Future Cautions Maria Doulis April 28, 2020 About the Citizens - - PowerPoint PPT Presentation

New York City Budget: Past Lessons, Future Cautions

Maria Doulis April 28, 2020

About the Citizens Budget Commission

• Founded in 1932
• Funded by Trustees who represent New York City

economic sectors

• Nonprofit, nonpartisan, nonideological
• New York State and City budget watchdog
• Think tank that produce evidenced-based

recommendations to improve services and finances

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Two Key Points

• Resiliency: New York City has faced other

“unprecedented crises” and emerged stronger for it by planning for the future

• Shared Sacrifice: New York City has managed

fiscal shocks through a combination of expense cuts, tax increases, workforce concessions, and sometimes, borrowing

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Presentation Overview

• City budget benefited from a long economic expansion,

but not enough done to save for a rainy day

• While the length and severity of the economic

disruption remains unclear, even mild recessions have multiyear fiscal impacts

• NYC Executive Budget, released last week, does not do

enough to get ahead of the multiyear problem

• Past wisdom indicates NYC leaders need a balanced

gap-closing plan and to look to the City’s future instead

• f preserving past practices

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Decade-long Economic Expansion Bolstered City Taxes

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Other Taxes 35% Property Tax 32%

Other City Resources 8%

State 16% Federal 7%

All Other 2%

Other Taxes, 9% Business Taxes, 9%

Sales Tax, 13%

Personal Income Tax, 21%

+1 million jobs

since 2009 trough

$1.3 trillion

Property market value

City Budget and Workforce Grew

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$73 $98 $54 $70 FY2014 FY2020

NYC Budget Growth

(dollars in billions)

Total Total City City

City-Funded Ann Growth Rate: 5%

• Avg. Ann. CPI-U Change: 1.3%

297,349 333,859

2014 2015 2016 2017 2018 2019 2020

NYC Municipal Workforce

Additional Positions: 36,510 Change: 12%

Savings Outweighed by Spending

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Reserves $1.25 billion Retiree Health Benefits Trust $4.6 billion

The Current Crisis

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NYC Executive Budget for FY2021

($1.2) ($5.4) ($3.1) ($2.6)

Revenue Shortfall

FY20 FY23 FY22 FY21

FY2021 budget is balanced with: – Reserves and federal aid – Funds from the RHBT – A savings program with minor expense cuts; few recurring savings

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The Fiscal Cliff

$0.0 ($5.0) ($4.5) ($4.9)

FY2021 FY2022 FY2023 FY2024

Budget Gaps

(dollars in billions)

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Overcoming Fiscal Shocks

• Requires strong fiscal management and a “package” of policy

proposals; shared sacrifice between residents, taxpayers, and workers

• In addition to reserves, in prior crises NYC relied on:

– Increased intergovernmental aid – Expense cuts, often necessitating service reductions or layoffs – Contributions from the workforce – Tax increases – And in most severe cases – Fiscal Crisis and 9/11 – borrowing for

• perating purposes

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Intergovernmental Aid

• More State aid cuts on the way
• NYC received substantial federal aid after

9/11 and Great Recession, but is unlikely to be favored in any future federal action

• Federal aid did not and will not close the gaps,

even in a single year

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Expense Cuts

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IMPROVE EFFICIENCY IMPLEMENT HIRING FREEZE PAIRED WITH ATTRITION REDESIGN OR ELIMINATE COST-INEFFECTIVE PROGRAMS CUT SERVICES IMPLEMENT LAYOFFS

AVOID SHORT-SIGHTED CUTS

Collaboration with Labor

▪ Reconvene committee to address rising health insurance costs; implement premium- sharing ▪ Collaborate to identify and change workrules needed to make operations more efficient ▪ Furloughs, wage freezes, layoffs

14 Salaries and Wages, $30.9, 32% Pensions, $9.9, 10% Other Fringe Benefits, $11.8, 12%

NYC Expenditures

Tax Increases

• Tax changes require State approval; one exception

is property tax

• Other taxes capable of raising significant revenue:

personal income tax and sales tax

• Cautions:

– May not generate expected revenues as economic activity on “pause” rather than slowed – Federal tax policy changes (SALT cap) have put NYC at a competitive disadvantage

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Borrowing

• Borrowing for operations led New York City

to the verge of municipal bankruptcy in 1970s

• Borrowing has only been used in times of

extreme crisis: to restructure city gov’t after 1975 fiscal crisis and after 9/11

• Pushes costs to future New Yorkers and

trades off against future service delivery

• Should be last resort

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Concluding Thoughts

• Strong fiscal management is important to the

City’s continued success

• Crisis is opportunity for the City to reinvent

economy and services

• Options should for gap-closing should be

weighed with an eye toward protecting the City’s attractiveness as a place to live, work, and visit

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Thank You

Email: mdoulis@cbcny.org Twitter: @mariadoulis @cbcny Podcast: What’s the Data Point? Website: www.cbcny.org

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Questions?