Gotham Gazette Sat, 06 Jun 2020 08:42:05 +0000 Joomla! - Open Source Content Management en-gb (Webmaster) Jails, Affordable Housing and Other Capital Projects Delayed as City Grapples with Cash Crunch man bx skyline

New York City building projects are on the chopping block (photo: Michael Appleton/Mayor's Office)

The coronavirus fallout has created a severe cash crunch for New York City, forcing Mayor Bill de Blasio to slash his proposed operating budget for the next fiscal year by $6 billion, with more cuts likely before adoption. At the same time, the city’s cash flow problems mean that its capital plan, a four-year, $67.2 billion agenda that pays for crucial, long-term infrastructure like schools and roads, will also need modification and could mean some major changes to how the city will build for its needs over the next several years.

Over this and next fiscal years, the city intends to spend far fewer funds – about $3.1 billion in fiscal year 2020 and $1 billion in fiscal year 2021 – on building new schools, replacing Rikers Island facilities with borough-based jails, affordable housing preservation and development, new police facilities and equipment, and energy efficiency infrastructure. These cuts to planned spending change the timelines for major infrastructure projects, meaning additional leeway for de Blasio’s successor to shape the city’s capital plan when a new mayor takes office in 2022. 

There are several aspects to the complicated capital budgeting process, including the ten-year capital strategy that assesses infrastructure needs for the next decade; the capital budget itself, which includes funding that cannot be exceeded for the coming fiscal year and the three years after it; and the capital commitment plan, which details the actual amount that will be spent on agency projects. Updated commitment plans are released with each iteration of the mayor’s budget.

Most capital spending is financed with long-term borrowing through the sale of bonds, which requires regular payment of debt service (paying back the borrowing and interest incurred), which is included in the annual expense budget. The city’s debt service for the current fiscal year was roughly 11.5% of annual revenue, which is well below the 15% limit that fiscal watchdogs and the comptroller believe should not be exceeded in any given year.

In de Blasio’s executive budget proposal released earlier this month, the administration did not make significant reductions in capital commitments for the current and next fiscal year. Mostly, the administration moved several capital projects into the out-years of the ten-year capital program, between fiscal years 2024 and 2029. 

Some of the changes follow the general pattern of capital budget planning. The city will often move funds to subsequent years if a project does not get off the ground as intended. The city also had a habit of front-loading projects into the first two years of the capital program even though most took several more years to complete, something the City Council pushed back against, achieving some adjustments in this year’s versions. 

Nonetheless, there were some notable changes to capital spending in the executive budget such as on affordable housing, as first reported by Politico New York, and changes to expected spending on the borough-based jails plan. 

Planned capital spending was reduced for the Department of Correction, which was intended to be used for the construction of four new borough-based jails facilities to replace Rikers Island jails. The $140 million budgeted in the current fiscal year was zeroed out, and in the next fiscal year (FY21), the city expects to spend only $196 million, as opposed to $392 million that was allocated earlier. 

The capital budget for the Department of Housing Preservation and Development (HPD) -- which runs the city’s housing programs, including the mayor’s 12-year, 300,000-unit affordable housing program -- was shrunk from $1.48 billion to $902 million in the current fiscal year (FY20) and from $1.19 billion to $741 million next fiscal year. This funding goes toward subsidizing affordable housing, both newly-built and preservation of rent-regulated deals that are close to expiring, as well as supportive housing and more.

On Tuesday de Blasio called the changes to the housing plan “sad” and “horrible” but necessary, and promised that the housing plan would still be completed down the road. 

The Department of Environmental Protection capital budget is seeing some fluctuation, but an overall increase in the short-term, falling from $2.3 billion to $2.27 billion in the current fiscal year and increasing from $2.37 billion to $2.72 billion in the 2021 fiscal year. The Department of Sanitation saw a drop from $463 million to $264 million in its capital budget for the current fiscal year, but will see its FY21 allocation increase from $522 million to $690 million.

The Department of Education will also see a substantial cut this year and next, from about $4.4 billion to $3.9 billion in the current fiscal and then again from $3.6 billion to $3.22 billion in the next fiscal year. Among the things on the chopping block was planned building of new schools, which reduced from $683 million to $458 million in FY20 and $1.28 billion to $1.05 billion in FY21; spending on “rehabilitation of school components” was also reduced from $926 million to $751 million in FY20 and from $510 million to $379 million in FY21. 

Even the NYPD, which has never struggled for funds under the mayor, was not spared. Its FY20 capital spending projection fell from $540 million to $264 million, while its FY21 spending increased from $339 million to $420 million. The shifts include less planned spending on facilities and vehicles.

One of the bigger capital plan cuts is in planned courts spending. The city will only spend $18.2 million this fiscal year, a drastic cut from the $288 million it had planned largely to reconstruct and renovate court facilities. In FY21, spending is also slated to decrease from $539 million in the preliminary budget to $406 million in the executive budget.

Under Speaker Corey Johnson, the Council has taken a particular interest in the capital budget and has pushed the administration to make more realistic projections for the actual amounts of money that will go into projects each year. Johnson created a subcommittee dedicated to the capital budget, which is chaired by Council Member Vanessa Gibson of the Bronx.

“Due to the COVID pandemic, the current priority is to provide support for New Yorkers and continue city services as millions are now relying on social safety net programs to support themselves and their families during the COVID crisis,” Gibson said in a statement. “The capital process will be delayed to focus on health and safety projects to provide relief for residents, but I will be working with Speaker Corey Johnson and Finance Chair, Daniel Dromm to monitor the situation and ensure that our City Council priority capital projects remain at the forefront of our negotiations.”

That also echoes budget experts from the Citizens Budget Commission and the Manhattan Institute who have repeatedly urged the mayor to streamline and reform the capital budgeting process. There has been some progress over the last few years but not nearly enough, they say. 

“CBC has been saying for a while that the capital budget is too large, and the timing of it is unrealistic, and we've urged them to make sure that it's better targeted,” said Sean Campion, senior research associate at Citizens Budget Commission. 

Part of the issues around capital investments currently stem from uncertainty that the coronavirus has caused in the construction industry and for interest rates for government bonds. The city also has no clarity on whether it will be able to meet its debt service obligations – debt incurred by issuing bonds that is paid on the operating budget side of the ledger – as the federal tax deadline was pushed and revenues coming into the city are delayed. Officials in the city and state are waiting with bated breath (and aggressive advocacy) for the next round of federal stimulus funds that they hope will replace many billions in lost revenue. 

When de Blasio was asked by a reporter on Tuesday specifically about the cuts to HPD, he insisted as much. “This is about slowing down some investments and postponing some things,” he said at his daily coronavirus briefing. 

He added, “[W]hen you think about the budget dynamics, we were dealing with suddenly a massive budget gap. We were dealing with a cash flow crisis on top of that. Anytime that you book a capital project, it has ramifications for the budget. Obviously for the expense side of the budget too because of debt service. We had to slow down a lot of capital investments just to be able to make sure we could pay the bills now. And it's really a horrible situation, but that's what we had to do. But the plan is intact and it will be implemented in the future.”

The federal stimulus, he said, would determine the city’s fiscal future. “There'll be tough choices any way you slice it, but the stimulus, if it actually takes into account what has happened here, all the costs, human and otherwise that have been inflicted on New York City and all that's been lost – and including first and foremost the human loss but then, of course, the horrible impact on the budget that's used to provide services to people – if it's really, really heard and understood and acted on, that stimulus could be a lifesaver for us. And if it's not, we're going to be in an even tougher situation, but that's going to then really govern everything else we have to decide in June.”

Campion and Nicole Gelinas, senior fellow at the Manhattan Institute, said the city needs to focus on routine maintenance work, ensuring that the infrastructure that undergirds the city – its bridges, tunnels, streets, and sewers – do not degrade. They also noted that the city is not close to its debt limit yet, so it should be able to cover capital costs through borrowing. “There's no immediate crunch,” Campion said. 

“It could present an opportunity to focus on priority investments, things that need to get done in the short-term, before focusing on longer term resiliency or rebuilding,” he added.

Gelinas said the city’s debt could rise out of control in the out-years if interest rates on long-term bonds go up, though the rates are in flux as the Federal Reserve announced that it is buying up to $500 billion in municipal bonds. Nevertheless, Gelinas said the situation should prompt some introspection from the administration about whether there are more cost-effective options for big infrastructure investments.

For instance, on the jails plan, with its cost reaching as high as $889 million in fiscal year 2022 and $2.1 billion in 2023. “I think they're really going to have to rethink whether they can do this or whether they're going to have to build new jails more cheaply at Rikers Island,” she said. “At least compare the costs of the two and then decide.”

“As we go into deeper rounds of cuts, we just have to protect core tax-generating infrastructure,” she insisted, pointing to the rebuilding of the Brooklyn-Queens Expressway (BQE) as a project that shouldn’t be abandoned. The city will have to push non-essential projects to later years, she said, holding out hope on a federal infrastructure package that could come to the rescue and spur job creation and economic growth. 

Council Member Brad Lander, a Democrat who is running for comptroller in 2021, took that point further, saying the city should take advantage of the fact that it can receive federal stimulus money and should make sure key capital investments are not reduced, particularly if they can boost jobs in the short-term. “When you're doing that, you are investing in the future. You are saying, ‘In order to make investments that are critical at this moment, we're going to incur debt that will have to be paid back in the future,’” he said. If the city commits to investing in affordable housing, it would also build confidence in the market, Lander said.  

Lander insisted that what the city should not do is borrow funds to balance the operational budget, which would require permission from the state Legislature. The mayor has suggested that measure as a last resort. “That's like taking out a loan to buy your groceries,” said Lander. “It's not good to take out a loan to buy your groceries because you’re still going to need to buy groceries next month or next year, and then you're going to be paying for your groceries twice.”

Council Member Helen Rosenthal, a Manhattan Democrat and also a comptroller candidate, expressed a different opinion. Rosenthal said the city should be seeking that borrowing authority from Albany right now. “The fundamental problem right now is we don't have any cash,” she said. “The right thing to do is to borrow money and continue to push Congress and the federal government to get local aid.”

As someone who previously worked at the city’s budget office, Rosenthal noted that the changes to the capital budget are simply routine, with lump sum funding being shifted from one fiscal year to the next, and that it’s too soon to tell if specific projects are going to be left on the cutting floor, and said that’s not really what the focus should be right now.

“If we can’t feed people today, we should be borrowing money to make sure we’re feeding people,” she said.

by Samar Khurshid, senior reporter, Gotham Gazette

Read more by this writer.

Jails, Affordable Housing and Other Capital Projects Delayed as City Grapples with Cash Crunch Wed, 29 Apr 2020 04:00:00 +0000
Plummeting Ridership But No Budget Cuts or Fare Increases for De Blasio's Ferry System covid 19 climate

Mayor de Blasio aboard the ferry (photo: Benjamin Kanter/Mayoral Photo Office)

The coronavirus pandemic has led to plummeting ridership across the city’s various transit systems, posing an existential threat to the future of mass transit as the state and the city begin to cut costs and service. Among them, the New York City ferry, a signature initiative of Mayor Bill de Blasio, has seen far fewer commuters and a reduced schedule, but unlike a long list of other programs, the city does not plan to decrease its budget or scrap an expansion that is slated to take place this year and next year.

Since Governor Andrew Cuomo signed the “New York PAUSE” order on March 20, mandating that non-essential workers stay at home, the ferry has seen ridership fall by 90%, according to NYC Ferry data. From March 20-April 16, only 39,913 people rode the ferry, compared to 365,233 riders over the same time last year.

From March 23, the system began a reduced schedule, using its smallest boats, and its spring service has been cut by 37%.

Mayor de Blasio recently released his $89.3 billion executive budget, cutting proposed spending by $6 billion and tapping $4 billion in reserves to cover a shortfall in tax revenue caused by the coronavirus recession. The budget included billions in savings, including spending cuts and readjustments for lower-than-expected costs. Among those were cuts to bike lanes, lower spending on the Fair Fares program that provides half-priced MetroCards to low-income commuters. But the ferry system’s budget is not expected to change – it’s funded through the New York City Economic Development Corporation – and the fare is also expected to remain the same, according to EDC spokesperson Chris Singleton.

The rollout of NYC Ferry, as the city-run network is called, has not been without its controversies. When he launched it in May 2017, de Blasio touted it as a new mass transit alternative in a city where neglected subways and buses were struggling to efficiently transport millions of daily commuters.

But the ferry system, now with 21 stops, mostly on either side of the East River, has had a minimal impact, serving a relatively small slice of New Yorkers, and faced ongoing questions about its efficacy and financing. Despite being called a transit project, it was placed under the auspices of NYC EDC, adding to questions of whether it was meant as a vehicle to get people around or to drive up real estate prices and spur economic growth along the city’s waterfronts.

As the fiscal watchdog group Citizens Budget Commission noted in a report last year, the subsidy for each ferry ride was $10.73, ten times that of the New York City Transit system. It has since fallen to $9.34, and is projected to decrease with the two new routes adding about 2.5 million riders per year, according to EDC. The mayor has, however, struggled to justify those subsidies, particularly after data showed that only about 5.6 million people used the ferry in an entire year, when more than that number rode the subway every day (in the pre-coronavirus world). A majority of ferry commuters also tended to be white, upper-income New Yorkers rather than low-income commuters of color.

Ironically, New Yorkers from middle- and low-income communities of color are also less likely to be working from home during the pandemic and many make up the corps of essential workers keeping the city running via its subway and buses, hospitals, grocery stores, and more. Essential workers are also faced with often-overcrowded subways given that the state-run MTA has severely cut service amid plummeting ridership, a sickened workforce, and severe financial strain.

The mayor’s office did not respond to requests for comment for this article about the NYC Ferry system amid the coronavirus public health and fiscal crises. “New Yorkers have been doing their part to stop the spread of COVID-19 by staying home and practicing social distancing. These necessary steps by individuals across the city has led to a decrease in ridership on NYC Ferry,” said EDC’s Singleton. “As a result, NYC Ferry has been operating on a reduced schedule since Monday, March 23. NYC Ferry will continue to serve critical workers who must travel, but we ask that at this time people do not ride for recreation.”

At his daily coronavirus briefing on April 29, when asked by a reporter why NYC Ferry funding remained stable while significant cuts were made to the Staten Island Ferry, Mayor de Blasio said, "One there will be cuts to NYC Ferry and that will certainly be reflected in the next stage of the budget process. Two – obviously, it's never fun to talk about any cuts, but everything that has to be cut will be cut as we deal with more and more challenges."

NYC Ferry’s net operating costs were about $52.9 million in the 2019 fiscal year, up from $30 million in fiscal year 2017, and has since increased further, with added costs to come once new routes are launched.

Unlike other transit systems, NYC Ferry doesn’t rely on fares as a major part of its revenue. In the 2019 fiscal year, only 24% of its revenue came from fares, an increase of 2% from the year before, according to an analysis by Citizens Budget Commission. Each ride on the ferry costs $2.75, the same as a standard bus or subway fare, though it isn’t integrated with those systems. Despite the roughly $10 per ride subsidy to operate the system as it has been, de Blasio has insisted from the start on pegging the fare to that of the subway and bus, and said the city has been working on fare integration with the MTA, though several years in there has been no news on such a partnership.

The expansion of the program at a cost of $100 million in capital funds is also expected to drive those subsidies up. One route connecting to Staten Island is launching this year, and another to Coney Island will launch next year, while other routes will be extended and modified. The two new routes are meant to add 2.5 million riders each year, the EDC projects, and will cost about $25.5 million annually to operate. According to the CBC report, the subsidy on each ride on the Coney Island route is expected to be as high as $24.75.

Sean Campion, senior research associate at CBC, who authored the report, said the coronavirus offers an opportunity for the city to review how it funds and operates NYC Ferry and to find ways to make it financially sustainable. “This should give them some opportunity to review some of the sort of inherent inefficiencies in the program,” he said.

“It may no longer be possible, given everything else going on, to maintain the level of subsidy than with a better structure than it has,” he added.

The ferry is also heavily reliant on leisure ridership, Campion pointed out, and that may not recover quickly. “If people are more reluctant to ride public transit and take discretionary transit trips,” he said, “...if tourism doesn't come back, it could take longer for that to bounce back more so than the commuting patterns. If that happens, that will magnify the need for subsidy.”

In the new coronavirus reality, there’s a flip side to the ferry discussion, however. With the subways crowded, increasing the risk of exposure to the coronavirus, even critics of the ferry system may reluctantly embrace it.

“Given that the subways are not a great way of commuting while adhering to physical distance and guidelines, New Yorkers need all the alternatives they can get,” said Joe Cutrufo, communications director for Transportation Alternatives, an advocacy group.

But Cutrufo remains critical of the already high subsidies, noting that the city hasn’t been as generous when it comes to the Citi Bike program. “Our bike-share system does not have a public subsidy and we've seen bicycle use as one of the very few ways that people can get around while maintaining those physical distancing guidelines,” he said. “So I think we need to take a fresh look at how the city subsidizes its transportation network.”

Advocates like Cutrufo are hoping that when life in the city moves back toward ‘normal’ fear of the coronavirus doesn’t lead to an increase in cars on the road as people avoid public transit, which would further clog the city’s typically crowded streets.

“The way we see it, people are looking to alternatives and we want to make sure that we don't see driving increase,” Cutrufo said. “The ferry can be part of that solution.”

by Samar Khurshid, senior reporter, Gotham Gazette

Read more by this writer.

Note - this article has been corrected to note that the overall per-ride ferry subsidy is expected to decrease, not increase. 

Note - this article has been updated with comments made by the mayor on April 29. 

Plummeting Ridership But No Budget Cuts or Fare Increases for De Blasio's Ferry System Thu, 23 Apr 2020 04:00:00 +0000
Amid 'Really Tough Process' Adjusting to Coronavirus Recession, De Blasio Set to Release Executive Budget de Blasio city budget coronavirus executive

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. 

Amid 'Really Tough Process' Adjusting to Coronavirus Recession, De Blasio Set to Release Executive Budget Tue, 14 Apr 2020 04:00:00 +0000
Coronavirus Recession Makes New York City Rainy Day Fund More Urgent, Watchdogs and Legislators Say fiscal year prelim

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. 

Coronavirus Recession Makes New York City Rainy Day Fund More Urgent, Watchdogs and Legislators Say Mon, 13 Apr 2020 04:00:00 +0000
‘Possibility of a Prolonged Recession’: Coronavirus Could Wreak Havoc on City, State Budgets de Blasio Cuomo budget coronavirus

Major challenges now & ahead for Mayor & Governor (photo: Rob Bennett/Mayor's Office)

New York has weathered financial storms before, including after the 2008 recession and the September terror attacks in 2001. But the COVID-19 pandemic threatens to eclipse the scope of both those emergencies. The fiscal impact on the economy is impossible to predict with any certainty but suffice it to say, it will put a major dent in the city’s and state’s budgets for the coming fiscal year.

In January, Governor Andrew Cuomo proposed a $178 billion executive budget for the 2021 fiscal year that begins April 1, which includes $105.8 billion in state operational spending (the rest comes from federal funds). In New York City, Mayor Bill de Blasio’s own preliminary budget proposal was for $95.3 billion for the fiscal year that starts July 1.

But state and city resources are expected to be taxed to their limits as officials mobilize to combat the spread of the coronavirus, while tax revenues to all levels of government plummet. Bars and restaurants have closed. Hotels are empty. Broadway is shuttered. Tourism is at a standstill. The cumulative impact on city and state tax receipts is expected to be in the billions, particularly as the pandemic could also trigger an economic recession that experts had already been expecting in some form.

New York State Comptroller Thomas DiNapoli released an estimate of the fiscal impact on state revenues on Tuesday, at the request of Governor Cuomo. He predicted that “the most optimistic revenue scenario” would be that tax receipts to the state are $4 billion lower than executive budget projections (of roughly $88 billion) and, if the stock market continues to decline and a recession sets in, that figure could be $7 billion. “Definitive estimates of the COVID-19 impact on the economy and State revenues are not possible, in part because the ultimate health and social impacts of the virus are currently unknowable,” the comptroller wrote.

DiNapoli noted that it would be tough to quantify mitigating actions by the federal government that could have a positive effect such as increasing unemployment insurance or assuming a greater share of state Medicaid costs.

“[O]ur budget as we prepared it is possibly overly optimistic,” Cuomo said in response to the comptroller’s projections on Tuesday, at his daily briefing on the coronavirus. State budget director Robert Mujica also noted that the comptroller’s estimate was done before a major stock market sell off on Monday and that the state will also have to wait to see whether the federal government decides to extend the date for filing personal income taxes, which make up the major share of state revenue.

“It really goes back to, essentially, the federal government will have to step in here to deal with this because we will have our own liquidity issues if we don’t get some relief,” Mujica said.

He said any state budget adopted during the pandemic would need to be adaptable. “We don’t know how long this is going to we need a budget that’s in place that gives us the flexibility to hold payments back, modulate things, move payments ahead of time for health care.”

Cuomo said that if revenues continue to slow as he expects, “we have to have a built-in mechanism to adjust the expenditures.” (The governor has in the recent past pushed through measures to give himself more budget flexibility.)

The projections are dire, particularly as the state budget season already began with an expected budget gap of $6.1 billion, mostly from rising Medicaid costs that the governor hoped to close through another overhaul of the state Medicaid program. The state’s reserves are also a paltry $2.5 billion (which includes $428 million that is planned to be added by the end of the current fiscal year).

In the city, Comptroller Scott Stringer estimated that, conservatively, the coronavirus would lead to a $3.2 billion loss in city revenue over the next six months based on declining sales in restaurants, retail, and real estate, and falling occupancy rates at hotels.

Stringer called on the mayor to aggressively take steps to cut $1.4 billion in spending across city agencies, with lower savings mandates for social services agencies and exemptions for the Department of Health and Mental Hygiene and NYC Health + Hospitals, which are obviously on the frontlines of fighting the virus and its medical aftermath. He also urged measures to protect small businesses and the non-profit human service providers that the city contracts with for many vital programs.

“As we brace for the economic fallout of the COVID-19 pandemic, we must protect our children, our seniors, our small businesses, and the arts and cultural organizations that are core to our economy and our identity as a city,” Stringer said in a statement. “We’re facing the possibility of a prolonged recession — we need to save now, before it’s too late, if we’re going to weather the downturn ahead.”

The city does have a fairly robust well of reserve funding – nearly $6 billion – but Stringer and other watchdogs like the nonprofit Citizens Budget Commission have warned the de Blasio administration for years that those funds would be insufficient to survive a prolonged recession, which seems more likely by the day.

Across the entire state, a confluence of factors may wreak havoc on jobs and income. The economy gets a large portion of revenue from Wall Street, which has been roiled by the effects of the coronavirus on global markets. Out-of-work employees not only won’t be paying taxes, but there’s already been a surge of applications for unemployment benefits that will itself tap state resources in a significant way. And the largest growing employment sector has been health care, which accounted for 40% of job growth in New York City in 2019. Within that, home health services accounted for 78% of health care jobs added and is one segment where providers and clients will be particularly vulnerable to the virus itself.

For fiscal watchdogs who have raised red flags about increasing state and city spending for years and warned about stormy weather on the horizon, the rainy day they expected is here albeit in a form than they imagined.

E.J. McMahon, founder and research director of the Empire Center for Public Policy, urged in a blog post on Tuesday that the state should swiftly pass a budget that gives the governor the flexibility to which Cuomo alluded. McMahon pointed out that, as currently written, the law limits how the governor can adjust spending once a budget is adopted. He can either cut from agency spending, which makes up one-fifth of the budget or cut local assistance funding by 1% of state operating funds, which would amount to just over $1 billion.

“Even assuming the governor squeezes 10 percent out of agency operations, the further cuts allowed by the discretionary provision would fall $1 billion short of DiNapoli’s best-case revenue scenario, and $4 billion short of the worst case,” McMahon wrote. He said the longer it takes to resolve the budget, the worse the problem will be and it will fall squarely at the governor’s feet regardless.

DiNapoli is also pointing out that if the federal government takes what appears to be a likely step of allowing people to file their taxes at a new deadline past the typical April 15 date, that could impact the state’s receipts, even temporarily, and cause cash flow issues.

New York City, with its reliance on property taxes, may be more steady over the next few months than New York State. Maria Doulis, vice president of Citizens Budget Commission, said it’s unclear “whether this is sort of a blip and then economic activity rebounds or whether it is going to punch us into a more prolonged recession.” She pointed out that in previous recessions, the city lost between $15-20 billion in revenue over three years compared to projections. “What the city has available to deal with that is just a fraction of that amount,” she said.

Doulis said it was surprising that the mayor has not already announced a Program to Eliminate the Gap, which would mandate savings and efficiency targets at city agencies. Unlike the state, the city’s budget is required by law to be balanced so that expenditures match revenues. “While the response [to the coronavirus] is going to necessitate greater spending on certain areas, it's all the more important to tighten the belt in the other areas of the budget,” Doulis said.

“This is something that's affecting all state and local governments and it's not clear that New York will be disproportionately favored in any federal government response,” she said.

Nicole Gelinas, senior fellow at the Manhattan Institute, believes the city may be hit harder than what the comptroller has estimated. She noted that taxes dropped by nearly $3 billion “almost overnight” after the 2008 recession, about an 8% reduction. “If we were to lose 8% of tax revenues this time, looking at next year's budget, we'd be looking at a $5 billion tax revenue drop,” she said.

Gelinas noted that the coronavirus pandemic is also unlike the effects that the recession or the September 11, 2001 terror attacks had on the city’s economy. The attacks did not lead to an extended virtual shutdown of the city and most businesses outside of ground zero that did close were soon back up and running. After the recession, the tourism industry helped the city rebound faster than other municipalities.

“This is a very different case. I mean, we have huge swaths of the economy just shut down,” Gelinas said.

The emergency might require drastic budget measures, she said, noting that spending has gone up by $20 billion under de Blasio. “We didn't enter this from a very good condition but the fact of the matter is now it's a pretty big emergency. So I don't think we're gonna get out of this just by cutting back the workers that de Blasio added to the payroll, which in itself is a difficult thing to do,” she said of the mayor’s massive expansion of the city workforce.

The city may also have to take unpopular steps to contend with the crisis, including by potentially instituting a wage freeze for municipal employees who have received raises through union contracts. “This is certainly going to rival the 1970s fiscal crisis in terms of the immediate cash crunch that it gives us,” she said.

Gelinas also worries that the property tax base would be hit by restaurants, retailers, and commercial tenants seeking moratoriums on their rent.

James Parrott, an economist at the New School, told the Wall Street Journal that the city could lose as many as 500,000 jobs by the end of the month, while Gelinas believes that number is also an understatement. She noted that the leisure and hospitality industries employ 450,000 New Yorkers and nearly 60% of those are likely facing temporary layoffs. Retail has another 340,000, which won’t be as badly affected, but will probably see “double digit percentage declines” nonetheless. And the financial industry will probably also see layoffs with markets cratering.

And though the city budget may not be affected by it, Gelinas also noted that the MTA will “run out of cash very quickly” as New Yorkers stop using mass transit during the pandemic (transit authority leadership asked the federal government for a $4 billion bailout on Tuesday).

Ronnie Lowenstein, executive director of the city’s Independent Budget Office, echoed Gelinas on the unique aspects of this current fiscal emergency. She noted that the city was already heading into a downturn when the September 11, 2001 attacks happened, and while the federal government pumped aid to the city, the state relaxed financial rules for the budget. “And the city fought its way back,” Lowenstein said.

The 2008 recession, on the other hand, was precipitated by the subprime mortgage crisis, which had less impact on a city that’s mostly home to renters than some might assume, and again the federal government soon intervened to bail out some Wall Street banks. Jobs contracted but at a far lower rate than previous recessions and even far lower than the national average.

“It's hard to see how New York could be so lucky a third time in a row,” Lowenstein said.

Assuming the state does not suspend the requirements that the city balance its budget, Lowenstein said there are three options, which may all leave the city at the mercy of the state and federal government: “Tap into other levels of government for aid or find ways to raise revenues either permanently or temporarily, almost all of which, except for the rate on the property tax, has to go to Albany.”

by Samar Khurshid, senior reporter, Gotham Gazette

Read more by this writer.

‘Possibility of a Prolonged Recession’: Coronavirus Could Wreak Havoc on City, State Budgets Tue, 17 Mar 2020 04:00:00 +0000
Colossal Failures by New York Budget Division Bring Turmoil and Danger to Medicaid Program Cuomo state budget

Gov. Cuomo & Budget Director Mujica (photo: Governor's Office)

The New York State Division of the Budget surprised the public this past November with an announcement the State faced a $6.1 billion deficit to close for the 2021 budget due by April 1, 2020. The DOB disclosed in its Mid-Year Update that Medicaid costs were exploding -- dramatically more than anticipated -- in both the budget adopted in April 2019 for the current year (fiscal year 2020), as well as for the next one (FY 2021). The budget agency said the situation demanded immediate cuts to both Medicaid and the overall budget.

The Cuomo administration, in its January 24 submission to the Legislature of the new budget plan, proposed $2.5 billion in new reductions to the Medicaid program for FY 2021, as well as incorporating almost $900 million in cuts for the current budget year that began being implemented in November.

The governor’s $2.5 billion cut to projected Medicaid spending would be implemented through the appointment of the Medicaid Redesign Team, which includes representatives from providers, unions, and some other groups, and is tasked with reconfiguring services to achieve savings that would reach the target reduction. If unsuccessful, or if the Legislature fails to adopt the MRT redesign, the Cuomo budget plan includes a fallback to an across-the-board $2.5 billion cut. At a joint legislative budget hearing on January 29, the Greater New York Hospital Association testified that those cuts would amount to 10% of the entire Medicaid program in New York.

The City of New York expressed alarm about another proposal in the governor’s budget proposal that would require local governments to pay for increased Medicaid costs that the State of New York has been absorbing in recent years. Mayor de Blasio testified in Albany on February 10 that the city has very little control over the state-run federal program and that this potential cost-shift could force the city to pay $1.1 billion more for Medicaid expenses in its own budget and warned the city’s public hospital system, Health + Hospitals, could be severely affected. The Cuomo administration has disputed the city’s estimates.

DOB Knew A Year Ago Medicaid Costs Were Escalating Rapidly
Despite the public’s lack of awareness of spiraling Medicaid costs, the Division of Budget and the State Health Department knew a year ago, before last year’s budget was adopted, that Medicaid spending was wildly out of control. The Empire Center for Public Policy, an Albany-based think tank and budget watchdog, accused the Cuomo administration of concealing the deficits in a detailed analysis released in December, following months of similar criticism from both the Empire Center and the Citizens Budget Commission. The Empire Center’s work helped blow open the Medicaid budget crisis and helped guide my own analysis.

DOB released documents after the budget was adopted last year that severely under-reported Medicaid spending, creating the impression there was no serious problem. The DOB’s Mid-Year Update was issued late, in late November, for the period April 1, 2019-September 30, 2019, seven months after the April 1, 2019 adoption of the 2020 budget. 

As the State Legislature and the governor were finalizing enactment of the 2020 budget in late March of last year, the State Health Department was informing the Division of the Budget that the payments of Medicaid bills were so much larger than anticipated that the State would violate a spending cap on the Medicaid program by $1.7 billion for the fiscal year ending March 30, 2019.

The DOB and the Health Department then deferred the payment of the $1.7 billion to Medicaid providers several days into the new fiscal year that began on April 1, 2019. The deferral meant that the State Medicaid budget for 2019 had run over its projection from a year earlier by 10%, and Governor Cuomo and the Legislature had just adopted a budget, with a baseline Medicaid spending for the start of 2020 that was already $1.7 billion higher than 2019. The whole budget was out of balance as well and not being reported as such.

Despite DOB and the Health Department’s decision to push the Medicaid payment into the new fiscal year, DOB’s 2020 Enacted Budget Financial Plan released in April 2019 contained Medicaid spending numbers that were obviously wrong, 

The FY2020 Budget Released by DOB in April 2020 was Clearly Erroneous
Below are the FY2019 and FY2020 DOH Medicaid spending projections taken from the Enacted Budget Financial Plans. The extra $1.7 billion deferred Medicaid payment, which should have been reported in either FY19 or FY20, is nowhere to be found in the excerpts of the Medicaid budget below:


FY'19 Enacted

FY'20 Projected

FY'21 Projected






FY'19 Results

FY'20 Enacted

FY'21 Projected





Instead, the deferral and the extra spending appear in the November 2019 Mid-Year Update all rolled into 2020, which now appears as $3.34 billion higher than FY19, bringing the expenditure to $23.82 billion.


FY'19 Results

FY'20 Updated

FY'21 Projected






Even though the $1.7 billion Medicaid payment was due in March 2019, meaning fiscal year 2019, it is not incorporated into the 2019 results. But DOB knew in April 2019 the payment had been deferred; after all, the agency had ordered it. The real result for FY19 should have been $22.1 billion, presented in April, with a correct projection for 2020. Instead, the Mid-Year Update put all the spending into 2020.

Following October 2019 New York Times reporting, and criticism by budget watchdog groups that the state had delayed Medicaid payments in 2019, DOB acknowledged major problems for the first time in a public document released on October 17, 2019, called the Annual Information Statement, intended for investors in state bonds. The State Comptroller reported on the problem a few weeks later, but it was not until the Mid-Year Update that the state was restating the problems as severe.

Going back to April 2018, the adopted FY2019 budget contained a colossal underestimate of the costs of the Medicaid program, which would affect the 2020 estimate and the 2021 estimate by billions of dollars. Medicaid spending projections simply had no basis in reality. Here’s the Mid-Year Update again, presented in November 2019 but this time with a serious Reality Check:


FY'19 Results

FY'20 Updated

FY'21 Projected





As stated above, the real baseline for 2019 was $22.1 billion after accounting for the deferred spending. And this made the spending forecasts for 2021 even more spectacularly mistaken. The Mid-Year Update forecasts what the spending would have been but for the abrupt and drastic curtailments implemented months ago and proposed for FY2021.

In April 2018 (FY2019), the Enacted Financial Plan showed Medicaid spending rising from $20.35 billion that year to $22.53 billion in FY2021. But the Mid-Year Update shows Medicaid spending rising to $26.19 billion in FY2021, an increase of $5.7 billion, or 28%, in just two years.

Why the stupendous error?
Frankly, the State Division of the Budget did not have a handle on all the many forces the state had set in motion for the Medicaid program:

The minimum wage increased.

DOB knew in 2016 that the multi-step minimum wage increase enacted in that year would bring the wage floor from $9 an hour to $15 an hour in New York City by the beginning of 2019, while a phase-in toward $15 an hour continued to take place in the suburbs and Upstate New York in 2020 and 2021. The April 2019 budget for FY2020 estimated the impact for FY2020 would be $1.1 billion. The Mid-Year Update estimated the FY2020 impact would be $1.5 billion and for 2021 $1.8 billion. DOB underestimated the impact of the increase.

The Federal government’s 100% reimbursement for the Medicaid expansion for Obamacare was scheduled for reduction to 90% in 2020; Comptroller DiNapoli reported in a budget analysis that this reduction would cost the State Medicaid program $1.7 billion in FY2019 and FY2020.

The State increased Medicaid rates. 

This happened in 2018, adding $140 million to costs, as reported by the New York Times in October.

Obamacare implementation increased Medicaid enrollment significantly.

The administration of the Medicaid program was shifting. As Obamacare began to be implemented in 2014, New York State created a new platform to apply for Medicaid called the New York State of Health. Medicaid enrollment grew from 5 million people in 2013 to about 6.2 million today, a 25% increase in enrollment. As a result, the State of New York began to share responsibility with local governments for determining eligibility for Medicaid for persons applying through New York State of Health.

The state also created other avenues for Medicaid enrollment. 

The elderly, the disabled, the mentally ill, and persons with substance abuse problems were required to move into managed long-term care. This included home-care services for existing and new beneficiaries, and a new “consumer choice” program allowed beneficiaries to hire family members, frequently with the assistance of enrollment agents called Fiscal Intermediaries, who could apply for the program on behalf of the potential new recipients.

Applicants could also attest they needed immediate support. While the local government still had to determine eligibility and assess their need for care, beneficiaries were moved into managed long-term care right away. Concern has been expressed that people who are healthy are being moved into the “consumer choice“ program, called Consumer-Directed Personal Assistance, without adequate monitoring.

The state absorbed all cost growth in local government Medicaid spending. 

According to the Empire Center for Public Policy, the state, starting in 2015, has absorbed about $1.3 billion in local spending, with New York City the main beneficiary.   

All of these factors seem to have meant that the Division of the Budget and the Health Department just couldn’t keep track of the combined impact of so many new drivers of Medicaid spending.

What now?
The state (and the Medicaid program) got a lucky break at the beginning of 2020. Tax revenues were reported up by $1.5 billion over the April 2019 estimate, and the state used the money to absorb much of the added Medicaid spending and eliminate the need to keep deferring payments to subsequent years. The state also now projects tax revenue will rise by $2 billion more than anticipated for FY2021, allowing more of the FY2021 deficit to be covered without spending cuts.

The state is still sitting on $6 billion in reserves that could be used to mitigate spending cuts. Mayor de Blasio and others have urged consideration of tax increases on the wealthy. The state could increase assessments on Medicaid providers, and use the money as a way to leverage federal Medicaid dollars, another way to mitigate cutbacks. Negotiations with the Legislature on the Medicaid program and the overall budget will no doubt bring adjustments to protect the Medicaid program and protect recipients and providers.

The Health Department, DOB, the Comptroller, and the Legislature need to figure out what went wrong. The State also needs to bring more transparency to reporting on the costs of the Medicaid program, and go back several years step by step. The Comptroller may need to require a restatement of the state’s books, too, and make sure there is no repeat to the colossal mistakes by the Budget Office.

Jim Brennan was a member of the New York State Assembly for 32 years, where he chaired four committees. On Twitter @JimBrennanNY.

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Colossal Failures by New York Budget Division Bring Turmoil and Danger to Medicaid Program Sun, 16 Feb 2020 05:00:00 +0000
The Mayor’s Savings Mirage fiscal city hall

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

On January 20, Mayor de Blasio presented his $95.3 billion preliminary budget for the 2021 fiscal year that begins on July 1 as well as updated data on the budget for the current fiscal year. He noted that the Office of Management and Budget (OMB) and city agencies had found enough cost savings to completely offset the “new needs” spending included in the preliminary plan. The mayor praised this as an especially significant accomplishment since so much work has gone into finding savings in the administration’s prior budgets and the low-hanging fruit had already been picked.

Really? To channel former President Clinton, whether you think the savings plan is a success depends on what the meaning of “savings” is.

There is no question that Budget Director Melanie Hartzog and her staff take the effort to find efficiencies and improve government operations seriously. OMB’s city-wide savings unit provided a detailed description of the planned savings by agency. But even a casual review of the report reveals that most of the claimed $713 million “savings” over two years is in fact lower than projected interest on city debt and increases in revenue, not lasting cost savings achieved by cutting agency expenses. 

Debt service reductions are the largest “savings” in the current fiscal year ($129 million) and were also the largest element in the savings plan totaling $474 million that was presented this past November. It is good news that the cost of borrowing continues to be lower than anticipated, but that is mostly a product of economic and market conditions, rather than an accomplishment of city administration. It would be more appropriate to apply savings in interest costs to paying down the city’s heavy outstanding debt than to use it to increase operating spending.

Another large category of claimed savings is actually new revenue. Most if it comes from collecting more reimbursements from the state and federal governments – called “reimbursement re-estimates.” This is money that is supposed to have paid for services already being delivered and should be used to offset those costs, not fund new programs. The plan also includes millions of dollars in higher fees and collections such as ambulance charges, elevator inspection fees, summons collections, as well as revenue from litigation settlements. If more money can be obtained by better enforcement of fines, fees, and penalties, that’s great (not everyone would agree), but that is not savings. Nor is moving costs from the expense to the capital budget, which is also included in the savings plan. 

Some initiatives in the savings plan can truly be characterized as improvements in agency operations that optimize efficiency. But the number of these efficiencies to be achieved and their total dollar value are very small relative to the total value of the overall plan. Many of the initiatives are in the Department of Education, where reductions in the costly absent teacher reserve will save $39 million in unnecessary salaries, and there will be cost reductions in food service contracting and professional development.

Other promising efforts include trying to save on city phone service (to be overseen by DoITT), merging two divisions of the Department of Health & Mental Hygiene, and installing new upgraded software at CUNY. But the largest efficiency measure in the plan, $55 million in recurring procurement savings, is likely a placeholder to build up the savings total, not a real expectation of savings, since specifics of the reforms and how they will be implemented is not explained. 

There is nothing wrong with saving city dollars through lower debt service, collecting more fines and fees, and getting the federal and state governments to provide more reimbursements. All of these things should be done; indeed they should be regular, ongoing efforts of city government that reduce the costs of current services.

The problem is in treating them as offsets to more spending, when most cannot be expected to recur, while the new spending will continue into the future and be incorporated into future years’ budgets. Meanwhile, the City Council will surely want to add more “new needs” to the budget for next year -- the mayor may also have some of his own -- and it appears that additional expenses due to cost-shifts from the state may well have to be absorbed. More real, significant, and sustained savings in city government are needed.

Carol Kellermann was president of Citizens Budget Commission from 2008 through 2018.

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The Mayor’s Savings Mirage Mon, 03 Feb 2020 05:00:00 +0000
What's The [DATA] Point? 6 months, with NYCHA CEO Gregory Russ whats the data point

What's The [Data] Point? Episode 88 -- 6 months, with NYCHA CEO Gregory Russ [You can download What's The [Data] Point? wherever you get your podcasts, including on iTunes]

rein russo mmSix months is the time the New York City Housing Authority has to develop a reorganization plan. New NYCHA Chair & CEO Greg Russ headlined a Citizens Budget Commission event to discuss working with the federal monitor to facilitate change, working with residents to instill confidence, and what needs to happen at NYCHA to make it a high-performing agency that can ably serve its 380,000 residents. He was in conversation with CBC President Andrew Rein, followed by audience Q-and-A.

Listen to the conversation and let us know what you think: Ben Max of GG (@TweetBenMax), Maria Doulis of CBC (@MariaDoulis). Listen below or download wherever you get your podcasts!

by Ben Max, Gotham Gazette

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What's The [DATA] Point? 6 months, with NYCHA CEO Gregory Russ Thu, 30 Jan 2020 05:00:00 +0000
What's The [DATA] Point? 7 Days: Budget Season Begins, with Citizens Budget Commission President Andrew Rein whats the data point

What's The [Data] Point? Episode 87 -- 7 days: Budget Season Begins, with CBC President Andrew Rein [You can download What's The [Data] Point? wherever you get your podcasts, including on iTunes]

artworks 000672422038 af4432 t500x500It's been seven days since the start of the new budget season, which commenced this year with the New York City Preliminary Budget released by Mayor de Blasio on January 16. The Governor's Executive Budget, released just yesterday, may have a significant impact on the City’s finances this year: with the State facing a large budget gap, the Executive Budget proposes reorganizing school aid formulas and restructuring the local obligation with respect to Medicaid funding. CBC President Andrew Rein joined the podcast to discuss the start of this year's budget season.

Listen to the conversation and let us know what you think: Ben Max of GG (@TweetBenMax), Maria Doulis of CBC (@MariaDoulis). Listen below or download wherever you get your podcasts!

by Ben Max, Gotham Gazette

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What's The [DATA] Point? 7 Days: Budget Season Begins, with Citizens Budget Commission President Andrew Rein Wed, 22 Jan 2020 05:00:00 +0000
How Cuomo Closes Budget Gaps and May Approach Largest Deficit Since His First Year 2014 exec budget

(photo: Governor's Office)

When Governor Andrew Cuomo took office in 2011, the state faced a $10 billion budget gap that necessitated massive cuts in spending for the next fiscal year. The state’s Medicaid program was redesigned to cut $2.7 billion in spending. School aid was also cut by about $2.7 billion. There were cuts to state agency spending and redesigns that reduced another $1.5 billion. The rest was covered with new resources, revenue enhancements (though, no new taxes, the governor emphasized at the time), and one-time funding streams including debt management and reestimates of spending.

The governor received widespread praise at the time, including from leaders of both major political parties, for that budget and for leading the state through particularly challenging fiscal times.

Fast forward to 2020 and the state is yet again grappling with a huge projected gap for the coming fiscal year -- $6.1 billion -- and the governor has indicated he believes state education aid and Medicaid spending need to be revisited, and that he will not support raising taxes or creating new ones. It’s the largest gap the governor has had to deal with since his first budget and, to the particular concern of fiscal watchdogs, comes amid a period of sustained economic growth rather than in the tumultuous years after a global recession like the last time around.

In other words, the state currently faces more of a spending problem than a revenue problem. And it also bodes ill that state reserves are far from robust, particularly relative to the $177 billion annual budget (of which, $102 billion is state operating funds), and that the governor continues to push spending down the line rather than dealing with it immediately.

Next week, Cuomo will present his executive budget for fiscal year 2021, which begins April 1, and he’s expected to rely on some tried and true methods, some of which have been questioned as fiscal gimmickry, but he’ll likely have to expand the toolkit given the size of the projected deficit.

Most of the gaps in past years have been far lower than $6.1 billion, requiring minimal maneuvering by the state. In fiscal year 2013, the gap was $3.5 billion; in FY 2014, it fell to $1.35 billion; in FY 2015, it was $1.7 billion; in FY 2016, $1.8 billion; in FY 2017, $1.78 billion; in FY 2018, however, it jumped to $3.5 billion; and in FY 2019, it hit $4.44 billion.

Cuomo Restrains Spending and Closes Budget Gaps, with Risks
After the 2011-2012 budget, the governor was successful in passing eight on-time, or nearly on-time, budgets that kept within, or close to within, his self-imposed cap of 2% annual growth in state spending. But he’s used various maneuvers for which the governor has become infamous and which in part led to the budget problem the state must now contend with.

Year after year, the state has managed gaps through, among other measures, cutting hundreds of millions in projected costs of agency operations and reduced spending on aid to localities (including cuts to education, social services and housing, public health and mental hygiene services). That approach would have likely worked again for the 2021 fiscal year, for which the projected gap was expected to be about $3.9 billion when the current year’s budget was enacted.

But, in the mid-year financial update published by the state Division of Budget in November, that number was modified to $6.1 billion, taking into account an additional $3 billion in increased Medicaid costs, driven by several factors, and setting off a flurry of concern and finger-pointing about the state’s fiscal picture. The out-year budget gaps are projected to be even larger, given current trends, with a $9 billion gap in 2023 if nothing significant changes.

The state has taken at least one step to rein in the Medicaid cost uptick, cutting payments by 1% starting earlier this month – affecting hospitals, doctors, nursing homes, home care providers, and others – while also looking to find $1.8 billion in savings in the program.

Cuomo’s budget director, Robert Mujica, has also stressed that the budget gap is nothing to worry about. “There is no doubt it will be a challenge, but it is a challenge that is manageable. The Governor has closed gaps much larger than this,” he wrote in a Medium post in December.

The governor contended in his January 8 State of the State speech that the overall increase came from the state covering the costs of Medicaid that is capped for localities, which to some sounded as if he may call on municipalities to pay more. In a gaggle with reporters on Monday, however, he sought to provide reassurances that such a proposal was not forthcoming. “I’ve not yet proposed how we believe we should resolve it,” he said of the budget gap. He added, “Nobody should worry. Life is good. Be optimistic.”

That may be a stretch for budget monitors, who say that the budget gap is manageable but also preventable. They warn that the governor’s budget tactics, though restrained, may be unsustainable and prove disastrous if a recession hits and urge him to look elsewhere for long-term savings and budget cuts, particularly areas such as economic development spending where the governor has been reluctant to pull back.

Closing the Gap: Dos and Don’ts and Surprises
“It’s a gap that’s closeable. Revenues are coming in at or above projections,” said Dave Friedfel, director of state studies at nonprofit watchdog Citizens Budget Commission, in a phone interview. But he emphasized that the gap was one that the state should have expected and prepared for, particularly owing to deferred Medicaid payments.

The 2019 fiscal year pushed $1.7 billion in Medicaid payments to the 2020 fiscal year, and the current budget pushed another $2.2 billion in Medicaid payments to next fiscal year. The governor’s mid-year budget update says that the Department of Budget plans to make such deferred payments “permanent,” setting up what some watchdogs call a dangerous practice.

“Deferring that payment was really damaging because it pushed the costs from last year into this year, and it also undermined this year's financial plan because they didn't account for that,” Friedfel said. Though in the short term, it may not affect the state’s fiscal health, it would complicate the state’s choices in a recession, where, according to CBC estimates, the state would face as much as a $35 billion shortfall over three years.

“It's never a good fiscal practice, but it's even worse when the revenues are coming in and the economy is doing well,” Friedfel said. “This was completely preventable and it wasn't the result of any type of an outside shock. The federal government didn't suddenly change reimbursement rates. There was no surge in Medicaid enrollment...So this was definitely a preventable budget gap.” (New York does have a significant population enrolled in Medicaid, about 6.27 million individuals, and the Cuomo-driven minimum wage increase to $15 has significantly increased costs for health care providers).

Friedfel has several prescriptions for state officials: cut economic development spending and find long-term savings in retiree health insurance benefits. He also said the state could save $800 million with a more focused approach to Foundation Aid, the supplemental funding given to schools to provide a “sound basic education” under a State Supreme Court ruling. He cautioned against any effort to force localities to absorb Medicaid costs.

“It really is a progressive thing that the state did, that Governor Cuomo did by capping out the local share [of Medicaid],” he said. “If you reverse that, you're saying to localities because you have a lot of poor people, people on Medicaid, that you therefore have to contribute more to the state which is the opposite of progressive. That would be regressive.”

E.J. McMahon, founder and research director of the Empire Center for Public Policy, a nonprofit fiscal watchdog, is hoping against but expecting that the governor will use “cash flow timing maneuvers” again to balance the budget. “He's rescheduling a hunk of the payments to [Medicaid] providers and basically making his cash flow issue their cash flow issue,” he said in a phone interview. “It's not the most prudent approach because it is basically meant to hide the problem rather than deal with it.”

Based on past experience, McMahon said the governor may also tap reserve funds on a one-shot basis. “He can't possibly actually save $2 billion in what's left of the fiscal year so there will be a lot of gimmickry related to timing and reserve funds that will, I think, largely paper over the problem,” he said.

The most striking part of the problem, he said, echoing Friedfel, is that the state has not seen in more than 40 years a budget deficit of this size at a time when the economy is expanding and revenues are on target. “Usually our problems occur when there's an economic downturn and our revenues fall short. This is purely, totally due to excess spending in a category [Cuomo] manages and has more control over than any previous governor has had,” he said.

McMahon noted in a blog post on Wednesday, based on state tax receipts through December, there’s an additional $1.3 billion above revenue projections at the state’s disposal. But that does not solve what is an over-spending problem, he said.

He did give the governor some credit for his fiscal moderation in earlier years, however.

“If you adjust for the bookkeeping tricks that he's used to make it appear like 2% [annual growth rate]...still adjusting for inflation, his nine years as governor have been on the whole the most restrained nine years of any governor in modern history,” McMahon said.

“Cuomo showed considerable fiscal discipline during his first years in office, especially in his first budget in 2011, and he still has considerable power to shape a budget that basically reboots his first-term approach and lowers the spending trend going forward,” McMahon also said. He noted that the Legislature has little power to add spending other than separate line items which the governor could veto. To override those vetoes, the Legislature would need votes from the entire Senate Republican conference and from eight upstate Assembly Democrats, he said.

“Now, as recently as Pataki’s last term, gubernatorial vetoes were repeatedly overridden by a Republican-controlled Senate in partnership with the Assembly’s Democratic super-majority,” he wrote. “But that could only happen now if Cuomo goes (further) out of his way to alienate Senate [Republicans], assuming he also can’t retain the loyalty of suburban Senate Dems. In short, it’s unlikely.”

Both McMahon and Friedfel pointed to the pitiful amount of reserve funding the state has put aside, barely $2 billion relative to the more than $102 billion in state operating funds budgeted for this year. Cuomo has, McMahon pointed out, relied on $12 billion in monetary settlements from financial institutions following the recession as a stand in for reserves, of which about $6 to 8 billion has already gone out the door.

“His whole attitude with the now $12 billion windfall settlement is a classic have your cake and eat it too,” he said. “The actual statutory reserves are puny by national standards...but he also gets the cite that money as part of his reserves...I'm not gonna be too speculative [but] he'll tap some of it and help solve his budget problem for next year in some fashion,” McMahon said.

“Without wanting it to happen, I anticipate gimmicks,” he said, “but we'll see.”

by Samar Khurshid, senior reporter, Gotham Gazette

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How Cuomo Closes Budget Gaps and May Approach Largest Deficit Since His First Year Wed, 15 Jan 2020 05:00:00 +0000