State of uncertainty: NYC’s FY 2021 budget cautious ahead of cuts
The shadow of Gov. Andrew Cuomo hung heavily over City Hall on Thursday as New York City’s preliminary budget for fiscal 2021 was released.
Even before Mayor Bill de Blasio unveiled his $95.3 billion budget plan, the mayor detailed how the state’s projected $6 billion budget deficit could impact the city, including possible massive cuts to education and health initiatives.
“To sum up, the reality and the challenge is from Albany,” de Blasio said. “Sometimes I talked to you about other challenges we face, sometimes we face multiple challenges. This time it's really straight forward — it's all coming from one place, the numbers are huge. Two big state-run pieces — the MTA and Medicaid — two big financial challenges. We're going to deal with both of them, but this is going to be the story that really determines what our city budget ultimately looks like.”
“It’s a cautious budget — and rightly so,” said Howard Cure, director of municipal bond management for Evercore Wealth Management, who cited uncertainty about what the state might do.
He said the state could look to raise taxes rather than imposing cuts — something that has been talked about in the legislature but that the governor has been loath to do.
“The state is concerned about its own budget deficit,” Cure said, who added that most of the growth in city spending comes from embedded labor costs and there was not much that can be done about that.
The Citizens Budget Committee offered praise tempered with caution.
“The budget presented today holds the line on new spending programs, which is a welcome and positive change," said CBC President Andrew Rein. “However, it misses the opportunity to further improve the city’s preparedness for looming risks — including potential cuts in state aid or weaknesses in the economy.”
CBC said that after growing more than 6% annually in fiscal years 2018 and 2019, city-funded spending growth is projected to slow to 4.0% in fiscal year 2020 and 1.7% in fiscal year 2021.
“There are no new spending programs presented, and the citywide savings plan is estimated to generate enough savings to offset agency expense increases, which are both positive developments,” Rein said, adding however that fiscal 2021 savings amount to only 0.4% of city-funded expenditures. He urged greater agency efforts are needed to increase efficiency.
“Given Albany’s $6 billion shortfall and a signs of slowing economic growth locally and beyond, the mayor’s preliminary budget is built on a cautious foundation with few new spending initiatives,” said Doug Turetsky, the New York City Independent Budget Office’s chief of staff. “But the city’s capital needs remain extensive and a cornerstone of the plan includes capital commitments by the city ranging from $12 billion to $15 billion over the years 2020 through 2024.”
He added that debt service costs were continuing to increase.
“As in past years, the cost of debt service remains one of the fastest rising portions of the budget, rising from $7.1 billion this year to $9.4 billion in 2024, about 13% of projected tax revenue,” Turetsky said.
“Currently, the debt service for the city TFA FTS and city appropriation debt, or conduit debt, excluding the effect of pre-payments, is 7.3% of the city’s total budged revenue in fiscal year 2020. That ratio is projected to rise to 9.2% in fiscal year 2024,” OMB said in a report accompanying the budget release. “As a percentage of tax revenue, the debt service ratio is 10.9% in fiscal year 2020 and projected to increase to 13.1% in fiscal year 2024.”
Speaking on the debt service, de Blasio said “that is to accommodate the huge amount of capital spending that we need to do. And I remind you, that has a direct connection to the fact that you're not seeing, most importantly, a national infrastructure plan. You see not as much as we'd obviously like to see from Albany either, but, most importantly, you know, if we had a national infrastructure plan, we would not be spending so much of our own money on capital. There is no national infrastructure strategy. We have to do it. We have to pay the debt service.”
Melanie Hartzog, director of the Office of Management and Budget, said savings totaled over half a billion dollars.
“We are achieving savings of $714 million across fiscal years ‘20 and ’21, and the major sources are roughly $263 million — these are two-year combined roll-up numbers, $263 million of which is spending rate estimates; $252 million is reimbursement rate estimates; and $141 million in debt service,” she said.
The 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. That's not counting the various city authorities that issue debt.
The NYC Transitional Finance Authority has $38.9 billion of debt outstanding while the NYC Municipal Water Finance Authority has $30.8 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 (A1/AAA/AA+) and second general resolution bonds (Aa1/AA+/AA+).
For fiscal 2020, the city has estimated total bond issuance of $8.61 billion, with sales of $9.9 billion in fiscal 2021, $11.3 billion in fiscal 2022, $12.7 billion in fiscal 2023 and $13.3 billion in fiscal 2024.
Moody’s Investors Service rates the city's GOs Aa1 and S&P Global Ratings and Fitch Ratings rate it AA. All three rating agencies assign stable outlooks to the GOs.
The City Council took a wait-and-see measured approach to the new budget plan.
“We are keenly aware of the challenges presented to the city this year by the $6 billion state budget deficit, which is largely driven by the $4 billion Medicaid shortfall,” the City Council said in a joint statement issued by Speaker Corey Johnson, Finance Committee Chair Daniel Dromm and Capital Budget Subcommittee Chair Vanessa Gibson. “The full impact of this deficit is unknown at the moment, but we will continue to work with our partners in state government to do everything we can to make sure that our 8.6 million constituents don’t lose critical services they depend on.”
Cure said that while the council would have priorities of its own, he hoped they would be as restrained as the mayor was in his proposal.
“The council is also mindful that while the city’s economy remains healthy, we must plan for future financial slumps,” the council said. “We will work with the Administration to find savings in the budget while continuing to grow our priorities like Fair Fares, criminal justice reform, education, affordable housing, homelessness and transportation.”
"Moving on to our all funds budget, you're looking at the five-year financial plan, which breaks out our federal, state, and city funds. Fiscal year ‘21 all funds budget is $95.3 billion and the city's funded budget is $70.8 billion. You'll also note that the Fiscal Year ‘21 budget that we continue to maintain historic levels of reserves at $6 billion, $1 billion of which is in the general reserve, $250 million is in the capital stabilization reserve and $4.68 billion is in the Retiree Health Benefits Trust," Hartzog said.
“Formidable budget gaps faced by the State of New York may lead to cuts in state aid that could impact city finances and services, and present a significant risk to the city budget that makes spending restraint particularly important in the current budget process,” Rein said. “In the last two years, between $1.5 billion and $2.0 billion has been added to the budget between the preliminary budget and the adopted budget. The City Council should follow the mayor’s lead in holding the line on new spending initiatives, and new revenues should be deposited in the city’s reserves.”
Now that the mayor has unveiled his preliminary budget, the 51-member city council will hold a first round of public hearings over the next few weeks.
At the end of April, the mayor will release his executive budget. The council will issue its response to the plan and then hold a second round of hearings 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.