Watchdog wants control board leash on any New York City emergency borrowing
Any authority for New York City to borrow for operating budget gaps related to COVID-19 should come only with oversight from a reactivated New York State Fiscal Control Board, the watchdog Citizens Budget Commission said.
City leaders have better options to balance this year’s budget, according to CBC President Andrew Rein. “Borrowing should be a last resort, but ultimately could be a reasonable choice if revenues prove significantly lower than currently projected," he said.
The control board is a vestige of the city’s 1970s fiscal crisis. It still signs off on the city's spending plan, though in sunset mode. In rubberstamping the city's $88.3 billion fiscal 2021 budget, the board said essentially that the city's predicament does not warrant reactivating control.
Mayor Bill de Blasio has requested New York State permission for up to $5 billion of additional bonding to help cover a projected budget gap of $9 billion for this year and next, as a result of plummeting tax revenues and cost overruns related to the coronavirus. Gov. Andrew Cuomo and top lawmakers have been cool to the idea so far.
Without any federal rescue aid — a relief package is stalled in Washington — the city may have to lay off 22,000 employees, according to the mayor.
“The layoffs are clearly a bargaining chip to be played with a legislature that is increasingly impatient with the mayor's stewardship of the city,” municipal bond analyst Joseph Krist said.
Before borrowing, according to Rein, the city should implement all savings included in this year’s adopted budget and identify and implement an equal or greater amount of savings in future years. The amount authorized, he said, should be limited to what is necessary to address additional near-term revenue shortfalls that any new federal aid will not support.
The control board, said Rein, should certify borrowing as part of a "comprehensive and feasible" multiyear plan that leads to fiscal stability.
He also called for a period during which the control board must approve and condition each borrowing instance, monitor the city’s fiscal management, and approve or reject city actions with major fiscal impacts. In addition, said Rein, the control period would continue until the board determines the city can support recurring spending with recurring revenues or the city meets pre-determined benchmarks.
According to Krist, borrowing authority should also involve a more aggressive amortization schedule and other conditions related to cost-cutting.
“They would include obvious things like negotiated changes in all forms of compensation, work rule changes, better technology, and better physical plant management," he said "Everything should be on the table and all parties will see changes in their level of control.”
According to Municipal Market Analytics, governments have some leeway to borrow to help fund budget gaps without immediate consequence, a practice traditionally considered unthinkable.
“To the extent necessary, issuers should do so in a straightforward and transparent way,” MMA said. “Rating agencies have signaled greater tolerance for the act of deficit financing itself, provided there is reasonable plan to restore structural balance over the next few budget cycles.”
Moody's Investors Service rates the city’s general obligation bonds Aa1. S&P Global Ratings and Fitch Ratings rate city GOs AA.
The city has $38.1 billion of GO debt as of the second quarter of FY2020, according to city Comptroller Scott Stringer’s office.