NYAPRS Note: The very daunting crisis that NYS will face should Washington not come through with a 5th COVID-19 package for the states and localities will hit New York just as hard, an especially bitter plight for the center of the Virus Crisis in terms of great loss of both human lives and financial capital.
NYC Lawmakers Look To Plan B If Federal Aid Does Not Come
By Gwen Everett Crain’s New York Business May 11, 2020
New York City might have to cut back on contracts or turn to the debt markets if federal aid—which the city has been pleading for—disappoints, officials tell Crain’s.
The city has closed its budget gap for now, but that does not mean the cuts are over, mayoral spokeswoman Laura Feyer said.
“Anything not related to food, shelter, safety and health is on the table,” Feyer said.
The mayor, who spent weeks insisting Washington held the only solution to New York’s financial woes, said the city might be left to solve the fiscal crisis created by Covid-19. If that happens, he said, there will be job cuts. Legislators are contemplating other measures such as tightening the city contracting budget and turning to the debt markets.
Financial and political barriers highlight the bind New York City is in.
“Step One is coming to a sober and realistic understanding of how bad the financial circumstances are right now,” City Councilman Keith Powers said. At a hearing last week, the Independent Budget Office said the city runs the risk of an even bigger deficit than what the mayor’s executive budget has accounted for. The comptroller’s office warned the same thing in a May 5 report.
It’s hard to think about savings measures without nailing down how big a gap New York faces, Powers said. But with lawmakers eager to enact a budget that does not further shrink the economy or the number of people employed in the city, talk is bubbling in City Hall about turning to debt markets.
“The one counter-cyclical thing you can do as a city is long-term investment to pay for your capital budget,” Councilman Brad Lander said. The mayor’s budget cut capital spending by $1 billion. That eliminates jobs, Lander said.
The city is set to spend 8.2% of its total budget on debt servicing in the upcoming year, the mayor’s executive budget shows. That’s well below the 15% a city should, at maximum, put toward debt servicing, Lander said. Much of the $1 billion in cuts that the mayor made to New York’s capital budget could be financed by debt instead, the councilman said.
“NYC is going into this crisis with a AA bond rating. The rating agencies have been satisfied over the past seven years with the city’s balanced budget,” Councilwoman Helen Rosenthal said. The city, she said, should issue more debt to cover both capital and operating expenses.
Nationally, the Federal Reserve slashed interest rates by a full percent in March, down between 0 to 0.25%. The city, having seen tax income wither away as businesses shutter and people lose work, is facing a revenue shortfall of more than $8 billion. The Independent Budget Office, the comptroller’s office and other watchdogs said the situation could get worse.
The decline in sales tax and income tax revenue led Moody’s to revise New York’s credit outlook to negative. What that means in terms of financing debt will become clear Wednesday, when the Transitional Finance Authority is set to put out $726 million worth of tax-secured bonds for markets to price.
To be sure, debt spending is not the only solution on the table. Mayor Bill de Blasio said Wednesday that the city might be forced to cut jobs if the fiscal crisis worsens without adequate aid. But that’s a move legislators fiercely oppose.
“Before we lay off a single city employee, we should get rid of every consultant in our city,” Councilman Ben Kallos said.
“We have millions if not hundreds of millions in bloated contracts,” Kallos said, including “contracts where it’s, like, ‘Why are we paying for that?’” He pointed to a $70 million contract with Apple the city entered into to provide iPads to students when learning went remote. The city could have bought laptops for less, he said.
But cutting contracts also means cutting jobs, Lander said, adding, “You’ve really got to kind of be mindful of all the elements.”
Another option is limiting overtime payments to city workers, particularly in departments where they run rampant, like the the Department of Corrections, Powers said.
New York has paid $8.33 million in overtime to the DOC payroll, and $45.71 million in overtime to the Police Department payroll, data from the comptroller’s office shows. The shortfalls New York faces could be in the billions of dollars. The comptroller’s office said last week the city could lose $3 billion from the state.
It all explains the “apocalyptic” language de Blasio and Cuomo have used in their pleas for federal money, Lander said.
De Blasio this month described the city’s budget without federal stimulus as “tragic, horrible math.”