Despite virus, NYC budget process will move ahead with at least $1.3B in cuts
New York City will have an on-time budget despite the spread of COVID-19 forcing $1.3 billion of cost-cutting measures, Mayor Bill de Blasio said on Tuesday. The Citizens Budget Commission is calling for far larger cost cutting and predicts that New York City could see $20 billion of lost revenues over three fiscal years, when comparing data from previous recessions.
“There is no good news at all when it comes to the topic of our budget,” the mayor said a press conference held remotely due to the spread of the coronavirus. “Unfortunately, I've had to instruct our Office of Management and Budget to immediately initiate a savings program, what's called a PEG (program to eliminate the gap], which requires agencies to have to, in a mandatory fashion, come up with savings. That goal — and I want to use these words very, very specifically — that goal will be at least $1.3 billion.”
De Blasio said the cost saving process had just started with city agencies and cautioned the $1.3 billion target “may have to grow in the near future as we continue to lose revenue and see massive new expenses because of this crisis.”
Each city agency will have a specific dollar figure that OMB will give them that they must hit.
“They can offer different ways of achieving it, but they have to hit the dollar figure in time for the executive budget,” he said. “And it will be savings from the current fiscal year and next fiscal year combined to achieve that dollar figure.”
Citizens Budget Commission President Andrew Rein said that while the final economic effects of the virus are still unknown, the revenue shortfalls could be dire and agencies should cut more.
“CBC analysis of prior recessions suggests a similar recession could result in up to $20 billion in revenue shortfalls over three fiscal years. The Office of the New York City Comptroller estimates the revenue shortfall in fiscal years 2020 and 2021 could total $6 billion, opening a fiscal year 2021 budget gap of that magnitude. This gap may expand once spending on the response is added and if the downturn proves worse that currently projected,” he said.
“Managing this challenge requires immediate action to begin reining in spending. A bold savings plan is needed to ensure the pandemic response can continue as necessary and the fiscal stability needed to ensure that services for the neediest New Yorkers are preserved,” Rein added.
“Mayor Bill de Blasio’s announcement that city agencies will be asked to find savings in the executive budget is important and necessary,” Rein said . “However, setting the savings target at $1.3 billion over two years is a gentle-touch approach rather than a bold rapid response that recognizes the potential severity of the health and economic crises. To meet the imminent challenges the savings plan should be significantly larger and explicitly focused on generating recurring savings in spending.”
Rein said the city’s goals should be set higher.
“The city should control all non-critical spending in the current year and increase the target size of next year’s savings program to $3 billion,” he said. “This savings program should be fundamentally different from past plans that relied primarily on debt-service savings, expense re-estimates, and funding shifts to state and federal revenue streams. Agencies should be charged with generating a menu of options for spending reductions that are rooted in improving efficiency, streamlining operations, and supporting more cost-effective operations. Previously, efficiency savings averaged just 0.23% of city-funded spending.”
The mayor said despite the disruption to city life the budget timeline would be adhered to.
“We are committed to the current timeline. That's why we instituted this PEG program immediately,” de Blasio said. “The program was based on obviously OMB’s intimate knowledge of each agency and providing goals that they thought were absolutely attainable. And we're on the same timeline. The agencies have been informed today. And so, we will stick to the schedule and everyone will have to deliver the results on time.”
The mayor will release his revised executive budget in late April. The 51-member council will issue its response to that plan and hold a second round of hearings, after which they will negotiate adjustments with the mayor.
By law, the council must vote on a budget by July 1. The last four budgets were all approved ahead of schedule.
“As information on the economic and fiscal effects becomes available, the city will have to update its fiscal management strategy, work with municipal unions on workforce savings, and potentially enact more far-reaching measures, such as hiring freezes, layoffs, or service cuts,” CBC’s Rein said. “But the first step should be to save now and generate an ambitious agency savings plan presented in the Fiscal Year 2021 executive budget."
The city is one of the largest issuers of municipal debt in the United States. As of the end of the second quarter of fiscal 2020, the city had about $37.7 billion of general obligation debt outstanding. That's not counting the various city authorities that issue debt.
Moody’s Investors Service rates the city's GOs Aa1 and S&P Global Ratings and Fitch Ratings rate it AA. All three rating agencies assign stable outlooks to the GOs.
The NYC Transitional Finance Authority has $38.9 billion of debt outstanding while the NYC Municipal Water Finance Authority has $30.8 billion of debt outstanding. The TFA’s debt consists of future tax-secured senior bonds (Aaa/AAA/AAA), future tax-secured subordinate bonds (Aa1/AAA/AAA) and building aid revenue bonds (Aa2/AA/AA). The MWFA’s debt consists of general resolution bonds (A1/AAA/AA+) and second general resolution bonds (Aa1/AA+/AA+).