NYC makes budget cuts as coronavirus hits economic prosperity, sows uncertainty
The economic devastation and human tragedy transpiring around the world in the wake of the coronavirus pandemic has spilled over into New York City’s economy, forcing the city to cut its budget and draw down its record reserves.
The $89.3 billion fiscal year 2021 executive budget released by Mayor Bill de Blasio on Thursday is $6 billion lower than the $95.3 billion preliminary budget released only in January. It is down $3.5 billion from the $92.8 billion fiscal 2020 budget adopted by the city last June.
“Our top priorities are simple: We will keep people safe, protect their health, make sure there is a roof over their head and that food is on their table,” de Blasio said at City Hall as he released the budget.
While the executive budget is balanced, it was crafted by the Office of Management and Budget in light of a $7.4 billion tax revenue loss forecast in fiscal 2020 and 2021.
The budget predicts tax revenue will fall 3.5%, or $2.2 billion, in fiscal 2020 and drop 8.3%, or $5.2 billion, in fiscal 2021 compared to the preliminary budget. Most of the declines are due to COVID-19 and will be seen in the sales and hotel, personal income and business taxes.
The administration achieved its budget reductions though a combination of cuts and cost savings as it drew down on reserves.
The administration found savings of $2.7 billion in fiscal 2020 and 2021. This included program to eliminate the gap savings of $2.1 billion and $550 million in citywide savings.
While the administration had increased reserve levels to record levels in the financial plan it had released previously, the city drew down $900 million from the General Reserve and $250 million from the Capital Stabilization fund. The Retiree Health Benefits Trust fund drew down $2.6 billion and has a balance of $2.08 billion. Total reserves for fiscal 2021 are now $2.18 billion.
Ana Champeny, director of city studies for the Citizens Budget Commission, said reserve levels were insufficient.
“This paucity of reserves would not have been the case if the city had been permitted to set aside resources in a well-designed rainy day fund during the last 10 prosperous years,” Champeny said. “In fact, following CBC’s recommended strategy would have netted the city nearly $9 billion in reserves.”
City Comptroller Scott Stringer said the city should have saved more in better times.
“The mayor's budget relies on a mix of savings, reserves, and federal stimulus funds to maintain a balanced budget,” Stringer said. “A more robust savings program in prior years would have helped to build up a bigger cushion to protect against cuts that will be devastating in particular to New York City's youth.”
The New York City Council said, however, it has focused on raising reserves to record levels.
“The Council is proud that for the past two years, one of our top priorities was to increase city budget reserves,” Speaker Corey Johnson, Council Finance Committee Chair Daniel Dromm and Capital Budget Subcommittee Chair Vanessa Gibson said in a joint statement. “This was the right thing to do for the city's fiscal health and those reserves will now help us in our efforts to battle this pandemic that's ravaging our city.”
The city is also being forced to deal with $800 million in state funding cuts, including a $360 million shortfall for education and a $250 million sales tax intercept for distressed hospitals, which lets the state take city sales tax proceeds to pay some hospital costs.
The city also had to fill a $123 million cut in financial assistance for families in need. And the city was required to make an additional $63 million contribution toward the Metropolitan Transportation Authority's Access-a-Ride program.
“These are unprecedented times and we begin budget negotiations facing challenges we have never faced before,” Johnson, Dromm and Gibson said. “We will use our upcoming budget process, which will be done remotely for the first time in Council history, to determine the best ways to deal with the extreme economic challenges we are facing as a city.”
The 51-member Council will hold a round of hearings on the executive budget, after which they will negotiate adjustments with the mayor. By law, the Council must vote on a budget by July 1. The last four budgets were all approved ahead of schedule.
“We're taking the actions that we can take,” de Blasio said. “But the only force that can ensure that we get through this the right way is the federal government. Now, it's their hour of decision.”
Most agreed that a more robust response from the federal government was needed.
“It is important to note as that as the epicenter of the COVID-19 crisis in this country, New York City needs and deserves significant federal funding to help us weather this pandemic,” the council members said.
“What is abundantly clear, however, is that in order for us to get on our strongest fiscal footing, we need the federal government to step up,” Stringer said. “New York City is both the epicenter of this crisis and the financial capital of the country. The national recovery starts here, and the federal government needs to provide wide-ranging, robust financial support in recognition of our central role.”
Additional infusions of federal money are vital for the city, said Nicole Gelinas, a senior fellow with the Manhattan Institute for Policy Research.
"We should get a lot," Gelinas said. "There will be a lot of complaints about the city of New York getting a lot of money compared with, say, Orlando. But we should forget about fairness for a while. People were saying it wasn’t fair to bail out AIG, but that may have been the difference between a recession and a depression."
New York City is one of the largest issuers of municipal debt in the United States. As of the end of the second quarter of fiscal 2020, the city had about $37.7 billion of general obligation debt outstanding and that's not counting the various city authorities that issue debt.
The city financing program projects $55 billion of long-term borrowing for the period fiscal years 2020 through 2024 to support the current city capital program, excluding $1.2 billion planned to be issued for education purposes through building aid revenue bonds.
Currently the debt service for the city, the TFA and city appropriation debt, excluding the effect of pre-payments, is 7.1% of the city’s total budgeted revenue in fiscal 2020. The ratio is projected to rise to 9.3% in fiscal year 2024.
As a percentage of tax revenues, the debt service ratio is 11.2% in fiscal 2020 and is projected to rise to 13.4% in fiscal 2024.
Moody’s Investors Service rates the city's GOs Aa1, but has placed the rating on negative review. S&P Global Ratings and Fitch Ratings rate the city's GOs AA.
Paul Burton contributed to this report.