the city to project a nearly $3.7 billion surplus for fiscal 2018, which ends June 30, said state Comptroller Thomas DiNapoli. The city intends to use the surplus to help balance the FY19 plan.

The cushion could be counterproductive, according to Maria Doulis, a vice president at the watchdog Citizens Budget Commission.

“Neither the City Council nor the mayor have been forced to make tough decisions,” she said.

The spending plan, should it clear the council, would mark a 19% rise in spending from de Blasio’s first budget in June 2014, at $75 million.

“In many ways, it’s like the previous de Blasio budgets. It makes modest additions to reserves while continues to increase spending in the operating and capital budgets,” Doulis added. “Capital has really ballooned.”

According to Doulis, the health benefits fund really isn’t a reserve, leaving the city only $1.3 billion for a rainy day. That, she said, would be insufficient to cover a recession.

The need to renegotiate many labor contracts add more uncertainty, with up to 43% of the city’s employees expected to be laboring under expired contracts by year’s end. That and a continually increasing workforce could exponentially strain the budget, said Cure.

“It’s a big area that’s not gotten a lot of press,” said Cure.

De Blasio’s administration has set aside funds for 1% annual raises and has said union givebacks must fund any other. That position may prove difficult to hold, Ronnie Lowenstein, director of the watchdog New York City Independent Budget Office, told council members last month.

“You look for a pattern in bargaining and I’m not sure 1% will be enough,” said Cure. “It’s such a labor-intensive business if you look at the city as a business.”

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Budgets Sell side Bill de Blasio Corey Johnson Howard Cure Maria Doulis City of New York, NY Metropolitan Transportation Authority New York