NYC Mayor Cuts Costs, Taps Reserves After $7 Billion Hit
(Bloomberg) -- New York Mayor Bill de Blasio proposed an $89.3 billion budget for next year, $6 billion smaller than he had planned in January, relying on spending cuts and drawing from reserves to make up for an expected $7.4 billion revenue loss through mid-2021 because of the coronavirus lockdown.
The mayor said his budget was balanced by $3 billion in spending cuts and debt service savings and $4 billion in reserves built up over the past six years, plus about $2 billion in previously received federal aid. At his daily virus briefing on Thursday, he called on Washington to help the city deal with its fiscal crisis, making up for lost revenue that he said could be even higher than anticipated.
“Our top priorities are simple: We will keep people safe, protect their health, make sure there is a roof over their head and that food is on their table,” de Blasio said. “Washington must also step up. New Yorkers deserve nothing less than the full support of our federal government in this time of crisis.”
The city’s fiscal crisis poses a challenge unlike any de Blasio has faced governing the most populous U.S. city during six years of unprecedented robust economic growth. The city’s budget increased by about 20% to about $93 billion over his first five years, and the municipal workforce has grown about 10%, to 330,000. The mayor’s proposed budget could reduce spending by more than 3% compared with the past year.
The mayor proposed no new taxes. He ruled out borrowing to pay expenses, a practice prohibited by state law after it caused the city’s 1974 fiscal crisis. Municipal worker furloughs or layoffs would be the last resort, de Blasio said.“Washington has to step in so we can provide basic services,” he said. “We must have this stimulus money or we will have to make these horrible choices.”
Howard Cure, managing director for municipal bond research at Evercore Partners, said that de Blasio should prepare for potential layoffs, “especially if the next allotment from the federal government isn’t as large as he was expecting. If the state has to make cuts because it isn’t receiving additional federal aid, it could be on the back of the city.”
The city’s credit outlook has been revised in the past month to negative from stable by Moody’s Investors Service and Fitch Ratings, although each maintained its credit rating -- Aa1 by Moody’s and AA+ by Fitch.“The rapid and widening spread of the outbreak, deteriorating global economic outlook, falling oil prices and financial market declines are creating a severe and extensive credit shock across many sectors, regions and markets,” Moody’s said in an April 1 written statement. “The combined credit effects of these developments are unprecedented.
On Wednesday, the city’s Independent Budget Office, a nonpartisan fiscal monitor, predicted the city’s job losses could total 475,000 by next June, representing almost half the 997,000 jobs the city has gained since its post-recession low point in November 2009. A record 4.7 million people had jobs in the city in February, according to the Labor Department’s most recent report.
The IBO predicted a revenue loss of as much as $10 billion through June 30, 2021, the end of the next fiscal year.
State law requires the city to balance its budget, a challenge heightened by $800 million in cuts to state aid and another $250 million diverted to the state from city sales-tax revenue for financially strapped hospitals. Another $123 million had to be made up in cuts to low-income financial assistance, and state lawmakers required the city to give $62 million more to the Metropolitan Transportation Authority’s Access-a-Ride service for the disabled.
Added costs related to the coronavirus pandemic, which has killed more than 10,000 people in the city since March 13, will amount to at least $3.5 billion by year’s end, de Blasio said. New expenses include $170 million to deliver food to the needy, and hundreds of millions of dollars for added staff in public hospitals and protective gear for health care workers and first responders.
Another $50 million is proposed for small-business grants and loans. Millions more have already been spent on technology, cleaning supplies, information campaigns and diagnostic testing, the mayor said.
Much of the de Blasio budget’s savings and cuts come from reduced costs caused by the virus outbreak, such as school closings, suspension of a $124 million summer jobs program in for more than 74,000 youths, and millions of dollars in reduced transportation costs, including $65.5 million from lower use of transit discounts for the needy.
Andrew Rein, the president of Citizens Budget Commission, a business-funded nonprofit watchdog group that has criticized de Blasio for not stashing enough emergency reserve funds in the past, said the mayor has found more savings than he has before, yet not enough to provide fiscal security in future years.
“His economic and federal aid assumptions may be too optimistic and he should find more recurring spending cuts,” Rein said. “He’s left himself a very thin margin for next year.”
The mayor’s budget must win City Council approval by the end of June, and for the first time, hearings, negotiations and votes will occur remotely, not at City Hall. Council Speaker Corey Johnson said the crisis justified the prodding his colleagues gave the mayor to increase reserves.
“This was the right thing to do for the city’s fiscal health, and those reserves will now help us in our efforts to battle this pandemic that’s ravaging our city,” Johnson said.
MORE:
Hard-Hit N.Y., N.J. Trail the Field in Initial Virus GrantsN.Y. and N.J., Biggest U.S. Hotspots, Among Least Prepared FiscallyNYC May Lose 475,000 Jobs and $10 Billion in Taxes, IBO Says
(Adds credit-agency guidance and comment from Evercore managing director)
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