New York City's record reserves may not be enough
New York Mayor Bill de Blasio has touted his administration's record levels of reserves. Whether they can withstand a downturn is up for debate in public finance circles.
"Our budget remains more vulnerable than it could, or should be," city Comptroller Scott Stringer told the City Council's finance committee Thursday, during a City Hall hearing on de Blasio's $92.5 billion executive budget.
The 51-member City Council must approve the spending plan by July 1. De Blasio and the council have finalized the last three budgets ahead of schedule.
De Blasio, in releasing his budget update last month, referenced $916 million in total savings across FY19 and FY20, in addition to $1.6 billion in FY20 healthcare costs and $1.9 billion in FY21 and every year after. He also cited nearly $4.5 billion in the Retiree Health Benefits Trust Fund.
According to Stringer, the city should have a budget cushion — the accumulation of prior-year resources that can be used to balance the budget if necessary — of 12% to 18% of spending.
"To do that, we would need $2.1 billion more in reserves by the time the FY2020 budget is adopted," Stringer said.
Since fiscal 2017, despite continued revenue growth, the cushion has stalled at around 11%.
"We tend to deplete our resources after a terrorist attack or a hurricane," Stringer said.
He called the March 1 upgrade by Moody's Investors Service of the city's general obligation bonds to Aa1 from Aa2 a positive sign. "We're having success in the bond market," he said.
S&P Global Ratings and Fitch Ratings rate city GOs AA. Both assign stable outlooks, as does Moody's. The city has $37.7 billion of GO debt as of March 31.
The mayor's $916 million in departmental savings through a program to eliminate the gap — $420 million this year and $496 million the next — "sounds impressive" but isn't meaningful, Stringer said. "It relies heavily on the hiring freeze and not enough on real agency efficiencies, and the savings fail to pay for new spending."
The city has resources to weather a crisis short-term, said Ronnie Lowenstein, director of the watchdog New York City Independent Budget Office.
Too high levels of reserves, she added, could jeopardize funding levels from the state and federal governments for housing, hospitals and transportation.
Several variables could disrupt the city's five-year financial plan, according to Lowenstein.
They include the city's settlement with the U.S. Housing and Urban Development over repairs to New York City Housing Authority units, with a shortage of allocated capital funds possibly leaving the city on the hood for additional funding.
Also, if the city's transformation plan for New York City Health + Hospitals unravels or were Washington to reduce its support for safety-net hospitals, the city may have to add $2 billion annually.
The Metropolitan Transportation Authority presents a similar risk, said Lowenstein, despite the state legislature's passage of a congestion pricing package and other supports.
"The particulars of the congestion-pricing plan remain uncertain and if the plan ultimately does not provide sufficient revenue, then the city could need to fund more of the system's repair needs," Lowenstein added.