After approval, NYC ‘Rainy Day Fund' initiative moves to the state level
It’s all aboard for the New York City Rainy Day Fund Express. Next stop, Albany.
On Tuesday, voters in the city overwhelmingly approved a proposal to change the City Charter to allow the creation of a formal rainy day account in the city’s budget. The vote was 71.09% to 29.91% with 90.25% of the vote counted.
New York State must now approve any change in the yearly budget process. Strict rules put in place by the state after the 1970s financial crisis prevent the city from setting aside revenues to use in an economic downturn. To put money away, the city uses several methods such as building annual budget reserves, having a surplus roll and reducing deposits to the Retiree Health Benefits Trust fund.
Andrew Rein, President of the Citizens Budget Commission, said on Wednesday that city voters had taken a smart first step in bolstering the city’s financial future.
“With their resounding approval in favor of changing the charter to allow a rainy day fund, New Yorkers seized an historic opportunity to improve one of the few weaknesses in the city’s financial management framework,” Rein said. “Importantly they have also sent a signal to Albany that will provide momentum to make the needed changes and improvements in state law.”
Speaking to the CBC Board of Trustees on Wednesday, First Deputy Mayor Dean Fuleihan said while a rainy day fund would benefit the city, the de Blasio Administration had already built up reserves to record levels.
“We’re going to have to work together [with the state] to make this happen. The first step occurred yesterday and now we can talk about what is that going to look like,” he said. “The city does have reserves and we have well over $6 billion in reserves — one is the Retiree Health Benefits Trust Fund with about $4.6 billion, a General Fund with about $1.15 billion and the capital reserve of about $250 million. It’s an historic level of reserves and the city is not done.”
But Fuleihan said reserves were not a traditional rainy day fund because the financial control board had not allowed it to be created back in the '70s. “But now we have the opportunity to that,” he said.
Rating agencies expressed confidence in the process toward ratification, calling it a credit positive.
“On Nov. 5, New York City voters approved Ballot Question 4, a measure to create a formal budget reserve (or rainy day fund),” said Nick Samuels, vice president at Moody’s Investors Service. “State law changes are still required to allow the city to actually create the fund, but voter approval is a credit positive step toward a formal mechanism to tap the city’s economic strength and prepare for future economic downturns.”
S&P Global Ratings concurred.
“S&P Global Ratings believes that this reserve could stabilize the city's financial position during an economic downturn when personal income and sales tax collections could soften, such collections being the city's main sources of operating revenue,” the agency said.
“Although the city funds a discretionary reserve for retirees' health insurance costs, and has set aside amounts in general and capital stabilization reserves, we believe a formal rainy day reserve would enhance the city's overall flexibility and insulate its budget from recessionary affects as experienced following the Sept. 11th attacks and the 2008 financial crisis,” S&P said.
S&P added that the passage doesn’t define details of the size, funding, and parameters for building up and utilizing the reserve, “but we expect the city will formulate a policy consistent with its substantial budget and scope of operations.”
Fitch Ratings said the fund could give the city another tool in its fiscal toolbox.
“Voter approval of the amendment could give the city a new tool for managing its long-term budget and enhancing its fiscal resilience,” said Eric Kim, Fitch’s senior director U.S. public finance. “But the change still requires a state law adjustment as well. And it’s also important to note that the city has been able to use alternative budget tools (such as budget reserves) in lieu of a formal rainy day fund.”
The city is one of the largest issuers of municipal debt in the United States. As of the end of the fiscal 2020 first quarter, the city had about $37.2 billion of general obligation (Aa1/AA/AA) debt outstanding. That's not counting the various city authorities which issue debt.
The NYC Transitional Finance Authority has about $39.7 billion of debt outstanding while the NYC Municipal Water Finance Authority has around $29.3 billion of debt outstanding. The TFA’s debt consists of future tax secured senior bonds (Aaa/AAA/AAA), future tax-secured subordinate bonds (Aa1/AAA/AAA) and building aid revenue bonds (Aa2/AA/AA). The MWFA’s debt consists of general resolution bonds (Aa1/AAA/AA+) and second general resolution bonds (Aa1/AA+/AA+).
All the other ballot proposals to change the city charter passed on Tuesday, including ranked choice voting (73.54% to 26.46%); expansion of the civilian complaint review board (74.61% to 25.39%); changes to ethics and governance policies (77.40% to 22.60%); and a land use proposal (76% to 23.62%).
Also in NYC on Tuesday, voters chose incumbent Democrat Jumaane Williams to be the city’s public advocate with about 78% of the vote, topping Republican Joseph Borelli, who had about 20%, and Libertarian Devin Balkind, who got around 2%. Earlier this year, Williams won the special election to fill the seat vacated by Tish James when she became the state Attorney General.
Williams, a former City Council member, is expected to run for mayor after Bill de Blasio’s term expires in 2021. Term limits prevent De Blasio, who has won mayoral election twice, from running again. The other top candidates who are expected to run for mayor in 2021 include City Council Speaker Corey Johnson and City Comptroller Scott Stringer.