New York City’s aging infrastructure garnered much of the attention as a panel of four mayoral candidates discussed the city’s finances, unfunded liabilities, and education at The Bond Buyer’s Third Annual Tri-State Area Conference Monday.
Three Democratic panelists and, later, one Republican speaker had an opportunity to press their points before roughly 200 municipal bond industry participants as they vie to succeed Mayor Michael Bloomberg, whose third term ends Dec. 31.
“We are in a dangerous trajectory as a city and we have to be honest and sober about the conditions we face,” said Adolfo Carrion, former borough president of the Bronx. As former regional director for Housing and Urban Development’s New York and New Jersey regional office, Carrion said he is aware of the deterioration of the country’s roads, tunnels, water mains and other systems. “We know we have to invest heavily and smarter in better infrastructure.”
New York has already expanded its debt service tremendously, he said, from $55 billion to $105 billion in the last six years.
The candidates offered differing views of what to do about the rising debt service, including whether a pay-as-you-go system is preferable to issuing long-term debt.
“PayGo is clearly one of the things that makes sense,” said William Thompson, former comptroller of New York City. “It is hard to walk away when rates are so low and we would like to continue to take advantage of that in this current rate environment.”
John Liu, comptroller for New York City, worried about the debt load. “We have kept on top of interest rates available and have refinanced $14 billion of outstanding debt. We have plans to accelerate capital investments while taking advantage of low rates.”
PayGo isn’t realistic, he added. New York lacks the billions of dollars needed over the next several years to pay on an as-you-go basis. “I wish we didn’t have to borrow, but New York has a quickly aging infrastructure and we are now at the point where Feds don’t help with water and sewer. We have to pay for it ourselves.
Carrion said debt needs to be categorized between essential service and speculative projects. “We built new things and summed debt to rebuild the Yankee Stadium neighborhood and new trains and parks and a 1.5 million square-foot mall to spur local employment. But not every project is that successful. So the question going forward is to be disciplined.”
Candidates varied on more contentious issues like Other Post-Employment Benefits, or OPEBs. Liu said OPEBs are much more of an issue than pension liabilities, saying the OPEB liability was $85 billion versus the $70 billion unfunded pension liability.
“OPEBs are not constitutionally required by the state,” Liu said. “So that gives us some flexibility and uncertainty as to what the liabilities really are. These are significant liabilities and ... need to be part of negotiations between unions and city leaders.”
Carrion said OPEBs are a significant drain on the city’s finances. “It’s going to balloon another $2 billion of the next five years,” he said. “It’s eating up tax revenue and is unsustainable ... We have to make tough choices.”
Thompson said the city is making progress. The first issue was to recognize there is something unsustainable and now it’s time to do something about it. “First was acknowledging the issue and costs and municipalities are doing that,” he said. “And now the question is how to we proceed.”
Unlike his Democratic competitors, Joe Lhota, because of a scheduling conflict, had the podium all to himself for almost 25 minutes to talk and respond to audience questions.
As the city’s budget director and deputy mayor of operations under former Mayor Rudolph Giuliani and the former chairman and chief executive officer of the Metropolitan Transportation Authority, the Republican candidate focused on the city’s budget, unfunded health care liabilities, bond issuance, bridge tolls, transit-oriented development and aging infrastructure.
Lhota said he would limit the growth of the city’s budget to the rate of local inflation. He quoted a figure stating that the operating budget, fees and tax receipts have all grown 56% above the rate of inflation over the last 11 years.
“The local government shouldn’t be taking that much out of its local economy without having the discipline to keep our budget under control,” he said.
Most controversially, Lhota wants the mayor and the City Council to run the Triborough Bridge and Tunnel Authority. Wresting control would let city government manage bridge tolls that Lhota said have gotten to the point where they are impeding economic growth.
“I don’t know of single thing that reduces economic development as much as the fact that New York City has the highest tolls of anywhere in the United States of America,” he said. “This needs to change. And I do believe that it should be the mayor and the city council that makes those determinations.”
One attendee who didn’t want to give his name said the scheme, though a sound idea in theory, wasn’t politically realistic. “A lot of other interests are supported by those tolls,” he said. “It’s difficult to extract facilities like that from the existing infrastructure.”
Lhota also said the city should align its building and borrowing interests more closely. If the city wants to build a school it expects would last for 50 years, he said, it needs to borrow throughout that time for it.
“The reality is that most schools that are built in the city last 100-to-120 years,” Lhota said. “We should be issuing 100-year debt, so it’s paid off over its useful life.”
The city could have been taking advantage of the historically low interest rates, he added.