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How New York City Should Make 'Hard Choices' to Close Growing Budget Gap, Per Watchdog

6 presents fiscal year

De Blasio makes a budget presentation (photo: Mayor's Office)

New York City’s political leadership is staring at major challenges with a new city budget due by the July 1 start of the next fiscal year. Mayor Bill de Blasio and the City Council are facing massive drops in tax revenue given the coronavirus shutdown, and must still craft a balanced budget.

The mayor has sought a federal “bailout” to replace several billion dollars in lost revenue, but while the Democrat-led House of Representatives passed a massive relief bill the Republican-led U.S. Senate does not appear inclined to take it up. De Blasio is also seeking mandatory state approval for the city to borrow billions of dollars to cover operating expenses, but that effort has also stalled.

The Citizens Budget Commission, a nonprofit fiscal watchdog, is calling this the city’s “most severe fiscal crisis in generations.”

And to address that crisis, CBC recently released a report, “Hard Choices That Can Balance New York City’s Budget,” which includes a series of concrete proposals aimed at mitigating harm to New Yorkers and maintaining the city’s competitiveness while balancing the budget.

“If city leaders make the right hard choices, we can manage to close the budget gap without layoffs and without borrowing,” said Andrew Rein, the president of CBC, in an interview. “City leaders need to start now,” he added, but “addressing the crisis is doable.”

“Part of our concern is when you have a crisis like this it’s multi-year impacts and it takes a while to recover,” said Ana Champeny, CBC’s director of city studies and author of the new report. “The city needs to be thinking long-term.”

When Mayor Bill de Blasio released his executive budget plan in April, his administration expected revenue to fall by $5.3 billion in the next fiscal year, and put forth a tenuous plan to balance the budget based on that projection. But a month later, in the mayor’s annual revenue letter to the City Council, the administration projected another $1.6 billion in lost revenue for fiscal year 2021, with the gap then totaling $6.9 billion. The CBC report addresses how the city can rebalance the budget after this downward revision of the revenue forecast.

While de Blasio is seeking state borrowing permission for up to $7 billion to cover operating expenses, which he called a backstop if federal aid doesn’t come through, Rein and a number of other prominent voices have warned against this. Governor Andrew Cuomo has expressed significant skepticism (even as the state moves to do its own additional borrowing), while City Comptroller Scott Stringer has questioned the idea citing long-term costs of the debt services and a lack of serious belt-tightening by the mayor, who has overseen an exploding city budget in his six years in charge. City Council Speaker Corey Johnson and others, including State Senator Brian Benjamin, key voices in the process, have also been skeptical, saying the mayor needs to show a real plan if he’s seeking such borrowing capacity.

“Borrowing should be at the bottom or near the bottom of any choice,” Rein of CBC said. “It pushes off current costs so future New Yorkers have to pay for services they’re not getting and constrains future budgets through debt service.”

“There are times that [borrowing] has been necessary but we’re not at that time yet given current projections and options available to us,” Rein said.

The $1.65 billion in gap-closing measures for next fiscal year identified by CBC include reducing the city’s workforce, increasing property taxes, and other budgetary maneuvers. That number increases in subsequent years, by CBC’s design.

CBC is also proposing that the city uses $1 billion of its budgeted reserves by freeing up $750 million of the $1 billion in the current budgeted general reserve and the entire $250 million capital stabilization reserve.

The biggest gap-closing measure that CBC proposes is a 9,000-employee reduction in the city’s 334,000-person workforce, which would come solely through attrition, meaning not filling positions vacated due to retirements and other voluntary departures. The city sheds about 7% of its workforce every year, according to Rein, but those departures have been replaced and then some under de Blasio.

“We’re talking about bringing the workforce back to where it was in 2016,” Rein said, in reference to the fact that the city’s personnel roster has grown significantly under de Blasio, who took office in 2014.

Per the CBC plan, the largest personnel reductions would come from NYPD officers and Department of Education administrators. These would save the city $450 million in the coming fiscal year and $898 million in the following fiscal year (FY2022).

CBC is also advocating for a two-year temporary increase in the property tax. It suggests a start date of July 2021 for the increase, so it would coincide with an expected economic recovery. A 2% increase in the property tax could boost the city’s coffers by $690 million for fiscal year 2022, with the average homeowner paying $143 more as a result, according to CBC.

Additionally, CBC reiterated its calls for de Blasio to address inefficiency in city government that could yield further savings. Citing prior reports, CBC says welfare fund consolidation could save the city $164 million, while productivity improvements at the Department of Sanitation and the elimination of the Absent Teacher Reserve, which would both require collective bargaining, could save a combined $160 million. If the city centralized procurement at the Department of Citywide Administrative Services, the savings could be $80 million, the report says.

CBC also believes that all agencies could cut 1% of their budgets, for additional savings of $700 million.

The report also suggests that the city reform its health insurance policies so that city employees and retirees contribute towards the cost of insurance. The city would save $350 million if retirees paid 16% of the premium for pre-Medicare insurance and 25% of the premium for Medicare Part B and Supplemental Medicare coverage. The city would save another $700 million annually if employees making under $65,000 contributed 6% for single coverage and 8% for family coverage and employees over $65,000 contributed 14% for single and 16% for family coverage. The CBC notes that these contribution rates are equal to or under the rates for New York State employees.

The report also recommends that the city’s five-year capital plan be reduced by $6.7 billion (or 10%). This includes savings of $2.4 billion in reduced new school construction and $4.3 billion by delaying and limiting expansion projects.

And, CBC suggests the sale of parking lots and underutilized buildings owned by the city could generate $50 million for next fiscal year.

Given recent events and the ongoing discussion around how much by which to reduce the police department’s roughly $6 billion annual operating budget, the CBC proposal to reduce the number of NYPD uniformed officers by 1,174 is noteworthy. This would represent a 3.1% decrease in the total number of uniformed police officers in the NYPD. It would also come five years after the NYPD added nearly 1,400 uniformed officers at the request of the City Council, then under Speaker Melissa Mark-Viverito.

The current Council Speaker, Corey Johnson, supported that push as a rank-and-file member but has recently called it a mistake as part of the new effort he and other Council members are making to reduce the NYPD budget by $1 billion next fiscal year, a number de Blasio has called too high, though he has pledged to shift some funding from the NYPD to youth and social services.

The change in the NYPD force suggested by CBC would come through a combination of attrition and adjusting the sizes of incoming police recruit classes. It would save the city $57 million next fiscal year and $100 million annually in the years to come.

It would also represent a 1% reduction in the NYPD operating budget, currently $5.9 billion, for the new fiscal year and a fraction of the $1 billion (16.9% of NYPD budget) that some activists and local lawmakers have been clamoring for. Comptroller Stringer, by contrast, has put out a plan to reduce the NYPD budget by $1 billion over four years.

“We will be moving funding from the NYPD to youth initiatives and social services,” the mayor said at a June 7 press conference.

“The details will be worked out in the budget process in the weeks ahead,” de Blasio recently said, not putting a specific number on how much of a reduction he thinks the NYPD budget should or will see.

The CBC report also identified four streams of potential federal aid, which could help reduce the city budget gap. FEMA could waive the 25% local share for disaster funding, which means the city would gain $600 million. An extension of the enhanced Federal Medical Assistance Percentage (eFMAP) by another six months to July 2021 would mean an additional $224 million in federal funding. The city could also receive an additional $717 million in federal education aid through the state for fiscal years 2022. Lastly, the city could receive general disaster aid from the federal government and CBC estimates that $5 billion would be a reasonable figure. In total, CBC believes that the city could receive $8.2 billion in additional federal funding, based on similar events, such as the Great Recession.

“There’s no question that the federal government should cover the additional costs,” Rein said, referring to the pandemic and resulting recession. However, the likelihood of such aid cannot be counted on. According to Rein, “the federal government has stepped up more in the past than it has in the present.”

“Quite frankly the city needs to adopt the budget, it cannot wait for the federal government,” Rein said.

The city has already received several billions of dollars in federal aid to cover costs related to the coronavirus public health crisis, which has killed over 17,000 New York City residents.

In the race to succeed Stringer as the city’s chief fiscal officer, some of the declared candidates have put forward their own proposals for solving the city’s budget issues. Most proposed increasing taxes on the wealthy to close the budget gap, which would have to happen at the state level, unless the property tax levy is adjusted as CBC is suggesting.

Manhattan City Council Member Helen Rosenthal is the only of the four declared 2021 comptroller candidates who supports the city borrowing to close the gap. She would limit borrowing to $2 billion, she said. She also proposes to undo the 100% state rebate on the stock transfer tax, which could generate billions of dollars split between the state and city governments. She opposes wage freezes for the city workforce.

Brooklyn Council Member Brad Lander proposes to eliminate the “carried interest” loophole, which allows private-equity and hedge-fund managers to pay a lower rate on their earnings than the income tax. Lander is opposed to borrowing for closing the city budget gap, but says that it would be a good time to borrow more for long-term capital projects. He said labor leaders should work with the city to find cost-cutting options.

Manhattan State Senator Brian Benjamin, who chairs the Revenue and Budget Committee, is skeptical about city borrowing, but has said it needs to be among the considerations. He also said the city should bring labor leaders to the table.

Queens Assemblymember David Weprin opposes borrowing for operational costs. He has proposed several solutions, including a commuter tax, legalizing online sports betting, and granting a new casino license in New York City.

Virtually everyone from CBC leaders to Stringer, Johnson, and the 2021 comptroller candidates is calling on de Blasio to find more in city agency savings, while not hurting New Yorkers who rely on the extensive social safety net. De Blasio has been reluctant to demand more in efficiencies from his commissioners and budget officials but has warned that without federal help or state borrowing permission, there will likely be deep, widespread budget cuts coming soon.

by Andrew Millman, Gotham Gazette

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