Gotham Gazette

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New Reports Paint Bleak Picture of New York City Economy, Budget

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New York City economy is at a standstill (photo: Edwin J. Torres/Mayoral Photo Office)

Economists and budget experts concede that they can make no concrete predictions about how long the economy will be in recession because of the novel coronavirus outbreak and the cumulative effects it will have on jobs and revenue. Nonetheless, the consequences that they have been able to forecast show that the city has a tough road ahead, experiencing a worse downturn than in the early 1970s as 1.2 million jobs have already been lost and, with extreme social distancing measures in place for the foreseeable future, more losses expected.

Last month, with what information was available, City Comptroller Scott Stringer predicted that the city would lose as much as $6 billion in revenue by the end of the next fiscal year, June 30, 2021. But a new report from the city’s Independent Budget Office estimates that the cumulative tax revenue loss in that time could be closer to $9.7 billion, with expected revenue down by 4.6% in the current fiscal year (FY2020) and 10.5% in FY2021. Though revenue may begin to climb by 2022, IBO still predicts it will be lower by 6.6% that fiscal year.

“Damage from the pandemic is particularly intense in New York City because the city’s economy relies heavily on industries that have been largely shut down in order to limit the spread of the coronavirus,” the report reads. Against this backdrop, Mayor Bill de Blasio is about to release his executive budget plan for next fiscal year, facing the need to cut billions from the spending plan and look to the federal government for a bailout.

IBO assumes that the city will lose 475,000 jobs between April 2020 through March 2021, after which the economy will slowly start adding jobs till the end of 2022. Retail employment will lose about 100,000 jobs, hotels and restaurants will lose 86,000, and the arts, entertainment and recreation industries will lose about 26,000, its forecast says. Other job losses will be across a range of industries and sectors of the economy, the IBO predicts. The only sector that will not see expected losses is health care.

Unlike predictions by budget experts of a prolonged recession, however, IBO assumes that the economy will see a “modest rally” between October and December this year. But, the report also presumes a high degree of doubt. “Given how little is known about the persistence of the Covid-19 crisis and how long the economy must remain shut, however, there is great uncertainty about the depth and duration of the expected recession and the strength of any post-recession bounce—let alone the recession’s eventual impact on tax revenue,” it reads.

What the report does note unequivocally is that job losses will be concentrated in low- and moderate-paying jobs.

A separate new report from James Parrott and Lina Moe at The New School’s Center for New York City Affairs comes to a similar conclusion, and notes that the coronavirus pandemic “has revealed a new dimension of inequality.”

“The effects of this public health crisis are widespread, touching nearly every facet of New York City’s economy, yet the fallout is also disproportionately affecting already-vulnerable workers and communities,” Parrot and Moe wrote.

The report analyzes three categories of jobs, excluding those in government: 1 million “essential” jobs (public health, safety, sustenance) that continue to be performed; 1.9 million “face-to-face” jobs (restaurants, hotels, transportation, administrative and building services, non-essential manufacturing and retail and wholesale trade), which have been restricted; and 1.5 million “remote” professional and managerial jobs that can be performed while social distancing.

There’s a stark contrast in how the coronavirus has affected each category of jobs. Essential workers, largely lower paid, are facing the most risk to their health; face-to-face workers are experiencing the worst fiscal impact from being terminated or furloughed; and remote workers are at relatively lower risk of exposure while continuing to receive pay and benefits.

The report finds that, by the end of April, the city will have lost 1.2 million jobs, about 27% of all private sector workers and independent contractors. Looking at the latest unemployment claims data from the state Department of Labor, it notes that despite 812,000 unemployment insurance claims having been filed in the four weeks ending April 4, New York has seen lower rate of claims filed (9.8%) compared with other large states, including the likes of Michigan (21.8%), Pennsylvania (20.3%) and California (15%). But that is likely to increase as the state improves its capacity for processing claims.

Making matters worse, face-to-face workers, who are already lower paid and less educated, will be hit the hardest by the coronavirus. The report estimates that five out of six jobs will be lost in face-to-face industries. About 64% of jobs lost already paid less than $40,000 a year. Among those who make more than $100,000 annually, there is only a 10% drop.

Consequently, the report estimates that while many workers already lacked access to employer-provided healthcare, the outbreak could leave nearly 800,000 newly unemployed New Yorkers without health insurance.

There are disproportionate geographic and demographic effects as well, the report finds. The highest number of face-to-face workers live in the Bronx and Queens, while more essential workers live on Staten Island and in the Bronx than other boroughs.

Elected officials have recently called for a racial breakdown to see how coronavirus deaths may be more concentrated among communities of color. As far as job losses go, Parrot and Moe found that there is indeed a stark racial disparity.

More than two-thirds of jobs lost, 68%, were among people of color. Latino workers were the worst off, accounting for 32% of lost jobs. A third of younger New Yorkers, between the ages of 18 to 24, lost their jobs, compared to the 27% job loss rate.

by Samar Khurshid, senior reporter, Gotham Gazette

Read more by this writer.

Amid 'Really Tough Process' Adjusting to Coronavirus Recession, De Blasio Set to Release Executive Budget

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Mayor de Blasio gives a budget presentation (photo: Ed Reed/Mayor's Office)

For his first six years in office, Mayor Bill de Blasio enjoyed the fruits of a booming economy and massively increased the size and cost of city government. But this week, he will present his executive budget proposal for the 2021 fiscal year facing a possible $6 billion revenue shortfall, hundreds of millions in cuts and cost shifts from the state, and almost complete uncertainty about the future as the coronavirus outbreak continues with New York City at its epicenter. 

De Blasio’s preliminary budget proposal for the 2021 fiscal year, which begins July 1, was a $95.3 billion spending plan, up more than $20 billion since he took office in 2014. Year after year, the mayor has taken advantage of quickly growing tax revenue, increasing the municipal worker headcount by more than 30,000 and only paying lip service to finding savings and efficiencies at city agencies. Though his administration kept putting away money in reserves – nearly $6 billion for the current fiscal year – budget watchdogs warned that it would be insufficient to survive a sustained recession. What the city faces now is no mere economic downturn.

Coronavirus, estimated to have now killed more than 10,000 New Yorkers as of April 14, presents a fiscal crisis of unprecedented proportions. It’s unlike previous recessions, which had cost the city between $15-20 billion in lost revenue over three years. There is no clear end in sight to the crisis and no guarantee that even once it is over, the city will be able to bounce back as quickly as it did in the past. That has forced the mayor toward the first truly hard budget choices of his tenure.

The city has already found $1.3 billion in savings and cost re-estimates under a Program to Eliminate the Gap (PEG) that the mayor quickly instituted after the outbreak. But far from recurring savings, it includes programmatic cuts and delays that may not be sustainable, and some will be far from palatable to New Yorkers. It also reflects adjusted spending estimates as a result of the coronavirus’ impact on how city residents access local government.

For instance, the PEG includes a $100 million reduction in fair student funding, and $124 million saved by cancelling the Summer Youth Employment Program. It delays the expansion of the 3K for All program, temporarily reducing expenditure by $43 million. It includes $52 million that wasn’t spent on snow removal this winter, though there’s no guarantee that next year will be as mild a season. Another $106 million is meant to come from a hiring freeze and vacancy reductions at city agencies.

The mayor has even said the city may have to consider borrowing in the short-term to cover costs, for which it would need authorization from the state Legislature.

“[W]e've had to go through a really tough process around cuts to the budget and savings and PEG program,” de Blasio said at his daily coronavirus briefing on Tuesday, when he was asked about the prospect of seeking that authority from Albany. “But we're going to have to look at everything to figure out how we get through this.”

Mayoral spokesperson Laura Feyer would not say whether the city plans to draw on its reserves to cover costs for the coming year, among other details about cash-flows and prepayments that Gotham Gazette inquired about. “We will be presenting the budget this week and will have more to say then,” she said in an email. “One thing you can count on now and always: we are committed to keeping New Yorkers fed, safe, healthy and sheltered.”

It’s unclear what new savings or savings plans de Blasio will announce when he presents the executive budget this week. 

There could be some relief, as the city is anxiously awaiting the next round of emergency funding from the federal government, which is currently being negotiated among Congressional leaders and the Trump administration and may be aimed at state and local governments experiencing steep revenue shortfalls. In media appearances on Wednesday morning, de Blasio emphasized that those funds will be crucial, particularly in ensuring that the city's emergency response mechanisms and services aren't hobbled. "We're not going to be able to provide basic services and actually have a normal society if we don't get help from the federal government so we can restart, so we can actually have a livable working city again," the mayor said on CNN's New Day. "If it doesn't come from the federal government, it's not going to happen. So Congress has got to get back and do a stimulus that helps cities, helps states, helps everyone get back on their feet and actually sustain a normal economy again."

But there is also the possibility of mid-year cuts from the state, with the recently-approved state budget allowing Governor Andrew Cuomo to periodically reduce spending if state revenues should come in below already-lowered expectations. As it stands, the budget could add several additional costs to the city’s books, including $200 million for healthcare, among others.

[Read: 10 Ways the New State Budget Impacts New York City]

There are also new costs the city is accruing in fighting the coronavirus, such as additional spending on emergency food and related services. The city has already spent hundreds of millions of dollars on its coronavirus response, the mayor's office told Gotham Gazette.

In an analysis released March 23, city Comptroller Scott Stringer projected the city already faces losses of up to $6 billion in revenue between the current and next fiscal year from the economic effects of the coronavirus.

“The City should explore all budget actions that protect essential services, the social safety net, and our long-term fiscal health, and the federal government must step up with substantial financial support for New York City as the epicenter of this crisis,” said Hazel Crampton-Hays, a spokesperson for Stringer, in a statement to Gotham Gazette. “In that context, while it would be premature to rule out any specific course of action, we urge caution before the City engages in borrowing to cover operating costs, which would create debt service obligations that have the potential to crowd out funds for the very services and people we are trying to protect.”

The city often uses revenue surpluses at the end of the fiscal year to prepay certain costs, such as debt service, for the next fiscal year. As the comptroller noted in his analysis, the city expected a surplus of $2.7 billion, and if those funds are used to balance the budget, then next year’s budget gap would potentially increase to $4.5 billion, a number that would have to be closed by the time a spending plan is approved in June.

The City Council is the other key participant in the city budget process. A spokesperson for Council Speaker Corey Johnson said, “We are facing unprecedented budget challenges with rapid shortfalls in revenue and rising unemployment, but we must continue to deliver for the thousands of New Yorkers who rely on that social safety net, especially our most vulnerable populations: the elderly, homeless, disabled and low-income families. We are going to have to make very hard decisions about where to find savings and efficiencies. At this point, nothing is off the table.”

Johnson has said the City Council is working to develop ways to hold budget hearings digitally -- the Council was in the midst of its hearings on de Blasio’s preliminary budget when the coronavirus shutdown began. On April 7, Johnson and Council members who chair budget committees offered a formal response to the mayor’s budget, noting that de Blasio’s spending plan was released in early January when the city was in a very different place.

“The impact of COVID-19 on our economy has been much like the effect of the virus itself – sudden and with a quick decline,” said Johnson, Finance Committee Chair Danny Dromm, and Capital Budget Subcommittee Chair Vanessa Gibson.

They gave their “estimation of the components of the baseline budget that are essential and must be preserved even in the face of impending budget cuts,” and while recognizing the need to cut the budget, said “as we make the tough decisions about where to find savings and efficiencies, it is imperative that the basic social safety net programs remain untouched, and in some cases expanded with additional investments.”

They identified seven key areas for protection and even increased funding: Maintaining Public Health; Addressing Food Insecurity; Protecting the Senior Population; Keeping New Yorkers Housed; Supporting Human Services Providers; Protecting Tenants and Small Property Owners; and Supporting Small Business.

Budget watchdogs have several prescriptions to rein in costs, though some may be hard pills to swallow for the mayor. While it will not help in the current crisis, they have renewed a push for creating a dedicated rainy day fund, which requires state legislative approval. And they all agree though that short-term borrowing should not be the mayor’s first instinct.

“Borrowing funds is the last resort,” said Andrew Rein, president of Citizens Budget Commission, a nonprofit watchdog organization. “The first step is to look at savings and make significant changes. That certainly hasn't been the pattern in this administration but we need bold action now.”

Rein said the mayor should deliver, at minimum, a $3 billion savings plan for the next fiscal year focused on agency efficiencies, with savings that will recur year after year. “This is not a one year problem,” he said. 

[Read: Coronavirus Recession Makes New York City Rainy Day Fund More Urgent, Watchdogs and Legislators Say]

The outyears will also be impossible to predict, since there’s no telling when people will be able to go back to work and when major industries that the city relies on like tourism, food service, and hospitality will recover. “We haven't experienced a shock of this kind before so it’s not readily clear what the response from tourists, from New Yorkers, from businesses will be in terms of how quickly people get back to normal,’ said Ana Champeny, Citizens Budget Commission’s director of city studies.

Nicole Gelinas, senior fellow at the Manhattan Institute, said the “easiest thing” would be to institute a public sector wage freeze, which could save the city a significant chunk of money but is an unpopular decision that the mayor is unlikely to embrace.

Part of the problem with planning the budget, Gelinas noted, is not knowing the level of aid to expect from the federal government. “Unless we get tens of billions of dollars of federal aid in the Northeast or Mid-Atlantic, we're going to not have a very good recovery,” she said, “and then you don't want what should be a temporary crisis to become a permanent crisis."

Gelinas said the city should focus on maintaining core services – such as fire, police, EMS, corrections, and sanitation – instead of cutting them, which is what she criticized in the mayor’s $1.3 billion PEG.

“I think it's disturbing how quickly they went to make cuts to frontline services,” she said, noting the cuts to bike lane construction and organics collection programs. “If that's the first thing you're going to cut that saves you like a tiny, tiny fraction of a percentage of the budget, it doesn't seem like you’re starting out in the right frame of mind.”

by Samar Khurshid, senior reporter, Gotham Gazette

Read more by this writer.

Note - this article has been updated with the mayor's comments from a CNN New Day interview. 

Coronavirus Recession Makes New York City Rainy Day Fund More Urgent, Watchdogs and Legislators Say

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Mayor de Blasio gives a budget presentation (photo: Michael Appleton/Mayor's Office)

As Mayor Bill de Blasio desperately searches for solutions to the city’s financial woes caused by the coronavirus outbreak, lawmakers and fiscal watchdogs are advocating for legislation that, had it been approved years ago, would have helped the city better weather just such a storm by allowing it to create a dedicated fund for fiscal emergencies.

In January, de Blasio had proposed a $95.3 billion budget for the next fiscal year, which begins July 1, that was a more than $20 billion increase in spending since he took office in 2014. But the coronavirus burst the bubble of consistent economic growth that the city had enjoyed for nearly a decade and allowed de Blasio and the City Council to so drastically expand spending. The recession brought on by the pandemic now threatens to lead to a more than $6 billion drop in projected city revenue, which will need to be made up for through some combination of reserves, cuts, federal funding, and other measures.

It’s the kind of rainy day that budget watchdogs including City Comptroller Scott Stringer and organizations like the Citizens Budget Commission and the Manhattan Institute had been sounding the alarm about for years, insisting that the city’s reserves, just under $6 billion currently, would be completely wiped out in the face of a sustained economic downturn. And none of those predictions came close to imagining a scenario where the city would be the country’s epicenter of a viral outbreak wreaking havoc across the world.

The city’s current reserve funds include $1 billion in the general reserve, $250 million in the capital stabilization reserves, and $4.7 billion in the Retiree Health Benefits Trust fund. But those funds cannot be placed in a separate savings pot and built up each year, because of the state law that determines how the city budgets its money. A dedicated “rainy day fund” is prevented by the Financial Emergency Act of 1975 – passed by the state Legislature when the city faced insolvency – which requires the city’s budget to be balanced. Revenues must equal expenditures -- even the reserves are achieved through a form of annual fiscal tricks.

State Senator Brian Benjamin, a Manhattan Democrat who is exploring a 2021 run for city Comptroller, proposed legislation in October that would give the city the authority to create a municipal contingency and tax stabilization reserve fund. Though it is too late for the city to put away additional rainy day funds for this fiscal crisis, Benjamin said the coronavirus fallout highlights the need to create a savings system for the next eventual crisis the city will face.

“This is the moment where this makes the most sense from a forward planning standpoint,” Benjamin said in a phone interview. “What I have every intention to make sure we get
this year is, in this moment when we’re feeling the pain, when we're making the cuts that we have to make on the state level, we have to make big cuts on the city level, we make the right decision to create a rainy day fund to help the future legislators have more options.”

In last year’s general election, New York City voters overwhelmingly approved a ballot question that would change the City Charter to facilitate the creation of a rainy day fund. It now only requires state authorization.

“It doesn't say you have to put in $5 billion now, $10 billion now, $20 billion now,” Benjamin said of his bill. “It just creates the apparatus that can then allow things to occur. So that to me should be a no brainer.”

Benjamin’s bill comes with strict safeguards for when the city could dip into a rainy day fund. It would only be allowed in the case of an economic recession, where the city sees two consecutive quarters of negative economic growth. He insisted that provision is crucial so the city does not use the fund for one-time purposes that would otherwise be unjustified.

Assemblymember Robert Carroll has sponsored a companion bill to Benjamin's proposal. Last week, the two legislators and Brooklyn Borough President Eric Adams wrote to Governor Andrew Cuomo, calling on him to support the legislation and quickly activate a rainy day fund for the city.

Despite the companion bill, however, it seems any final legislation may end up being a compromise. A separate bill has been proposed by Assemblymember Edward Braunstein, though it does not contain the same safeguard as Benjamin’s and Carroll's proposal. Benjamin has been negotiating with Mayor de Blasio’s office and Braunstein to create a version they can all agree on, and he said that the Senate leadership has been supportive.

“We're reviewing the bills,” said Laura Feyer, a mayoral spokesperson on budget matters.

Mike Murphy, a spokesperson for Senate Majority Leader Andrea Stewart-Cousins, said in an email, “It is something we will have to discuss as a conference.” A spokesperson for Assembly Speaker Carl Heastie did not respond to a request for comment.

Budget watchdogs have been pushing de Blasio to create more robust reserves for years, particularly as they watched expenditure skyrocketing under his tenure with inadequate controls on waste and inefficiency.

Citizens Budget Commission, which helped lead the charge for the rainy day ballot measure put forth by a Charter Revision Commission, last year recommended that the city put away the equivalent of 17% of tax revenues in order to survive a recession like previous ones, which could lead to an estimated $15-20 billion drop in revenue over three years. Deposits in the fund should be mandatory during times of growth, and the fund should be established with strong criteria for when it is utilized.

“If we had this rainy day fund in place and had followed CBC’s guidelines for the recovery that is now over, we would be in a radically different position in the city,” said Andrew Rein, CBC president, in a phone interview, estimating that the fund would have held $9 billion by now.

Rein emphasized the importance of restriction on using the fund. “If you open it up wider, it can be used for a slush fund, for a minor occurrence, to fund new programs,” he said.

Besides an economic recession, CBC also recommends allowing the fund to be used in “severe emergencies” that are clearly defined in the law. “There should be some sort of guideposts to tell you what is ‘severe’ and so we recommended something like at least a 1% drop in expected revenues or 1% increase in spending so that you're not tapping the funds for what is sort of smaller expenses that come up,” said Ana Champeny, CBC’s director of city studies.

Though the mayor has repeatedly insisted that city reserves are at “historic levels” compared to past administrations, fiscal watchdogs like CBC and the Manhattan Institute’s Nicole Gelinas note that the $4.7 billion Retiree Health Benefits Trust fund does not count as a true reserve. That money, they say, should only be used for its intended purpose, to provide retirement benefits for municipal employees, rather than to help the city cover its expenses in times of emergencies.

“I think that it's worth creating a rainy day fund as part of the next state budget cycle and trying to look beyond the crisis to long-term reforms,” said Gelinas, noting that it’s far too late to be useful for the current crisis.

She also pointed out that the lack of a robust rainy day fund has left the city riddled with uncertainty and couched in a wait-and-see posture as Congress negotiates over the next round of emergency relief.

De Blasio has already announced some steps to shore up city finances, including a new Program to Eliminate the Gap (PEG), which requires agencies to identify certain savings for the mayor to evaluate, to cover some of the shortfall. But the administration has so far only found ways to reduce $1.3 billion in spending. Those cuts are mostly programmatic, and are neither recurring savings nor actual efficiencies in government function, experts have pointed out. Many of them simply reflect lower-than-expected expenditures because of the fallout of the coronavirus outbreak.

De Blasio has indicated more cuts to his spending plan are likely when he presents his Executive Budge, due April 23. That outline will then form the basis for further negotiations with the City Council. The city is also awaiting the possibility of a federal bailout of municipal finances in a fourth coronavirus package that is being negotiated.

And the mayor has also floated the idea of short-term borrowing to meet expenditure needs, which is also precluded by the Financial Emergency Act.

“If we did have a $5 billion or $10 billion cushion, we would be in a much better position to say, ‘Okay, let's see where things are in six months,’” Gelinas said. “Is the pandemic over? Have people come back to the city? Have businesses reopened? But we have very little room for error. We're basically so dependent on the federal government right now.”

by Samar Khurshid, senior reporter, Gotham Gazette

Read more by this writer.

Note - this article has been updated to reference Assemblymember Robert Carroll's bill and a letter sent by him, Senator Benjamin and Brooklyn BP Adams to Governor Cuomo. 

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