The city's economy & budget are in free-fall (photo: Benjamin Kanter/Mayor's Office)
New York City’s fiscal woes are worsening by the day as the COVID-19 pandemic has deprived the city of much needed tax revenue while likely forcing severe budget cuts that could be compounded by reductions in state aid. Though there is broad agreement that the best solution can only come in the form of a federal bailout, various other strategies and contingencies are being debated. And several of the candidates seeking to become the city’s next chief fiscal officer -- running for New York City Comptroller in the 2021 election -- differ as they evaluate and propose steps the city itself should be taking to stem the crisis.
Mayor Bill de Blasio proposed an $89.3 billion executive budget for the 2021 fiscal year beginning July 1. It was a budget pared down by $6 billion from earlier spending plans and which relied on $4 billion drawn from city reserves. At the time the mayor released that budget in mid-April, the city projected a $7.4 billion drop in revenue through the next fiscal year, which begins July 1. That projection has since increased to $9 billion.
On Wednesday, the mayor called on the state Legislature to give the city authorization to borrow $7 billion for operating expenses, which it currently cannot do on its own, as he also continued to demand federal aid as outlined in a package passed by the Democrat-led U.S. House of Representatives but not taken up by the Republican-controlled Senate.
Under state law, the city’s budget has to be balanced each year, which was a result of the financial crisis of the 1970s when the city’s out-of-control spending, including regularly borrowing to cover operating expenses, almost led to insolvency. That is also the reason the city cannot create a dedicated savings fund that does not count as part of the balanced budget.
De Blasio’s desperate plea comes as federal aid is held up in Congress and as Governor Andrew Cuomo threatens more than $8 billion in cuts to local aid, which would largely affect education and health care.
The four declared or exploring 2021 city comptroller candidates, all of whom are Democrats – Manhattan State Senator Brian Benjamin, Queens Assemblymember David Weprin, Brooklyn Council Member Brad Lander and Manhattan Council Member Helen Rosenthal – offered varying perspectives on whether the city should borrow funds and on other measures that could help cut costs, cover expenses, and boost revenue.
Budget experts and City Comptroller Scott Stringer, a term-limited Democrat running for mayor, have repeatedly warned against the idea of borrowing for expenses, a proposition that could lead to debt payments for decades. Stringer has estimated that the $7 billion debt would require either $11 billion in payments over 20 years or $12.5 billion over 30 years.
“The Mayor should be singularly focused on ensuring our City gets the federal relief we need,” Stringer said in a statement. “While it's too soon to rule out any specific budget action, New Yorkers should know that under the Mayor’s proposal our children could be paying over $500 million a year for the next 20 years. I urge extreme caution.” Stringer has also called on de Blasio to find more efficiencies in a city budget that has grown more than $20 billion in the mayor’s six-plus years in office.
Cuomo called the idea of borrowing for operating expenses “fiscally questionable” and the state Legislature refused to take up a vote on it on Thursday (despite the fact that in April Cuomo and the Legislature gave the state itself permission to borrow billions for operating costs). City Council Speaker Corey Johnson has expressed opposition to the current bill that would authorize city borrowing, saying it does not include strong enough guardrails.
Rosenthal, who previously worked for the Mayor’s Office of Management and Budget for seven years, is the only one of the three comptroller candidates who definitively believes the city should borrow funds for expenses. “We have to remember that this is a revenue problem. It's not an expense problem,” Rosenthal said in a phone interview. “So the circumstances are
wildly different than the 1970s where we were irresponsibly borrowing.”
Rosenthal suggests that the borrowing be limited to $2 billion, to address a part of the problem, while making cuts, finding new productivity savings and new revenue. She also said the mayor should only pull $2 billion, not $4 billion, from reserves.
The borrowing should be overseen by a new “revenue oversight board,” Rosenthal said, with a “laser focus” on revenue-building rather than the city’s expenditure, which is currently under the purview of the New York State Financial Control Board. “The Financial Control Board, those three words have baggage and connote wild and irresponsible spending,” she said, arguing that the opposite is true since the city’s bond rating was going up before the pandemic.
Among the fiscal control measures that have been floated by budget experts and elected officials are increased taxes on high earners (a favorite of de Blasio’s, though he has tempered calls for higher taxes amid the devastation of the coronavirus recession for fear of higher earners leaving New York) and freezes on wages for hundreds of thousands of unionized municipal workers that are set to increase under the various labor contracts negotiated by the city, alongside deferred retro-payments negotiated when de Blasio first came into office with all the unions operating under expired contracts.
Rosenthal pushed back against possible wage freezes, which she said could hurt working class New Yorkers employed by the city. “That, to me, is not a useful idea,” she said. She added, “When I think of city workers, I think of social workers, I think of people paving the road, I think sanitation workers, police, firemen, teachers, most of whom don't make over six figures.”
The main solution Rosenthal recommended is undoing the state’s 100% rebate of the stock transfer tax, which is imposed by federal law on stock transactions by brokers and brokerage firms and collected by the state. Those firms can then apply and receive a full refund.
The tax brings in as much as $16 billion annually, and even a partial reduction of the rebate would mean billions in new revenue that could be split between the state and city, Rosenthal said. “[That’s] a piece of low-hanging state legislation that should be pursued,” she said, noting that elected officials would be hard-pressed to defend that rebate. During the Democratic presidential race, entrepreneur Andrew Yang, former Mayor Michael Bloomberg, and Vermont Senator Bernie Sanders had all called for expanding this tax.
“The [phrase] ‘taxes on the wealthy’ is a trope and has become a lightning rod for the governor and he won’t agree to it, and that is why we should do the stock transfer tax...I want to hear people say that they don’t want to go after brokers and brokerage houses,” Rosenthal said, noting that these very businesses have been making money during the pandemic.
Rosenthal said the money recouped from that tax should go specifically towards covering the city’s revenue shortfall as well as launching a new jobs program that can put New Yorkers back to work at a time of record unemployment because of the pandemic.
Lander has been ardently opposed to the mayor’s proposal to borrow for immediate expenses, and would rather see more funding for the city’s capital infrastructure program, which involves borrowing for long-term construction projects and can create thousands of jobs. In light of the pandemic, the mayor significantly reduced capital spending over the current and next fiscal years in his latest budget plan, while pushing most planned spending to later years (when he will be out of office).
“Borrowing for investments for the long-term actually makes a lot of sense right now,” Lander said, noting that the city is well below the 15% limit that experts recommend for debt services costs, which are paid in the operating budget. “For infrastructure, for economic development, for affordable housing, the kinds of things that are capital projects. That is the kind of borrowing that we have room to do.”
“Keynesian economics say that the one counter-cyclical thing that you can do if you're not the federal government in a time like this is make some of those long-term investments,” he added.
Lander noted that the city still does not have a grasp on how much revenue it will have next year or an idea of when the economy will fully recover. “It's like you're a family that goes to the grocery store, and takes out a loan to pay your groceries. And the problem is, next week you're still gonna need groceries,” he said. “You’re not going to have more money. And now you're going to owe for next week's groceries and the interest on this week's groceries. So you really, really want to avoid that.”
Lander’s “number one” solution for revenue is closing the “carried interest” loophole that allows private-equity and hedge-fund managers to pay the capital gains tax, applied at a lower rate, rather than income tax. Cuomo proposed eliminating the loophole but it would only go into effect if neighboring states also took the same measure. Eliminating the loophole, which could bring in $1 billion in revenue each year, is particularly feasible right now, Lander noted, as New York is coordinating its coronavirus response with those very states (he made the argument in a recent op-ed).
Other measures could include a tax on the ultra-wealthy and restructuring the corporate tax, though that would not have an immediate effect. Lander also said the city should still move forward with the proposed restructuring of the property tax system, which the mayor has promised for years but has dragged his feet on. “We should restructure it so that as we start to come out of the pandemic and it is possible to start to make the kinds of investments that we need to make, that future increases are equitable and that they come from people like me whose properties have been underassessed and not from people who are already paying more than their share,” he said.
In particular, he said that he is “not a huge fan” of the idea of reducing or eliminating the rebate on the stock transfer tax. That move would be easy to circumvent, he said, since those transactions are electronic and brokers could easily move their transactions through another state. “That is basically like an electronic fiction,” he said, insisting it should be done at the federal level.
Lander was more circumspect about union wage freezes, though he said that the city should work with labor leaders to look at every possible option to cut costs and find savings. “In New York City's history, there have been plenty of moments of crisis when labor leaders worked with the city to come up with different kinds of savings,” he said. “Those savings can take many different forms, and it's definitely a moment where that dialogue needs to be underway.”
Benjamin, who chairs the Senate Committee on Revenue and Budget, has also warned against the city borrowing funds in the near term. “I wouldn't be asking for the $7 billion of [borrowing] authority right now,” he said in an interview this past week on the Max & Murphy podcast, “because to me, if you're going to ask for the $7 billion authority right now granted to you, then that tells the federal government, ‘Well they solved their problems. They don't need anything from us, right.’"
But he also hedged his answer, saying the city should have clear criteria for spending any borrowed funds “specific to COVID-related emergencies or emergencies that are created because of COVID-related issues.” He added, “I think if the city has a very thoughtful need for any of this $7 billion, that that money would be granted.”
Senator Liz Krueger, also a Manhattan Democrat, introduced the bill last week to allow the city to borrow the $7 billion. It passed a rules committee vote and is before the finance committee that Krueger chairs.
Benjamin was also open to the idea of renegotiating contracts with labor unions on wages and other costs. “It wouldn't be prudent to not look at every single thing. I don't know how you don't look at that,” he said.
Benjamin has sponsored legislation to allow the city to create a dedicated rainy day fund and has emphasized that the pandemic made it all that more urgent. “This is the precise time to [create] a rainy day fund...because now we are very clear on what are the consequences when we don't have one,” he said. The bill passed both houses of the Legislature last week.
He also indicated that property tax reforms are dead in the water in Albany this year. “We're really dealing with the COVID crisis,” he said when asked about property tax reform, which he had taken a major interest in. “And so I would imagine that we will fervently look at property taxes next year.”
Assemblymember David Weprin said rather than looking at the city’s borrowing proposal, state and city officials should be presenting a united front on seeking federal aid. “I think everybody has to unite together, the mayor, the governor, every elected official, to really push for a full-court press on Washington,” he said.
“Generally it's not a good idea, in my opinion, to borrow long term for operating expenses,” he added.
Weprin proposed several measures that he said could create permanent revenue streams for the city and state. Chiefly, he supports restoring the Metropolitan Commuter Transportation Mobility Tax, commonly called the Commuter Tax, which was imposed on nonresidents working in New York City till 1999. “When it was repealed by the legislature, it was just done when the city and state had surpluses. It was very good fiscal times. Obviously, that’s not the case now,” he said. Weprin proposes implementing a 1% tax (it was originally between 0.45 and 0.65%) which he said would bring in about $1.6 billion in recurring annual revenue.
He also said he would support a temporary increase in income taxes on the rich, though not without some reluctance. “I wouldn't do that in the first instance but having said that, I think there's a lot of new taxes we can create which would also create new industries and the industries themselves would create revenue,” he said.
Weprin wants to legalize online sports betting on professional and college sports, which would require an amendment to the state constitution. He has sponsored a resolution on that amendment along with State Senator Joseph Addabbo, but their efforts have stalled in Albany. As Weprin noted, New York is losing out on easy revenue as state residents travel to neighboring New Jersey, where online sports betting is legal, to place wagers. “We're losing hundreds and hundreds of millions of dollars of revenue,” he said.
He also supports granting a new casino license in New York City with a revenue-sharing agreement between the city and state that he said could raise hundreds of millions. “I think we have to look at creating new industries that'll produce revenue and also produce jobs at the same time,” he said.
Weprin was wary of the idea of renegotiating labor contracts that could affect firefighters, police officers, nurses and other government employees who he said are already fighting for additional hazard pay. “I certainly wouldn't be looking to reduce their benefits. They're heroes. They've been on the front line during the Covid-19 crisis,” he said. “When you’re in a major multibillion-dollar fiscal crisis, you don't want to rule anything out, but I certainly would not be looking to change agreed-upon, negotiated labor contracts.”
Note -this article has been updated.
Note - this article has been updated with an interview with Assemblymember David Weprin.