New York needs huge and “undoubtedly inflationary” levels of federal funding beyond the new Municipal Liquidity Facility to offset the effects of COVID-19, said the man who helped rescue the city from its 1970s fiscal crisis.
“Let me say very bluntly, New York City can only survive with massive federal aid and that just doesn’t mean just this very creative program of loans that the Federal Reserve Board has initiated,” former lieutenant governor Richard Ravitch said Thursday during a Volcker Alliance online forum.
“That helps with the short-term cash flow problem but creates enormous liabilities that are unlikely to be met without a very significant increase in tax revenues far greater far greater than what is possibly achievable, certainly during this period of a pandemic.”
Ravitch is a Volcker Alliance director and past chairman of the state-run Metropolitan Transportation Authority, which operates the region’s mass transit system.
He is also on Mayor Bill de Blasio’s eight-member Fair Recovery Task Force, which met for the first time Thursday night. The group will advise the mayor on how best to reopen the city, largely closed to slow the spread of a virus that has killed some 13,000 New Yorkers.
De Blasio’s $89.3 billion executive budget is before the City Council, which must approve the fiscal 2021 spending play by June 30.
Projections for the revenue hit through the next fiscal year — through the unprecedented loss of sales and income tax revenue from business closures — have ranged from $7.4 billion by the mayor’s budget office to $10 billion by the nonpartisan Independent Budget Office. The pandemic itself, meanwhile, has strained the hospital system.
IBO expects the local economy will lose about 475,000 jobs from the second quarter of calendar year 2020 through the first quarter of 2021.
Ravitch, who helped city and state officials resolve the city’s near-bankruptcy I975, warned about repeating the practice at the time of issuing debt to cover operating expenses.
“Using borrowed money without a rational scheme for paying it back in an economy that is dramatically weakened and that is dependent on the level of recovery from the pandemic that at the moment nobody is actually predicting,” he said.
Ravitch scoffed at the suggestion by Republican U.S. Senate Majority Leader Mitch McConnell that states consider filing for bankruptcy. "Mitch McConnell ought to go to law school before he starts recommending solutions," he said.
Even as city reopens from the pandemic, New York’s density combined with lingering fears about the virus, including a possible second wave, would impede recovery, according to Ravitch.
“You take the simple fact that 3 million people used to ride the subway every day to and from their place of employment. Nobody’s riding the system now. And even though they will open it up for business, I wouldn’t let my kids get into a crowded bus or subway car at this point for anything in the world, even with masks on.”
Moody’s Investors Service and Fitch Ratings have revised their outlooks on the city’s general obligation bonds to negative, citing the virus impact. Moody’s rates city GOs Aa1, while Fitch and S&P Global Ratings rate them AA.
While calling the task force members “all wonderful citizens,” Ravitch said the absence of major Wall Street leaders from the panel was conspicuous.
“[They have] clout politically in Washington and none of them are on the task force,” Ravitch said. “If I’m right, our biggest challenge is getting federal dollars.”
