Rainy day fund referendum would change New York City budgeting
A proposal to change New York's City Charter and establish a formal rainy-day account in the budget will go before New York voters on Tuesday.
State approval for the change is necessary, should Question 4 pass. Early voting began Saturday; there are four other referendum questions on the ballot.
“Ballot Question 4 provides voters a momentous opportunity to improve the city’s financial management,” said Andrew Rein, president of the watchdog Citizens Budget Commission.
Strict state-imposed accounting rules in place since the city’s financial crisis in the 1970s prevent the city from setting aside revenues to use in a downturn. Instead, 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.
“Ironically, the constraints put in after the fiscal crisis are great for annual budget balance but stop us from having a real rainy-day fund, so the city has all these workarounds,” Rein said.
“The problem is, you can never save up enough money in the surplus roll, you can use it during the good times, and that Retiree Health Benefits Trust, that money should be in trust for retirees, instead of being used when the economy goes south," he said. "So those rainy-day funds are really inadequate and a real rainy-day fund would provide the perfect solution.”
Two budget reserves — the general reserve and the capital stabilization reserve — are not available for spending beyond the fiscal year in which they are established.
Video: Citizens Budget Commission's Andrew Rein and The Bond Buyer's Paul Burton discuss the ballot measure: https://players.brightcove.net/1305620549001/default_default/index.html?videoId=6097908636001
Roughly $6 billion of the city’s $92.8 billion fiscal 2020 budget consists of set-asides for emergencies or revenue shortfalls. The reserves include $4.6 billion in the Retiree Health Benefits Trust Fund, $1.2 billion in the general reserve and $250 million in the capital stabilization reserve.
“Everyone in municipal finance is hoping that they establish a rainy-day fund. The way they have been doing it now is really not well-advised,” said Howard Cure, director of municipal bond research for Evercore Wealth Management. “They’ve been putting money in and taking money out of various places, OPEB and the various retirement accounts.”
Mayor Bill de Blasio, when he announced the budget agreement with the City Council in June, essentially defended the status quo.
“We don’t call it a rainy-day fund, we call it reserves,” he said. “And now we’re up to almost $6 billion, which is a figure that previous mayors could only have dreamed of. It’s the equivalent concept, but we’ve made a consistent priority of building it.”
Moody’s Investors Service, which upgraded New York’s general obligation bond rating to Aa1 from Aa2 on March 1, said establishing formal reserve policies could lead to a further upgrade. S&P Global Ratings and Fitch Ratings both rate the city's GOs AA. All three assign stable outlooks.
The city is one of the largest municipal issuers with roughly $37.5 billion of general obligation debt outstanding. The Transitional Finance Authority has $38.5 billion of while the Municipal Water Finance Authority has nearly $30 billion.
One variable Tuesday is the degree of interest among voters in a deep-in-the-weeds issue during an off-year municipal election, with the public advocate position the only citywide race.
Incumbent Jumaane Williams seeks to fill the remainder of the term Letitia James vacated when she became state attorney general. Joe Borelli and David Balkind are the Republican and Libertarian candidates, respectively.
“I tell people it will protect New Yorkers. It will protect them when they need it most, and I think that’s real,” Rein said of a rainy-day fund. “Listen, people are busy. They don’t spend as much time as you or I talking about generally accepted accounting principles or GAAP balance, but they will feel it when the recession happens and child-care workers and police and teachers are cut.”
Cure called on the city to establish rules regarding how to fund it and under what circumstances it could make withdrawals. That, he said, could make the concept an easier sell with taxpayers.
“Hopefully they’ll leave the retirement health benefits trust alone, keep it separate and treat it as a liability.”
Getting buy-in from Gov. Andrew Cuomo and other top state officials is essential, Cure added.
“The relationship with the state is the key to all this. New York is not the same city it was [in the 1970s],” he said. “Hopefully the governor senses that. There should be more support in the legislature with the support of the Democrats, hopefully.
“The only caveat is that at budget negotiation time, the state could want the city to finance more for public housing or for the MTA, for example.”
State Sen. Brian Benjamin, a Harlem Democrat and a possible candidate for city comptroller in 2021, introduced a bill last week that would move the measure through Albany, should it pass. He suggested a balance of $10 billion to $15 billion.
Voters are not required to vote for all five ballot items, though they must approve or reject all proposals within a group. Other city budget questions include guaranteed minimum budgets for the five borough presidents and the public advocate.
“CBC does not support minimum or guaranteed budgets since they restrict the budgetary discretion of the executive and legislative branches,” Rein said. “Budget guarantees also can result in increased budgets for certain offices or functions while other critical services are cut during a recession.”
Still, said Rein, the proposal enables the mayor to propose lower budgets for these offices with a justification, and having the minimum budgets mirror the total city budget, rather than guaranteeing an increase
The other groups involve elections, the Civilian Complaint Review Board, ethics and governance and land use. The elections question includes a proposal to establish a ranked-choice voting system for the three citywide races and the 51 City Council seats. It would allow voters to choose up to five people ranked by preference.
“Ranked voting could result in a more moderate person ultimately elected,” Cure said.