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MI Responds: New York City’s Budget Crunch

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MI Responds: New York City’s Budget Crunch

April 10, 2020
Urban PolicyTax & BudgetNYC

ON NEW YORK CITY’S BUDGET CUTS

This week, Mayor Bill de Blasio released a plan to cut $1.3 billion from New York City's budget, hoping to fill the growing fiscal gap. While the proposed cuts are wide-ranging, they are likely to be a very small down payment on an unprecedented fiscal crisis. While official numbers have yet to be released, the city's comptroller estimates losing upwards of $6 billion in tax revenue this year alone. Already, Mayor de Blasio has taken the remarkable step of calling on the state to grant him the authority to issue debt to pay for day-to-day operating expenses, a step last taken after 9/11. 

After increasing the city's budget by $20 billion and its workforce by 30,000 employees since taking office, Mayor de Blasio leaves New York with little capacity to weather these fiscal blows. After spending freely in its boom years, City Hall should now focus its spending on essential services, while identifying and rolling back non-essential spending now and in the coming years. Looking ahead, New York should plan for when the city re-opens—and ensure its government is better prepared for when a fiscal crisis strikes again.

 

Michael Hendrix, Director of State and Local Policy

ON THE CITY’S OPTIONS 

City Comptroller Scott Stringer’s mild criticism last year of the decision to reduce New York City’s “budget cushion” seems prescient today. The cushion includes accumulated resources and reserves that help the city weather a fiscal downturn. At $10.2 billion at the start of the 2020 fiscal year, the cushion represented 10.7 percent of the prior year’s expenditures, well below the Comptroller’s recommended range of 12-18 percent. Now that the fiscal storm is here unexpectedly, the missed opportunity to slow spending increases and build reserves when times were good will necessitate sharper spending cuts now.

The city will search for ways to balance the budget without layoffs, which are rightly seen as a last resort. Options to lower operating costs include freezing hiring (which has already been announced), reducing contract expenditures, cutting capital spending (debt service is an operating expense), refinancing existing debt to take advantage of low interest rates, and selling assets. The city may also seek tax increases, most of which would require state legislation. Only the property tax can be increased by the city on its own.

With a record city-funded payroll of more than 250,000 employees, layoffs may not be avoidable if revenues fall significantly. The city will need to determine which personnel are performing core activities of municipal government, and which positions are serving lower-priority functions.

Eric Kober, Adjunct Fellow



ON PUBLIC SERVICES 

It is worrisome that in its very first round of budget cuts, the city is targeting critical public-safety programs, such as the $24.4 million cut from its bike-lane expansion and other traffic-safety measures. This particular measure shows shortsightedness, in that as the city's economy reopens, New Yorkers who feel uncomfortable getting on subways and buses will need another safe way to get to work.

New York should immediately implement a public-sector wage freeze, saving $800 million. It should also look carefully across the 2,000 education administrators hired over the past seven years to determine which of these new jobs are essential in this crisis, potentially saving another $150 million. These two measures alone would buy time to assess how much more aid the federal government will provide and make further cuts that will have as little impact as possible on basic public services.

The fact that the de Blasio administration has immediately resorted to cuts in basic public services and amenities is not a good sign for how the city will approach likely cutting several more billions of dollars over the next fiscal year without endangering the city's already fragile social fabric and tax base.

Nicole Gelinas, Senior Fellow and City Journal Contributing Editor



ON CITY PENSIONS

For 20 years, from 1980 until 2000, New York City's required pension contributions stayed relatively stable at about $1.2 billion to $1.4 billion a year, thanks to robust stock market returns. But following the stock market fallout from the 9/11 attacks, the city was forced to start contributing much higher sums to pensions, a process that accelerated again in 2008. This year, the city was scheduled to contribute $10 billion to sustain its pensions, and the sharp stock market decline has dashed hopes that the relentless rise of pension costs may have finally slowed. Although it's too early to tell how deep or long the current bear market will be, if a 20 percent market decline is sustained, it could add anywhere from $250 million to $450 million in annual pension payments for the next decade or so. Meanwhile, the pension system’s funding has still not recovered from the last recession, and has now almost certainly deteriorated further.

Steven Malanga, George M. Yeager Fellow and City Journal Senior Editor



ON THE HOUSING MARKET 

Mayor de Blasio is dialing up modest cuts in the executive budget alongside calls to borrow for short-term operating costs. While these are trying times, there's surely room for smart cuts in a budget that has grown by $20 billion since 2013. That said, deep, long-term austerity and population loss is a policy choice, not a necessity, in a city whose land use regulations have since 1961 stood athwart the market-rate housing construction sector yelling "stop!"

The city could start by approving the SoHo rezoning and advancing market-rate housing construction all over waterfront Brooklyn and Queens and across Manhattan. These are locations where housing inventories have remained perennially tight. If other radical action is necessary, there are politically challenging but technically easy revenue options, such auctions of resident parking permits, which in normal times would raise some $3 billion while solving the serious policy problem of scarce street parking.

Alex Armlovich, Fellow



ON PUBLIC HOUSING

Those with growing concerns about whether New York tenants can afford to pay their rents should also consider the situation of the city’s biggest landlord: NYCHA. The cash-strapped housing authority’s second-largest source of revenue (after federal aid) in 2019 was $1.05 billion in rents. It needs those funds more than ever to keep up with its backlog of crucial repairs. The federal CARES Act provides some relief for public housing authorities—but only $685 million for operating assistance, for the whole country. To compensate for a likely decline in rental income, the city should reconsider its proposed $268 million Department of Housing Preservation and Development budget for fiscal year 2021, an increase of $23 million, much of which would go to subsidize costly new low-rent housing. This is the time to focus on keeping existing low-income housing safe.

Howard Husock, Senior Fellow and City Journal Contributing Editor

Photo by William Farrington-Pool/Getty Images

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