The recent federal tax overhaul and belt-tightening at the state level cast a pall of uncertainty and concern over the $88.67 billion preliminary fiscal 2019 budget that New York City Mayor Bill de Blasio released on Thursday.

“It’s been a bit nerve wracking not being sure of what the federal government is going to do,” said Howard Cure, Director of Municipal Bond Research at Evercore Wealth Management.

“We proceed mindful of the uncertainty in Washington and in Albany," de Blasio said at City Hall on Thursday.

The impact of federal policies on the city’s budget could reach $700 million, including a $400 million hit to financially troubled Health + Hospitals unit. The new tax laws could further imperil healthcare, he said.

And cuts and budget shifts in Albany could total more than $750 million, de Blasio added.

“Two areas are that especially vulnerable [to potential federal policy hits] are H+H and the New York City Housing Authority,” Cure said.

In his budget presentation Thursday, De Blasio pointed to a general reserve of $1 billion over four years; a capital stabilization reserve of $250 million over four years; and a retiree health benefits trust fund of $4.25 billion.

This was applauded by the city's Independent Budget Office.

“Growth in city spending under the mayor’s budget for next year is largely fueled by rising personnel costs and debt service payments, with relatively little spending on new or expanded programs,” said Doug Turetsky, IBO’s chief of staff.

The Citizens Budget Commission, a nonprofit unaffiliated with the city government, was unimpressed.

“Before the going gets tough, the mayor should get going by limiting spending growth, bolstering the savings plan, and adding to reserves," said CBC President Carol Kellermann.

"New York City's preliminary budget for fiscal year 2019 continues the 'wait-and-see' approach of the previous budget update in November; it neither addresses issues spawned by the recently enacted federal tax law and possible budget cuts nor pending state actions that could reduce resources available for city services,” Kellermann said. “Most importantly, no additions will be made to the city's reserves.”

De Blasio said that savings, reserves and increased revenue offset the $750 million added since the November plan and help fund an increase in capital spending. Savings include $900 million across fiscal 2018 and 2019, in addition to the $1.3 billion in 2018, 2019 and every year after. Kellerman said the fact that the cost of new agency needs will be offset by the Citywide Savings Program was a positive development. But she added that “this program relies too much on dwindling debt service savings and state and federal reimbursement and not enough on saving from making government more efficient.”

New York City Mayor Bill de Blasio presents his 2019 preliminary budget on Feb. 1, 2018.
New York City Mayor Bill de Blasio presents his fiscal 2019 preliminary budget Thursday. Ed Reed/Mayoral Photography Office

The release of the preliminary budget marks the first step in in the overall budget process. The 51-member City Council will now hold a round of budget hearings. The council by law must vote on a budget by July 1. The fiscal 2017 and 2018 budgets were approved well ahead of schedule.

City Council Speaker Corey Johnson said he along with Finance Committee Chair Daniel Dromm and Chair of the Subcommittee on the Capital Budget Vanessa Gibson would begin looking at the budget and would provide essential input.

A continuing area of city-state friction is funding for the Metropolitan Transportation Authority. De Blasio and Gov. Andrew Cuomo disagree over the amount the city should contribute.

The mayor doesn’t want to fund half of the first phase the MTA’s $836 million subway improvement plan. Cuomo has committed the other half.

Johnson, however, said he would favor extra city funding for the MTA for the right projects and if the right safeguards were in place.

“It will be interesting to see how this all plays out,” Cure said.

Ahead of the budget release the CBC recommended four strategies the city should use for fiscal stability: Contain spending growth; build reserves; adapt the capital plan to a resource constrained environment; and strengthen finances at NYCHA and H+H.

“The plan makes no progress on building reserves (and no additions to the Retiree Health Benefit Trust) or reforming the capital plan through ‘right-sizing’ and ‘right-timing.’ Spending growth continues to surpass inflation and the finances at H+H and NYCHA remain precarious,” CBC said.

Earlier in the week, Johnson said that the uncertainty surrounding federal government health care policies was hurting H+H.

“The money from Washington has steadily gone down while the need has continued at a breakneck pace,” Johnson said at an Association for a Better New York group meeting on Tuesday. “So the answer here is that HHC needs to modernize. HHC needs to do better.”

CBC also noted the growing size of the city’s workforce.

“Headcount is projected to continue to grow in the mayor's second term after an increase of 25,000 employees in his first term,” said Maria Doulis, CBC vice president. “This hiring adds short-term costs, but also expands the city's long-term, unfunded liabilities for pensions and retiree health care.”

Cure noted that union contracts with the city would expire by the end of this year and that the city will have to negotiate with the unions on new ones.

He said only 1% had been put aside for pay raises and that this may complicate the process.

“Perhaps the city will gain some union concessions, such as in the area of having city employees pay some of their health costs,” Cure said.

The modified capital commitment plan for fiscal 2018-22 authorizes agencies to commit $79.6 billion, of which $71.9 billion will be city-funded. City funds include proceeds of bonds issued by the Municipal Water Finance Authority and the Transitional Finance Authority, plus general obligation bonds. The capital plan includes an additional $200 million to the New York City Housing Authority over four years to replace boilers and upgrade heating systems at the 20 most problematic public housing developments. In addition, the city has earmarked $9 million in capital and nearly $4 million in expenses for rapid-response teams.

Cure said the capital budget is unnecessarily inflated by outdated laws and statues.

“The city needs design-build approval,” he said, “They need the flexibility for public housing and road maintenance and repair.”

The city currently does not have this authority, which must be approved by the state.

Since July 2017, the city has issued about $1 billion of bonds for capital purposes and $1.8 billion in refunding bonds. The city has about $36.7 billion of general obligation debt outstanding.

Looking ahead, the city is planning to issue capital purpose GOs of about $2.2 billion in fiscal 2018, $3 billion in fiscal 2019, $4.8 billion in fiscal 2020, $4.8 billion in 2021 and $4.4 billion in fiscal 2022.

Moody’s Investors Service rates the city’s general obligation bonds Aa2, while S&P Global Ratings and Fitch Ratings rate them AA. All three assign stable outlooks.

Debt service on the debt issued by the city, the Transitional Finance Authority, future tax secured debt, city appropriation debt and conduit debt, excluding the effects of prepayment, is 7.2% of the city’s total budgeted revenues in fiscal 2018. The ratio is projected to rise to 9.3% in fiscal 2022. As a percentage of tax revenue, the debt service ratio is 11.2% in fiscal 2018 and is forecast to rise to 13.4% by fiscal 2022.

The TFA by law is allowed to have $13.5 billion of debt outstanding and is currently near its statutory limit on Building Aid Revenue Bond issuance.

The NYC Municipal Water Finance Authority has around $30.8 billion of bonds outstanding and $16.5 million of bond anticipation notes outstanding.

Paul Burton contributed to this report.

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