Gotham Gazette https://www.gothamgazette.com/component/tags/tag/547 Fri, 23 Aug 2019 22:41:43 +0000 Joomla! - Open Source Content Management en-gb webmaster@gothamgazette.com (Webmaster) 'It's What I Was Elected To Do': State and City Leaders Take Different Approaches to Pension Fund Divestment from Fossil Fuel Companies https://www.gothamgazette.com/state/8735-new-york-pension-fund-divestment-fossil-fuel-companies-different-city-state https://www.gothamgazette.com/state/8735-new-york-pension-fund-divestment-fossil-fuel-companies-different-city-state pension divestment stringer de blasio

Mayor de Blasio & Comptroller Stringer (photo: Benjamin Kanter/Mayor's Office)


Amid the larger discussion about addressing climate change before it’s too late, debate is raging in New York over whether government-run and -affiliated pension funds worth hundreds of billions of dollars and responsible for payments that support hundreds of thousands of retirees should divest from fossil fuel company stock.

Advocates, elected officials, and others have been pushing at the city and state levels for full divestment so that the pension funds are not supporting or tied to companies that are leading contributors to greenhouse gas emissions, a warming planet, and the negative consequences of climate change.

But some officials have warned, and practiced, caution, putting forth arguments that the primary priority of pension fund investment must be return for current and future retirees, and that it is important not to overly politicize investment decisions, especially given how uncertain the future is and that some of the leading fossil fuel companies are at the front lines of figuring out the renewable energy future.

There’s also the argument, often made by State Comptroller Thomas DiNapoli, that by remaining invested with fossil fuel (and other) companies, it is possible as activist investors to help shift their behavior. And while New York City Comptroller Scott Stringer often espouses and practices that philosophy, when it comes to fossil fuel company divestment, Stringer has worked with Mayor Bill de Blasio, labor union leaders, and others to move city pension funds toward dropping stake in those companies.

The New York City and State pension fund pictures are significantly different, with responsibility at the state level much more concentrated in DiNapoli’s office than the city’s in Stringer’s. But the different approaches being taken by the two Democratic comptrollers, who are the popularly-elected chief fiscal officers of their respective jurisdictions, show divergent paths in this particularly fraught political, financial, environmental, and existential moment.

While he’s one of a number of key decision-makers, Stringer is pushing full speed ahead toward fossil fuel divestment by the city pension funds. DiNapoli, meanwhile, has cautioned against that approach, even criticizing it as overly political and reactionary, while taking his own steps to diversify investments, experiment with a carbon-free energy stock portfolio, and push fossil fuel companies toward new policies. 

Advocacy groups like Fossil Free New York and New York Communities for Change are pushing for the $210-billion state pension fund, known as the Common Retirement Fund (CRF), to divest from fossil fuel companies completely. The CRF has about $13 billion in fossil fuel-related investments, according to Fossil Free New York.

In April 2018, as the Democratic primary in his bid for a third term was heating up, Governor Andrew Cuomo declared the state’s pension fund should divest from fossil fuels. But in New York the Governor does not control the pension fund; the State Comptroller is the sole fiduciary of the CRF and, as such, has final say over when investments are made and retracted.

Cuomo DiNapoliWhile he took that stance, Cuomo has not made divestment a major focus, applying minimal pressure to DiNapoli to take more aggressive action. His office recently told Gotham Gazette that the governor is working with the DiNapoli on a path toward divestment, in large part through an advisory group they established together.

Advocates did celebrate in March of this year when Cuomo took a significant new step, calling on state agencies and authorities such as the Metropolitan Transportation Authority (MTA) to examine divesting whatever funds they have in fossil fuel companies.

“As part of the Green New Deal, Governor Cuomo directed State authorities, public benefit corporations, and the State Insurance Fund, which collectively hold approximately $40 billion in investments, to study divesting from fossil fuels. They are reviewing and evaluating the feasibility and appropriateness of such a measure,” Jordan Levine, a spokesperson for Cuomo, said in a statement to Gotham Gazette.

The governor’s office was unable to identify at this time how much of that $40 billion is currently invested in fossil fuel companies.

Back in early 2017, DiNapoli and Stringer both argued that engaging with major fossil fuel producers like ExxonMobil as shareholders would yield better results than immediate divestments.

However, in 2017, Stringer and the five municipal pension funds initiated an analysis of their investments’ carbon footprint in 2017. Then, in January 2018, after the study concluded, Stringer changed his stance. He, Mayor de Blasio, and other pension fund board members announced their plan for three of the five pension funds (the police and firefighter pension funds are not currently part of the plan and account for less than a third of total pension assets). The city’s five funds have about $5 billion invested in fossil fuel producers out of almost $211 billion in pension fund investments. 

In a celebratory announcement that month alongside de Blasio and others, Stringer asserted that he and other city pension fund trustees “would be shirking our fiduciary duty if we were not exploring all options to address climate risk.”

An involved divestment process is underway, at least at three of the funds -- the Comptroller and the Mayor have seats on the boards of all five pension funds but cannot make unilateral or even bilateral decisions about their investments.

State Response - DiNapoli and His Critics
Under considerable pressure to divest state pension funds from fossil fuel companies, in April 2018, Governor Cuomo and Comptroller DiNapoli convened the Decarbonization Advisory Panel to study the issue. In April of this year, the panel released its report, which made several recommendations and put forward “examples” of what the comptroller could do to mitigate the fund’s carbon footprint. However, the report was criticized by climate activists like 350.org’s Richard Brooks for not including a timeline or benchmarks to achieve divestment.

But even before the panel was assembled, DiNapoli had been taking steps around the question of divestment, creating a $10 billion portfolio of investments into green companies. “We’ve done a lot already to allocate money to climate solutions,” DiNapoli said during a May interview on The Capitol Pressroom with host Susan Arbetter, “they’d like to see us do even more there.”

But the comptroller’s stance has caught the ire of local climate activists, who are the ones who want him to “do even more,” as the comptroller put it. Pete Sikora, the climate and inequality campaigns director at New York Communities for Change, said the comptroller “continues to finance the climate crisis.”

“Not to be too sarcastic, but if you’re going to finance evil stuff that destroys our future, you'd hope the state would at least make - not lose - money off it,” Sikora said, noting that the energy sector “continues to trend down over a decade...of industry under-performance.”

“It’s simply insane to not divest, and losing money on the proposition makes it even more absurd,” said Sikora.

Despite growing pressure from activists and lawmakers on the issue, DiNapoli has maintained that his more moderate approach is what is in the best interest of the CRF and its members. He believes that implementing standards such as the ones suggested in the panel’s report will naturally lead to fossil fuel investments being phased out over time and would avoid the negative impacts of wholesale divestment.

In a June 2019 interview with WAMC’s Capitol Connection, DiNapoli said “when we make judgements about where to put the pension fund, we put it in the best interests of the state.” He went on to defend his approach in significantly more harsh terms than the mild-mannered and reserved DiNapoli typically uses.

Some state lawmakers disagree with the comptroller’s assessment and want to force the his hand on the issue.

The Fossil Fuel Divestment Act would require the CRF to withdraw all investments in the 200 largest fossil fuel companies. The FFDA sets a five-year deadline for this to happen and would allow the comptroller to stop or reverse divestment if it can be demonstrated that it would significantly hurt the CRF’s value.

Senator Liz Krueger, a Manhattan Democrat and the FFDA’s prime sponsor in the state Senate, said in a statement that while the proposal did not pass during this year’s legislative session, she “continue[s] to have conversations with my colleagues about the importance of” the bill. She also added that she is “working on amending the bill based on testimony we heard, both to make it stronger and to address various concerns that were raised.”

“With all due respect to the Legislature, for the Legislature to start micromanaging the pension fund is a recipe for disaster long-term,” DiNapoli said on WAMC, adding that “it may be climate change today, but what will it be tomorrow?”

DiNapoli has previously divested the pension fund from gun companies following the 2012 Sandy Hook Elementary School shooting and from the private prison industry over concerns about the treatment of immigrants and people of color in 2018. Both are cited by critics who want the comptroller to act more decisively on fossil fuel companies.

Krueger said she “strongly believe[s] that [DiNapoli] is wrong on divestment” when it comes to fossil fuels, while noting that they “have talked about divestment extensively” and the comptroller has “been a long-time champion of the environment and climate action.” Despite their talks, “neither of us have managed to convince the other,” she said.

Krueger criticized DiNapoli’s “strategy of engagement with major fossil fuel producers like ExxonMobil” for not “providing any consequences when they repeatedly brush him off. It’s time for some consequences.”

“New York should begin the process now or our retirees will be left holding the bag,” Krueger concluded.

“Does anybody think if we sell the stock tomorrow that’ll make the air cleaner? No,” DiNapoli said during the WAMC interview.

“Since it's become clear that Comptroller DiNapoli currently lacks the moral and fiduciary courage to stand up to the fossil fuel industry and Wall Street, this legislation is necessary,” said Sikora, referring to the Fossil Fuel Divestment Act, in an interview with Gotham Gazette.

“It’s clear we have our work cut out for ourselves in both houses,” said Sikora, assessing the bill’s likelihood of passage next session, which begins in January. During the last session, the FFDA had 28 sponsors in the 63-seat Senate and 37 in the 150-seat Assembly.

DiNapoli plans to follow the advisory panel’s recommendations. According to the DAP’s report called the Climate Action Plan, “rather than making a narrow recommendation to divest from specific stocks, the panel supports the concept of minimum standards to guide the fund in its decisions to sell securities and/or avoid investment managers whose operations and strategies are not sustainable.”

The report argues that divestment from unsustainable companies is “baked in” to this plan of action and that the fund will only invest in sustainable assets by 2030.

The panel’s report says that the CRF should have a minimum standard for where its funds are invested. The panel recommends that the criteria for these minimum standards be set through contracts, but only gave “examples” of what the standards could be, such as requiring “an appropriate corporate governance system for the management of climate-related issues” and “a lobbying policy actively supporting government actions to address climate change.”

The report also suggests examples of actions and timeline that the comptroller’s office could pursue, including “excluding all companies that derive more than 10% of revenue from mining thermal coal or account for more than 1% of global production” by 2020 and “if less than 5% decreased in [greenhouse gas] emissions year on year after” several engagements then “consider a shareholder resolution.”

When DiNapoli released the climate action plan, Fossil Free New York called it “a weak plan at a time when we need bold and transformative action,” and said it is “lip service and incrementalism.” The advocacy group further said “the plan includes no benchmarks, no firm delivery deadlines, no parameters to measure companies’ actions, and doesn’t even commit to divest from thermal coal companies, including ones on the edge of bankruptcy.” FFNY supports the Fossil Fuel Divestment Act.

On WCNY’s The Capitol Pressroom in May, DiNapoli said his opposition to divestment stemmed from his responsibility as fiduciary of the state’s pension fund, saying “this is my job, it’s what I was elected to do.”

He also brought up his 2018 reelection, in which he received more votes than he did in 2014, while Mark Dunlea, the Green Party candidate who campaigned almost exclusively on pension divestment from fossil fuel companies, did worse than the previous Green Party nominee when DiNapoli sought reelection in 2010.

“I actually feel that those in the broader public who’ve looked at this issue are more on our side,” the comptroller said. DiNapli’s Republican opponent in the race, Jonathan Trichter, criticized the comptroller from the right, saying he was playing politics by making the moves he had to explore divestment and create the Sustainable Investment Program, in which $10 billion of pension assets are invested in low-emissions or green companies.

Ceres, a sustainability nonprofit, praises Comptroller DiNapoli as “a global leader in the fight against climate change, addressing material risks and pursuing opportunities for the Fund’s investments.” Ceres supports the “active” investor strategy that DiNapoli has claimed is a better path forward than divestment.

During a debate last fall, Dunlea claimed “if we divested a decade ago, we’d have about $22 billion in the state pension fund,” referring to a 2018 assement from Corporate Knights. A competing unions-funded study said the opposite.

While there are competing studies, Bloomberg News reported recently that some private investment funds are beginning to divest themselves from fossil fuel producers, based solely on the financial risks involved.

DiNapoli regularly notes that while he is the sole fiduciary, he does not make his decisions alone by a long shot, with a chief investment officer, a board of advisors, and others who help determine all aspects of pension fund management. On The Capitol Pressroom, DiNapoli said he was unfairly being singled out by activists and other critics, while also noting that New York City was still in the study phase and that two of the five city pension funds had not agreed to divest.

“So the pressure on me is that we guarantee retirement security for the 1.1 million members of the pension plan, which is a lot of pressure,” DiNapoli said.

New York City Divestment
City Comptroller Scott Stringer has changed course from his previous stance and is now leading an initiative to divest the city’s pension funds from fossil fuel companies, although he is encountering his own challenges in doing so.

“New York City is planting the seed for a clean, green, and thriving economy that can truly support future generations,” Stringer said in a statement to Gotham Gazette. The city has “taken this first-in-the-nation step toward divestment to protect both the retirement security of our city’s workers and the future of our planet,” the comptroller added.

The plan announced by Stringer and Mayor de Blasio in January 2018 set a goal of total divestment within five years. As of July 2019, the city is still in the planning stages, having sent out a request for proposals (RFP) for financial advisors to come up with a divestment strategy last December. The comptroller will select a plan to move forward by December 1 of this yea. But, a key wrinkle in the process is that two of the city’s five municipal pension funds are not on board with divestment as of now.

Unlike the state pension fund, New York City’s public employee pensions are not unified under one system. Instead, there are five separate funds, each with their own boards. In total, the pension funds account for over $195 billion in assets. The largest is the New York City Employees Retirement System (NYCERS), which handles the pensions for most municipal employees.

There were two pension funds for the city’s education-related employees, the Board of Education Retirement System (BERS) covers most non-teacher civil service employees of the city’s school district, while the Teachers’ Retirement System (TRS) is for educators employed by the Department of Education, CUNY, or charter schools in the city. The NYPD and FDNY each have their own pension funds, the Police Pension Fund (PPF) and Fire Department Pension Fund (FDPF), respectively.

Also unlike the state pension fund, each of the five funds has its own board and the city comptroller is not the sole fiduciary of the funds. Each board has its own composition requirements. The Mayor or a mayoral appointee sits on all five boards, as does the city comptroller. The Public Advocate sits on the NYCERS board. Also, relevant city officials sit on some of the boards, such as the Police Commissioner on the PPF board and the schools chancellor on the BERS board.

The NYCERS board includes a mayoral appointee, the comptroller, the Public Advocate, and the five borough presidents, along with representatives from labor unions including AFSCME, the Teamsters, and the Transport Workers Union, which are the three unions with the most members in the fund.

Primarily, pension fund board members are representatives of pension-eligible employees. Eight of the twelve board members for the both the PPF and the FDPF are either union leaders or elected representatives of pension fund members.

In 2017, all five pension funds initiated a study of climate change’s effects on their funds, which was led by the comptroller’s office. However, a year later, the police and firefighter pension funds did not join the other three funds in announcing plans to divest from fossil fuels.

The PPF and FDPF’s bylaws both require a seven-twelfths majority of the board to take action on anything, such as a divestment proposal. The comptroller and mayoral appointees on both boards fall far short of having the votes to divest without buy-in from at least some of the union leaders or employees. 

In a statement, Sikora praised the comptroller, along with Mayor de Blaiso and other trustees, for “taking real action to fight the climate crisis and we look forward to complete divestment.” Sikora also said that New York Communities for Change is “satisfied with the progress to date” of the city’s divestment plan.

The Patrolmen’s Benevolent Association and the Uniformed Firefighters Association did not respond to repeated requests for comment regarding their positions on the city divestment plan.

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by Andrew Millman, Gotham Gazette
   

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Ben Max contributed to this article.

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'It's What I Was Elected To Do': State and City Leaders Take Different Approaches to Pension Fund Divestment from Fossil Fuel Companies Mon, 12 Aug 2019 04:00:00 +0000
Report Shows Nation-Leading Extent of New York's Nonprofit Sector https://www.gothamgazette.com/state/8691-report-shows-nation-leading-extent-of-new-york-s-nonprofit-sector https://www.gothamgazette.com/state/8691-report-shows-nation-leading-extent-of-new-york-s-nonprofit-sector council member eric ulrich food

(photo: William Alatriste/New York City Council)


New York has the largest nonprofit sector in the country, according to a new report from state Comptroller Thomas DiNapoli.

In 2017, New York nonprofits boasted over 1.4 million jobs and $78 billion in employee wages, both top marks across the United States, according to DiNapoli’s report released Tuesday. Between 2007 and 2017, the state added 175,000 jobs in the nonprofit sector, an increase of 14 percent. Nonprofit employment consisted of 17.8 percent of all of New York’s private sector employment in 2017. Nonprofit employment sits at about 10 percent nationwide.

“Nonprofits play an important role in every region of New York, delivering vital services to New Yorkers, from hospital care and education to legal services and environmental protection,” DiNapoli said in a statement.

In New York City, there were 662,025 nonprofit employees in 2017, also 17.8 percent of the private sector. Nonprofit employees in the city earned an average of $63,056, the highest in the state, compared to $55,572 statewide.

Yet New York City has the greatest disparity in average annual pay between nonprofit employees and the rest of the private sector, with nonprofit wages more than $36,000 below the average for other private employers. Though New York City’s high-wage finance and insurance sectors inflate the average private sector wages, nonprofit wages still fell behind by an average of $11,200 when those sectors are excluded, DiNapoli’s report says.

Since 2013, nonprofit employment has grown at a faster pace than broader private sector employment in every one of the state’s 10 regions except New York City, the report shows.

Problems with Nonprofit Contracting in New York City
This trend could be due to the rapid employment growth in New York CIty’s other sectors over the last several, but there are also problems in the city’s nonprofit sector as it deals with a dysfunctional city government procurement process. Many nonprofits fill vital city services and are paid largely through contracts with city government, but there are significant challenges in how those contracts are awarded and paid.

After a nonprofit is awarded a city contract, it is often expected to begin delivering services before the contract reaches the city comptroller’s office for approval. While the comptroller must act to approve or disapprove a contract within 30 days of receiving it, there are no such time constraints on other parts of the process, whereby city agencies often delay moving the contract toward payment.

As a result of the commonplace lack of urgency in nonprofit contracting, in Fiscal Year (FY) 2018, 80 percent of all new and renewal contracts arrived at the Comptroller’s Office after their start day had passed, according to data from Comptroller Scott Stringer’s office. 89 percent of all human services contracts, many of which are given to nonprofits, arrived late in the same period.

According to the same data, 13 percent of contracts, and nearly 20% of human services contracts, arrived at the comptroller’s office over a year after their start date.

Of the 6,440 new or renewal contracts the city comptroller’s office registered in FY2018, 80 percent were retroactive; with 40 percent more than 180 days retroactive. Some agencies, including the Department of Homeless Services and the Department of Education, submitted over 99 percent of their contracts late.

One study assessed the cost of lateness to New York City nonprofits at $774 million in 2018, up from $675 million in 2017. The financial strain of delayed payments to nonprofit workers can disproportionately affect women, who make up 85 percent of human service workers, and people of color, who make up 75 percent. The numbers are additionally troubling when combined with the state comptroller’s report showing just how large the city’s nonprofit sector is.

City Council Members Helen Rosenthal and Ben Kallos recently introduced legislation that would set time limits within which agencies would be required to complete each step of the procurement process, meant to expedite the process by which the city pays out its nonprofit contracts.

Comptroller Stringer has suggested that agencies with an oversight role in New York City’s contract review process “should be assigned a strict timeframe to complete their work, similar to the Comptroller’s 30-day time limit for contract registration.” Stringer encouraged the creation of “a public-facing tracking system that allows vendors to monitor the progress of the contract through each stage of the review process.”

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by Noah Berman, Gotham Gazette

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Report Shows Nation-Leading Extent of New York's Nonprofit Sector Tue, 23 Jul 2019 04:00:00 +0000
After Major Tax Revenue Drop, a ‘Positive Note’ & Much Uncertainty for State Fiscal Picture https://www.gothamgazette.com/state/8457-after-major-tax-revenue-drop-a-positive-note-much-uncertainty-for-state-fiscal-picture https://www.gothamgazette.com/state/8457-after-major-tax-revenue-drop-a-positive-note-much-uncertainty-for-state-fiscal-picture govandcuomo albany

Budget Director Mujica, Gov. Cuomo, Comptroller DiNapoli (photo: governor's office)


New York’s tax revenue fell by $3.7 billion, a 4.7% decline, in the 2019 fiscal year that ended March 31, according to the cash report released Friday by State Comptroller Tom DiNapoli. A drop was expected in projections made last year, but not to the degree it occured, setting off alarm bells earlier this year as the state started to see apparent effects of New York taxpayer behavior resulting from the new federal tax code. The state's latest projections from February did, however, more accurately account for the decrease in revenue as the fiscal year came to an end.

The drop in revenue largely stemmed from lower personal income tax receipts, though the comptroller said the year ended on “a positive note” because revenues came in higher than expected in March. Part of the decline was also related to the MTA payroll tax, which brought in $1.4 billion last year, being shifted out of the budget as a revenue source, and the new federal tax law led to many filers and employers moving their payments to the 2018 fiscal year, creating the appearance of a  drop in payments that doesn't reflect the larger economy, according to the state Division of Budget. But fiscal watchdogs are nonetheless concerned that the state could quickly face a cash crunch if revenue is lower than expected in April, the month that not only starts the new state fiscal year but is also home to the tax filing deadline.

The drop in personal income tax was first evident in data from December and January, raising a red flag for the state economy and creating uncertainty about future spending as Governor Andrew Cuomo and the state Legislature negotiated the budget for the 2020 fiscal year. In a February news conference called to discuss the startling numbers, Cuomo and DiNapoli pointed to the 2017 federal tax overhaul as the culprit, chiefly a provision that capped the deductibility of State and Local Taxes (SALT) at $10,000 and how New Yorkers may be responding to it. They said much more would become clear in the following months.

The governor and Legislature had to take that uncertainty into consideration when making revenue projections for the new fiscal year and that if those projections are significantly off they may need to restructure the state budget. 

The comptroller’s latest report noted that personal income tax revenue by the end of the fiscal year declined by $3.4 billion in total, or about 6.6% from the previous year, though other forms of tax revenue increased, including consumption tax, business tax, and miscellaneous revenue that included massive monetary settlements with financial and other corporations. March was a good month, with taxes coming in about $812 million higher than the state Division of Budget had projected in February.

“After months of concern over lower-than-expected tax collections, the state ended the fiscal year on a positive note,” DiNapoli said in a Friday statement. “The sharp revenue declines in December and January, however, remind us to take nothing for granted. With expectations of a slowing economy and ongoing concerns regarding federal fiscal policies, a strong commitment to building robust reserves in preparation for the next economic slump is essential.”

After a recent allocation of $250 million, the state’s current rainy day reserves stand at $2 billion, and are expected to increase to $2.5 billion by the end of the 2020 fiscal year. This sum pales in comparison to the recently-adopted $175.5 billion state budget for the fiscal year 2020.

The crucial period lies ahead as the state begins to take stock of tax returns that New Yorkers file in April. In February, the governor and state DOB projected that April would show an additional $1.4 billion in personal income taxes, and total collections of about $8.2 billion. In comparison, the state averaged between $5 and $7 billion in April tax revenues between 2016-2018. It’s not totally clear why the projection is so optimistic.

“When they made that adjustment in February, they said, we came in really low for January, but some of that money we think is gonna come in in April. And we don’t know if it’s going to or not,” said Dave Friedfel, director of state studies at Citizens Budget Commission, a nonprofit watchdog. “If it doesn’t, if they made a mistake in making that assumption, then suddenly the fiscal year 2020 budget could be in trouble only one month into the fiscal year.”

Should revenues come in below projections, the state could be in for tough times ahead.

“Depending on how that number comes in, if it’s significantly short, the state may need to tighten its belt a little bit further,” Friedfel said, noting that at minimum it would put a damper on conversations around increasing capital spending as the rest of the legislative session progresses. Cuomo and legislative leaders passed the new state budget without adding new capital expenditure plans, though many were carried over from prior plans.

E.J. McMahon, research director of the Empire Center for Public Policy, a think tank, agreed that if the April revenue doesn’t meet expectations, it would be “a sign of trouble.”

“However, even if it’s above the forecast, it’s not necessarily solid proof that things are much better because...the real number to watch this year, that has a bigger reflection of the economy, will be the quarterly estimated payments in June and especially September,” he said, pointing out that higher-earning New Yorkers have more complicated tax returns and may be filing for extensions.

The new budget does give the state Department of Budget, which is under the governor, the ability to make mid-year changes to spending in case of a $500 million deficit below projections, in which case the Legislature would have 30 days to respond or the DOB adjustment would take effect.

But a bigger issue is the state’s paltry reserves. CBC’s Friedfel said the state should at bare minimum have 10% of the operating budget in reserves, closer to about $10 billion. “That would be enough to really absorb the shock for one year and even more than that would be beneficial,” he said.

“The state has gotten about $12 billion in monetary settlements over the last six or seven years, certainly during the governor’s tenure, and they’ve put very little of that into reserves,” Friedfel continued. “They’ve actually used some of that for operations which sets up kind of a higher base of spending, which makes it harder to fill those gaps in the future.”

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by Samar Khurshid, senior reporter, Gotham Gazette
     

Read more by this writer.

Note - This article has been updated to clarify that the state Division of Budget's latest projections did expect revenues to drop as much they did though they did not originally. Additional context was also added about the MTA payroll tax and early filing of payments in the 2018 fiscal year.  

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After Major Tax Revenue Drop, a ‘Positive Note’ & Much Uncertainty for State Fiscal Picture Sun, 21 Apr 2019 04:00:00 +0000
Uncertain Future for Secretive State Pork Program Tied to Renegade Democrats https://www.gothamgazette.com/state/8461-uncertain-future-for-secretive-state-pork-program-tied-to-renegade-democrats https://www.gothamgazette.com/state/8461-uncertain-future-for-secretive-state-pork-program-tied-to-renegade-democrats cuomo klein via gov

Cuomo and Klein (photo: governor's office)


Few New York residents have probably heard of the State and Municipal Facilities Program, or SAM, but in recent years, it has been one of the top avenues by which state lawmakers “bring home the bacon,” providing many millions of dollars in funding for district projects. Otherwise known as “pork,” these projects include things like new or renovated parks, schools, libraries, and more, with far greater funding going to legislators based on their political power.

However, in this year’s recently-adopted state budget, there are no new appropriations for SAM. And SAM is also different because it is lump sum appropriation, with specific project funding decided outside the budget process by the governor and legislative leaders.

Started in 2013, SAM is a creation of Governor Andrew Cuomo and legislative leaders. It is controlled by the Dormitory Authority of the State of New York (DASNY), one of the state’s many public-benefit corporations, responsible for assisting state and local governments, as well as non-profits and colleges, with construction, financing, and other services. Currently-planned SAM projects include everything from renovations to the Brooklyn Public Library to creation of a skateboard park in Albany to new fire trucks and patrol vehicles in Poughkeepsie.

DASNY’s board consists of five gubernatorial appointees, an appointee from the President of the State Senate, another from the Assembly Speaker, and four ex-officio members: the State Comptroller, Education Commissioner, Health Commissioner, and the Budget Director.  The health commissioner and budget director are both appointed by the governor and the education commissioner is appointed by the state’s Board of Regents.

The program has long been criticized as an unnecessary discretionary fund -- in other words, a politically advantageous “slush fund.” SAM is one piece of the state’s larger capital budgeting, mainly for construction projects.

In his assessment of the 2018 state budget, Comptroller Tom DiNapoli criticized “the state's use of lump-sum appropriations that leave broad discretion for use of funds with limited disclosure.” He specifically cited SAM, which received a 25% increase in appropriations that year, saying “the need for additional discretionary spending authority was not made clear.”

Criticism has also come from good government and fiscal watchdog groups. E.J. McMahon, research director for the Empire Center for Public Policy, said last year that state lawmakers were “basically like teenagers with credit cards” when it comes to using SAM.

“It’s just pork. There is nobody even pretending that there is statewide importance to any of these,” McMahon told The Buffalo News. “There is no process. No airing. There’s complete discretion.”

David Friedfel, the director of state studies for the Citizens Budget Commission, told Gotham Gazette “these lump sum appropriations are not a wise investment of state resources. The allocations are a product of political expediency instead of a thorough analysis of the state’s needs. It’s nice for the communities that receive these grants, but the state taxpayers shouldn’t be footing the bill.”

Surprisingly, in this year’s state budget, there were no new appropriations for SAM. However, Friedfel notes that state lawmakers “have not allocated all of the money previously appropriated so they may have decided to just spend down existing appropriations this year.” There still remains over $1.9 billion in SAM appropriations that have gone unspent since the program’s creation in 2013, and that money is carried over into the new fiscal year 2019-2020 budget that took effect April 1 of this year.

As of April 8, 2019, there are over 1,800 grants currently administered by DASNY under SAM that amount to over $900 million in planned spending. This leaves a little over a $1 billion in discretionary funds for state lawmakers to access, which is more funding than SAM has ever spent in a single year.

Freeman Klopott, a spokesperson for the state’s Division of the Budget, which is under the governor, said in a statement “there were no capital additions to the Budget and, as we have said already, additional capital funding will be addressed in June at the end of legislative session when we have a better sense of the State’s fiscal picture.”

There has been little indication from Albany leaders if there will be additional SAM funding in the capital budget when it is decided. The state’s current fiscal outlook, the availability of reappropriated funds, and the demise of the Independent Democratic Conference (IDC) all appear to make additional SAM appropriations unnecessary or unlikely.

The program’s 2013 introduction coincided with the first state budget following the 2012 state legislative elections, in which Democrats won a majority of State Senate seats. However, the IDC partnered with Senate Republicans to maintain the Republican-led majority. The addition of a new discretionary spending program a few months after the deal was struck was suspicious to many. There has been reporting to indicate, as well as widespread belief, that Governor Cuomo, now a third-term Democrat, preferred and encouraged the creation of the IDC and its coalition with Republicans.

SAM was utilized over the years to benefit members of the IDC handsomely, while the funding also benefited Senate Republicans and Assembly Democrats.

Several years after its creation, in the 2018 budget, an additional $90 million was added to SAM’s annual appropriations. This was a few weeks before the IDC’s dissolution -- a deal Cuomo brokered -- and five months before that year’s primary elections, when six of the eight IDC members were defeated by Democratic challengers.

Former State Senator Jeff Klein, who had been the leader of the IDC, was one of the primary beneficiaries of SAM projects before his loss to Alessandra Biaggi in the 2018 state legislative elections. A 2015 article in Politico New York explained “Jeff Klein’s alliance with Republicans has paid off.” Klein received almost $12 million in earmarks, much of which came from SAM, over three years between 2013 and 2015, according to Politico. Klein’s earmarks were triple that of any other state senator at the time, though other members of the IDC also reaped significant benefits, as did other legislators.

In an April 1 interview with WAMC Northeast Public Radio, Cuomo acknowledged that the capital budget and capital projects were not “fully included” in the recently-passed state budget. He said that “we have to negotiate on the capital side and we’ll do that in the coming weeks.” He also reiterated that the state’s $150 billion infrastructure plan “is the most aggressive infrastructure plan in the United States of America.”

While Cuomo’s major infrastructure projects continue apace, it is unclear what the fate of the SAM program will be, whether the reallocated money will be spent down or whether new money will be added.

On April 12, Cuomo issued 123 line-item vetoes to cut $44 million in capital spending added by the Legislature, in order “to maintain a properly balanced budget,” the governor wrote, and for technical reasons, such as being duplicative or were unnecessarily held over from several years prior.

While SAM is among the largest sources of funding legislators can use for capital projects in their districts, it is not the only source. And according to Friedfel, the final state budget also took out a provision that would have given the state’s inspector general greater oversight of discretionary spending.

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by Andrew Millman, Gotham Gazette
   

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Uncertain Future for Secretive State Pork Program Tied to Renegade Democrats Thu, 18 Apr 2019 04:00:00 +0000
Report Undercuts Cuomo and DiNapoli Claims of Outmigration Because of Federal Tax Law https://www.gothamgazette.com/state/8440-report-undercuts-cuomo-and-dinapoli-claims-of-outmigration-because-of-federal-tax-law https://www.gothamgazette.com/state/8440-report-undercuts-cuomo-and-dinapoli-claims-of-outmigration-because-of-federal-tax-law governor and cuomo salt rev

Gov. Cuomo, middle, and Comptroller DiNapoli, right (photo: Governor's office)


In the last few months, Governor Andrew Cuomo and State Comptroller Tom DiNapoli have raised red flags about the impact of the 2017 federal tax overhaul ushered through by President Trump and Republicans in Congress. Chiefly, they said that a new $10,000 cap on the State and Local Tax (SALT) deduction has led to a massive drop in revenue and is likely being accompanied by increased outmigration of high-earning New Yorkers to states with lower taxes.

But Cuomo and DiNapoli never provided concrete proof of the alleged trend and a new report undercuts their claim, to an extent, showing that New Yorkers have not been leaving the state because of the SALT cap but rather as part of continuing demographic trends and shifts in job markets.

Moody’s Investors Service, a leading ratings agency, released a report on Monday that said there are “no discernible signs” that the change in the SALT deduction is leading to people moving out of high-tax states, and notes that the impact of the new cap “will be felt widely for the first time this tax season and possibly spur some out-migration, but jobs and demographic trends will continue to influence relocation patterns more than tax burdens.”

The initial findings, based on 2017 data, fly in the face of the governor’s more definitive claims that the federal tax reforms -- which largely benefited corporations and wealthy individuals -- were leading to outmigration from high-tax Democratic states like New York, Connecticut, and New Jersey, where high-income earners make up a large part of the revenue base.

“We hope Moody’s is right, but with the first filing deadline post-SALT still upcoming, we are in the first inning of a long game,” said Freeman Klopott, a spokesperson for the state Division of the Budget, which is under Cuomo. “By the federal government’s own calculation, the cap on SALT is a more than $600 billion tax hike that will be borne overwhelmingly by New York and similarly situated states, making it an attack on the work we have done to strengthen New York State’ economy with a 2 percent limit on annual State spending growth, a cap on local property taxes, and a tax cut for every New Yorker.”

Brian Butry, a spokesperson for DiNapoli, said in an email, “As New Yorkers finalize their taxes, some are learning for the first time the impact of the SALT cap. The jury remains out on what the long-term effect will be.”

At a February 4 news conference, Cuomo and DiNapoli made a dire announcement that personal income taxes had come in $2.3 billion lower in December and January than the prior year, warning that even a small amount of outmigration of high-income residents would have a significant impact on state revenue. The SALT cap, they said, cost the state $14.3 billion in total.  

“SALT encourages high-income New Yorkers to move to other states,” Cuomo said, using his typical and misleading shorthand of “SALT” to mean the new cap on SALT deductions (the governor also regularly says that SALT was ended, when it has been capped). “And what you have to remember is even if a small number of high-income taxpayers leave, it has a dramatic effect on this tax space.”

He continued, “Taxpayers are adjusting in response to SALT....We have been hearing all along from the major accounting firms, to major individuals, that this is going to be the tipping point and that people now will be making a decision to make a geographic location change. And the SALT provision, remember, did not go into effect yesterday. It had over one year to adjust, so you didn't have to move on 24 hours' notice. You had one year to start to plan a move. And it goes into effect this April, so if you had to move or decided to move, now is the time that you would do it.”

DiNapoli was less forceful in making that argument that day. “We certainly have all heard anecdotally, as the Governor pointed out, people who say they're going to change their legal address, and I think these numbers show that in fact that is probably a big part of the picture,” he said, while acknowledging that several other factors, including volatility in the financial markets were to blame for the recent revenue decrease.

In a March 13 interview on WBAI radio with Gotham Gazette’s Ben Max and City Limits’ Jarrett Murphy, DiNapoli continued that line of reasoning while maintaining that he would need to examine months of data from the Department of Taxation and Finance before coming to a firm conclusion. “I do think that is a piece and probably a very significant piece, of what’s happening,” he said of the alleged SALT cap impact on taxpayer behavior and state revenue. “We’re gonna need more months of data....My instinct tells me the governor was on the right track, that the biggest piece of the shortfall was the response to the adjustment in federal tax reform.”

[LISTEN: Max & Murphy Podcast: Comptroller Tom DiNapoli (March 2019)]

The Moody’s report, however, points out using Census Bureau data that migration rates between 2012 and 2017 in the five states where “the SALT deduction represents the largest share of total federal adjusted gross income” -- California, Connecticut, Maryland, New Jersey and New York -- “are below pre-recession levels and generally follow the US as a whole.” The report notes that it is too early to gauge if the federal tax law has affected migration, contrary to what Cuomo and, to a lesser degree, DiNapoli have said. The report also said that people are generally moving from one high-tax state to another.

“In 2017, 25%-30% of people who moved out of New York, Connecticut and New Jersey moved to another one of the five high-tax states,” the report reads. “The most popular destination for people moving out of New Jersey and Connecticut was New York.”

The report does confirm long-running concerns from Cuomo and others about migration of New Yorkers to Florida, a state with far lower taxes. Moody’s noted that 14% of people who moved out of New York in 2017 went to the Sunshine State. But, those who moved were not primarily driven by lower taxes but rather by job opportunities, climate, and housing costs, the report said. The trend of New Yorkers moving to Florida is nothing new, however. Overall, New Yorkers have consistently been leaving the state since at least 1961, according to the Empire Center, a think tank, and the state saw a net loss of more than 1 million people between 2010 and July 2017.

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by Samar Khurshid, senior reporter, Gotham Gazette
     

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Report Undercuts Cuomo and DiNapoli Claims of Outmigration Because of Federal Tax Law Tue, 09 Apr 2019 04:00:00 +0000
State Comptroller Discusses Fiscal Picture as Budget Season Heats Up https://www.gothamgazette.com/state/8363-state-comptroller-on-fiscal-picture-as-budget-season-heats-up https://www.gothamgazette.com/state/8363-state-comptroller-on-fiscal-picture-as-budget-season-heats-up alb gov comptroller

Comptroller DiNapoli, right, and Gov. Cuomo (photo: governor's office)


With a state budget due April 1 and several major question marks hanging over negotiations between Governor Andrew Cuomo and the state Legislature, State Comptroller Tom DiNapoli gave his latest assessment of New York’s economic outlook and key aspects of the budget picture. Appearing on WBAI radio’s Max & Murphy show on Wednesday, DiNapoli reiterated the concern over dips in state revenue, which he and Cuomo have attributed to impact from the new federal tax code and related taxpayer behavior.

The state’s chief fiscal watchdog also said more data is essential before making any final declarations, acknowledging that everyone will know a lot more once most of the tax returns are in next month. Yet, amid more uncertainty than in recent years state leaders must craft a new budget well before the April 15 tax deadline, a fact that has prompted some, including Cuomo, to revisit the notion of moving the state fiscal year to start in June or July, something DiNapoli said is worth taking a serious look at.

On that question and others, DiNapoli gave his typically cautious answers, not taking a definitive stand on several issues on the negotiating table. DiNapoli noted that he does not have a seat at that table, but that his job is to evaluate the budget that is agreed upon by those who do, namely the governor and the two houses of the Legislature.

In January, DiNapoli and Cuomo announced that the state fell short of its projected revenue by $2.3 billion. He partly blamed geopolitical uncertainty regarding President Trump’s tumultuous trade war with China, turbulent Brexit negotiations, and stock market fluctuation. But more so, DiNapoli held the 2017 federal tax overhaul responsible, which instituted a cap on individuals’ ability to deduct state and local taxes from federal taxes and significantly impacts New York due to the high taxes at the state and local levels.

Much of dip in state revenues “had to do with a change in taxpayer behavior,” DiNapoli said. “Particularly the cap on local and tax deductibility.” He added that the state has already regained losses from down financial markets in December, but advised waiting to draw definitive conclusions.

“We probably need more data from the Department of Tax and Finance,” he said. But DiNapoli also attributed some losses to ultra-wealthy residents fleeing the state, echoing Cuomo, but, also like Cuomo, not yet able to offer definitive proof. “One percent of New York taxpayers carry 46 percent of the personal income tax revenue that comes to the state,” he reminded.

“If you lose even a handful of those billionaires or multi-millionaires,” the state will feel the difference, he said.

“The next time we’ll have more solid numbers is in April and the budget is supposed to be done by April 1,” he said. “Which begs the question of whether to change the fiscal year.” While DiNapoli admitted “there’s a logic to it,” considering most other states either begin on July 1 or run on a calendar year, he said “the likelihood of that reform happening anytime soon is probably wishful thinking.”

“New York is still in a strong position,” he said. “I would hope that April would see some rebound in the collections. We don’t know that for sure.”

As the state budget is finalized, DiNapoli voiced moderate support for a pied-à-terre tax system, which would tax high-value homes in New York City that are not the owners’ primary residences. “We’re setting a threshold at $5 million,” he explained. “If you can afford a $5 million pied-à-terre, you can probably handle additional levels of taxation.”

He spoke to indecision in the state legislature regarding further measures to raise revenue and the notion that a plan to legalize and tax recreational marijuana may not be included in this year’s spending plan. “There was never an expectation that marijuana legalization was going to bring in money in the coming fiscal year,” he said. The hosts and the comptroller also noted that congestion pricing for Manhattan’s central business district may also not happen, despite widespread agreement that it is needed, both to help declutter the streets and to raise revenue for mass transit.

“At this point, you have some very different sets of priorities about how to” raise revenue within the state legislature, DiNapoli said. He emphasized that under a plan put forth by Assembly Democrats, upper income New Yorkers would pay higher taxes, but the Senate majority and Cuomo appear against that path, though all agree on extending the current “millionaires’ tax” that is soon to otherwise expire. “Under the Assembly’s proposal, they would add three new higher tax brackets,” he explained. “They estimate that would raise $1.3 billion, in addition to that pied-à-terre tax.”

The question of how Cuomo and legislators will raise new revenue and cautiously budget based on the projected revenue forecast will continue to be essential to budget negotiations over the next two weeks or so.

On the always contentious topic of education aid from the state to localities, DiNapoli said agreement is often challenging because “what is equitable very much sits with the eye of the beholder.” He said it is indeed worth considering recommendations from the Citizens Budget Commission and like-minded experts who say that the state should not continually increase aid to all local school districts, but only target aid to the neediest districts.

DiNapoli was also asked about the status of work he’s overseeing to use the state pension fund toward the fight against climate change.

DiNapoli said that he had had a conference call that day with individuals involved in his Decarbonization Advisory Panel, which is evaluating ways to further use state investments to influence the world’s biggest polluters. DiNapoli, who has resisted calls to divest the pension fund from fossil fuel companies, said a plan will be forthcoming in the next couple of months. The panel’s stated goal is “how to best decarbonize the pension fund in a way that will secure retirement for hardworking New Yorkers and help support the overall health of the state’s economy and protect our environment for generations to come,” according to the governor’s office. DiNapoli said that this week based on pressure from the pension fund, Dollar General and Under Armour both agreed to formulate plans to reduce their carbon footprint.

[LISTEN: Max & Murphy Podcast: Comptroller Tom DiNapoli]

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State Comptroller Discusses Fiscal Picture as Budget Season Heats Up Sun, 17 Mar 2019 04:00:00 +0000
Max & Murphy Podcast: Comptroller Tom DiNapoli https://www.gothamgazette.com/state/8354-max-murphy-podcast-comptroller-tom-dinapoli-2019-state-budget https://www.gothamgazette.com/state/8354-max-murphy-podcast-comptroller-tom-dinapoli-2019-state-budget mxm logo

Ben Max, left, of Gotham Gazette, and Jarrett Murphy, right, of City Limits


March 13, 2019 - Max & Murphy Podcast: Comptroller Tom DiNapoli

tom dinapoli 150With the state budget deadline of April 1 fast approaching, state finances in challenging position, and a wide variety of issues on the table as the governor and legislature negotiate, Comptroller Tom DiNapoli joined the show to give his perspective on the state's economic outlook, budget picture, and key aspects of fiscal debate.

Listen to the conversation and let us know what you think -- we're on Twitter @TweetBenMax and @JarrettMurphy. You can listen to the show through the embedded audio below or download the episode wherever you get your podcasts, under "Max & Murphy," and listen to Max & Murphy live on Wednesdays at 5 p.m. on WBAI radio, 99.5FM or wbai.org

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by Ben Max, Gotham Gazette
     

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Max & Murphy Podcast: Comptroller Tom DiNapoli Wed, 13 Mar 2019 04:00:00 +0000
Cuomo's 2019 Agenda of Election, Campaign Finance and Government Ethics Reforms https://www.gothamgazette.com/state/8210-cuomo-s-voting-campaign-finance-and-ethics-reform-proposals https://www.gothamgazette.com/state/8210-cuomo-s-voting-campaign-finance-and-ethics-reform-proposals gov cuomo albany

(Photo via the Governor's office)


Governor Andrew Cuomo proposed a broad agenda of progressive legislation in his State of the State speech on Tuesday, accompanied by more detailed policy and budget books, including several measures aimed at improving New York’s democracy and increasing public trust in state government.

Emboldened by full Democratic control of the State Senate and Assembly, after years of a split Legislature where Republicans controlled the upper chamber, Cuomo reiterated many of the proposals that he has repeatedly advanced in vain in previous years and also introduced new ideas to combat public corruption, reduce the effects of money in politics, and provide more transparency about the workings of the Legislature and Executive branches.

Cuomo took stock of the state government’s failure to police its own -- as he spoke about passing ethics reforms, the powerpoint slide behind him filled with newspaper headlines about corruption in state government, starting with his own administration. “If you read the headlines over the past few years, they have been continuous and they have been disappointing, and they have been disgraceful, and they have been widespread,” he admitted. “It looks terrible and it is terrible.”

Government reform advocates have broadly praised the governor’s platform as they continue to examine the details included in the budget. On voting reforms, there seems to be general agreement, while the campaign finance and ethics proposals may prompt further debate.   

Election Reforms
Cuomo backed several voting reforms, many of which were passed by the State Legislature on Monday and sent to the governor’s desk for his signature. They included early voting -- he has proposed 12 days of early voting while the Legislature passed a 10 day bill -- consolidation of state and federal primaries into one date in June, pre-registering 16- and 17-year-olds to vote, and portability of voter registrations. There was also the campaign finance reform measure of significantly limiting contributions through the so-called LLC loophole and requiring more transparency from LLC owners.

The Legislature also began the process of amending the state constitution to establish same-day voter registration and no-excuse absentee ballots by mail, both of which will have to be approved by the next Legislature seated in 2021 and then through a ballot referendum.   

Cuomo supports all of the above, and his proposals go further, some of which are matched by bills Democratic legislators have introduced. The governor wants to make Election Day a state holiday, implement automatic and online voter registration, and also expand voting hours for primary elections upstate where polling sites currently only open at noon.

Campaign Finance Reform
Cuomo is supporting a sweeping campaign finance reform agenda that includes a public matching system for the state.

The Legislature’s LLC bill brought contribution limits in line with those for corporations, at $5,000. Cuomo, on the other hand, has proposed closing that loophole entirely (something some legislators have said they want to do in a next phase) and banning all corporate contributions to candidate campaigns, while also lowering contribution limits across the board. He also proposed prohibiting any contributions from individuals or entities that have recently applied or are seeking government contracts.

Separately, the governor pushed a measure to require reporting of intermediaries or “bundlers” who collect donations from several contributors and funnel them to candidates.

He wants to establish public financing of elections, providing 6-to-1 matches for small contributions up to $175, similar to the system currently in place in New York City. The public funds limits would be $8 million for candidates for governor; $4 million for lieutenant governor, attorney general and comptroller candidates; $375,000 for Senate candidates; and $175,000 for Assembly candidates.

On Wednesday, the governor’s office put out details of his proposal to lower contribution limits -- statewide candidates would be able to receive a total of $25,000 ($10,000 for the primary and $15,000 for the general election) down from the current effective total limit of roughly $65,100. Limits would be lower for state legislators -- Senate candidates would be allowed to raise a total of $10,000 from individual contributors, down from $18,000; Assembly candidates would be limited to $6,000 total, down from $8,800. While significant reductions, the numbers are still quite high relative to individual donation limits to presidential candidates or candidates for mayor of New York City, for example.

Cuomo is also seeking to take on the scourge of “dark money” flowing into elections through independent expenditures by anonymous sources. His budget briefing book calls for expanded disclosure by 501(c)(3) and 501(c)(4) nonprofit groups of the “extent and nature of their expenditures used to influence the debate on public issues, and the identity of large donors who facilitate that speech.”

“These loopholes make the entire campaign system fraught for a lack of integrity,” Cuomo said. “You want to talk about franchising individuals who now feel disenfranchised - a corporation, a large contributor with a $10 million check can buy an election and nobody knows who he or she is.”

Government and Lobbying Ethics
Though some of his proposals are likely to face resistance from the State Legislature, Cuomo wasn’t shy about challenging his legislative counterparts in his Tuesday speech as he railed against the recurring instances of corruption that have come to light in recent years, including from within his own administration.

“Now, we will never stop venial, greedy, ignorant, behavior by people. And we shouldn't be expected to do that,” Cuomo said, “but we should be expected to do everything we can to have a system in place that safeguards against fraud or theft, and there it is a continuing battle, but there I believe we can do more to ensure the public trust.”

He proposed requiring candidates in state elections to disclose their tax returns, a measure that is usually voluntarily taken by candidates for major offices like mayor, governor, and president. Cuomo’s budget proposal would require statewide candidates to release ten years of tax returns and five years of returns for candidates for Senate and Assembly.

He also emphasized the need to expand the state’s Freedom of Information Law to cover the state Legislature, a move that certain lawmakers have backed in the past but one that previous legislative leaders have ardently opposed.

The governor is also seeking to ban government employees from volunteering for their employer’s political campaigns, and wants to require local elected officials to annually disclose their finances to the Joint Commission on Public Ethics (JCOPE), just as state elected officials and employees are required to do.   

Cuomo also floated a “Lobbying Code of Conduct” to severely limit real and perceived pay-to-play politics and to curb the revolving door practices that have become commonplace in Albany. He proposed greater penalties for violations of lobbying laws, lowering the threshold for disclosure of lobbying activities to $500, down from $5,000, a ban on loans from lobbyists to candidates, and preventing political consultants from lobbying the elected officials who they helped get into office. He is also advocating for expanding the blackout period in which government employees and elected officials, as well as their staff members, would be prohibited from becoming lobbyists from two years to five.

The governor promised on Tuesday that if the state Legislature did not approve the code of conduct for lobbyists, he would prohibit those lobbyists who do not voluntarily abide by it from lobbying the executive chamber. The provisions of his proposal, however, contain many gray areas as well as steep penalties -- a lobbyist who deliberately violates the rules could receive a civil fine of $25,000 or be banned from lobbying for six months to five years -- that will be part of negotiations if there is any movement on the proposals.  

In a surprising move, the governor also announced on Tuesday that he had reached an agreement with State Comptroller Tom DiNapoli to implement certain reforms to the state’s contracting and procurement processes, including returning to the comptroller certain powers that had been stripped during Cuomo’s first year as governor. Cuomo said he would allow the comptroller to pre-audit any SUNY, CUNY and Office of General Services contracts worth more than $250,000, granted the audits are done within 30 days, and, in turn, the comptroller agreed to turn over contracts above that threshold to the state inspector general for audits.

“Contract procurement review must be performed and government must function on a timely basis,” Cuomo said. “I don't believe one is the enemy of the other. Yes, review contracts, but yes let's get it done quickly because government has to function and we have to get things done.” The agreement neutralized criticism that Cuomo faced for undermining the comptroller’s authority and also preempted the potential threat of the state Legislature passing these measures against the governor’s wishes.   

Cuomo also proposed strengthening the powers of the State Inspector General, giving the office the authority to oversee nonprofits affiliated with SUNY and CUNY, as well as “state-related procurement and the implementation and enforcement of financial control policies at SUNY and CUNY.”

“This proposal is a positive step forward,” said Jennifer Freeman, a DiNapoli spokesperson, in a statement. “Improvements to the procurement process will assure that independent checks and balances are in place to prevent abuse.”

Finally, the governor’s briefing book indicates that he will direct Empire State Development, a state agency responsible for economic development programs, to create a publicly accessible online database of projects getting state benefits. Good government advocates, DiNapoli, and some legislators have long been pushing for such a “database of deals” and praised its inclusion in the governor’s budget proposal.  

“We’re very pleased by the sheer scope of the many good government reform measures the governor issued and we’re carefully evaluating them,” said Alex Camarda, senior policy advisor at Reinvent Albany, a nonprofit advocacy group. “We’re most pleased with progress on clean contracting.”

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by Samar Khurshid, senior reporter, Gotham Gazette
     

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Cuomo's 2019 Agenda of Election, Campaign Finance and Government Ethics Reforms Wed, 16 Jan 2019 05:00:00 +0000
35 Questions for New York Politics in 2019 https://www.gothamgazette.com/state/8168-35-questions-for-new-york-politics-in-2019 https://www.gothamgazette.com/state/8168-35-questions-for-new-york-politics-in-2019 Cuomo de Blasio Amazon

Cuomo & de Blasio celebrate Amazon to NY (photo: Kevin P. Coughlin/Governor's Office)


1. Will Kirsten Gillibrand and/or Michael Bloomberg run for President?

2. Will Andrew Cuomo explore a presidential run?

3. How will Chuck Schumer perform as Senate minority leader amid a new power dynamic in Washington? What impact will Rep. Alexandria Ocasio-Cortez have as she officially takes office and the year progresses? What other New York representatives will make significant impact in the new Washington, especially given new powerful committee roles? Will Gateway funding from the federal government come through? Are there other major decisions related to federal funding or policy that impact New York?

4. How will Cuomo’s third term start, with major accomplishments, acrimony with legislators - both? How much of his outlined "first 100 days" agenda will he get passed in that time period?

5. What will and won’t pass in Albany before and through a budget deal at the end of March? Will the budget be on time? How will the changes in the federal tax code affect New York? Where will the areas of more easy agreement be among the legislative majorities and Cuomo? What subjects will prove most contentious? What will be left over to the legislative session after the budget?

6. Will the Reproductive Health Act sail through? The Child Victims Act (with what details)? Will marijuana be legalized and if so, what will the regulations look like? Will congestion pricing pass? The Dream Act? Which pieces of gun control will pass? What will the New York Green New Deal look like exactly? Will cash bail be abolished? Will anything be done about plastic bags? Will rent regulations, such as and especially vacancy decontrol, be reformed/eliminated/extended? Will there be hearings and real debate over single-payer health care (the New York Health Act)? Will there be any movement on granting driver’s licenses to undocumented immigrants? Will sweeping voting reforms actually be passed? Will there be strong new state government ethics and campaign finance laws? And so on...

7. Where will the annual fight over education aid land this year? What other key education battles will emerge? Will there be legislation related to teacher evaluations? Will anything happen regarding admissions to New York City’s specialized high schools? Will mayoral control of New York City schools be extended? What will happen with the charter school cap? Will mayoral control be extended to another municipality, like Rochester?

8. How will Andrea Stewart-Cousins perform as Senate Majority Leader and how will the new Senate Democratic majority run the chamber? Which new state senators will set themselves apart?

9. Will the Legislature hold tough oversight hearings? Will there be one on the MTA? Will there be hearings on sexual misconduct in government and the private sector? Will laws meant to prevent sexual misconduct passed in 2018 be strengthened in 2019?

10. How will Assembly Speaker Carl Heastie approach the new world order in Albany? How will Heastie’s relationship with Cuomo evolve? How hard left will the Assembly Democrats push?

11. Will state lawmakers take any significant action to change the outcomes of the decisions of the legislative and executive compensation commission?

12. How will Letitia James perform as Attorney General? Will her efforts to investigate President Donald Trump, his associates and enterprises, show results? Will she be the independent actor she has promised with regard to Governor Cuomo and other elected officials?

13. What next steps will Comptroller Tom DiNapoli take in his management of the state pension fund, especially with regard to fossil fuel companies and the question of divestment? How will DiNapoli approach his oversight role?

14. Who will be the next head of the MTA? Will the MTA be restructured? Can the next MTA chair, Andy Byford, Governor Cuomo and state legislators save the subways? Can they, along with Mayor de Blasio, resuscitate the buses? Will MTA labor and construction costs be reined in? How will the MTA’s capital needs be funded?

15. Can Cuomo and de Blasio work together productively on anything? Many things?

16. Will Mayor de Blasio regain some mojo? Will the mayor put forth new, exciting ideas?

17. Who will be the next Deputy Mayor for Housing and Economic Development? Will there be (m)any high-profile departures of top administration officials?

18. How will de Blasio’s programs evolve and proceed in 2019 -- will he adjust his affordable housing plan further? Will he figure out funding for the BQX by securing the federal dollars he says are needed? Can he again rethink his approach to homelessness to more quickly reduce the number of people living in shelters? Which neighborhoods will the city rezone in 2019?
Will crime continue to drop? Will the city become safer for pedestrians and bicyclists? Will the mayor do anything serious about street congestion?

19. What’s next in the process for Amazon to create a Queens campus? Will there be sustained protests? How will community outreach go? Will there be changes to the deal announced, like some planned return/investment of subsidies? Is there anything opponents, especially in the state Legislature, can do to stop or significantly alter the deal? How will the Cuomo-de Blasio alliance on Amazon evolve? Will they stay united in defense of the project or will the like-mindedness fray given de Blasio’s comments about subsidies?

20. What will be the result of the NYPD trial of Officer Daniel Pantaleo? Will anything larger change in how the NYPD deals with accountability for its officers? Will the state repeal or drastically alter the 50-a section of civil rights law that relates to making officers’ personnel records publicly available?

21. Who will run NYCHA? Will the federal government insert itself in a new, formal way? Will Mayor de Blasio appoint someone new as Chair? Will de Blasio and NYCHA move ahead aggressively with the new NYCHA 2.0 plan that de Blasio and others unveiled at the end of 2018?

22. How will Margaret Garnett perform as Department of Investigation commissioner? Will anything come of the reported investigation into whether Mayor de Blasio or City Hall officials interfered with a city investigation into the education yeshivas provide?

23. Where will things go with oversight of those yeshivas and new state guidelines to ensure they are providing substantially equivalent secular education to public schools?

24. Will anyone do anything about rampant parking placard abuse?

25. Will anything be done to help distressed taxi drivers in the city, especially with regard to medallion debt? What’s next in terms of regulating Uber/Lyft and such companies?

26. How aggressively will the city, the Department of Education and Chancellor Richard Carranza push local school districts to pass rezonings and changes in admissions policies aimed at racial integration? What will happen with de Blasio’s Renewal Schools program? How will the rollout of de Blasio’s “3-K” program proceed?

27. Who will be the next New York City Public Advocate (the election is February 26!)? Who will run in the fall election for that same position?

28. How will Speaker Corey Johnson perform as acting Public Advocate from January 1 to February 27? How else will Johnson make his mark in 2019? Will he give a State of the City speech and announce bold proposals? What will his push for city control of the subways and buses look like? Will the City Council pass bills the Mayor doesn’t agree to? Will it force the Mayor to use his first veto since taking office?

29. What will be the key battles in the next city budget negotiations? Will de Blasio and the City Council take steps to increase savings and reduce spending?

30. What will the 2019 New York City Charter Revision Commission put on the November ballot? How will those proposals fare? Will there be major overhauls to how New York City does its budgeting and/or land use? Will there be instant-runoff voting?

31. Who will be the next Queens District Attorney? Will there be competitive races in the Bronx or on Staten Island for those two DA positions?

32. Will Chirlane McCray’s political plans become clearer? Will we get any sense of what Mayor de Blasio is eyeing post-mayoralty?

33. What will be the next steps in the early 2021 mayoral campaign -- will Corey Johnson join Scott Stringer, Ruben Diaz, Jr., and Eric Adams as candidates clearly intent on running? Who else might float their names or signal their exploration? Who will take the first steps toward running for City Comptroller in 2021? Who else will emerge as candidates for the various borough president positions? (We know Jimmy Van Bramer is running for Queens BP and Robert Cornegy Jr. is running for Brooklyn BP)

34. Will there be apparent jockeying to become the next City Council Speaker?

35. What steps will Republicans in New York take to remake the party and prepare for future elections? What role will 2018 gubernatorial nominee Marc Molinaro have moving forward? Can the party develop its bench, and better line candidates up for citywide, statewide, and other key positions? Can it set the groundwork to regain the state Senate in 2020? Will the state party and party leaders rethink their approach to President Trump?

***
by Ben Max, Gotham Gazette
     

Read more by this writer.

This article has been updated.

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35 Questions for New York Politics in 2019 Tue, 01 Jan 2019 05:00:00 +0000
Agenda 2019: City & State Budgets on Mostly Solid Ground, with Major Questions Looming https://www.gothamgazette.com/state/8147-agenda-2019-city-state-budgets-on-mostly-solid-ground-with-major-questions-looming https://www.gothamgazette.com/state/8147-agenda-2019-city-state-budgets-on-mostly-solid-ground-with-major-questions-looming Cuomo budget presentation

Gov. Cuomo (photo: The Governor's Office)


This is part of AGENDA 2019, a joint Gotham Gazette-City Limits project
Find the rest of the series here

New York’s economy has seen several rosy years in the decade since the Great Recession, with a run of steady growth, increasing job numbers, rising wages, and reliable tax revenue that has defied historical trends -- and led to growing city and state government budgets. But 2019 may be the peak of that economic swing as economic experts predict a long-expected slowdown to set in before 2020. New York City, the experts say, seems better equipped to weather any adverse effects of slowing growth and the state may struggle, presenting some hard choices for Democrats who will fully control state government come January and have a long list of priorities, some of which have financial costs attached.

Also complicating the fiscal pictures as the state and city levels are projected budget gaps that must be closed, looming negotiations over how to fund the next MTA capital budget plan and its tens of billions of dollars to fix the subways, and the still unclear effects of recent federal tax reforms, among other outstanding questions. The finances of New York City continue to show a rosier picture than those of the state, with the city economy essential to the state’s ability to spend more each year, though the state has grown its budget in much more limited fashion than the city under Mayor Bill de Blasio.

In January, Governor Andrew Cuomo will present his State of the State address and executive budget for the fiscal year that begins April 1. Afterward, de Blasio will respond to the governor’s budget plan -- which will set the stage for negotiations with the state Legislature, de Blasio, and others -- and release his own preliminary budget for the next city fiscal year, which will begin July 1. Once the state budget is finalized, the city will be able to take its details -- funding levels, new mandates, and more -- into account as it creates its own budget. The specifics of the annual struggle over what the state is asking or requiring of the city are to be seen, though Cuomo has already indicated he plans to seek more money for the MTA from de Blasio.

Budgets are statements of values as much as they are financial planning documents and Cuomo and de Blasio, both Democrats, face pressure each year to balance their policy priorities with fiscal restraint, as well as the demands of others, especially members of the respective legislative bodies each must negotiate with. The governor prides himself on having passed eight on-time or nearly on-time budgets with a 2 percent cap on increased spending, though he is known to manipulate the numbers to say he has stuck to that limit even though some years he has not. De Blasio boasts of record amounts of savings, though watchdogs regularly say that he is not socking away enough given the extended economic boom while he is spending too much, especially in recurring costs like through a significant expansion of the city workforce.

The agreed upon state budget was more than $168 billion for the current 2019 fiscal year, with savings that are far too minimal according to every expert. And the mayor’s administration, though praised by fiscal monitors for its responsible financial planning, has overseen ballooning expenditures, passing a nearly $90 billion budget for fiscal 2019 -- it was $72.7 in the final year of the Bloomberg administration.

But New York City revenue is largely based on property taxes, which would remain relatively stable even in the event of an economic slowdown. The state on the other hand is far more vulnerable since personal income tax and sales tax contribute a bulk to state revenue.

Barring any unforeseen circumstances, the current economic expansion, the second-longest in the country’s history, will continue through most of 2019, bolstered by the federal tax cuts passed in 2017 (even if many New Yorkers’ tax burdens increase due to the new cap on state and local deductibles). It should allow both the state and the city to keep spending, though experts warn that both should prepare for what will happen down the line. Both the Cuomo and de Blasio administrations, along with the state Legislature and City Council, respectively, should be putting more money towards rainy day funds, fiscal experts say; particularly the state, especially as necessary infrastructure investments loom large and add to already rising debt obligations.

New York State
The state budget remains far more precariously placed in the case of a downturn, even though one isn’t expected to hit soon. The governor has reiterated in recent months that he will continue to abide by a self-imposed 2 percent limit on increased annual expenditures, which presents little wiggle room to add major spending initiatives, though it remains to be seen if the governor will employ one of his many budget maneuvers to obscure actual spending increases. For instance, the State Fiscal Year 2019 budget, which began April 1, included a provision that funnels Payroll Mobility Tax revenue directly to the MTA instead of going through the state, effectively shifting $1.5 billion out of the budget.

“Part of the problem is they’ve technically abided by it but they’ve only done that by shifting things around and reclassifying things, not necessarily through stringent cost controls,” said David Friedfel, director of state studies at Citizens Budget Commission, a nonprofit watchdog. “The more they play those tricks, the harder they will be to find in the future if that’s how they choose to close the gap.”

The New York State Division of Budget’s mid-year financial update, released in November, predicted that the state will meet its revenue projections by the end of the fiscal year. Even at the state level, budget gaps remain manageable, at about $3.1 billion for fiscal year 2020, a number that is quickly cut if the 2 percent growth is factored in.

State Comptroller Tom DiNapoli released his own financial update in November, estimating that overall tax revenues would decrease by 1.8 percent by the end of the state’s 2019 fiscal year (end of March). Though personal income tax revenues are expected to fall by 2.5 percent, business and consumption taxes are set to increase by a total of 6.5 percent, the report estimated. Tax revenues are expected to increase by 5.9 in the 2020 fiscal year and then at a lower rate, 2.4 percent in the 2021 fiscal year.

Similar to city representatives, officials in DiNapoli’s office said in a background briefing that they expect a soft landing for the economy, despite the volatility in national and international markets. They have yet to determine the full impacts of the federal tax code overhaul, which capped State and Local Tax (SALT) deductions at $10,000 annually, raising concerns that high earners facing larger tax bills would in some cases fold to out-migration pressures, leaving the state and taking their tax dollars with them. Given New York’s position as a high-tax state, even many upper middle class homeowners in expensive New York City suburbs, and in the city itself, will be facing increased tax burdens, though it is not immediately clear that these factors will lead to a significant increase in the number of higher earners leaving the state. New York has consistently seen out-migration each year and has lost a net of 1 million residents since 2010, according to The Empire Center, a think tank. A report issued by the center in March suggested that the state should undertake several reforms to encourage the economic competitiveness which could help reverse that trend.

The state took measures to decouple state tax provisions from the federal tax code, including decoupling from the SALT limit to prevent higher state taxes, and changes to the child tax credit and the single filer deduction. The state also created two new programs -- the Employer Compensation Expense Program and the State Charitable Gifts Trust Fund -- in an effort to limit state taxpayers’ exposure to federal tax changes, but neither program appears to have caught on in any significant way. Officials in the state comptroller’s office said the impacts of the SALT deduction in particular wouldn’t be evident until during next fiscal year, particularly if it encourages people to move out of state.

Other risks in federal funding to the state seen in recent years -- Republican proposals to repeal the Affordable Care Act and make drastic cuts to Medicaid -- have also mitigated, the officials said, since those proposals have failed to come to fruition. But federal funding does remain uncertain as Congress is in the middle of negotiating the current federal budget with President Donald Trump, who has threatened a government shutdown if Congress does not approve funding for a wall along the southern border that he had promised Mexico would pay for. The ballooning federal deficit incurred from the Trump-led tax cuts have also increased pressure on federal spending, which could trickle down to the aid that New York receives for transportation, health care, and education, among other things.

“The state is in decent financial position but not when you consider the fact that we are nine years or so into an economic expansion,” CBC’s Friedfel said. “The state has been gifted with $12 billion in financial settlements and some additional revenues yet the state’s reserves are not where they should be or could be. They haven’t been added to in about four years. And liabilities are still out there.”

As Friedfel noted, the state’s rainy day funds stand at only about $2 billion, a pittance when looked at in the context of a downturn. In the case of a recession, Friedfel estimated, the state could face up to $50 billion in combined losses over a four-year period. “California is doing a very good job on their reserves. They’re gonna have close to 10 percent of state operating spending in their reserves, which is really what New York should be aiming for,” he said. “Instead of $2 billion, we should be closer to $10 billion.”

As with the city, the state’s debt also continues to rise, particularly with the governor having launched an ambitious infrastructure program that includes modernizing existing facilities and building new ones across the state, including bridges, airports and bus systems. The state’s debt service payments for fiscal year 2019 stood at $5.5 billion and are projected to rise to $6.6 billion in 2020. New York currently ranks second-highest in the country, behind California, in outstanding debt.

Year after year, DiNapoli has waved a red flag over the state’s debt obligations and officials in his office are keeping a close eye on whether those will increase in the upcoming year. There will be particularly pressing needs -- the MTA, NYCHA -- where the state will have to work with the city to fund large capital improvements. The current 2015-2019 MTA capital plan remains underfunded and the Fast Forward Plan, proposed by New York City Transit President Andy Byford to modernize the city’s subway and bus systems, may cost nearly $40 billion, with no plan proposed to pay for it in its entirety. A congestion pricing program for New York City has been embraced by the governor and many in the state Legislature as a funding stream, but even if implemented quickly and without carve-outs it would fall far short of meeting the goal.

“That’s one of the biggest questions,” said Gelinas from the Manhattan Institute, “especially if the economy continues to do well. How much does Governor Cuomo go after the city for MTA funding and in multiple billions of dollars...and does that cut into the city’s other priorities?”

IBO’s Lowenstein also echoed that concern. “The state has a great deal of leverage over the city and its own fiscal concerns and it would be unreasonable to expect these issues get resolved without city participation.”

Last time Cuomo and de Blasio negotiated the MTA capital plan, the governor successfully convinced the mayor to significantly increase city funds for the authority. Cuomo has repeatedly stated publicly in recent months that he will be pushing the city to pay “its fair share” for the MTA. De Blasio has called for an added tax on high-earners to provide dedicated funding for the MTA, a proposal that Cuomo has publicly mocked as fantasy on several occasions.

The state Legislature next year will also include several newly-elected Democrats who expressed support for increased education funding, per the Campaign for Fiscal Equity decision, which could add billions to the state budget. The state Board of Regents recently proposed a $2.1 billion increase in education funding for next year, which would be a significant jump from the current fiscal year’s increase.

New York already spends nearly twice the national average on per-pupil funding, said CBC’s Friedfel, but doesn’t necessarily allocate funding to the districts that need it most. CBC has argued for changing the key formula, known as Foundation Aid, noting that many wealthy districts receive it despite already spending more than the national average and more than the already-high state average by leveraging local tax dollars.

Another open question is what the state will do with about $900 million in unspent or unallocated one-time funds from Extraordinary Monetary Settlements, recovered from the financial industry in the wake of the 2008-09 market crash. Since state fiscal year 2015, the state has received nearly $11.2 billion in those settlements.

Though the governor has repeatedly said he will divert those funds to capital investments, and he mostly has, he has also used them for budget balancing purposes, DiNapoli’s office noted.

“The governor should be putting much more money of any one-time revenue sources aside for the MTA, things like court settlements or just better-than-expected revenues,” Gelinas said, noting the dire need to fund the transit agency. “We haven’t put enough of that money aside for the MTA.” Cuomo has, on the other hand, dedicated financial settlement money to his signature infrastructure projects, like the new Mario M. Cuomo Bridge.

Unlikely to impact the next state budget, but certainly on the negotiating table in the new legislative year, is the push to revolutionize how New York provides health insurance and health care. Several legislators, long-time and newly elected, are pushing for the New York Health Act, which would establish a single-payer health care system in the state and could cost nearly $140 billion in additional state expenditure by 2022, according to a RAND Corporation study. Though the act could reduce total health care spending by 3 percent by 2031, the study found. Cuomo has said he supports a single-payer system, but has insisted that it should be implemented by the federal government rather than the state, and said that he does not see it make fiscal sense for New York.

New York already has one of the largest Medicaid programs in the country, comprising a huge chunk of the state budget (education and Medicaid are the two biggest spending programs). But enrollment has been relatively flat over the last three years. If that trend continues, Friedfel said, the state could find more savings in the budget.

Friedfel also noted at least one development on the horizon that could have a significant impact on state tax revenue. “The million pound gorilla in the room is what’s gonna happen with the state’s millionaire’s tax,” Friedfel said. The tax is due to expire on December 31, 2019, and though prominent elected officials have called for extending, and even expanding, the program, CBC’s position is that it should be allowed to sunset to help with the state’s economic competitiveness and to keep high-earners from leaving because of the SALT deduction cap.

While Cuomo has overseen its repeated extension and he has dismissed calls to expand it, during the recent election cycle he was mum about what he wants to do with the current millionaire’s tax.

New York City
The city released its latest budget modification in November, revising spending up by $1.4 billion, for a total of $90.56 billion for the 2019 fiscal year, which ends June 30. That marks a high point for city spending, and an $18 billion increase from before de Blasio came to power in 2014. The city’s Office of Management and Budget projects a manageable $3.17 billion budget gap -- the difference between expected revenues and projected expenditures -- for the 2020 fiscal year starting July 1. OMB expects that gap to rise to $3.36 billion for fiscal year 2022, the end of the current four-year financial plan period, by when expenditures are projected to reach a whopping $99.6 billion.

As City Comptroller Scott Stringer noted in his latest financial report released on Friday, OMB tends to issue more conservative estimates of revenues in upcoming years, allowing the administration more leeway to adjust spending. Stringer’s report estimates the budget gap to be lower, about $2.6 billion in FY2019 and $2.8 billion in FY2022.  

“We’ve come out of a run of a number of years of good economic conditions and good fiscal conditions here in the city...but we’re not seeing anything in the numbers that suggests it’s going to end anytime soon,” said Ronnie Lowenstein, director of the Independent Budget Office, a nonpartisan city-funded agency.

In a background briefing, an official at Comptroller Stringer’s office acknowledged that there’s significant uncertainty, with even the Federal Reserve appearing divided about where the economy is heading. There are mixed signals in the market -- unemployment is markedly low which should lead to higher inflation, but hasn’t.

But the comptroller’s office is cautiously optimistic and no economist currently projects a recession -- though one is never out of the question -- but rather a return to a slower rate of growth by the time 2020 rolls around.

“[We’re] expecting a great deal more softness in economic growth,” said IBO’s Lowenstein. “Not a recession but a much softer U.S. economy. And as far as the local economy’s concerned, we’ve already begun to see the weakening.” She pointed to the drop in job growth over the last few months and also noted that though the job market has diversified with more jobs created outside the financial industry than before the last recession, most of the new jobs have been in lower-paying industries.

But she said that slower growth won’t create out-of-control deficits. “We’re looking at gaps that are readily manageable, of the size that we’ve managed in the past,” she said.

The official from the comptroller’s office agreed that the city has the capacity to manage outyear budget gaps, particularly with a strong budget surplus each year that has allowed the city to maintain a healthy, if not optimal, level of reserves. The de Blasio administration put away added rainy day funds in the current fiscal year, responding to demands from the City Council. The result included a total of $1.25 billion in the general reserve, $4.35 billion in the Retiree Health Benefits Trust Fund, and $250 million in the capital stabilization reserve.

The city’s budget cushion has been increasing over the years and stood at about 11.2 percent at the start of the current fiscal year, though the comptroller has urged the administration to maintain levels between 12 and 18 percent, the lower range of which would have required more than $6.3 billion to hit the upper end.

agenda19v2 aThere are of course various risks that the city must manage. One big vulnerability, according to the official from the comptroller’s office, is the size of the city’s workforce, which has added more than 30,000 workers under de Blasio.

“If you look at the November budget update...the biggest issue is the increased expected spending on labor,” said Nicole Gelinas, senior fellow at the Manhattan Institute, a think tank. She noted that the report increased the labor reserve for fiscal year 2020 by $704 million, for 2021 by nearly $1 billion and for 2022 by about $1.4 billion.

“It just shows that these labor agreements that the mayor is making with the unions are costing a little bit more money than expected,” she said. “So the basic story is if the economy keeps doing well, we can probably squeak by with balancing next year’s budget...but if the economy does fall into a recession, with the higher labor costs making these deficits a little bit bigger over the next few years, they would pose a bigger problem for the city.”

Gelinas said the city must take aggressive cost-cutting measures in labor agreements, particularly health care spending, to help avert layoffs and service cuts in the case of a recession. “Longterm, health care savings have to be much more aggressive,” she said. “The healthcare fringe benefit budget for the upcoming fiscal year will be almost $11.5 billion and it’s continuing to rise. It’s going to $12.5 billion by the end of the financial plan.”

“No mayor has ever gotten through two terms without a recession,” she added on the eve of de Blasio’s sixth year in office.

The city’s debt obligations have also been rising, owing to a massive capital program, which pays for building and maintaining the city’s infrastructure such as roads, parks, schools, and libraries.

“Debt service is one of the two big sources of growth in city spending,” said IBO’s Lowenstein, referring to the annual debt payments that are included in the city’s expense budget. “It’s debt service and healthcare, and they’re both big and they’re both growing very fast.” Debt service -- which is accounted for in the city’s annual operating budget -- is budgeted at a total of $6.8 billion for fiscal year 2019, according to the November update, and is expected to rise to $8.3 billion by fiscal year 2022.

Unlike most other municipalities, New York City’s capital program is funded entirely through borrowing, incurring massive debt that must necessarily be paid off every year, which could pose problems in the long run. “It’s less that we can’t continue to pay the debt service on the commitments that we’ve made but rather that they’re crowding out other things that the city might want to do,” Lowenstein said. “And our ability to expand those capital commitments is not unlimited. Especially in an era when interest rates are rising.”

Rising debt service also gives the mayor and City Council “less leeway to budget for other things ranging from teachers to cops to road repair,” she said.

Stringer has repeatedly raised the issue of rising debt, though it’s not yet out of control. The rule of thumb for his office is that debt service should not exceed 15 percent of tax revenues, a level it is well below currently. And the City Council has also attempted to make changes to the mismanaged capital funding process, creating a new subcommittee this year dedicated to examining the capital budget, finding ways to make it more efficient and reducing cost overruns. Upcoming City Council budget hearings may indicate whether that subcommittee and its focus are having any real impact.

But there are big items that may add significantly to the city’s capital investments and therefore create an additional debt burden. Those include funding for the beleaguered New York City Housing Authority (NYCHA) and the state-run Metropolitan Transportation Authority (MTA). In both cases, the city may have no choice but to commit billions more dollars, particularly pending the outcome of negotiations with federal officials over NYCHA and with state officials over the MTA, for which the city typically kicks in significant capital funds.

“The city may not have choices so the speed with which this occurs may be out of our hands,” Lowenstein said.

This is part of AGENDA 2019, a joint Gotham Gazette-City Limits project
Find the rest of the series here

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by Samar Khurshid, senior reporter, Gotham Gazette
     

Read more by this writer.

Note - This article has been updated to ntoe that the Capital Stabilization Reserve is $250 million, not $250 billion. 

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Agenda 2019: City & State Budgets on Mostly Solid Ground, with Major Questions Looming Sun, 16 Dec 2018 05:00:00 +0000