In the wake of the coronavirus pandemic, New York City is facing its biggest economic and fiscal challenges since the mid-1970s. The Big Apple’s recovery prospects are uncertain and hotly debated, but this much already is clear: with tax revenues cratering, the city government’s pre-pandemic spending trends are simply unsustainable.
Personal service costs, inflated by fringe benefits and inefficient work rules, are by far the biggest chunk of New York’s nearly $90 billion budget. Mayor de Blasio’s fiscal 2021 financial plan relies on a projected $1 billion in recurring annual labor savings that will require union agreement—but New York’s municipal unions have a long history of resisting such concessions, even in dire circumstances. In a symbolic move, the mayor furloughed himself and his staff for a week in mid-September. But a broader use of furloughs involving the unionized workforce would be litigated, if not cleared in labor negotiations. This probably explains why, even after winning approval from the city council for a supposedly balanced budget for fiscal 2021, the mayor continued to lobby for federal aid and threaten mass layoffs, and he renewed his quest for state permission to issue deficit bonds.
To achieve urgently needed labor savings and to enforce hard limits on spending during a difficult post-pandemic recovery period, New York City’s elected leaders need the kind of external pressure that can be provided by a surviving institution of the 1970s fiscal crisis: the state Financial Control Board (FCB).
FCB played a critical role in the city’s recovery from the brink of bankruptcy 45 years ago, and it can play that role once again in a very different crisis, brought on by the coronavirus.
FCB maintained tight control over city finances from its creation until the end of the original control period in 1986. Since then, it has remained in “sunset” as an external fiscal monitor, fully staffed and meeting at least once a year to confirm that the city is not violating basic guidelines of fiscal integrity. Crucially, the control board continues to derive political clout from its ex officio chairman, the governor of New York.
By asking Albany for permission to close deficits with borrowed money, Mayor de Blasio and the city council effectively have opened the door to a new period of state control. This is a door that Governor Cuomo should be willing to open.
This report explains how the state Financial Control Board could be fully re-empowered to help extricate New York City’s finances from post-pandemic deficits. It recommends reform legislation permanently establishing the control board, which is otherwise due to expire in 2033; restoring its original budget oversight powers; and increasing its discretion to block fiscal abuses.
New York City’s road to near-bankruptcy in the mid-1970s can be traced back to 1965, when Mayor Robert Wagner chose to balance his last budget with capital bonds.
Wagner’s proposal to, as he put it at the time, “borrow now, repay later, and reluctantly impose an increased real estate tax as soon as possible” wasn’t necessitated by economic stress. Quite the contrary: in 1965, both the nation and New York City were in the midst of what would be a prolonged boom. The city budget, however, was growing even faster than national GDP. In his third and final term as mayor, from 1962 through 1966, Wagner boosted spending by an inflation-adjusted 33%.
“I do not propose to permit our fiscal problems to set the limits of our commitments to meet the essential needs of the people of this city,” the mayor memorably declared.
The state legislature approved Wagner’s borrowing, although it rejected his attempt to lift the city’s constitutional property-tax limit. The following year, after John Lindsay had succeeded Wagner, state lawmakers and Governor Nelson Rockefeller approved a raft of new city taxes, including New York’s first commuter wage tax and a local resident income tax.
The added taxes boosted revenues but not enough to keep up with the budget’s continuing growth under Lindsay. Further increases in tax rates contributed to accelerated flight of residents and businesses from the city in the early 1970s. Although core services—police, fire, and sanitation—consumed a declining share of total spending, New York City’s budget grew by 125% during Lindsay’s tenure. Through the early 1970s, welfare rolls and the crime rate were both rising. After peaking in 1969, private payrolls in the city began to rapidly shrink. So did the city’s population.
By the time a national recession began in 1974, New York was primed for a fall, heavily dependent on capital bonds and short-term seasonal borrowing to finance its structural deficit. The state Urban Development Corporation’s failure to make debt service payments in February 1975 raised concerns among investors that New York City could be next to default. In March 1975, the city’s leading bankers informed Mayor Abe Beame that they would no longer invest in the city’s bonds. In the next few months, Governor Hugh L. Carey oversaw a fiscal rescue that relied initially on the creation of a new entity, the Municipal Assistance Corporation (MAC), to issue bonds backed by an added percentage point on sales taxes in the city.
MAC originally had unprecedented oversight of city borrowing and finances. If the MAC board determined that a budget was unbalanced, it was required under the original law to “promptly notify the mayor of such a determination and . . . review with him the manner in which corrective action may be taken in order to comply with” MAC conditions for issuing new debt.
MAC’s powers, while unprecedented, were not enough to provide reassurance to the bond market. By late summer, MAC itself was having difficulty marketing bonds; by September, the city was in danger of running out of money. New York’s leading politicians and financiers agreed that more was needed to assure bondholders—as well as the federal government, from which the city was seeking aid—that the city was serious about slashing its budget and paying its debts.
In September 1975, Governor Carey persuaded the legislature to pass the landmark Financial Emergency Act for New York City (FEA), an omnibus bill that began with a lengthy legislative finding that the city’s virtual insolvency was a “disaster and an emergency” with implications for the entire state, thereby justifying the exercise of state “police powers” to usurp the usual roles of local elected officials. Incorporated into the law was a wage freeze that had already been agreed to by most of the city’s labor unions.
The FEA’s enduring centerpiece was originally called the Emergency Financial Control Board, chaired by the governor serving ex officio, along with the mayor, city comptroller, and state comptroller, whose office would be augmented by a special deputy state comptroller responsible for providing the board with auditing services. Rounding out the seven-member panel would be three gubernatorial appointees from the private sector—ensuring that the ultimate accountability for the board’s effectiveness would rest with the state’s highest-ranking elected official.
The Power of No
Within the new financial reporting and planning guidelines established by FEA, the control board was not authorized to dictate spending priorities, recommend reforms, or otherwise interfere with the details of city operations. Its power was confined to setting limits—the kind Wagner had pointedly refused to recognize in the mid-1960s—while giving the city freedom to operate as it chose within those limits.
The control board’s oversight powers included approval of the city’s financial plans, borrowing, and contracts (including collective bargaining agreements). The board’s jurisdiction extended beyond the municipal government to “covered institutions,” including the city’s Board of Education, the Health and Hospitals Corporation, the Housing Authority, and the Transit Authority, which, at the time, had not yet been completely absorbed into the newly formed state Metropolitan Transportation Authority.
One of the control board’s most important early policy precedents was set in 1976 by its rejection of a contract between the Transit Authority and Local 100 of the Transit Workers Union (TWU), which gave rise to a set of board guidelines intended to apply to all negotiated labor agreements.
In addition to maintaining a freeze on “general” pay hikes, the board said that it would not approve any pay increase for TWU or other unions that was not “funded by independently measured savings realized, without reduction in services, through gains and productivity, reduction of fringe benefits, or through other savings (or revenues) approved by (the control board).” The guidelines also required collective bargaining agreements to “provide for a mechanism to permit savings in pension costs of other fringe benefits during the term of agreement.”
In 1978, just as the city was securing crucial federal loan guarantees, FEA’s original wage freeze expired and was not extended. However, amendments to the law that year included a new provision requiring that the city’s proposed union contract settlements “take into consideration and accord substantial weight to the financial ability of the city to pay the cost of such increase in wages or fringe benefits.” The control board was given the right to “intervene as a party” in any labor panel or appellate court proceeding on the “ability to pay” issue. But this crucial provision was set in advance to expire when the control period ended in 1986.
In addition to removing the word “emergency” from the control board’s title, the 1978 amendments also statutorily enshrined generally accepted accounting principles (GAAP) as the basis for determining whether the city budget is balanced. Cash accounting methods had allowed the city to deflate spending totals by delaying payments, but GAAP budgeting deters such gimmickry by requiring expenditures to be recognized no later than the year in which a liability is incurred.
Backed by the governor, FCB’s strong veto power over unaffordable spending made it a convenient political foil for New York’s mayors during the control period—Abe Beame from 1975 through 1977, and Ed Koch starting in 1978.
While Koch publicly criticized and complained about the board, deploring its creation as an affront to democratic governance and a loss of home rule for the city, he privately credited it with helping him fend off the spending demands of labor unions and other interest groups. On at least one occasion, in October 1979, Koch publicly urged FCB to put pressure on the city Health and Hospitals Corporation and the Board of Education to deal with fiscal problems that might otherwise have spilled over into the city budget.
With FCB as an ever-present reality check—and with tax revenues fortuitously boosted by a surge of double-digit inflation—Koch managed to produce the city’s first GAAP-balanced budget in 1981, a year ahead of schedule. FCB’s formal control period ended in 1986, when the city paid off the last of $1.65 billion in federally guaranteed bonds issued in 1978.
When the original fiscal crisis control period ended in 1986, FCB lost its power to approve financial plans, contracts, and borrowing. However, the board and its staff have continued since then to review city budgets and financial plan updates, and FCB is still required to notify the city if a financial plan update or modification fails to conform to the standards of FEA.
FEA originally had an expiration date of July 1, 2008, but the law and the life span of the control board were effectively extended to 2033, via language inserted into the covenants of city bonds issued before MAC’s debt was eliminated through a state refinancing in 2003.
The permanent extension in 2008 of the original added percentage point of MAC sales tax included, with the city’s endorsement, a continuing set-aside to cover the staffing costs of both FCB and the special deputy state comptroller for New York City. However, the legislature declined to extend the control board’s discretion to automatically trigger control of the city’s budget if it determines that a new control period is warranted. This has left FCB in the position of needing to ask the legislature to declare a new control period.
In 2005, New York City voters approved city charter amendments that made key FEA provisions part of the city’s underlying basic law. These included a requirement that the city end the year with a GAAP-balanced budget.
Meanwhile, the control board has continued to meet at least once a year, usually in July or August, to review the city budget for the fiscal year starting July 1, for the purpose of determining whether it will ask the legislature to reinstate a control period. Such a request would be triggered by any of the following:
- A GAAP operating deficit exceeding $100 million (a minuscule 0.1% of current spending) during a fiscal year
- Failure by the city to pay debt service due on any of its obligations
- Issuance of short-term notes in violation of FEA
- Any other violation of the act substantially impairing the city’s ability to repay its notes or bonds or its ability to adopt or adhere to a balanced budget
A board determination does not have to be unanimous. While there is no record of a divided vote in FCB’s history, the law creating the seven-member panel effectively gives a majority of four votes to the governor and his three appointees.
Governor Cuomo and FCB: Socially Distanced
Starting with Governor Carey in 1975, all but one of Andrew Cuomo’s predecessors personally chaired annual FCB meetings, which typically have been held in the governor’s Manhattan conference room. Every mayor since Abe Beame also has attended, as have both the city and state comptrollers.
However, in his first 10 years as governor, Andrew Cuomo has never attended an FCB annual meeting, including its virtual session via video conference on August 6, 2020, choosing instead to have his budget director serve as acting chair. Until this year, Cuomo also was the only elected governor since Carey never to have made any appointments to the FCB board. Through June 2020, one of the governor’s three control board appointee positions was vacant, and the other two slots were occupied by appointees of Governors Eliot Spitzer and George Pataki. (David Paterson, the lieutenant governor who succeeded Governor Spitzer upon the latter’s resignation in March 2008, made no FCB appointments during his time as governor.)
In the pandemic crisis, however, Cuomo has shown signs of taking a greater interest in the control board. In July 2020, he named his first FCB appointees:
- Steven M. Cohen, a lawyer now working as a self-employed private consultant who served as the governor’s first chief of staff in 2011, after four years as a senior adviser to then–attorney general Cuomo; 
- Bill Thompson, who served as city comptroller and as an ex officio FCB board member, 2002–09
- Rosanna Rosado, former editor and publisher of El Diario, who also is the Cuomo-appointed secretary of state
Previous governors selected their FCB members from the ranks of private-sector corporate executives or financiers. Cuomo’s FCB appointees are notable mainly for their governmental backgrounds, as well as their close personal and political ties to the governor.
The August 2020 board meeting provided further indication that Cuomo, through his appointees, may be willing to position the board for a more active oversight role. Citing uncertainty about the city’s economic recovery and major downside risks to various assumptions in de Blasio’s latest financial plan, FCB acting director Jeffrey Sommer recommended that “the board consider meeting after the first-quarter (financial plan) modification is submitted to ensure the city is on the path to budget balance in fiscal 2021 and reducing the out-year budget gaps.” Cohen, the newly appointed board member most closely associated with the governor, indicated that he agreed with Sommer’s suggestion. “I think we need to keep a careful eye on what is about to unfold and what we’re all living through,” Cohen said.
If another FCB meeting is scheduled in the fall of 2020, it would mark one of the very few times since the original fiscal-crisis control period that the board has held an official session outside its regular annual budget review.
On two occasions in the first 16 years after the initial control period ended, New York City encountered fiscal problems that might have drawn the control board back into a more active stance.
The city’s first fiscal crisis of the post-control period came in late 1990, amid a recession that was mild nationally but severe in the New York City metropolitan area. With revenues already falling short of projections, Mayor David Dinkins agreed to a tentative teachers’ contract with pay hikes of 5.5%, announced hundreds of millions of dollars in proposed new city taxes, and projected growing budget gaps that might necessitate 15,000 layoffs. This prompted then-governor Mario Cuomo’s three control board appointees to request a private meeting with the mayor, from which they emerged with a public statement expressing concern about the budget outlook for coming years.
In December of that year, after signing off on a pension-fund accounting gimmick that freed cash to finance part of the new teachers’ contract, Cuomo warned that the city might be headed for a control board takeover. To Dinkins’s public annoyance, the threat of a takeover loomed in the background of the city’s budget process for most of 1991, as both the state and city grappled with fiscal crises and severe budget gaps.
The control board’s more vigilant posture ended in 1992, however, when FCB staff labeled the mayor’s FY 1993 budget “comprehensive,” “complete,” and “viable.” In 1993, with Dinkins running for reelection against Rudolph Giuliani, the control board praised the mayor’s handling of the budget—although Giuliani would need to make significant cuts to balance it after taking office in 1994.
The 9/11 Deficit
New York’s next fiscal crisis, widely seen at the time as the worst since the 1970s, came after the terrorist attacks on September 11, 2001. Two days later, the state legislature held a special session to approve a $2.5 billion expansion in the city’s borrowing capacity through the Transitional Finance Authority (TFA), which had been created a few years earlier to get around the city’s capital debt limit. At the time, city officials feared that they would lack the funds necessary to cover the enormous cleanup and reconstruction costs at the World Trade Center site. As explained by Giuliani on September 13:
That same day, however, President Bush asked Congress to approve a $20 billion supplemental appropriation to deal with the attack’s aftermath, including recovery aid for New York City and State. Within a year of the attack, the city had received $900 million in Federal Emergency Management Agency (FEMA) reimbursements to cover $1 billion in direct overtime, demolition, and reconstruction expenses at the World Trade Center site, with billions more dollars to follow for a variety of lower Manhattan projects.
While the human cost of 9/11 was incalculable, the net impact on city finances of recovery expenses was minimized by federal assistance. Yet in early October, when it was already clear that Bush and Congress would deliver on the federal aid promise, the city issued its $1 billion in long-term TFA Recovery Notes, which were converted the following year into bonds. Another $1.1 billion in recovery bonds were issued in summer 2002. The total issuance of $2.1 billion in TFA bonds, all maturing in 2022, was expected to add $150 million–$180 million a year to the city’s debt service costs, according to the city comptroller. As of 2019, $558 million in recovery bonds were still outstanding.
In fact, 9/11 was not the sole cause of the city’s fiscal shortfall in fiscal 2002. Three months before the attack, the term-limited Giuliani’s last budget called for raising the employee headcount to a new high and increasing city spending at nearly twice the inflation rate. It contained an operating deficit of more than $2 billion, covered with prior-year surpluses.
Echoing other fiscal monitors at the time, FCB staff had warned in a July 2001 report that “the city’s fiscal fortunes are about to enter a period of choppy water,” with tax receipts projected to fall for the first time since 1995. While just over half the projected drop was due to new or expanded tax cuts (which would be canceled after the attack), “the remainder is due to the slipping economy, which in a matter of months has undermined confidence in the national expansion.” Giuliani had forecast the 2003 gap at $2.8 billion, but FCB identified nearly $1.3 billion in additional risks across the 2002 and 2003 fiscal years.
GDP data later confirmed that a national recession had begun in March 2001 and would continue through November of that year. While 9/11 hit the economy hard, it came late in an already-depressed cycle—and the economic consequences turned out to be fleeting, even in New York City.
It is difficult, even in retrospect, to disentangle the net economic effects of the terrorist attacks from those trends already in place before 9/11. However, it is not unreasonable to speculate that the city would have faced serious deficits even if they hadn’t happened. In effect, the TFA borrowing covered previously baked-in budget gaps as well as revenue losses traceable to the attack.
The willingness of the state and city comptroller in 2002 to accept the classification of TFA bond proceeds as “revenue” for GAAP budget-balancing purposes clearly violated the spirit, if not the letter, of FEA. Under Governor George Pataki, with Michael Bloomberg having succeeded Giuliani as mayor, the board turned a blind eye to a fiscal 2002 GAAP deficit 10 times the size of the FEA control trigger limit. This may have been understandable under the circumstances, but it established a precedent that is coming back to haunt the city and state in the coronavirus crisis.
De Blasio’s Proposed Borrowing
The broad shutdown of New York City’s economy blew a large hole in the economic and revenue forecast that Mayor de Blasio had issued in January. In his Executive Budget, presented in April, the mayor tapped reserve funds and targeted federal coronavirus relief aid and savings from a hiring freeze, in order to close a two-year gap projected at $8.7 billion.
In late May, de Blasio updated his financial plan to reflect a further $1.6 billion drop in revenues, warning that the added shortfall might force him to lay off 22,000 city workers. On May 25, at the mayor’s request, Sen. Liz Krueger (D-Manhattan) introduced a bill expanding the city’s TFA bonding capacity by $7 billion, “to finance or refinance all costs or deficiencies in the city’s budget which are, in the judgment of the mayor, related to or arising from the epidemic resulting from spread of the disease known as COVID-19.”
Krueger’s memo in support of the bill cited the post-9/11 TFA borrowing as a precedent. The proposal was not supported by legislative leaders, however, and prompted a general warning from the governor against borrowing to pay operating expenses.
In public statements before and since the adoption of the city’s fiscal 2022 budget at the end of June, the mayor reduced his deficit borrowing request to $5 billion to help with the impact of the coronavirus. According to the Independent Budget Office, however, the city budget has already taken in $1.5 billion through the state and local government Coronavirus Relief Fund included in the March federal stimulus bill, known as the CARES Act. Billions of dollars in additional federal coronavirus relief aid are flowing to the city’s public health programs, the Health and Hospitals Corporation, and education.
Under its fiscal 2021 financial plan, the city’s official projection of a balanced budget for the current year assumes $1 billion in labor savings yet to be negotiated with unions and $300 million in police overtime cuts this year—neither of which, FCB staff noted, are likely to materialize. Even before de Blasio presented a supposedly balanced financial plan to FCB in August, the mayor was threatening layoffs if additional aid to the city from Washington didn’t materialize in a fifth federal stimulus bill—unless, that is, he was allowed to issue deficit bonds.
De Blasio’s more pessimistic revenue projections are not pessimistic enough—as FCB staff and the deputy state comptroller for the city agree. The city’s reduced spending projections assume that municipal unions will agree to labor cost savings of $1 billion a year, which even the mayor seems to doubt. Adjusting for these and other risks, including the prospect of still-higher pension costs, fiscal monitors agree that the true outlook as of September 2020 is closer to a $2 billion shortfall in the current year, $6.5 billion in fiscal 2022, and nearly $6 billion each year thereafter. The city still has just over $3 billion remaining in various reserve accounts, despite having drained them by more than half last year. But even if it spends every penny of remaining reserves and drops plans to replenish them, more realistic revenue and spending assumptions suggest that the city could face a gap of roughly $4 billion next year.
As bad as this may sound, New York’s relative fiscal outlook—in terms of projected budget shortfalls—is not as dire as it initially appeared to be, following the 2008 financial crisis, the 9/11 attacks, or the 1990 recession, much less the near-bankruptcy of 1975. However, the path to recovery in the aftermath of a pandemic is uncharted territory. Virtually overnight, the spring shutdown brought something new: a severe recession that wiped out all the city’s record private-sector job gains of the past decade, raised unemployment to more than 20%, ruined thousands of small businesses, and eroded the tax base.
Further complicating the city’s outlook is the fiscal condition of the state, which is in even bigger trouble because it lacks the relative bedrock of a property tax. The state is facing a shortfall of at least $8 billion for its current fiscal year, which ends March 31, 2021, and faces annual gaps approaching $20 billion, or more than 20% of its current state operating budget, in the next three years. Most of New York’s other largest cities, nearly all of them already on shaky financial ground, are also facing severe distress due to the pandemic. On Long Island, Nassau County won’t go broke soon, only because it already is under the purview of a state control board with expanded financing capacity; but fiscally teetering Suffolk County—the state’s most populous, outside New York City—lacks that safety net. In general, the state and local fiscal situation is perhaps the worst since the Great Depression.
To close its own massive gaps without significant tax hikes, the state will need to reduce local aid, contributing to a negative feedback loop. If New York City does not promptly get control of spending and live within its means, its own problems will add to the state’s burdens. Even if the mayor and governor realize their most realistic hopes for more stimulus aid from the federal government, it will only solve a portion of their problems—and only temporarily. Federal aid can patch holes in budgets, but it won’t quickly repair and rebuild the economy that supported spending trends into early 2020. In short, it’s in Albany’s interests to get New York City’s finances under control, literally and figuratively.
Re-Empower the Financial Control Board
If it persists, the mayor’s request for borrowing to cover operating expenses is a distress signal sufficient to justify reinstatement of FCB control over city finances. Governor Cuomo, even more so than his father in 1990, has reason to view the city’s current fiscal disarray and talk of borrowing as justification to prepare for a control board takeover.
Since a bill authorizing deficit financing would require the governor’s signature, Cuomo can seize on the mayor’s request as an opportunity to strengthen and update FEA for a new era of fiscal challenges. In the interest of New York City taxpayers, an FCB takeover would give the mayor the added leverage that he needs to bargain more effectively with labor unions and other interest groups.
The governor should take the position that deficit borrowing must be treated as a last resort, subject to the approval of the control board during a reinstated control period, in which the city would also need FCB approval for other borrowing; for contracts, including collective bargaining agreements; and for all revenue and spending estimates, as well as financial plans and plan modifications.
In addition, the governor should seek:
- An immediate freeze of city employee wages, which the board could extend a year at a time, subject to the offsetting savings as dictated by the guidelines set forth by the board in 1976. Savings should not be speculative and prospective; rather, they should have measurable cash-flow impacts that are confirmed and accepted by FCB before pay increases flow. Such a freeze would save the city at least $800 million over a full year if implemented in 2021.
- A restoration of FEA language allowing the control board to intervene on the issue of affordability in any collective bargaining negotiation that reaches an impasse and ends up in fact-finding, mediation, arbitration proceedings, or appellate courts.
- Permanent establishment of FCB and restoration of its pre-2008 discretion to unilaterally reinstate a control period in the future, based on existing triggers.
These reforms are worth pursuing even if the mayor does not pursue his request to borrow in the coming year. Making the control board permanent, restoring the automatic control period trigger, and beefing up the board’s tools for controlling spending would ensure that FCB is well positioned to deal with future fiscal crises.
The prospect of a wage freeze, in particular, buttressed by the control board’s power to reject contracts during a control period, can provide mayors with powerful leverage to seek real, measurable concessions that unions have been adept at minimizing or avoiding.
One important caveat: ultimately, the control board will only be as strong and effective as its chairman, the governor, wants it to be.
The Control Board as “Bad Guy”
The response to the New York City fiscal crisis of the 1970s established a lasting precedent: while New York State law does not prohibit municipalities from declaring bankruptcy, the state will not allow it to happen. Instead, it will take control of local finances and make changes necessary to restore access to credit markets and prevent insolvency—as it has done in three other cities and two counties since the late 1970s.
This approach has not been applied with consistent rigor or with lasting success over the past 45 years, but it has strengthened the perceived creditworthiness of New York City and of all local governments in New York. The city itself has derived lasting benefits from the strong budgeting and accounting procedures put into place during the fiscal crisis, as well as the institutionalized accounting discipline required by the control board.
While local officials, starting with Abe Beame, unsurprisingly have been openly resentful of state fiscal oversight and control, experience has shown that FCB and its local counterparts in New York can provide essential discipline by insisting on cuts that local elected officials find it politically difficult to advocate on their own.
For public consumption, former mayor Koch recalled years later, his relationship with the control board was a “good guy–bad guy” routine. He described his message to labor leaders as: “You better make my life easier than you are making it. If not, I will just let the Control Board decide your increase.”
Bill de Blasio—and whoever succeeds him as mayor in 2022—would be well-advised to adopt the same attitude as Ed Koch. Practically and politically speaking, an activated FCB with committed gubernatorial backing would be the strongest ally of a fiscally responsible mayor confronting a badly unbalanced budget.
Financier Felix Rohatyn, who served on both the MAC board and FCB during the fiscal crisis, once observed that New York’s control board is “only necessary when things are very, very bad.”
- Specifically, Wagner sought to borrow $256 million in support of a budget totaling $3.87 billion, the equivalent of more than $5 billion in deficit borrowing in fiscal 2021.
- Clayton Knowles, “Mayor Proposes Deficit Spending in Record Budget,” New York Times, May 14, 1965.
- NYS Financial Emergency Act for the City of NY 868/75, Chapter 868.
- The legislature’s statutory power to impose such a freeze—which suspended contractually scheduled pay hikes until after the freeze ended, with no retroactive catch-up pay for the freeze period—was upheld by the state’s highest court in Subway-Surface Supervisors Ass’n v. New York City Trans. Auth., 44 N.Y.2d 101, 404 N.Y.S.2d 323 (1978), and subsequently has been affirmed in federal courts in several cases involving state control boards in other New York cities.
- The original bill called for only five control board members, including the four ex officio elected officials and one appointee of the governor. In last-minute negotiations, Carey and the legislature agreed to an immediate chapter amendment expanding the number of gubernatorial appointees to three.
- Chapter 201 of the Laws of 1978.
- Ronald Smothers, “Koch Invites Direct Pressure by Financial Control Board,” New York Times, Oct. 16, 1979.
- The lone exception was Governor Eliot Spitzer, who was in office for only one year during which an FCB meeting was scheduled. That meeting was on July 23, 2007, a day when Spitzer found himself otherwise engaged in responding to a just-released report by then–attorney general Cuomo accusing the governor’s staff of using the state police for political purposes.
- “Governor Cuomo Announces Nominations and Appointments to Administration,” July 23, 2020.
- While Thompson is the Cuomo FCB appointee with professional experience most relevant to the control board, he also has a potential conflict of interest as the Cuomo-appointed chair of the board of CUNY, which depends in part on city funding.
- Jeffrey Sommer, New York State Financial Control Board Meeting, August 6, 2020.
- Todd S. Purdum, “3 on Fiscal Board Press for Action on Dinkins Budget,” New York Times, Oct. 12, 1990.
- Elizabeth Kolbert, “Criticizing Dinkins, Cuomo Warns of Possible Takeover of Finances,” New York Times, Dec. 27, 1990.
- “Text of Mayor Giuliani, Governor Pataki and Police Commissioner Kerik,” New York Times, Sept. 13, 2001.
- Comptroller of the City of New York, “One Year Later: The Fiscal Impact of 9/11 on New York City,” Sept. 4, 2002.
- New York Transitional Finance Authority, “2019 Annual Financial Report,” Sept. 27, 2019.
- Factors contributing to the downturn included a lingering hangover from Wall Street’s 2000 dot-com crash, the boom-and-bust impact of the Y2K computer programming scare, and the Federal Reserve’s repeated increases in the federal funds rate in 1999 and 2000.
- The state comptroller in 2002 was Carl McCall, and the newly installed city comptroller was Bill Thompson—one of Governor Andrew Cuomo’s new FCB appointees in 2020.
- Senate Bill S.8418 (introduced May 25, 2020).
- Carl Campanile, Julia Marsh, and Nolan Hicks, “Legislature Declines to Authorize de Blasio’s $7B COVID-19 Loan for NYC,” New York Post, May 28, 2020.
- Independent Budget Office of the City of New York, “An Estimate of Federal Coronavirus Emergency Relief Act Funding to the City Budget,” prepared by Elizabeth Brown with IBO Staff, May 2020.
- New York State Financial Control Board, “Long-Term Budgetary Risks from Covid-19,” staff report, July 29, 2020.
- E. J. McMahon, “Freeze Public Sector Pay. Now,” Empire Center for Public Policy blog, Mar. 19, 2020.
- The same does not necessarily hold for related entities set up by local governments; for example, in the past 10 years, the Off-Track Betting Corporations (OTBs) of New York City and Suffolk County have declared bankruptcy, and, in New York City’s case, the agency was liquidated.
- Control boards were created to oversee the troubled finances of Yonkers (twice, in 1977 and 1985), Troy, Buffalo, Nassau County, and Erie County. In the last three instances, however, the state entity was a hybrid combining the responsibilities of a New York City–style FCB and MAC, with responsibility for both budget oversight and the marketing of bonds.
- For example, in assigning New York’s general obligation debt an AA rating in 2019, Fitch Ratings called “budget monitoring and control a key strength of the city’s operating performance assessment.”
- Eric Lipton, “Financial Control Board Withers with Prosperity,” New York Times, July 19, 2000.
Photo by Alex Potemkin/iStock