Speaker Adams with Council Members Brannan & Brewer (photo: William Alatriste/NYC Council)
The New York City Council on Wednesday kicked off the process of examining Mayor Eric Adams’ $98.5 billion preliminary budget proposal for the 2023 fiscal year, which begins July 1. It was the first of many hearings that will take place over the next several weeks as the Council digs into the first spending plan of Adams’ four-year term.
Last month, Adams proposed a somewhat cautious budget while stressing “fiscal discipline.” It reduced spending by about $4.3 billion compared to the last budget modification under his predecessor. The decrease is largely because of changing amounts of federal aid and some pre-payments into the next fiscal year that helped drive down out-year budget gaps.
Adams inherited a solid fiscal situation given massive amounts of federal aid and stronger than expected tax revenues, virtually erasing pandemic-induced deficits and vulnerabilities; but also a city budget with plenty of fat to trim given its immense growth over the years.
The new mayor, a Democrat, instituted a broad 3% Program to Eliminate the Gap (PEG) and identified a resulting $2 billion in savings across city government, but for a few agencies, while planning a reduction in the municipal workforce by 7,000 workers without layoffs. He outlined plans for spending one-time federal stimulus funds, made additions to the city’s reserves, and invested in programs to fund public safety, transit discounts for low-income New Yorkers, child care, summer youth employment, and more. On Wednesday, the Adams administration also released its online portal that tracks spending of federal stimulus funds, following the release of similar tracking tools by the state and city comptrollers.
Adams’ budget proposal launched a monthslong process that includes an initial set of Council hearings, which will be followed by a formal budget response from the Council outlining its priorities, then the mayor’s executive budget -- which will take into account the new state budget due by April 1 -- followed by more Council hearings and negotiations and ultimately a city budget deal by July 1.
At Tuesday’s hearing, Council members pressed Adams administration officials, led by Budget Director Jacques Jiha, for explanations about agency cuts, called for increased funding for various departments and services, and questioned the city’s preparations for the near fiscal future when federal funds run out.
“The COVID-19 pandemic brought inequity and social injustice to the forefront and highlighted the need to develop policies and programs aimed to protect our most vulnerable populations,” said Council Speaker Adrienne Adams, a Queens Democrat, in her opening remarks. “As we continue to move forward on the road to recovery, we must ensure that this year's budget is fair and equitable for all and makes deeper investments for children and working families, workforce development, mental health public safety, health care, education,...senior and elder care, and outer borough priorities.”
Council Member Justin Brannan, a Brooklyn Democrat and chair of the Council’s finance committee, echoed concerns shared by many of his colleagues, that the city’s cuts in spending will impact necessary services and core agencies that hold up the city’s social safety net.
“I think we must be careful that these cuts don't veer into unintentional austerity,” he said in his opening statement. “I'm troubled that some of the proposed cuts could hinder the city's revival, making it harder to achieve a fair and equitable recovery for all,” he added, pointing to proposed cuts at the Departments of Sanitation, Parks and Recreation, the Administration for Children’s Services, Human Resources Administration, and Department of Education.
Brannan noted that the Mayor’s Office of Management and Budget (OMB) also used a relatively cautious estimate of city revenues to justify those cuts rather than revising those estimates as the city continues its recovery.
OMB Director Jiha emphasized that the city’s recovery has been “mixed” and that there are several challenges ahead even with certain positive trends. Revenues have been higher than anticipated because of a booming stock market and better than expected personal income taxes, while retail and residential sales have rebounded.
But, the city has not recovered jobs as fast as the national average and unemployment remains at 9%, compared to 4% nationally. Industries like hospitality and tourism are bouncing back much more slowly, and the rate of employees returning to workplaces was hobbled by the Omicron surge. Office vacancy rates are reported to be almost 20%, the highest in decades. “Given these uncertainties, the administration took a cautious and pragmatic approach to the preliminary budget,” Jiha said.
He also pointed to risks stemming from the state budget, including a proposed permanent extension of the yearly $200 million Sales Tax Intercept for the Distressed Hospitals Fund, which has already sapped $400 million from the city, and another almost $300 million in cuts and cost shifts from other sources.
A chief concern for most Council members was the administration’s plan for continuing programs that are currently being funded with one-time federal funds. As Speaker Adams noted, between the 2022 and 2025 fiscal years, federal funds support $6.8 billion in new programs and $762 million in PEG restorations, nearly half of which goes to three city entities – the Department of Health and Mental Hygiene, Health + Hospitals, and the Department of Education.
“We are currently looking closely at every single one of the programs that was created as part of the recovery and we are assessing the future,” Jiha said. “If we deem it appropriate to continue the program after federal funding lapses, we will make the appropriate adjustments in the budget.” Jiha also said the administration expects city revenues to slowly bounce back by the time federal funds run out, allowing them to swap those rebounding revenues in their place.
Jiha faced several questions about the city’s PEG program, particularly the decision to cut 7,000 positions across roughly 40 city agencies — either existing vacancies that will not be filled or not filling upcoming ones as city employees find work elsewhere, retire, or otherwise depart. One after the other, Council members expressed concerns that cutting headcounts would affect services and programs whether it concerned school safety agents, firefighters, NYPD civilian positions, homeless services and housing programs, the buildings department, transportation department, mental health services, sanitation services, and more. But Jiha repeatedly emphasized that the administration made no layoffs and only sought to “right-size” agencies by reducing vacancies without leading to service interruptions.
“Even though we reduced vacancies, all the agencies continue to have vacancies,” he said. “Our goal is to work with them to make sure that they could backfill those positions. And if they manage to backfill those positions, and if they need additional resources at that time, we will have discussions with them to see if they need new resources to meet their mission.”
The mayor’s preliminary budget eliminated $500 million in projected labor savings that the de Blasio administration had budgeted but never explained how to achieve. But some Council members nevertheless pressed Jiha on whether labor savings may still be on the table, particularly as the administration negotiates municipal union contracts that are expiring.
“Is this administration actively negotiating with the unions to find budget savings and if so, has there been progress from these negotiations?,” asked Brannan.
Jiha and First Deputy Budget Director Kenneth Godiner said discussions with labor unions are in the works, particularly around health care costs. “Those talks are ongoing and as we move into contract negotiations, I'm certain that savings will be part of those discussions as well,” Godiner said.
“We have not identified a set labor savings target, but that will be a product of our negotiations between ourselves and our union partners,” he added.
To many Council member requests, Jiha offered congeniality and cooperation, but few definitive commitments. He promised at several points that the budget would be adjusted according to assessments of needs and the funding available to the city. He stressed, as Mayor Adams has, that this is only a preliminary budget plan and the administration crafted it only weeks into the new administration (Jiha is a holdover from de Blasio’s tenure).
Speaker Adams and Council Member Amanda Farias, a Bronx Democrat, asked about the administration’s plan for seniors, noting that the preliminary budget included no new investments in senior services. “This is a journey. The preliminary budget is the first step in that journey,” Jiha told the speaker. “And as we go forward and we would want an assessment that there is a need, we will try to accommodate it as long as there is the necessary resources available for us to do so.”
Council Members Ari Kagan, a Brooklyn Democrat, and David Carr, a Staten Island Republican, questioned Jiha about the high vacancy rates among school safety agents, with Carr suggesting greater compensation to reduce turnover. Jiha again said there continue to be sufficient vacancies and that any additional need would have to be evaluated when the time comes for it.
Council Member Julie Won, a Queens Democrat, asked for improvements to city procurement and contracting, which has been perennially beset with delays that lead to late payments of city contractors. “From my perspective, there is a need to overhaul the system,” Jiha said in response, promising to work with the Council and comptroller’s office on reforms to the system, some of which were recently promised via the results of a joint task force assembled by Mayor Adams and Comptroller Brad Lander.
Council Member Nantasha Williams, a Queens Democrat, pushed the administration to expedite appointments at the city Commission on Human Rights, citing the rise in hate crimes and discriminatory harassment in the city. She noted that there are 45 vacancies out of the commission’s 154 budgeted positions. “If they have a need and come our way, we would expedite them as quickly as possible so that they have the resources to deal with issues related to hate crime,” Jiha said.
The only Council member who expressed overt displeasure with the administration was Charles Barron, a Brooklyn Democrat. He worried that cuts would come at the cost of Council initiatives, which amount to about $300 million in the budget. “Don't let them turn this into a budget dance just for our initiatives,” he said to his colleagues. “$300 million is petty. If you get that back. You did not have a successful budget negotiation. This is a $98 billion budget. Let's stay focused on poverty.”
In his testimony on Tuesday, Comptroller Lander, a Democrat, noted the various challenges the city faces but was optimistic about the city’s recovery. He forecasted that city revenues will in fact surpass OMB’s projections by about $1.4 billion in the current fiscal year and $800 million in fiscal year 2023. “We face great risks and uncertainties – Russia’s war on Ukraine, inflation, federal monetary policy, climate change – but the indicators point uniformly to an ongoing recovery over the coming year,” he said.
Lander praised the administration for finding recurring savings through the PEG. But he also said the city has perpetually under budgeted certain expenses such as overtime, homeless shelters, rental assistance, and for placing special needs students in private schools (Carter cases), and that the expiration of federal funds will create several fiscal cliffs for the city.
Lander specifically pointed to overtime as an out-of-control cost, projecting it will be above budget by $431 million this year and $348 million in FY 2023. And he noted that the administration has not factored in the cost of wage increases for municipal workers as all municipal labor contracts are set to expire.
Lander also called on the administration to increase the amount of funds added to the city’s reserves, which are currently at an all time high raw amount of $6.1 billion but nowhere near what experts and watchdogs say it should be, which is roughly 12-15% of operating expenses. “We are far below the budget cushion we need to weather the next fiscal downturn, and the budget includes no plan to get there,” he said. “It remains urgent to codify regular deposits into the Rainy-Day Fund year-over-year.”
The Independent Budget Office, a nonpartisan city agency, also projected that surplus revenues will be higher than OMB expects. In an analysis of the preliminary budget, IBO stated that the city is on “a slow but sustained pathway toward economic recovery.” But, the agency also acknowledged the many challenges the city faces. “[T]he unpredictability of the virus, combined with recent geopolitical instability, result in an economic forecast that is characterized by a disproportionate share of downside risks,” the analysis reads.
Citizens Budget Commission, a nonprofit watchdog, similarly called for continuing a PEG in the next budget, plans for avoiding fiscal cliffs, and annual deposits in the Rainy Day Fund.
“Streamlining and improving City services is critically important to ensure effective use of taxpayer resources and high-quality services for residents and businesses,” said Ana Champeny, CBC’s deputy research director, in her testimony. Though she praised the PEG initiative, she noted that most of the savings came from eliminating vacancies and re-estimating spending rather than more operational efficiencies.
After the initial broad hearing on the mayor’s budget plan, the Council will now move into weeks of hearings examining the budgets of specific agencies. Brannan, as finance chair, will co-chair all of them, along with Council members who chair specific committees, such as education, sanitation, health, and many more.