Stalled borrowing bill pressures mayor to cut New York budget
With state leaders reluctant to grant New York City additional borrowing capability to deal with its financial crisis, Mayor Bill de Blasio is facing calls to further cut the municipal budget.
The city’s own budget office has projected a $9 billion revenue gap for fiscal 2020 and 2021 from the effects of COVID-19. One positive item emerged on Monday, according to city Comptroller Scott Stringer's office: city tax revenues for the year through April rose $856 million, or 1.6%, to $55.9 billion compared to the same time last year.
“We have to get that stimulus support from Washington, we need borrowing authority from Albany. We don't have either right now,” de Blasio said Friday, before a weekend of violent protests over the police killing of George Floyd in Minneapolis. De Blasio’s 25-year-old daughter, Chiara, was arrested for unlawful assembly Saturday night.
City Council Speaker Corey Johnson wants de Blasio to cut 7% of spending across all agencies.
“We must search agency budgets for more savings to ensure that we have done everything we can to balance the budget without resorting to borrowing that will have significant long-term implications for New York City’s future,” Johnson said in a letter to de Blasio.
The council must act on the mayor’s $89.3 billion executive budget by June 30. Johnson wants de Blasio to detail any cuts to the council by June 8.
A federal relief bill with potential to help the city is stalled in the Senate.
A bill before the state legislature would authorize the city’s Transitional Finance Authority to borrow up to $7 billion to compensate for coronavirus-related revenue losses. The TFA issues bonds backed by the city’s income tax revenue.
Gov. Andrew Cuomo and top lawmakers, however, have been standoffish.
“I think it depends to a large degree on what the governor wants to do,” said Howard Cure, director of municipal bond research for Evercore Wealth Management. “My sense is that the governor expects to see the city make some cuts or obtain some concessions.”
Borrowing for operational costs, notably with longer-term repayment schedules, could raise alarm bells to rating agencies not just for New York but cities nationwide, Cure added.
Stringer and the Citizens Budget Commission also oppose further borrowing. Stringer estimated that under the Albany proposal, the city could pay up to $550 million annually over 20 years, or about $11 billion overall.
New York State authorized $11 billion of borrowing for itself in April.
De Blasio, who cited parallels with state-enabled bonding the city executed right after Sept. 11, still hopes for a compromise package from Albany this month.
Municipal bond analyst Joseph Krist expects the city to receive borrowing authority but under tighter oversight, possibly under the New York State Financial Control Board. That board since the 1970s crisis has approved city budgets, but has operated largely in sunset mode.
“The real story is the lack of trust between the mayor and the state, both the legislature and the governor,” Krist said, noting concerns about “absolute spending levels” by the city, its workforce expansion and accountability levels for programs such as the $850 million mental health initiative ThriveNYC.
“While publicly unspoken, these are real drivers of the debate,” Krist said.
The economic hit from the coronavirus followed years of prosperity for New York.
“The pandemic has exposed some of the city’s weaknesses,” Cure said, referring to problem units such as the New York City Housing Authority and Health + Hospitals. “Then there’s the fact that there’s no rainy day fund and the city’s been drawing on funds better left for capital programs or OPEB [other post-employment benefits].”
City voters last year approved the establishment of a dedicated rainy day fund, but municipal and state officials still must hash out the mechanisms.
The city’s Municipal Water Finance Authority intends to sell $628 million of tax-exempt, fixed-rate water and sewer system second general resolution revenue bonds on Tuesday, with proceeds to fund capital projects and refund certain outstanding bonds for savings.
Moody’s rates the bonds Aa1, while Fitch Ratings and S&P Global Ratings each assign AA-plus ratings. The authority has $30.8 billion of debt, according to Stringer’s office.
Siebert Williams Shank is lead manager, with Barclays and Raymond James co-senior managers.