New York City faces a one-two punch from a spreading virus and state budget cutbacks which could deliver knockout blows to its record-breaking economic expansion.
That was the gist of officials’ testimony on the first day of the New York City Council’s examination of Mayor Bill de Blasio’s $95.3 billion fiscal 2021
On Monday, the Finance Committee, led by Chair Daniel Dromm, held the first in a series of public hearings into the budget.
Melanie Hartzog, Director of the Mayor’s Office of Management and Budget took aim at the first threat posed to the budget — COVID-19.
“Since we issued the preliminary budget, the coronavirus has emerged as a risk to our economic and tax forecast,” she said in her testimony at City Hall. “Over the past seven days, the S&P 500 dropped nearly 13%, posing risks for the financial sector. We are monitoring the situation closely and will update our forecast as part of the executive budget.”
City Comptroller Scott Stringer said that his office was also monitoring the evolving virus situation closely.
“I want to use this opportunity to address the coronavirus and its impact on our city finances and the pension funds. As the city’s chief fiscal officer, it is my responsibility to monitor events that affect the markets,” Stringer said. “As long-term investors, it’s worth remembering that we have gone through similar episodes many times, and the most likely outcome is that markets will resume growth and regain their losses once the outbreak has been contained and run its course. In the meantime, we continue to monitor markets carefully and are prepared to take any appropriate steps.”
Ronnie Lowenstein, director of the New York City Independent Budget Office, said that while it was too early to quantify the effects of COVID-19, there was no doubt it would have a negative effect on the city’s economy.
She said IBO’s recent
She said the budget was balanced, but that there were considerable risks to the forecast — risks from the national economy, from the state and from COVID-19.
As they spoke, Gov. Andrew Cuomo and de Blasio held a joint news conference uptown where they addressed the COVID-19 threat and the steps that the state and city would be taking to lessen any effects — both in financial and human costs.
Cuomo said the public health laboratory housed within the state health department was partnering with hospitals to expand surge testing capacity to 1,000 tests per day statewide for the novel coronavirus.
“In general, there is no doubt that there will be more cases where we find people who test positive. We said early on, it wasn’t a question of if, but when. This is New York, we’re a gateway to the world. You see all these cases around the world, around the country, of course we’re going to have it here,” Cuomo said. “Our challenge now is to test as many people as we can. You’re not going to eliminate the spread, but you can limit the spread.”
The governor said he would be introducing emergency legislation that would authorize an additional $40 million for more staff and equipment.
De Blasio said there was some good news in the forecast ahead.
“The city and state are working together with the Wadsworth Lab, the state lab. They’ve been fantastic, we’ve been able to get a lot done. We’re going to be able to do so much more now starting this week. The city’s capacity will be up and running for the testing as of Friday. That means results will come in hours, not days. This is going to be a much better situation for all of us,” de Blasio said.
But that was the only area of agreement between city and state on this day.
On the New York State budget, city officials were unanimous in condemning it, saying it would harm growth and the economy.
“In November we learned the state has a $6 billion deficit, primarily due to Medicaid cost increases. This is the largest gap it has faced in a decade,” Hartzog said. "Then in late December we were notified that the state was cutting Medicaid payments to H+H by 1%. This is a $65 million hit to its budget over two years."
She said the bad news kept on coming.
“At the preliminary budget presentation, the mayor warned that Albany might close its gap by making significant cuts to localities,” she said. “Two weeks later the governor issued his executive budget. It shifts $1.4 billion in costs to the city, which includes $1.1 billion in Medicaid funding.”
Hartzog added that there was an addition $300 million cut to education and social service programs.
Stringer echoed these concerns and pointed to his recent
“Since 2015, actions in the state budget to shift costs and unfunded mandates onto New York City have piled up, resulting in nearly $800 million in higher city spending in the FY 2021 budget,” he said. “The trend continues this year, with proposals that would make the city pay more for family assistance and child welfare services and for public education. Taken together with past actions, that’s over a billion dollars more in city-funded spending next year to meet critical service needs.”
The comptroller said the recent state proposals were concerning and unfair.
“This is untenable and wrong to balance the Medicaid budget on the backs of local governments that do not set the terms of eligibility or benefits,” Stringer said.
“As the mayor recently testified in Albany,” Hartzog said, “the $1.4 billion cut we face today is larger than all the state budget cuts we’ve seen over the past six years combined. We are fighting every effort to push costs onto the city’s budget.”
The city is one of the largest issuers of municipal debt in the United States. As of the end of the second quarter of fiscal 2020, the city had about $37.7 billion of general obligation debt outstanding. That's not counting the various city authorities that issue debt.
Moody’s Investors Service rates the city's GOs Aa1 and S&P Global Ratings and Fitch Ratings rate it AA. All three rating agencies assign stable outlooks to the GOs.
The NYC Transitional Finance Authority has $38.9 billion of debt outstanding while the NYC Municipal Water Finance Authority has $30.8 billion of debt outstanding. The TFA’s debt consists of future tax-secured senior bonds (Aaa/AAA/AAA), future tax-secured subordinate bonds (Aa1/AAA/AAA) and building aid revenue bonds (Aa2/AA/AA). The MWFA’s debt consists of general resolution bonds (A1/AAA/AA+) and second general resolution bonds (Aa1/AA+/AA+).
For fiscal 2020, the city has estimated total bond issuance of $8.61 billion, with sales of $9.9 billion in fiscal 2021, $11.3 billion in fiscal 2022, $12.7 billion in fiscal 2023 and $13.3 billion in fiscal 2024.
Stringer is fiduciary for the city's five main pension funds, which are the New York City Employees' Retirement System (NYCERS); the Teachers' Retirement System of the City of New York (TRS); the New York City Police Pension Fund Subchapter Two; New York City Fire Department Pension Fund Subchapter Two; and the New York City Board of Education Retirement System (BERS). As of Nov. 30, 2019, the funds had $215.5 billion in assets.
The Council will now hold a series of public hearings over the next few weeks. By the end of April, de Blasio will release his executive budget. The 51-member council will then issue its response to that plan and hold a second round of hearings after which they will negotiate adjustments with the mayor.
By law, the council must vote on a budget by July 1. The last four budgets were all approved ahead of schedule.
