DiNapoli: NYC should explore all options before seeking bond authority
New York City should develop a detailed financial plan and look at other options before turning to long-term borrowing to fund its operations, according to a report released Thursday by New York State Comptroller Thomas DiNapoli.
Mayor Bill de Blasio has been asking the state for permission for up to $5 billion of bond sales to cover an estimated $9 billion budget gap caused by the pandemic.
So far, Gov. Andrew Cuomo and the state legislature have resisted the idea of approving bond sales to fill the gap caused by plunging tax revenue and virus-related cost increases.
“The scope and devastation of the COVID-19 pandemic has created a significant revenue loss for the city while driving up costs to deal with its effects,” DiNapoli said. “The challenges are certainly daunting, but are mitigated by reserves the city built up before the current recession.”
According to the Citizens Budget Committee, the city has used $4 billion of its reserve funds and the Retiree Health Benefits Trust Fund to close gaps in fiscal 2020 and 2021.
From the General and Capital Stabilization Reserves $280 million was used in fiscal 2020 and $1.15 billion in fiscal 2021, which left $100 million in the fiscal 2021 general reserve, the minimum required by the City Charter and Financial Emergency Act.
The General Reserve and Capital Stabilization Reserve remain at $1.25 billion annually in fiscal years 2022 through 2024.The remaining $2.6 billion came from a drawdown of the RHBT, which reduced the RHBT balance from $4.7 billion to $2.1 billion in fiscal 2021.
The report noted the city’s current projected budget gaps remain lower than the prior two recessions and officials anticipate a rebound in both growth and revenues in fiscal years 2022 and 2023.
As of Oct. 21, preliminary data for the close of fiscal 2020 shows the city has accrued $2.62 billion in COVID related expenditures, according to New York City Comptroller Scott Stringer's Office. In total, the city has committed to $4.76 billion in COVID related spending in siscal 2020 and 2021.
The report found the city’s reserve and surplus levels going into the pandemic were among the highest on record, as a result of record economic and revenue growth and actions taken by the de Blasio administration and the City Council to boost reserve levels.
The report also said the city’s budget gaps before the pandemic were much smaller than those before the Great Recession or the 9/11 terrorist attacks. On average, the pre-pandemic gaps were under 5%, compared to 10% in the previous two recessions.
As a result of this expected return to normal economic activity, DiNapoli projects the gaps to average 12% through fiscal year 2023 before any actions are taken by the city to address the shortfalls.
“An updated projection of the economic recovery, with a conservative approach to managing the uncertain outlook, is needed to understand the magnitude and duration of potential revenue shortfalls and should be a prerequisite for considering deficit financing as a revenue source,” the report said.
In ordinary times, deficit financing would be treated as a last resort, but the report said that during these extraordinary times the city’s economic competitiveness could be at stake.
“Past experience indicates the city would be well-served by developing and considering all options, in order to identify if and when deficit financing is truly needed,” DiNapoli said.
In looking at new revenues and cost savings, the report said the city must not disturb its economic recovery or allow residents’ quality of life to deteriorate.
DiNapoli urged the federal government to provide help, saying that past recessions highlighted the role of federal assistance. The level of federal support for the state would add to what would be available to the city.
“Washington, for its part, can, and must, help the city weather this colossal economic storm,” he said.
New York 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 $38 billion of general obligation debt outstanding. That's not counting the city's various authorities, such as the Transitional Finance Authority, which has $39 billion of debt outstanding, and the Municipal Water Finance Authority, which has $31 billion outstanding.
Moody’s Investors Service rates the city's GOs Aa2 and S&P Global Ratings and Fitch Ratings rate it AA.