New York Mayor Eric Adams’ executive budget for fiscal 2023 would provide an additional $1.2 billion in spending compared to his February plan thanks in large part to a greater-than-expected revenue surge.
Adams presented his $99.7 billion revised
"The executive budget tax revenue forecast reflects additional resources compared to the previous estimates," the mayor said in his budget message, citing an increase in tax revenues. "However, growth is expected to weaken as the national economy decelerates."
He said caution was the watchword.
"Given the reality of mixed economic signals and a relatively slow revenue growth forecast throughout the financial plan, we must remain cautious and committed to strong fiscal management," he said.
The executive budget is up $1.2 billion from the
“The city’s tax revenue forecast was revised upward over preliminary budget estimates in fiscal 2022 by $1.6 billion, driven by growth in non-property taxes, and $392 million in fiscal 2023 due to growth in property taxes,” the mayor’s office said. “Additionally, $1.7 billion has been added to the Labor Reserve in anticipation of negotiating labor agreements with the entire represented workforce.”
While the executive budget expanded, the fiscal 2022-2026 capital plan decreased to $94.9 billion from the $100 billion proposed in February. The mayor’s office said that to make the plan more realistic, $5.1 billion in capital projects were moved from fiscal years 2022-2026 to the outyears.
“The mayor’s budget proposal does recognize a somewhat cautious approach to future revenues and notes an uneven Wall Street performance and its impact on future income tax revenues, and the potential for increased office vacancies,” Howard Cure, director of municipal bond research at Evercore Wealth Management LLC, told The Bond Buyer. “However, there is an expectation, compared to the preliminary February budget proposal, of an earlier employment recovery to the summer of 2024 versus the end of 2024.”
He noted that despite the caution, spending was on the rise.
“Despite the recognition of volatile revenues, certain programs are expanded, with the addition of 3,000 positions even after the prolonged period of city employment expansion under the DeBlasio administration. In addition to adding positions and fixed costs, there was only a modest addition to the labor reserve — 1/2 of 1% over next two years,” Cure said. “This is in spite of current inflation levels. Collective bargaining contract negotiations for many city employees will begin in earnest soon and the full impact of pay raises may not be recognized in future budgets.”
The budget should include higher reserve levels, Citizens Budget Commission President Andrew Rein said.
“Risks abound, including a rocky recovery, inflation, global instability, and economic changes like remote work that may affect commercial real estate and future income taxes," he said. "With the average economic recovery since the 1970s being approximately six years, the city should grow rainy day reserves to over $8 billion by the end of the financial plan.”
Rein noted the budget made a moderate deposit to the rainy day fund while restoring half the funds cut from the labor reserve during the recession.
Cure said the fund should have been given more importance.
“There is a modest deposit in the city’s rainy day fund. Given the volatility of some of the city’s revenues, a larger deposit would be appropriate,” Cure said. “Also, there is no formal reserve policies as to when to deposit monies and the amounts and purposes in which to withdraw funds. Given the current surplus situation, now would be the time to delineate a policy rather than wait until the city is running an operating deficit.”
New York State Comptroller Thomas DiNapoli noted the change in the city’s finances since February.
"The city’s short-term finances have improved dramatically from budget adoption and still has room to improve before the end of the year,” DiNapoli said in a statement. “This improvement reflects the city’s economic resilience and savings generated mostly through staff vacancies from earlier this year, which helped the city generate a nearly $5.3 billion surplus in fiscal 2022.”
He noted that revenues are expected to continue to rise.
“My office anticipates revenues will further improve by at least $750 million before the end of the year, offering another opportunity to prepare for uncertainty,” DiNapoli said.
New York City Comptroller Brad Lander said the fiscal 2023 budget is a chance to put the city on a path towards an inclusive and resilient recovery.
He said that despite better-than-projected city tax revenue, “this budget only adds drops to the rainy day fund bucket we will need to face future storms.”
He said the city should first spend the money it already has.
“The city needs to spend its remaining federal COVID funds effectively, starting with the money allocated for our children’s academic, social, and emotional wellness,” Lander said.
The recently passed New York State $220 billion fiscal 2023 budget didn’t include any additional
Adams had proposed raising the TFA’s bonding limit by $19 billion from the current authorization of $13.5 billion. But Lander opposed the move, saying it was too early to look at raising the cap now.
“We continue to work with Albany to try to get this legislation enacted, because we need that capacity for capital, for the capital program,” Jacques Jiha, the mayor's budget director, said in response to a question from The Bond Buyer. “Otherwise, you can't fund the capital program if we don't have that capacity.”
A higher TFA debt cap could take on added significance if the city’s ability to issue general obligation bonds is impaired based on potential declines in the commercial real estate market due to
The City Council held its first series of
“The mayor’s executive budget took real steps to incorporate funding for many critical priorities from our response that we appreciate, including homeless services, housing assistance, summer youth programming, and mental health emergency responses,” City Council Speaker Adrienne Adams and Council Finance Chair Justin Brannan said in a joint statement.
“This confirms that the city has the money to fund crucial services New Yorkers need to thrive, and it represents a step forward in our partnership with Mayor Adams to enact a budget that fosters safer communities,” they said. “The Council will continue its efforts to secure additional investments in essential areas that require more support to advance our city.”
Spending more now is seductive, but shortsighted, according to the CBC.
“The Council wants to add well over $1 billion in recurring spending. While the executive budget supports critical priorities, such as mental health and improving housing and land use processes, the city’s leaders should not pretend the city can have and do it all,” Rein said. “Undisciplined management and a spending spree will set the city back, not propel it forward. Focused priorities, well managed, are critical to a bright future.”
Cure said it would be interesting to see what new dynamic will emerge in the upcoming budget negotiations.
“This is the first time the mayor is negotiating with the City Council about the budget. Many of the council members are new and there is already a push from the City Council to provide even more money for social service programs,” Cure said. “This will be a test to see the mayor’s discipline in maintaining a structurally balanced budget.”
New York City is one of the biggest issuers of municipal bonds in the nation. As of the first quarter of fiscal 2022, the city had about $38.13 billion of general obligation bonds outstanding.
That doesn’t include the various city agencies that issue tax-exempt and taxable bonds such as the TFA or the Municipal Water Finance Authority, which have $41.64 billion and $31 billion of debt outstanding, respectively.
The city’s GOs are rated Aa2 by Moody’s Investors Service, AA by S&P Global Ratings, AA-minus by Fitch Ratings and AA-plus by Kroll Bond Rating Agency. All four rating agencies assign a stable outlook to the GOs.
