Deadline looms for New York City budget talks

Less than a month before New York City faces a deadline for a balanced budget agreement, Mayor Eric Adams and the City Council seem as far apart as ever over the need for either increased spending or more cuts.

By law, the mayor and council must agree on a balanced budget by July 1.

Last week, the council wrapped up a second round of public hearings on the $106.7 billion executive budget for fiscal 2024 that Adams proposed in April. The executive budget was up $4 billion from the preliminary plan the mayor released in January. The council held a first round of hearings in March.

The next step is for the Council to negotiate adjustments with the Mayor’s Office of Management and Budget and come to an agreement by the end of the month.

All 5 members of the Council are up for re-election in November, with primary elections set for June 27.

Speaking a forum held by the Citizens Budget Commission on Wednesday, Jacques Jiha, director of the OMB, said the city was trying to maintain a balance between spending and reductions.

“We’re looking at all aspects of our budget to basically try to squeeze every single dollar that we can out of the system,” Jiha said. “But ultimately the goal is to restructure some of the operations, because at some point you can’t keep going back to the same point without restructuring services. Unless you restructure operations and deliver services differently, you will have to impact services.”

He noted the impact that the influx of international migrants is having on the city’s finances.

“It’s a growing share of our resources that are going to take care of those problems. These are resources that could have gone to address those fiscal cliffs, all those other issues,” he said. “Our goal is to make sure that the migrant, and all our services, are funded equally…there is a right to shelter in New York City. If we don’t fund the migrant crisis we’ll get sued, we’ll get lawsuits every day from every corner of the city. It’s not like we have a choice to choose between which of the services we have to provide.”

In testimony before the City Council the prior week, he said the number of migrants to the city was growing faster than expected.

“We are receiving an average of 602 arrivals per day, are caring for 44,120 asylum seekers and more than 73,000 migrants having gone through our shelter system,” he said, saying that the Department of Homeless Services census on April 1, 2022, was (De 45,189.
“Very soon, we will be caring for more asylum seekers on a nightly basis than we had people in our entire DHS shelter system last year,” he said.

“In a nutshell, we have been awarded thus far only $38.5 million by the federal government,” he testified. “Let me put that in perspective — at our current daily spending rate, that $38.5 million barely covers five days of asylum seeker costs.”

The Adams administration is trying to rein in some of the council’s ambitious plans to increase spending, such as expanding the city’s housing vouchers program.

He also defended the administration’s PEG, for program to eliminate the gap, budget cuts, which some city agencies say have impacted their workflow.

On Wednesday, Council Finance Chair Justin Brannan took Jiha to task regarding some of the remarks he made about the budget process.

“I feel it is important to remind Director Jiha that the council’s charter-mandated responsibility is to hold the administration accountable, and that means examining and questioning their assertions and numbers,” he said in a statement. “It’s not personal, it’s our job. The Council is not a rubber stamp, nor is this a monarchy. Rather, we are a co-equal branch of city government, and we will not respond to arrogance and tolerate disrespect.”

He said that over two weeks of budget hearings, the council heard from agencies who said they didn’t have the resources that they needed to do their jobs effectively.

“Further cutting these agencies is not fiscally responsible,” Brannan said. “The council is looking for a partner to negotiate with to deliver a budget that protects the fiscal health of our city and essential services that New Yorkers rely on. We are prepared to do that on time and would hope that is true for the other side of City Hall.”

More than a third of the city’s annual operating budget comes from state or federal grants and revenues, Thad Calabrese, a professor at New York University’s Robert F. Wagner Graduate School of Public Service, said in a May 22 webinar presentation sponsored by the Volcker Alliance.

While these funds pay for public services, such as education and Medicaid, it could put the city’s operating budget in a precarious position if these funds are reduced or eliminated, leaving the city to scramble to fund critical public services, Calabrese says.

“The recent windfall of COVID-19 relief funds exacerbated these risks for New York City, as some of these temporary dollars were used to cover ongoing and recurring expenditures,” said Calabrese in a May report for the alliance.

“Before the money disappears, New York City should take action to prepare its budget and fortify its long-term fiscal well-being,” he wrote. “Specifically, the city should pursue long-term fiscal balance through a combination of expenditure reductions and revenue increases, boost deposits into its recently created rainy day fund and put into effect rules for deposits and withdrawals, and prioritize rainy day fund deposits over debt prepayments.”

“I think an interesting longer-term view of the city budget revolves around what the Volcker Alliance session mentioned about potential cuts from the federal government and how the city will deal with it while still maintaining services,” Howard Cure, director of municipal bond research at Evercore Wealth Management, told The Bond Buyer.

“The city’s budget becomes complicated by the fact that it is also a county government so has additional responsibilities,” he said. “In New York State counties also have to contribute to Medicaid programs so potential cuts in federal funding will have an impact either on maintaining services or cuts in programs.”

According to a Thursday report from state Comptroller Thomas DiNapoli, stronger-than-expected revenue and PEG savings will keep the city’s budget in balance even as it faces future financial pressures that will could increase already large out-year budget gaps.

“The city’s economy continues to show resilience, supporting relatively strong revenues in the near-term,” DiNapoli said. “Still, the city faces considerable challenges, including costs to assist asylum seekers and fiscal cliffs for several programs.”

Given current reserve levels, budget risks and an uncertain economy, “the city should leverage short-term revenue strength and deposit more funds into its reserves to better weather the years ahead,” the report said.

The report noted the city is returning to a revenue composition that more closely resembles pre-pandemic norms. Federal funding is anticipated to decline to $10.4 billion in fiscal 2024 from $11.7 billion in fiscal 2023 and to pre-pandemic levels by fiscal 2025.

The city is one of the biggest issuers of municipal bonds in the nation. Its general obligation bonds are rated Aa2 by Moody’s Investors Service, AA by S&P Global Ratings and Fitch Ratings and AA-plus by Kroll Bond Rating Agency.

In the second quarter of fiscal 2023, it had about $39.3 billion of GO bonds outstanding. Separately, the city’s Transitional Finance Authority and Municipal Water Finance Authority have $45.1 billion and $32.3 billion outstanding respectively.

DiNapoli’s report noted the city faces additional challenges that aren’t included in its budget gap projections, including the rising cost of services for asylum seekers.

“The city significantly altered its assumptions for these costs in fiscal 2023, increasing current year expenditures to $1.4 billion (from $1 billion), while forgoing its expectation that the federal government will fund the associated costs in the current year,” the report said.

The financial plan does include a $2.9 billion expense in fiscal 2024 and $1 billion in fiscal 2025 to manage services to asylum seekers.

“While the state has budgeted $1 billion for the city, there are still risks for receiving an anticipated $600 million of federal support in fiscal 2024 and $290 million from the state in fiscal 2025,” the report said.

DiNapoli’s report also notes the state budget, which was released after the mayor’s executive budget, will result in unexpected costs to the city of more than $500 million a year beginning in fiscal 2025 for funding the MTA and changes to the way the state passes on Medicaid savings.

Cure noted several other areas of possible concern in the near-term.

“Transportation is an area of concern and is subject to federal funding cuts. This includes road and bridge projects as well as the additional burdens that the state could place on the city to support the MTA,” he said.

“I think the Health + Hospitals Corporation is also a potential drain as it serves as a safety net hospital(s) and has difficulty in competing for nursing staff with other area hospitals as well as the additional burden due to the increase in refugees,” Cure said.

“Lastly, I am waiting to see the decline in property assessments for office buildings as leases are starting be renegotiated and companies scale back their footprint and the impact on tax rolls,” he said. “This will lag but the city might be forced to raise rates on residential classes to make up for the loss in office building property taxes.”

He said caution was the watchword.

“With these issues looming over the next few years, it would be prudent on the city’s part to not create new programs, institute an effective PEG program and put money into the rainy day fund,” Cure said.