New York City should settle its expired contracts with 152 municipal unions by the end of the fiscal year or risk budget uncertainty that would resonate with bond rating companies, city Comptroller Scott Stringer said Wednesday.
"The rating agencies see a new mayor and new comptroller and they want to see us take our finances into our own hands," Stringer said during an analysis of Mayor Bill de Blasio's preliminary $74 billion budget.
De Blasio's challenge will be to negotiate with municipal worker and teacher unions demanding retroactive back pay. Some contracts expired several years ago.
The 51-member City Council must approve the budget by midnight June 30. According to Stringer, unsigned contracts might force an arbitrator's hand. "It's the big elephant in the room," said Stringer, who took office Jan. 1 after serving eight years as Manhattan borough president.
Full retroactive back pay could cost up to $8 billion, according to studies conducted by budget watchdogs.
Other uncertainties include health benefits and the costs of funding universal pre-kindergarten.
"Contract costs, universal pre-K, restoration of cuts and funds for already-agreed-upon health benefits we fear could put the budget out of balance in the next few years," said Natalie Cohen, the head of municipal research for Wells Fargo Securities.
Fitch Ratings and Standard & Poor's rate the city's general obligation bonds AA, while Moody's Investors Service assigns an Aa2 rating.
Overall, the budget presentation "met market expectations, and we do not expect any change in the city's credit quality," said Morningstar analyst Rachel Barkley. "However, we will continue to monitor the city's ability to balance its fiscal profile, as it is juggling many balls in the air."
Stringer also said his office would try to generate additional savings in fiscal 2015 debt service through aggressive refinancing.
Although he provided no savings goal, he did say that deputy comptroller for public finance Carol Kostik and new Office of Management and Budget director Dean Fuleihan have already realized $24 million in savings in the calendar year. "That's helped us a lot," he said.
Kostik held the same title under Stringer's predecessor, John Liu.
"Look, our office has to be aggressive about looking at every opportunity to do refundings as long as interest rates are low," said Stringer. "Hold me to that standard as I'm sure you will."
While Stringer praised de Blasio for setting aside $1 billion into the retiree benefits health fund and $300 million for general revenue to serve as a labor-contract cushion, he cautioned that the budget document only accounts for a 1% increase in salaries, to $22.2 million.
"That line is not going to stand at 1% if we are going to resolve our labor contracts," he said.
Deputy comptroller for budget Tim Mulligan said all retroactive back union pay would have to be budgeted in the year the parties signed the agreement. "If it's true retro pay, it's when the obligation arises," he told reporters.
Stringer sidestepped reporters who asked if employees should contribute to health plans. About 90% of city workers now make no such payments. "Frankly, I'd be overstepping if I began to pinpoint," he said.
The city charter requires Stringer to comment periodically on the fiscal condition of the city.
According to the February four-year financial plan, projected out-year gaps are $1.1 billion, $530 million and $370 million in fiscal 2016 through 2018, respectively.
Stringer also presented other options for generating revenue and savings, although many would need legislative approval in Albany. They include restoration of state revenue sharing to the city; collecting education funds due to the city under the Campaign for Fiscal Equity; and drawing down Medicaid funds for special education purposes.
