Upgrade buoys capital program, says N.Y. City budget director
New York's upgrade by Moody's Investors Service will help the city's capital program "for years to come," Mayor Bill de Blasio's budget director told city council members.
"As a result, we expect to see lower borrowing costs and additional savings," Melanie Hartzog told City Council members at a budget hearing Wednesday. "Further, the market for our bonds will diversify and grow."
Moody's on Friday elevated the city's general obligation bonds to Aa1, its second-highest level, from Aa2, citing strong financial management and the city’s economic diversity. It was Moody's highest rating of the city and its first upgrade in nine years.
Hartzog said her office has not estimated borrowing costs related to the upgrade. She spoke during a City Hall joint hearing of the finance committee and its capital markets subcommittee, which are reviewing de Blasio's $92.2 billion preliminary budget and $104.1 billion, 10-year capital program.
The council's finance division estimates that a "generally improved" credit rating could trim borrowing costs by up to $343 million over the plan period, said Daniel Dromm, the council's finance committee chairman. New York's reserves are roughly 10% of the city budget, which Dromm called "relatively low compared with other cities with similar bond ratings." He suggested that 13% to 15% could trigger another upgrade.
"I do think we need to look at that," he said.
De Blasio has asked department heads to eliminate a combined $750 million under a so-called Program to Eliminate the Gap, or PEG, before he releases his executive budget in late April. The 51-member council must approve the spending plan by July 1 before a state review board signs off.
Council Speaker Corey Johnson ripped Hartzog, saying she was vague about departmental cuts.
"Why are we having these hearings if you can't opine on these things?" Johnson said. "You're the budget director. I don't think it is appropriate to wait until after the executive budget. I don't think that OMB has treated us as a full partner or treats us with respect."
Vanessa Gibson, chairwoman of the council's capital program subcommittee, called the 10-year plan overly front-loaded, optimistic in the first five years and deficient or non-existent in the next five.
Riley Edwards, a research associate with the Citizens Budget Commission, called on city officials to identify "significantly more" than $750 million in savings. Efficiencies, he said, could include redesigning programs or services; streamlining through technology; identifying alternate service providers, including the private sector; and sharing resources across agencies.
The New York City Independent Budget Office expects debt service to rise substantially throughout the city's four-year financial plan as the city borrows more to finance its capital program.
IBO projects that after adjusting for prepayments, debt service could rise at an average annual rate of 8.4%, to $9.1 billion in 2023 from $6.1 billion in 2018. By contrast, actual debt service costs from 2014 through 2018 increased by an average of 2.3% annually, to $6.1 billion from $5.5 billion.
"The growth in debt service costs is almost entirely a product of OMB’s estimate of new long-term bond issuance over the plan period," said IBO Director Ronnie Lowenstein.
City Comptroller Scott Stringer cited overtime, charter school tuition and reimbursements for special education services as "large risks" on the spending side.
Stringer also called for a budget cushion of 12% and 18% percent of spending. Since fiscal 2017, that amount has stalled at 11%.