Reserves in question as de Blasio releases executive budget
New York Mayor Bill de Blasio released his $92.5 billion executive budget Thursday amid debate about whether the city’s system for reserves is enough to weather a downtown.
De Blasio, speaking with reporters in the City Hall Blue Room, said the updated fiscal 2020 operating plan features $916 million in savings, exceeding the $750 million he sought from department heads in February under a so-called program to eliminate the gap, or PEG.
"This was an agency-by-agency process," he said. The savings, according to de Blasio, will help fund $150 million in critical needs that have emerged since February. They include special education initiatives, additional mandated charter school costs and a state cut to pre-trial mental health evaluations.
The new recommendation is 3.4% above the approved $89.2 billion plan for FY19.
By contrast, De Blasio’s 10-year capital plan through 2029 is $116.9 billion, up 12.3% from February's $104.1 billion.
"This administration believes in aggressive capital spending, with a watchful eye toward debt service," the mayor said in his sixth executive budget presentation. He cited school capacity, infrastructure, affordable-housing and borough-based jail needs for the extra spending.
The 51-member City Council must approve the plan by July 1. De Blasio and the council have finalized the last three budgets ahead of schedule.
Hits to the budget, said de Blasio, include more than $300 million in state budget cuts, cost shifts and unfunded mandates to the city, including assistance to families in need, election reform mandates, health services and an education funding shortfall.
Two weeks ago, the City Council called on de Blasio’s administration to increase reserves by $250 million as a buffer against an economic slump.
"Reserves continue to be an important topic," de Blasio said, citing input from the City Council, budget watchdogs and city Comptroller Scott Stringer. "We have kept our reserve levels stable."
Beyond a possible economic slowdown, uncertainty looms about funding from the state and local governments.
The watchdog Citizens Budget Commission called on the city to establish a dedicated rainy-day fund. According to the CBC, practices city officials adopted to build reserves within legal restrictions are deficient.
The Emergency Fiscal Control Act, a state law enacted in the wake of the city’s fiscal crisis in the 1970s, and provisions later added to the city charter require a balanced budget, which prevents the city from using a rainy-day fund.
“You would hope that with changes in the City Charter, the city will be able to just set aside general reserves more easily,” Howard Cure, director of municipal research for Evercore Wealth Management, said on a Bond Buyer podcast.
“There’s definitely a need for the reserve, but there’s not a capability and there are other needs for the reserves that shouldn’t be touched just for general operations.”
In the absence of such a dedicated fund, city officials use three alternative mechanisms to set aside resources: annual budget reserves, a “surplus roll” and reduced deposits to the Retiree Health Benefits Trust fund.
Two budget reserves — the general reserve and the capital stabilization reserves — are not available for spending beyond the fiscal year in which they are established.
Surplus roll consists of a group of expenses made at the end of the fiscal year to effectively transfer resources from one fiscal year to the next in compliance with generally accepted accounting principles. The city uses these surplus funds to prepay general obligation and Transitional Finance Authority debt service, retiree health benefits costs and subsidies to other legally distinct entities.
The city created the Retiree Health Benefits Trust in FY2006 to help pay for the future costs of health insurance and other post-employment benefits.
Rainy-day deposits have three key deficiencies, according to CBC: The reserves and surplus roll are not large enough; increases and decreases to the surplus roll are discretionary and not tied to the economy; and use of the RHBT as a de-facto rainy day fund is “fiscally imprudent.”
The city and its entities comprise one of the largest issuers of municipal debt in the country. Moody’s Investors Service rates the city’s general obligation bonds Aa1 while S&P Global Ratings and Fitch Ratings rate them A.
Moody’s on March 1 upgraded the city’s GOs from Aa2. Moody’s said stronger reserves, at levels similar to higher-rated peers, or the establishment of formal policies to increase reserves could lead to an upgrade.
The city had about $38 billion of general obligation debt outstanding as of Dec. 31, according to City Comptroller Scott Stringer's office.