Just a few months ago, New York City’s economy was growing, and the city’s finances were sound and stable. Then came the coronavirus. We’re clearly in a starkly different reality than we were when the year started. Unfortunately, Mayor de Blasio’s recently released budget proposal for the coming fiscal year, which starts on July 1, doesn’t fully grapple with the implications for the city’s spending.
If he and the City Council don’t agree on a more realistic plan with sharper spending cuts, the city may be forced to cut more later — ultimately doing more damage to city services and the New Yorkers who depend on them. It’s looking more and more likely that de Blasio will hand off to his successor an empty municipal treasury and a pile of tough budget-cutting decisions.
De Blasio’s proposed spending plan for next year has already been met with considerable skepticism for its lack of aggressive measures to restore the city’s fiscal balance in the wake of the economic downturn. In particular, the mayor’s modest spending cuts may leave the city even more vulnerable to adverse economic shocks in the future.
In his $89.3 billion proposed operating budget, the mayor forecasts a $1.9 billion drop in tax revenues from the current fiscal year, and a $6.2 billion drop in other revenues. To balance next year’s budget, he counts on a liberal drawdown of reserves and a relatively small “Citywide Savings Program” that includes a hiring freeze and many expenditures rendered unnecessary or infeasible by the mild winter and the public-health emergency. Since many of these savings are only for one year, the impact of the savings program is even smaller in subsequent fiscal years.
In an analysis published today by the Manhattan Institute, I conclude that de Blasio’s proposed budget does not fully account for the very real risk that the city’s revenues will be much lower than anticipated, even if more federal aid is forthcoming (which remains uncertain). If revenues fall below the mayor’s projections, deeper spending cuts will be necessary, since the city is legally required to balance its budget. The city’s Independent Budget Office, for example, projects that tax revenues from the most vulnerable sectors of the city’s economy — sports and entertainment, accommodations, bars and restaurants, and retail — may be much lower than the mayor projects.
A helpful point of comparison is former Mayor Michael Bloomberg’s 2009 budget proposal, which was made under a similarly uncertain economic outlook. In comparison to de Blasio, Bloomberg proposed deeper cuts, including layoffs, and revenue increases. Longer-term, his approach likely placed the city in a much better position to deal with the consequences of the post-2008 recession than de Blasio’s strategy is today.
It’s clear that we need a more conservative approach to estimating revenues and a more aggressive approach to cutting spending. The question at hand is not only the upcoming year’s revenue uncertainties, but also those in coming years.
Notwithstanding the mayor’s choices, the city is required by law to keep its budget in balance. That means that even with additional federal aid, the city is in for a period of austerity. As the City Council now considers the mayor’s proposal, it should act in the long-term interest of the city and contrary to its usual inclinations. The Council needs to cut spending more, looking to the last recession as a guide.
For his part, de Blasio can help by negotiating labor concessions to freeze or defer pay increases, proposing an early retirement program, delaying commitments for bond-funded long-term improvements and selling city assets. However, given the political difficulty of many of these measures, layoffs may be unavoidable. One way to mitigate the effects of staff reductions is to use technology and evolving cloud-based business services to make city operations more efficient.
If the mayor and Council don’t bite the bullet now by making steeper cuts in the adopted budget, much deeper and more painful cuts may be necessary in the coming years. Cuts today shouldn’t be seen as unnecessary austerity measures; rather, they’re the key to protecting New Yorkers who use core city services from damaging cuts tomorrow.
This piece originally apeared at the New York Daily News
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Eric Kober is an adjunct fellow at the Manhattan Institute and author of the new issue brief, “De Blasio’s Budget: Putting Off the Tough Decisions.” He retired in 2017 as director of housing, economic and infrastructure planning at the New York City Department of City Planning. Follow him on Twitter here.
This piece originally appeared in New York Daily News