With the city’s budget deadline just days away, New York Mayor Bill de Blasio threw out some more gruesome numbers.
While reducing the fiscal 2021 spending plan to $87 billion — from $95 billion in January, before COVID-19 essentially shut down the city's economy — de Blasio said he needs $1 billion in labor concessions or the city could lay off up to 22,000 workers, roughly 7% of its workforce.
The new fiscal year starts July 1. De Blasio’s budget office now estimates at least $9 billion in tax revenue loss from the coronavirus. Other organizations, including the Independent Budget Office, have projected worse totals.
Meanwhile, activists occupied City Hall Park on Wednesday night, demanding $1 billion in cuts to the New York Police Department's $6 billion operation.
Failure for de Blasio and the City Council to pass a balanced budget on time could trigger a reactivation of the New York State Financial Control Board, a vestige from the 1970s fiscal crisis. The board still exists, though passively, rubber-stamping budgets annually.
“This is just the beginning of what will be a prolonged challenge in terms of both our economic situation and our budget situation,” de Blasio said at Wednesday's media briefing. “This is not just one year or two years. This is probably more like three or four years to bring everything back to the level it should be.”
Further rescue aid is on hold with the federal HEROES Act stalled in the Senate. State officials are sitting on the city’s request for additional borrowing.
The city began the second phase of its reopening this week. “But companies have been largely slow to move workers back to offices and the workers themselves have not been quick to return, either,” said Tom Kozlik, head of municipal strategy and credit for Hilltop Securities.
“Among these uncertainties are other important questions to be answered about what the short- and medium-term will look like for New York City,” Kozlik said. “One key question is how long this new COVID-19 normal will last, including how social distancing will change daily life.” Secondly, how much, if any, additional federal relief will be available?”
Additionally, said Kozlik, questions remain about the city and regional real estate markets, both key contributors to municipal revenue.
Moody’s Investors Service rates the city’s general obligation bonds Aa1, while S&P Global Ratings and Fitch Ratings assign AA ratings. Moody’s lowered its outlook on city GOs to negative on April 1. S&P and Fitch still have it at stable.
“If the city’s leaders are willing to make the right and reasonable hard choices, they can balance the budget without asking future generations to pay for today’s bills or resorting to layoffs,” said Andrew Rein, president of the watchdog Citizens Budget Commission.
“New York should receive but cannot wait around for a large federal aid package. It swiftly should reduce spending, shrink the workforce through attrition, and collaborate with labor to identify and implement savings,” Rein added.
“This strategy can close next year’s projected budget gap and rightly leaves borrowing as a last resort, only to be considered if the economy worsens and additional spending cuts ultimately become too great.”
CBC’s expense reductions include paring the workforce by 9,000, mostly through attrition.
It also called for a temporary two-year property tax increase, starting in July 2021 with expected economic recovery. CBC said a 2% increase in the average rate, from 12.283% to 12.529%, implemented effective July 1, 2021, through June 30, 2023, would generate $690 million in fiscal 2022.
“The average homeowner would pay $143 more in fiscal year 2022,” CBC said.
The city, according to CBC, could also consider selling parking lots and underused buildings, which could generate $50 million in FY2021. In addition, said CBC, the city could reduce its $1 billion general reserve to $250 million for FY22 through FY24, releasing $750 million per year for gap closing.
